Marathon Oil Corporation Announces $3.5 Billion Acquisition of Eagle Ford Shale Assets

abarrelfullabarrelfull wrote on 02 Jun 2011 05:26
Tags: marathon shale upstream usa

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Marathon Oil Corporation (NYSE: MRO) announced today it has reached a definitive agreement with Hilcorp Resources Holdings, LP to purchase its assets in the core of the Eagle Ford shale formation in Texas in a transaction valued at $3.5 billion subject to closing adjustments, customary terms and conditions, and Hart-Scott-Rodino approval. Hilcorp Resources Holdings is a partnership between affiliates of Hilcorp Energy Company and Kohlberg Kravis Roberts & Co. LP. Along with other transactions expected to close by the end of 2011, Marathon's Eagle Ford acreage position is expected to more than double to 285,000 net acres. The Hilcorp transaction is expected to close Nov. 1, 2011 with an effective date of May 1, 2011.

Hilcorp acreage acquisition highlights:

  • Approximately 141,000 net acres (217,000 gross) primarily in Atascosa, Karnes, Gonzales and DeWitt counties in Texas (see attached map)
  • Potential opportunity to acquire approximately 14,000 additional net acres through tag-along rights and other leasing
  • Approximately 90 percent operated with 65 percent average working interest
  • As of May 1 there were 36 wells producing approximately 7,000 net (17,000 gross) barrels of oil equivalent (boe) per day, of which 80 percent is liquids (three-fourths of which is crude oil and condensate)
    • 10 additional wells drilled and awaiting completion
    • Six rigs currently operating and two dedicated hydraulic fracturing crews
    • Year-end production expected to be approximately 12,000 net boe per day
  • Total net risked resource potential of 400 - 500 million boe with upside potential from additional downspacing and other stacked pay potential
  • Potential to book up to 100 million boe of proved reserves by the end of 2011
  • Production expected to increase to approximately 80,000 net boe per day by 2016

"Marathon has captured a top-five acreage position in the core of the premier resource play in the U.S. since first entering the Eagle Ford in November 2010. This transaction enhances our already strong North America position focused on unconventional, liquids-rich resource plays that provide low-risk, scalable and profitable growth," said Clarence P. Cazalot Jr., Marathon president and CEO. "This and other projects under development serve as a catalyst for Marathon to increase our projected Upstream production growth to 5 - 7 percent on a compound average annual growth rate (CAGR) during the period 2010 - 2016.

"In addition to establishing our position in the highest value oil and condensate core area of the Eagle Ford shale, these assets will deliver immediate production and reserve additions, an active Company-operated drilling program, significant resource potential, as well as solid economic returns and profitability that are immediately accretive to earnings and operating cash flow, and expected to be self-funding by 2014.

"With our technical expertise and best-in-class drilling, along with our project execution skills, we are poised to maximize profitable reserve and production growth across our liquids-rich resource plays, particularly in the Eagle Ford. Importantly, our financial flexibility enables us to pursue this growth while maintaining a strong balance sheet," Cazalot said.

Marathon will use cash on hand and cash generated from operations to fund the transaction. With an anticipated fourth quarter closing, the Company's Upstream capital, investment and exploration spending for 2011 (excluding acquisitions) is not anticipated to increase materially as a result of this transaction.

Increased Production Growth Across North America
In addition to the six rigs currently under contract related to this acquisition and two in Marathon's other Eagle Ford acreage, Marathon has five drilling rigs on order and expects to be operating at least 20 drilling rigs in the Eagle Ford within 12 months of closing this transaction. As a result, the Company expects to grow production from its total Eagle Ford acreage position to a peak of approximately 100,000 net boe per day by 2016. A summary of the total Eagle Ford acreage listed by county is included below.

Eagle Ford Acreage Summary*
County Net Acres
Wilson 98,000
Atascosa 47,000
Karnes 46,000
Gonzales 34,000
Frio 22,000
DeWitt 11,000
Bee 10,000
Lavaca 9,000
Live Oak 6,000
McMullen 2,000
Total 285,000

  • Includes the Hilcorp acreage and other transactions expected to close by the end of 2011.

This acquisition brings Marathon's holdings to nearly 1 million net acres across North American liquids-rich resource plays in the Eagle Ford, North Dakota Bakken, Oklahoma Anadarko Woodford, the emerging Niobrara in Colorado and Wyoming, and an in-situ position in Alberta Canada - with plans to continue to grow acreage and increase drilling activity in each of the U.S. basins. Within 12 months of closing this transaction, Marathon expects to be operating 35 - 40 rigs across the U.S. This drilling activity, along with a potential phased development of the Company's Birchwood in-situ acreage, provides a defined growth trajectory to achieve production from the Company's unconventional portfolio of approximately 175,000 net boe per day in the 2016 - 2017 timeframe.

The legal advisor to Marathon for this transaction is Baker Botts and the financial advisor is Barclays Capital. The legal advisor to Hilcorp Energy for this transaction is Andrews Kurth LLP and the legal advisor to KKR is Simpson, Thacher & Bartlett, LLP. Jefferies & Company, Inc. served as exclusive financial advisor to Hilcorp Resources Holdings for this transaction.

Marathon Oil Corporation Announces $3.5 Billion Acquisition of Eagle Ford Shale Assets

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