EOG (NYSE:EOG), Newfield (NYSE:NFX) Terminate Marcellus Shale Agreement

EOG Resources (NYSE:EOG) and Newfield Exploration (NYSE:NFX) announced they have terminated their agreement originally announced on November 15, 2010 concerning the Marcellus Shale.

Ticonderoga said, "Last night, EOG Resources and Newfield Exploration (Buy-rated), announced that the companies have mutually agreed to terminate their November 15, 2010, agreement regarding EOG's sale of certain Marcellus Shale acreage to NFX. No additional information was given in the release other than the decision falls under the terms provided for in the purchase and sale agreement. We will attempt to get additional information from both companies.

"At the time of the original announcement, we wrote that the deal could take some of the shine off the NFX story, as the transaction appeared to be a step back from the company’s strengths. NFX shares had been performing extremely well, partly because its gas assets were largely held by production, allowing the company to exert more capital discipline, keep spending within cash flow, and concentrate on developing a strong oil portfolio. Although we wouldn’t expect to see a large move in the shares, today’s reversal of the deal should be somewhat viewed as a shift back to those strengths and a net positive for NFX.

"Subsequently, this will likely be viewed as a net negative for EOG, as speculation about why the deal failed will probably center on the assets themselves (such as ownership, quality, or inaccurate data). More concrete is the fact that EOG had previously stated a goal to sell dry gas assets in order to supplement its cash flow needs and/or help repair its balance sheet, which had seen long-term debt jump 36% through the first 9 months of 2010. Today’s announcement adds to the uncertainty of EOG’s 2011 fiscal goals and capital plans."

Ticonderoga maintains a "Neutral" on EOG Resources, which was trading at $91.10, down $1.10, or 1.19 percent, as of 12:02 PM EST.

Newfield Exploration was trading at $73.18, up $0.18, or 0.25 percent.