2011-06-14-2011-06-14

To buy 15,400 net operated acres in LaSalle & Dimmit counties, TX.

In a move telegraphed for several months, Houston's SM Energy Co. (NYSE: SM) has announced it will sell a portion of its Eagle Ford shale position in South Texas to Statoil Texas Onshore Properties LLC, a subsidiary of Statoil ASA, Stavanger, Norway, (NYSE; Oslo: STO; STL) and Talisman Energy USA Inc., a subsidiary of Talisman Energy Inc., Calgary, (NYSE; Toronto: TLM) for $225 million in cash. The deal is the first of additionally anticipated sell downs of working interest in the Eagle Ford.

Tony Best, SM Energy president and CEO, says, "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."

The assets include all of the SM Energy's operated acreage in LaSalle County, Texas, as well as adjacent operated acreage in Dimmit County, totaling approximately 15,400 net acres. Three wells have been drilled, but are shut in due to limited infrastructure. As of year-end 2010, the company ascribes only an immaterial amount of proved reserves for the acreage.

Additionally, 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 LP and Copano Energy LLC.

Closing is expected in August.

Talisman and Statoil previously teamed up to form a 50-50 joint venture in October 2010 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.

Analysts at Global Hunters Securities and Jefferies & Co. Inc. place the value at $14,600 per acre. Jefferies analyst Subash Chandra deems it "an exceptional value," but cautions against applying this value to the remainder of the company's Eagle Ford acreage. "The buyer paid for oily acreage and operatorship. The balance of SM's acreage to be sold will be nonoperated."

David Tameron, senior analyst with Wells Fargo Securities Inc., calculates $12,600 per acre after backing out $30 million for the three wells behind pipe, but notes he has assigned no value to the midstream. "Bottom line," he notes, "a good price for this chunk of acreage…and above expectations."

SM Energy continues its negotiations on additional potential transactions involving a material portion of its total Eagle Ford shale position in South Texas. It has previously reported it is targeting approximately 72,000 net acres in sales, or about 30% of its Eagle Ford position.