SM Marcellus Asset Sale Hits a Snag - Analyst Blog
December 19 2011 - 10:15AM
Zacks
Colorado-based SM Energy
Company (SM) is contemplating legal action against
Endeavor International Corporation (END) after the
latter backed out of the previously agreement to buy its assets in
McKean and Potter Counties, Pennsylvania for $110 million.
Earlier this week, Houston-based
Endeavor acknowledged that it had terminated the purchase and sale
agreement with SM Energy, SM Energy’s partners and a subsidiary of
Endeavor related to oil and gas assets in the Marcellus Shale in
Pennsylvania. The reason for the withdrawal remains unknown.
SM Energy refutes Endeavor’s
ability to withdraw from the agreement. SM Energy also expressed
deep concerns about Endeavor’s dealings and proclamation. With
respect to this behavior, the company and its partners plan to
pursue any and all legal remedies arising from Endeavour's
actions.
However, SM Energy has no intention
of making any capital expenditure associated with its Marcellus
Shale assets in 2012 that are essential for maintaining most of its
acreage position.
Per the deal announced in July,
Endeavor was to buy assets that included SM Energy’s entire
Marcellus Shale leasehold position of around 42,000 net acres and
associated pipeline assets. Currently, there are three producing
wells on the acreage with average first quarter production of 2
MMcfe/d. As of year-end 2010, there were 5.6 bcfe of booked
reserves related to these assets, of which 50% were classified as
proved developed.
The deal includes 100% ownership of
Potato Creek LLC, which owns gathering and related facilities in
southern McKean County, as well as a 10-mile 16” trunkline
connected with and flowing to the Tennessee Gas Pipeline’s 24”
mainline.
The sale of certain assets in SM
Energy’s portfolio of Marcellus and Eagle Ford holdings are part of
a turnaround program that commenced in 2009. Last year, the company
proposed to raise between $300 million and $500 million to fund an
ambitious capex budget of $1 billion.
SM Energy holds a Zacks #3 Rank,
which translates into a Hold rating for a period of one to three
months. We maintain an Outperform rating on the stock for the long
term.
ENDEAVOR INTL (END): Free Stock Analysis Report
SM ENERGY CO (SM): Free Stock Analysis Report
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