SM Energy to Offload Marcellus Acres - Analyst Blog
July 19 2011 - 3:37PM
Zacks
SM Energy Company
(SM) is on track with its divestiture plan. The oil and gas company
has signed an asset sale agreement related to its entire Marcellus
position with an affiliate of Endeavour International
Corporation (END) for a total cash consideration of $80
million. The transaction, which is subject to customary closing
conditions, is slated to close in the fourth quarter of 2011.
The deal covers SM Energy’s total
leasehold acreages at McKean and Potter counties of Pennsylvania
stretching approximately 42,000 net acres as well as associated
pipeline assets. There are currently three producing wells on the
property with first quarter 2011 production of 2 million cubic feet
of oil equivalent per day (MMcfe/d). As of year-end 2010, there
were 5.6 billion cubic feet equivalent (Bcfe) of booked reserves
related to these assets, of which 50% were classified as proved
developed.
The Marcellus shale is one of the
largest natural gas finds in the United States spreading from West
Virginia and Ohio across Pennsylvania and into New York. But
environmental concerns have cropped up from hydraulic fracturing
methods used in the shale rock to extract fuel, compelling drillers
to consider moving out.
The latest move is part of the
company’s extensive plan to offload its non-core assets and comes
on the heels of two Eagle Ford Shale monetization agreements. The
company had earlier stated that it expects to raise $300–$500
million over the next 12 months either through joint venture
agreements or through asset sales, including its Marcellus shale
properties.
Recently, SM Energy shed 5,400
acres of non-producing land in the Eagle Ford Shale area of LaSalle
and Dimmit counties, Texas for about $225 million. Following this,
the company divested a 2.5% working interest in its non-operated
Eagle Ford Shale acreage in Texas to a subsidiary of Mitsui &
Co. Ltd. for $680 million.
To date, the company has closed or
entered into transactions in excess of $1 billion to fund for the
development of higher value assets in its portfolio. We believe
that SM’s emerging core portfolio will support several years of
visible organic growth. The company’s attractive oil and gas
investments, a balanced and diverse portfolio of proved reserves
and development drilling opportunities will create value for
shareholders. However, we maintain our long-term Neutral
recommendation considering the company’s natural gas-weighted
reserves and production.
SM Energy, which competes with
Ultra Petroleum Corp. (UPL), currently retains a
Zacks #3 Rank, which is equivalent to a short-term Hold rating.
ENDEAVOR INTL (END): Free Stock Analysis Report
SM ENERGY CO (SM): Free Stock Analysis Report
ULTRA PETRO CP (UPL): Free Stock Analysis Report
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