Marathon Oil Fast Tracks Its Exploration and Production Expansion

Jun. 2.11 | About: Marathon Oil (MRO)

Marathon Oil (NYSE: MRO) announced Wednesday it has agreed to purchase assets in the core of the Eagle Ford Shale from Hilcorp Resources Holdings, in a transaction valued at $3.5 billion. The deal comes as Houston, Texas-based Marathon has recently been fast-tracking efforts to bulk up its exploration and production portfolio as it announced that it plans to spin off its refining, marketing and downstream business.

The acquisition, which is expected to close by November, will provide Marathon with approximately 141,000 net acres mainly throughout the Atascosa, Karnes, Gonzales and DeWitt counties in Texas. Marathon also has the opportunity to acquire another 14,000 net acres through tag-along rights and other leasing.

As of May 1, the newly acquired area included 36 wells producing approximately 7,000 net barrels of oil equivalent a day, of which 80% is liquids.

Year-end production on the 141,000 acres in question is expected to be approximately 12,000 net boe per day, with the potential to book up to 100 million boe of proved resources. Approximately 80,000 net boe per day is expected by 2016.

Along with Marathon's other transactions, which are to close by year-end, the purchase will bring the company's holdings in the Eagle Ford area to over 285,000 net acres.

Marathon shares were trading down slightly on Wednesday at $52.70 each. The company said it expects its total Eagle Ford acreage to produce a peak of 100,000 net boe per day by 2016.

President and CEO, Clarence P. Cazalot Jr. said:

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.

The company said it will use cash on hand and cash generated from operations to fund the transaction, which it says will not cause an increase in the company's material capital, investment and exploration spending for the year.

Hilcorp Resources Holdings is a partnership between Hilcorp Energy and private equity giant KKR (NYSE:KKR), whose stake in the deal is worth roughly $1.13 billion, according to a statement. Shares of KKR fell marginally by 0.3% on the day.

Disclosure: None