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JV to develop 115,000 net acres in WV, PA, with 50,000 net acres prospective for Marcellus shale.

Private-equity provider Lime Rock Partners has entered into a joint-venture agreement with Petroleum Development Corp., Denver, (Nasdaq: PETD) to accelerate development in the Marcellus shale region of West Virginia and Pennsylvania for total commitments of $125 million. The companies have jointly formed PDC Mountaineer LLC to develop all of Petroleum Development's Appalachian Marcellus shale and shallow Devonian assets, valued at approximately $158.5 million. Petroleum Development has contributed approximately 115,000 net acres of which approximately 55,000 acres are considered to be prospective in the Marcellus (89% held by production). Of those, 40,000 net acres are in West Virginia and 15,000 in Pennsylvania. Current production is approximately 12 million cubic feet per day, with 113 billion cubic feet of total proved reserves as of year-end 2008, primarily attributable to the shallow Devonian sands involving 1,900 shallow wells. Lime Rock has funded $45 million at closing and Petroleum Development has the option to take a second cash contribution of $11.5 million by year-end 2010. Lime Rock also has an obligation to fund an additional $68.5 million in development costs in full by year-end 2011 to earn a 50% interest in the joint venture. Petroleum Development will use the up-front cash to pay down debt to offset the reduction in its borrowing base related to the transaction. Petroleum Development vice president of Eastern operations Dewey Gerdom has been appointed chief executive of PDC Mountaineering. Approximately 90 Petroleum Development employees are designated to directly support the joint venture, which will be headquartered in Bridgeport, W.V. Richard W. McCullough, chairman and chief executive of Petroleum Development says, "This new strategic JV will accelerate the growth and visibility of PDC's Marcellus shale gas position. The Marcellus shale provides the opportunity of strong economic scale and repeatability for long-term growth. Partnering with Lime Rock provides the growth capital required to increase production, develop low-cost reserves, and grow our acreage position in the Marcellus shale fairway." Jonathan Farber, managing director and co-founder of Lime Rock, says, "We have long followed and admired the progress of PDC. As we have gotten to know better Dewey and the PDC Mountaineer team…we are even more confident that these are the right operators to capture the remaining value in the venture's existing assets and maximize its potential in the Marcellus." The JV's development plan includes approximately 500 potential horizontal and vertical wells on the existing net Marcellus acres. To date, seven pilot wells have been drilled in Taylor, Harrison and Barbour counties, West Virginia, and PDF Mountaineer plans to drill a pilot well in Cambria County by year-end and another in first-half 2010. Additionally, it plans to spud its first horizontal well in Taylor County in the first quarter and target 20 to 25 more Marcellus wells in 2010 with an estimated budget of $60 million. Scotia Capital (USA) and Scotia Waterous (USA) were financial advisors to Petroleum Development and Baker Botts is legal advisor. Fulbright & Jaworski was legal advisor to Lime Rock. Petroleum Development focuses on the Rocky Mountains with additional operations in the Appalachian Basin and Michigan.