NGas Resources Inc., Lexington, Ky., (NasdaqGS: NGAS) has acquired interests via a farmout in Kentucky in the southern portion of the Appalachian Basin from Chesapeake Energy Corp., Oklahoma City, (NYSE: CHK) subsidiary Chesapeake Appalachia LLC for no cash up front and in exchange for participation rights to beat a leasehold-expiration deadline.

The assets include 56,000 gross undeveloped acres (42,000 net) contiguous to the Amvest portion of the company's Stone Mountain Field in Letcher and Harlan counties. The acquisition increases NGas total southern Appalachian Basin holdings to 329,000 gross (233,000 net) acres.

NGas has an annual drilling commitment of four wells under the farmout, with an additional commitment to drill six vertical Devonian shale wells by the beginning of June 2009 in advance of leasehold expirations on the acreage.

Royalty owner Penn Virginia Operating Co. LLC and Chesapeake each have participation rights for up to 25% of the working interests in future wells on the acreage. Chesapeake will continue to own more than 100 producing wells and a gathering system that connects to NGas' gathering system.

To meet the company's initial commitment, NGas entered into an arrangement with a joint-venture funding partner that provides NGas with a 15% carried working interest in these wells. The joint-venture partner will have the right to participate in up to 50% of the company's available working interest in subsequent wells on the acquired acreage.

William S. Daugherty, president and chief executive of NGas, says, “This farmout increases our acreage position in an area that we believe has strong horizontal Devonian shale potential.” He says two drilling rigs will start drilling immediately, with the first six wells drilled vertically, and future drilling in the Devonian to be horizontal.

NGas focuses on the southern portion of the Appalachian Basin.