Endeavour International Corp. has decided to pass on the acquisition of certain Marcellus Shale assets from SM Energy. No rationale was given, but as Jefferies & Co. analysts noted yesterday, the suspicion is that the acreage, located in McKean and Potter Counties (non-core areas of the play), was deemed less than desirable.

Termination of the deal is seen as a “net positive” for Endeavour noted Global Hunter Securities analysts in a note to investors December 14, who say the company “can now focus on higher return projects in the North Sea.”

As for SM Energy, failure to close the deal “increases SM's 2012 funding shortfall by $1.20/share from the $360 million level that we projected before,” said Jefferies analysts, but “does not alter our high-conviction view that SM's Eagle Ford position is prolific and desirable, making it a prime acquisition target. We remain positive on the name.”

The $80 million in proceeds SM Energy expected from the closing of the transaction will add to the funding gap, but Jefferies analysts note that the company has sufficient liquidity. “With nothing drawn on its $1.3 billion borrowing base as of 9/30/2011, SM should have ample liquidity to fund the shortfall. Net debt to capital would only creep up by a couple of percent from the roughly 40% level that we projected,” Jefferies analysts concluded.