Southwestern Energy Co. (NYSE: SWN) tacked on about 46,700 net acres to its Marcellus holdings as WPX Energy Inc. (NYSE: WPX) began its exit from the play.

The bolt-on follows Southwestern’s major grab of 413,000 net acres in the Marcellus and Utica in October. While the new acquisition raises questions about company debt levels, analysts said the assets should add to cash flow.

Southwestern said Dec. 2 it signed an agreement to purchase oil and gas assets in northeast Pennsylvania from Tulsa, Okla.-based WPX for about $300 million.

The sale includes physical operations with roughly 50 million cubic feet per day (MMcf/d) of net natural gas production and 63 operated horizontal wells. The assets are primarily located in Susquehanna County, Pa.

Southwestern’s move comes on the heels of a $5.375 billion acquisition of Chesapeake Energy Corp.’s (NYSE: CHK) Marellus and Utica assets. That acquisition is expected to close by the end of the year.

Southwestern's deal with WPX screens as accretive on a flowing Mcf basis, offers development synergies, provides transport relief and thus appears to make significant strategic sense, said Jeff Dietert, managing director, head of research, Simmons & Co. International, in a report.

"Given SWN's previously announced $5.375 billion acquisition of southern Marcellus assets and lingering funding questions, we suspect this transaction may reignite funding concerns irrespective of both the attractiveness and relatively small scale of the transaction," he said.

While such a response is understandable, Dietert pointed out there are positive aspects of the transaction.

The deal values the acquired assets at $6,000 per Mcf/d, below Southwestern's current upstream valuation of about $7,000 per Mcf/d, before even considering the increased transport access and bolt on nature of the acreage, he said.

Upside

The WPX assets complements Houston-based Southwestern's existing Marcellus acreage in northern Susquehanna County, Steve Mueller, president and CEO, said in a statement.

Not including the acquisitions, Southwestern holds about 292,000 net acres in the Marcellus Shale in northeast Pennsylvania. As of Sept. 30, the company's gross operated production from the Marcellus was about 840 MMcf/d from 234 operated horizontal wells.

Mueller said the company has recently seen good results from two wells near the bolt-on acreage in Susquehanna County, the Hughes North 1H and the Dayton 4H.

The Hughes North 1H has completed the entire lateral of 4,981 feet and had a maximum 24-hour rate of 4.7 MMcf/d. The Dayton 4H has a total lateral length of 5,278 feet and tested a maximum 24-hour rate of 4.5 MMf/d from the first 30% that is completed to date.

Also as part of this transaction, Southwestern will assume firm transportation capacity of 260 MMcf/d of gas predominantly on the Millennium Pipeline effective upon closing.

The additional firm transportation capacity will add to Southwestern's portfolio to provide 1.3 Bcf/d of firm transport capacity upon closing and growing to 1.4 Bcf/d by the end of 2016, Mueller said.

"The immediate availability of this firm transportation provides the pathway for ongoing growth in production over the next three years and the added acreage solidifies future value through a growing well inventory," he said.

Millennium should offer Southwestern access to higher priced markets than they could have previously accessed, Dietert said.

"With the increased transport capacity, SWN will have an opportunity to accelerate growth associated with high margin northeast Marcellus production while they methodically ramp production associated with their pending southern Marcellus acquisition," he said.

Upon the transfer of the firm capacity, WPX will be released from roughly $24 million per year in annual demand obligations associated with the transport.

WPX's Strategy

WPX’s Marcellus divestiture is the first involving the play and its sixth sale overall since May. The company intends to focus the business, strengthen its balance sheet and increase the scalability of core assets.

WPX unveiled a new strategy in early October that it hopes will triple the size of the company by the end of the decade after cutting its portfolio in half.

The company plans to simplify its focus to three core resource plays: the Williston, San Juan and Piceance basins. In the process, it will divest the nearly 114,000 net acres in the Marcellus.

"We’re heading into 2015 reshaped, refocused and ready to grow margins, develop our highest returning assets and build the long-term value of the company,” said Rick Muncrief, president and CEO, in a statement.

WPX’s remaining operations in the Marcellus Shale primarily consists of its physical operations in Westmoreland County in southwestern Pennsylvania and additional firm transport capacity on Transco’s Northeast Supply Link line. These assets also are targeted for divestiture.

The Southwestern deal is conditional upon receiving a waiver from the Federal Energy Regulatory Commission regarding transfer of the firm transportation capacity. Closing is expected in the first quarter of 2015. Southwestern intends to use its revolving credit facility to finance the acquisition.