EOG & NFX cancel Marcellus deal

[dan_s]

I don't think this is significant for either company. Just couldn't agree on final terms. It happens.
EOG is down YTD which makes no sense since it has large stakes in both the Bakken and Eagle Ford. Plus, they will soon announce some very good results coming from their Niobrara drilling program. - Dan

Zacks Equity Research, On Thursday December 23, 2010, 12:00 pm EST

EOG Resources Inc. (NYSE: EOG - News) and Newfield Exploration Co. (NYSE: NFX - News) have canceled their sell and purchase agreement for 50,000 acres of natural gas-rich land in Pennsylvania's Marcellus Shale. Both the players had entered into a $405 million agreement in the middle of November. The reasons for the termination are yet to be disclosed.

The deal was part of EOG's divestiture program, which is expected to bring in about $1 billion for the company by the end of 2010. The acreage includes five producing natural gas wells with 7 million cubic feet per day of gross output.

Newfield also said last month that the purchase would more than double its acreage position in the Marcellus. The company estimated net unrisked reserve potential equivalent to 1.5 trillion to 2 trillion cubic feet of gas in the area to be acquired.

While the termination of the deal is not healthy for the parties, the acreage represents only 0.5% of EOG's North American production. We continue to believe that EOG is relatively well positioned over its peers in organic production growth, with a greater focus on liquids and financial flexibility. For 2011 and 2012, EOG set organic production growth targets of 10% and 12%, respectively. The company also expects liquids production to grow at the rate of 53% and 30% in 2011 and 2012, respectively.

EOG’s large portfolio of high-return projects and strong technical competence are the key factors leading to its success over the long term. Hence, we retain our Neutral recommendation for the EOG stock with the Zacks #3 Rank (Hold).