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SM Energy, Mitsui Close Eagle Ford Pact

SM Energy Co. and Mitsui & Co. Ltd. unit Mitsui E&P Texas LP have closed their acquisition and development agreement (ADA), giving Mitsui E&P a 12.5% working interest in SM Energy's nonoperated Eagle Ford Shale acreage.

"SM Energy will retain a working interest of approximately 14.5% in these properties," SM Energy said. "The ADA provides that SM Energy will be carried for 90% of certain drilling and completion costs until Mitsui has expended $680 million for the company's benefit."

It should take about four years for the carry amount to be expended, SM Energy said. Mitsui also paid SM Energy about $101 million at closing, approximately $73 million of which was for reimbursement of capital and operating expenses, net of revenues, for the period between the effective date of March 1, 2011, and the closing date. The reimbursement amount will be applied to the remaining 10% of SM Energy's nonoperated Eagle Ford drilling and completion costs, effectively carrying the company 100% until the amount is exhausted.

The remainder of the payment amount represents 50% of SM Energy's investment in related midstream assets in which Mitsui has also acquired a 12.5% stake.

When the deal was announced in June it was said to be worth $680 million to the Denver-based producer, which has been selling down its stake in the South Texas Eagle Ford (see Shale Daily, June 30). Closing of the Mitsui deal was delayed by arbitration between SM Energy and Anadarko Petroleum Corp.

Over the last year the Eagle Ford has been the fastest growing shale play of those tracked by NGI's Shale Daily Unconventional Rig Count. The Eagle Ford rig count is up 93% from a year ago and stood at 224 as of last Friday.

Analysts at Tudor, Pickering, Holt & Co. said Monday that SM Energy "remains a top pick with the company well positioned post closing of [joint ventures and] big expected production/reserves growth driven by [the] Eagle Ford."

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