Endeavour International Buys Lease for Additional 50K Marcellus Acres & Local Pipeline in PA from SM Energy

Endeavour International, an independent energy company, has just picked up an additional 50,000 net acres in the Marcellus Shale along with three producing wells and a pipeline, all located in McKean and Potter counties in Pennsylvania, in a deal with SM Energy. From the Endeavour press release:

Endeavour International Corporation announced today that it has entered into purchase and sale agreements with SM Energy Company and certain other minority owners to acquire the leasehold and producing interests held by SM Energy and its partners in the Marcellus shale in north central Pennsylvania, as well as a pipeline and related facilities for aggregate consideration of$110 million. The transaction provides Endeavour with significant production and reserve potential on acreage that is adjacent to the Company’s existing Marcellus acreage and is readily available for development in one of the most economically attractive shale gas plays in the United States.

The assets include the following:

  • Approximately 50,000 net acres of leasehold with 100 percent operated working interests in McKean and Potter counties;
  • Current production from three existing wells of approximately three to four million cubic feet of natural gas per day, including the Potato Creek #3H well that initially flowed 11 million cubic feet of gas per day and is expected to recover in excess of 4 billion cubic feet of gas;
  • 100 percent ownership of Potato Creek LLC, which owns a midstream gathering system and related facilities in southern McKean County, including a 10-mile 16" trunkline connected and flowing to Tennessee Gas Pipeline’s 24" mainline; and
  • Proprietary and fully processed 3-D seismic survey covering the entire Potato Creek lease block.

Following the completion of the transaction, Endeavour’s leasehold interests in the Marcellus Shale will total approximately 93,000 gross (68,000 net) acres. A new 7-year lease will be issued at closing on the key 21,000 net acre Potato Creek block that requires only five wells to be drilled in the first three years. Minimal capital is required over the next three years to hold all acreage in McKean County, including the key Potato Creek leasehold. The transaction is expected to close within 60 days and is expected to be financed with proceeds from the issuance of convertible debt securities.

"This acquisition represents a significant step forward in the growth of our domestic onshore business in a play that offers some of the highest returns in the United States today," said William L. Transier, chairman, chief executive officer and president. "The acreage is located on trend with several major industry developments and complements our existing acreage position in Cameron County immediately to the south. Our development model indicates recoverable natural gas potential from 1.0 to 1.3 trillion cubic feet with more than 300 identified drilling locations on our McKean and Cameron County leasehold. As operator of these assets, including the gathering infrastructure, we have the opportunity to accelerate our development plans in an effort to realize the value of our investment while expanding our position in this three county area."*

*Endeavour Press Release (Jul 18, 2011) – Endeavour to Acquire Operated Interests Expanding Its Position in Pennsylvania Marcellus Shale

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