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
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