An independent oil and gas company, SM Energy (SM) has initiated negotiations regarding the divestiture of a large portion of its Eagle Ford Shale assets. The company has also signed a deal to sell non-core assets in southeastern Texas’ Constitution Field.
SM Energy is in discussions related to the sale and development of the major portion of its Eagle Ford Shale holdings. The present move is a part of the company’s objective to offload approximately 20% to 30% of its total 250,000 net acre Eagle Ford Shale position. SM Energy has commenced negotiations for several bids it secured during its marketing process.
Additionally, the company has entered into an agreement to sell non-core assets in the Constitution Field for aggregate proceeds of approximately $44 million. The closing of the transaction is slated to occur late in the second quarter of 2011.
Constitution Field properties composed about 6 million cubic feet equivalent per day (MMcfe/d) of SM Energy’s first quarter total production. The properties have been marked as assets held for sale on the company's balance sheet since the third quarter of 2010.
SM Energy also stated that it has entered into an amended five-year senior secured revolving credit facility, which has boosted its borrowing base by 30% to $1.3 billion from $1.0 billion. The committed amount has also been increased to $1.0 billion from the previous $678 million. The company's prior credit facility was scheduled to mature in July 2012 and did not have any borrowings drawn against its credit facility as of May 31, 2011.
Denver, Colorado-based SM Energy remains proactive to hold a significant position in emerging shale plays and focus more on resource, with an inventory of repeatable drilling prospects and a high rate of return. The company recorded impressive first quarter 2011 results mainly driven by 40% year-over-year production growth.
Given its increasing focus on oil, specifically in the Permian and Rocky Mountain regions, we believe that SM Energy will be able to increase its oil-weighted activity. The company’s attractive oil and gas investments, balanced and diverse portfolio of proved reserves, and development drilling opportunities will create value for shareholders.
Our long-term Neutral recommendation for the company reflects its highly gas-weighted reserves/production profile that remains a key area of concern. SM Energy competes with Range Resources Corporation (RRC).
RANGE RESOURCES (RRC): Free Stock Analysis Report
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