RICHMOND, Va., June 30 /PRNewswire-FirstCall/ -- Dominion (NYSE:D) , one of the nation's largest producers and transporters of energy, has agreed to assign the Marcellus Shale natural gas drilling rights on approximately 205,000 Appalachian Basin net acres to Antero Resources for about $552 million, resulting in after-tax proceeds of approximately $325 million.

Dominion will receive a 7.5 percent royalty interest on future natural gas production from the assigned acreage. Dominion will retain the drilling rights in traditional formations both above and below the Marcellus Shale interval and will continue its conventional drilling program on the acreage. The transaction is expected to close in late September 2008.

In addition, Dominion is announcing the proposed development of Dominion Keystone, a pipeline project that would transport new natural gas supplies from the Appalachian Basin to markets throughout the eastern United States. The pipeline project is a response to the many Appalachian producers who are seeking reliable natural gas pipeline transmission for increased production from conventional drilling, coalbed methane and Lower Huron Shale, as well as Marcellus Shale.

As part of the drilling rights agreement, Antero Resources will join Dominion Exploration & Production as anchor tenants on Dominion Keystone. Collectively, the two customers are expected to provide approximately 500 million cubic feet per day (MMcfd) to the pipeline, which would allow for transport of up to 1 billion cubic feet of natural gas per day by year end 2012.

Dominion will hold an open season for Dominion Keystone beginning July 7 and ending August 12 for other customers interested in the new capacity. The proposed pipeline would take natural gas from southwestern Pennsylvania, the heart of Marcellus Shale drilling in the Appalachian Basin, to Chester County, Pa., with connections to pipelines operated by Dominion, Spectra, Williams and NiSource.

The acreage Dominion will assign to Antero is principally in western Pennsylvania and West Virginia, and is about one-third to one-quarter of the 600,000 to 800,000 acres where Dominion controls drilling rights in the Marcellus Shale formation. Dominion continues to receive interest in its remaining Marcellus Shale acreage and expects to pursue similar transactions for additional acreage.

The company intends to use net proceeds initially to reduce outstanding short-term debt. Longer term, the proceeds are expected to partially offset previously announced equity issuances in 2009.

"Assigning a portion of our drilling rights in the Marcellus Shale has a number of benefits for Dominion," said Thomas F. Farrell II, Dominion's chairman, president and CEO. "It allows us to lock in an immediate return from a valuable asset while preserving some upside potential through a royalty interest in future production. Proceeds will help fund our electric and natural gas growth projects. There is already a need for more natural gas gathering and transportation infrastructure in the Appalachian Basin. The Marcellus and Lower Huron plays will increase that demand."

Dominion has 1.1 trillion cubic feet of natural gas reserves and about 9,000 producing wells in the Appalachian Basin. The company has not booked any reserves for its Marcellus Shale acreage. Denver-based Antero Resources is a privately held exploration and production company focused on acquiring and developing unconventional natural gas resources, primarily in fractured shale and tight sand reservoirs. Antero was an early developer of the Barnett Shale in Texas, becoming one of its largest producers until selling its Barnett Shale business in 2005. Antero has drilled over 200 horizontal wells in the Barnett Shale and Woodford Shale and is currently operating six rigs drilling horizontally on its 100,000 net acres in the Arkoma Basin Woodford Shale play in eastern Oklahoma and four rigs on its 46,000 net acres in the Piceance Basin in western Colorado. In August 2007, shareholders including Warburg Pincus, Yorktown Partners and Lehman Brothers Merchant Banking committed $1 billion of equity to support Antero's growth.