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M&A activity still snail-like, but picks up a little in October

Domestic upstream M&A deals have been rather slow the past few months, but the 30-day period from mid-September to mid-October included a few more transactions than we've had in recent months.

Plains Exploration & Production Co. was involved in two of the three deals announced during this period. On Sept. 20, the company announced it had executed an agreement with McMoRan Exploration Co. to divest PXP's interests in properties located in the Gulf of Mexico for a combination of cash and stock. PXP will receive $75 million in cash and 51 million shares of McMoRan common stock in exchange for PXP's interests in all of its Gulf of Mexico leasehold in less than 500 feet of water ($818 million total consideration using McMoRan's stock price of $14.57 on Sept. 17, 2010).

The properties are currently producing about 45 MMcf of natural gas equivalents per day net to PXP and include estimated proved reserves of about 63.9 billion cubic feet of natural gas equivalents as of June 30, 2010. McMoRan has secured $900 million of committed financing from an investor group in conjunction with this transaction, and PXP will have the right to designate two directors to McMoRan's board of directors.

A few days after the McMoRan deal was announced, PXP inked separate deals to acquire Gulf Coast onshore assets. One transaction, with Dan A. Hughes Company, is valued at roughly $578 million. The other, with Houston American Energy Corp., is for non-proved reserves and has approximately the same value.

On Oct. 10, Oklahoma City-based Chesapeake Energy announced the execution of an agreement with China's CNOOC, which will purchase a 33.3% undivided interest in Chesapeake's 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas. The deal is valued at about $1.08 billion.

CNOOC will fund 75% of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects to occur by year-end 2012. The transaction is expected to close in the fourth quarter.

The assets are located principally in the counties of Webb, Dimmit, LaSalle, Zavala, Frio, and McMullen, and are located primarily in the oil window (~85%) and the wet gas window (~15%) of the Eagle Ford Shale and in the dry gas window of the Pearsall Shale. CNOOC will have the option to acquire its 33.3% share of any additional acreage acquired by Chesapeake in the area and also the option to participate with Chesapeake for a 33.3% interest in midstream infrastructure related to production established from the assets.

Norway's Statoil and Canada's Talisman Energy have formed a 50/50 joint venture for the purpose of developing assets in the Eagle Ford Shale play. As part of the JV deal, the two companies have acquired the Eagle Ford assets of privately held Enduring Resources, comprising about 97,000 acres in a $1.325 billion transaction. The purchase price equates to about US$10,900 per acre.

In addition, Statoil will acquire 50% of Talisman's existing Eagle Ford acreage and production for $180 million (18,500 acres net to Statoil). As a result, Statoil and Talisman will together hold 134,000 net Eagle Ford acres and associated assets and production in the joint venture.

The two transactions amount to a total consideration for Statoil of $843 million and will deliver recoverable Statoil resources of approximately 550 million barrels of oil equivalent. The companies have an option to jointly acquire up to 22,000 net acres.

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