SM Energy Company (SM)

[ChitForBrains]

It boils down to this: basic leases in Texas are 3 years; they obviously can't handle all their acreage, so in order to keep the lease they have to drill (which they can't) or renew. Leases in the oil section of Eagle Ford are going for 2,000 to 8,000 an acre for 3 years, the NG areas depend upon the knowledge of the landowners (25 to 1,000+). Since they had only 3 nonproducing wells its an issue of over acerage (too much to handle in too little time).

SM Energy Company (NYSE: SM) announces it has entered into an agreement with undisclosed buyers to divest a portion of its Eagle Ford shale position. The position is a detached block of acreage that is comprised of the entirety of the Company’s operated acreage in LaSalle County, Texas, as well as an immaterial portion of adjacent operated acreage in Dimmit County, Texas. In total, approximately 15,400 net acres are being sold for cash proceeds of approximately $225 million. Due to limited infrastructure, there is currently no production associated with three wells that have been drilled on the acreage. As of year-end 2010, there was an immaterial amount of proved reserves booked for this acreage. The buyers will be entitled to approximately 12% of the takeaway capacity associated with SM Energy’s agreement with Eagle Ford Gathering LLC, a joint venture between Kinder Morgan Energy Partners, L.P. and Copano Energy, L.L.C. The sale is expected to close in August of 2011 and is subject to customary purchase price adjustments, closing conditions, and transaction fees.

Consistent with prior public statements, SM Energy continues its negotiations on additional potential transactions involving a material portion of its total Eagle Ford shale position in South Texas.

Tony Best, President and CEO, remarked, “I am extremely pleased with this first transaction from our Eagle Ford shale marketing effort. This agreement allows us to realize significant value for a relatively small portion of our total Eagle Ford position.”