2010-11-16-2010-10-11

Formed a 50-50 JV to buy 97,000 net S TX Eagle Ford acres with option on additional 22,000 net acres.

Calgary-based E&P company Talisman Energy Inc. (NYSE; Toronto: TLM) and Statoil ASA, Stavanger, Norway, (Oslo: STL; NYSE: STO) have formed a 50-50 joint venture to acquire certain liquids-rich Eagle Ford shale properties in South Texas from Denver-based, privately held Enduring Resources LLC for approximately US$1.325 billion. Bringing Talisman's total acreage in the play to 70,000 net acres, the deal is also Statoil's second major land grab in a key U.S. shale play.

In the 50-50 JV, Talisman and Statoil will each hold 48,500 net acres, with Talisman assuming the initial operatorship. The companies also have the option to acquire up to an additional 22,000 net acres.

The assets include a combined 97,000 net acres (90% operated) on large contiguous blocks in the liquids-rich window of the Eagle Ford shale, with approximately 55,000 net acres held by production from six producing Eagle Ford wells. The expected ultimate recovery is an average 660,000 barrels of oil equivalent per well. Initial production rates on the two most recent wells averaged 3,700 BOE/d (including 1,000 barrels of liquids) and 2,300 BOE/d (including 425 barrels of liquids). An additional eight wells have been drilled on the properties. Meanwhile, three wells are currently drilling, and a total of nine wells are planned by year-end 2010.

Currently, there are three horizontal rigs operating on the leases. Upside includes numerous egress options available to support future production growth, and more than 1,000 net drilling locations, based on Talisman's estimates.

Also included in the deal is the East Kenedy project, about 90 miles south of San Antonio, Texas. Various First Keystone Energy Funds own the project, according to Jeffrey Price, president, First Keystone Energy Group, which manages the fund.

The net cost to Talisman will be approximately US$485 million, after Statoil purchases a 50% working interest in Talisman's existing 37,000 net acres in the play. The purchase price equates to roughly US$10,900 per acre, taking into consideration Enduring existing production of 5,500 barrels of oil equivalent per day and associated gas processing infrastructure.

In a separate deal, Statoil plans to acquire a 50% stake in Talisman's existing Eagle Ford acreage and production for US$180 million in 18,500 net acres. Combined with the 48,500 net acres acquired from Enduring, Statoil will hold an aggregate 67,000 net Eagle Ford acres for total consideration of US$843 million. The two deals will deliver recoverable resources of approximately 550 million barrel equivalent to Statoil. Further, the company will take over operatorship of 50% of the acreage in three years.

Together, Talisman and Statoil will hold 134,000 net acres and associated assets and production in the joint venture.

Talisman believes there is an estimated 800 million barrels equivalent of net contingent resources on the acquired properties, of which approximately 50% is expected to be condensate or natural gas liquids. As well, the company anticipates a full-cycle break-even cost of less than US$4 per thousand cubic feet.

The addition of this new acreage gives Talisman a material core position in the liquids-rich window of the Eagle Ford. Additionally, the company has established land positions in the Pennsylvania Marcellus shale, the Montney shale in British Columbia and the Utica shale in Quebec.

"This transaction is an excellent fit with Talisman's strategy," says John Manzoni, president and chief executive. "Talisman now has material positions in three world-class shale plays in North America." Manzoni adds that the acquisition complements the company's existing acreage.

John Knight, senior vice president, business development and global unconventional gas, Statoil, adds, "The magnitude of the shale resources in North America and the significant role these resources are expected to play in the future energy mix make this an attractive opportunity."

Knight says the Eagle Ford position complements the Norwegian oil firm's existing onshore U.S. portfolio. "(The properties will) supply a different range of hydrocarbons to different markets," he says, "(with) a clear path towards operatorship (for Statoil). We now have a long-term flexible portfolio with significant opportunity and growth potential from the top shale plays."

Barclays Capital is advisor to Talisman. Morgan Stanley is advisor to Statoil. Enduring is backed by Encap, Liberty Mutual and Lehman Brothers. The effective date is Aug. 1. The deal is expected to close by year-end 2010.

Led by CEO Barth Whitman, Enduring Resources was formed in November 2004 by the former senior management team of Westport Resources Corp., a publicly traded Rocky Mountain-based E&P sold to Kerr-McGee Corp. (NYSE: KMG) in 2003.