Newfield Exploration Co., the Houston oil and natural-gas producer, and Hess Corp., a producer and refiner in New York, have agreed to jointly explore the Marcellus Shale, the largest known such formation in the world.

Newfield will operate the venture, which will include up to 140,000 gross acres in Susquehanna and Wayne counties in Pennsylvania, the company said in a statement Wednesday. Each company will have a 50 percent interest in the venture.

Both companies have explored in shale formations before. Hess has been active in the Bakken Shale in North Dakota, and Newfield entered Oklahoma's Woodford Shale in 2003.

The Marcellus Shale is likely to become one of the country's largest natural gas resource plays, Newfield CEO Lee Boothby said in the statement.

"Today, with substantially all of our acreage held-by-production in the Woodford Shale, it's a great time for us to enter an important new focus area," Boothby said.

The Marcellus Shale formation is attracting attention as a "significant" new source of gas production, according to a September report from New York state environmental officials.

The formation, which extends from Ohio through West Virginia and into Pennsylvania and New York, is the largest known shale deposit in the world, according to researchers at Pennsylvania State University.

Irene Haas, an analyst at Canaccord Adams Inc. in Houston, said Newfield would likely increase its stake in the shale-gas basin.

"I think it's a pretty serious move because I don't think Lee would have committed his company's time and effort into a new area unless they believe that there's a lot more to grow into in the future," said Haas, who rates Newfield shares a "buy" and owns none. "I wouldn't look at just the 140,000 gross acres and say, 'This is it.' "

Newfield and Hess are entering the venture as partners to defray high startup costs, Haas said.

"I think the Marcellus tends to favor strong operators," she said.

Hess says its operating record in the Bakken Shale positions it to perform well in this venture.

"Hess has an established technical capability in horizontal, multistage fractured wells, and we have a reputation for sound environmental operating practices," said Greg Hill, the company's chief of exploration and production, in the statement.

Hess's Bakken Shale position largely produces oil. The Marcellus play will be focused on natural gas.

About 69 percent of Hess's 2008 output, which totaled 381,000 barrels of oil equivalent, was crude, said Jon Pepper, a Hess spokesman.

Shares in Newfield increased $1.09, or 2.3 percent, to $47.72 on Wednesday on the New York Stock Exchange. Hess gained 91 cents to $59.29. SUBHEAD: Houston-based Newfield entered a shale in Oklahoma in 2003.

Originally published by JESSICA RESNICK-AULT & DAVID WETHE Bloomberg News.

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