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Buyers Still Flocking to Eagle Ford

Two deals announced Wednesday show that the liquids-rich Eagle Ford Shale of South Texas can hold its own among the Bakken and Marcellus shales when it comes to drawing in the dollars.

Cabot Oil & Gas Corp., which is also active in the Marcellus, said Wednesday it is acquiring 30,000 net acres in the Eagle Ford for $210 million. Separately, Atlas Resource Partners LP announced a $225 million deal for Eagle Ford assets, marking its entry into the play.

The assets being acquired by Houston-based Cabot, from an undisclosed seller, have been producing 1,600 boe/d (92% liquids) and include 17,000 net acres near Cabot's Buckhorn operating area, increasing the total Buckhorn leasehold position to 60,000 net acres and Cabot's total Eagle Ford leasehold position to 83,000 net acres.

Based on current spacing of 400 feet between laterals, Cabot has identified 191 net locations on the additional Buckhorn area acreage with an average lateral length of more than 6,500 feet. The company is testing 300-foot downspacing across its Buckhorn position, which it said would add 45 net locations on the acquired leasehold. Cabot has added a fourth operated rig in the Eagle Ford to begin drilling on the newly acquired properties. The deal is expected to close in October.

"In addition to the number of new locations, this acreage will allow synergies in our operations on many fronts including infrastructure and facility utilization," said Cabot CEO Dan Dinges. "Our typical Buckhorn well yields an attractive return at current oil prices, and this acreage will complement those returns."

Topeka Capital Markets analyst Gabriele Sorbara said Cabot got a good deal at $131,250/boe flowing production and about $3,000/acre, adjusted for the acquired production. "We find this to be an attractively valued bolt-on, especially considering these assets are in the oil Eagle Ford where [Cabot] has continued to improve results."

Because of the fourth rig in the Eagle Ford, Cabot raised its 2014 capital budget guidance range from $1.38-1.48 billion to $1.45-1.55 billion (excluding the Eagle Ford acquisition cost). The company said it now expects to drill about 55 net wells in the Eagle Ford and 165-175 net wells company-wide this year.

Meanwhile, Pittsburgh-based Atlas is acquiring 22 producing wells and 19 undeveloped locations containing estimated net reserves of 12 million boe. The deal is expected to close in the fourth quarter. The company is to pay $200 million of the purchase price upon closing, subject to adjustments, with the remainder to be paid in installments.

In connection with the acquisition, Atlas Energy LP's exploration and development subsidiary agreed to buy eight wells that have been drilled but not completed and 53 undeveloped drilling locations for $115 million, which is to be paid in the 12 months following closing.

"This transaction demonstrates the ability of the Atlas companies to acquire high-margin production in a premier U.S. oil and gas basin without diluting common unit holders' interests," said Atlas CEO Edward Cohen.

Atlas is picking up oil-rich production in Atascosa County, TX, in the Eagle Ford's oil window. The production is 87% oil, 7% natural gas liquids and 6% natural gas from 22 producing wells, from which the company expects net daily production to average 1,900 boe/d next year.

The company said its oil and liquids production is expected to increase as a result of the acquisition to about 25% of its total daily oil and gas production. In addition to the oil-producing assets, Atlas is to acquire 19 undeveloped drilling locations in the Eagle Ford position, which are expected to provide "valuable inventory" for Atlas's investment partnership business. The Eagle Ford assets also have contracted agreements for gathering and processing capacity as well as salt water disposal.

Atlas said it would finance a portion of the deal with borrowings under its revolving credit facility.

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