June 29, 2011 / 1:15 PM / in 7 years

UPDATE 2-SM Energy to sell nearly half its non-operated Eagle Ford acreage

* To sell 12.5 pct working stake in non-operated part of Eagle Ford for $680 mln

* Mitsui to reimburse SM Energy $20-$40 mln on capex

* Shares rise 9 pct to eight-week high (Adds industry background in paragraph 3,4, analyst comments in paragraph 5,6; updates share movement)

By Mayuresh Tungare

BANGALORE, June 29 (Reuters) - SM Energy Co , an oil and natural gas producer, said it would sell almost half its non-operated acreage at the Eagle Ford shale in Texas to a unit of Mitsui & Co for $680 million to finance drilling at its assets in the oil-rich field.

Shares of the Denver, Colorado-based SM Energy were up 8 percent at $71.75 on Wednesday. They touched an eight-week high of $72.47 earlier in the day on the New York Stock Exchange.

Drilling in shales -- underground sedimentary rocks rich in oil and gas -- is expensive, forcing mid and small-sized oil and natural gas producers to look at joint ventures or stake sales.

International companies, including Mitsui and India’s Reliance Industries , have been ready to shell out huge premiums to grab a share of the booming shale production.

“The idea was to sell down some of their Eagle Ford acreage so they could accelerate drilling in the play,” Johnson Rice & Co analyst Welles Fitzpatrick said.

“It’s a very strong price, close to kind of the high water mark in the Eagle Ford play of $20,000-$22,000 per acre.”

The company had a long-term debt of $627 million, and cash equivalents of about $191 million at March-end.

SM Energy will have 46,000 net acres in the non-operated part of its Eagle Ford shale acreage, following the deal’s closing, expected in the third quarter. Its average working interest in the acreage will fall to 14.5 percent from 27 percent.

The proved reserves associated with SM Energy’s total non-operated Eagle Ford shale acreage were 52 billion cubic feet equivalent (bcfe), at the end of last year.

“This transaction allows us to continue participating in the development of high value Eagle Ford assets, while providing us more control over our capital investment decisions,” SM Energy Chief Executive Tony Best said in a statement.

SM Energy said Mitsui will also reimburse it about $20-$40 million for certain related capital expenditures. (Reporting by Mayuresh Tungare in Bangalore; Editing by Viraj Nair)

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