Comparing Large Oil and Gas Names Working U.S. Land Plays: Part III

by: Michael Filloon

<<Part Two

In the third part of this series, I will cover large oil and gas producers working U.S. land plays. Marathon (NYSE:MRO) has significantly increased its presence in these plays. It has focused on four liquids plays:

  1. Williston Basin (Bakken/Three Forks)

  2. Anadarko Woodford

  3. Eagle Ford

  4. DJ Basin

Marathon has 964000 net acres in liquids rich U.S. shale plays. Some 285000 of these acres are in the Eagle Ford, while 141000 net acres were purchased from Hilcorp on June 1st of this year for $3.5 billion. The estimated cost per acre was approximately $21000. This was the highest price paid/acre in the Eagle Ford. Just three months earlier, Korea National Oil Corp. paid $16000/acre to Anadarko Petroleum (NYSE:APC) for a JV stake. Marathon's original acres were in Wilson, Frio, and Atascosa counties. This entire acreage is in the oil window. Its Hilcorp purchase is in Atascosa, Karnes, Bee, DeWitt, Gonzales, and Lavaca counties. Only a small portion of this aquisition is in natural gas dominated acres. The core of Marathon's Eagle Ford acreage is in Karnes County, in the volatile oil window. There have been several very good well results here:

  1. Rancho Grande 1H: IP rate of 2900 Mcfd and 1000 Bo/d

  2. Morgan 1H: IP rate of 3700 Mcfd and 1300 Bo/d

  3. Luna 1H: IP rate of 2200 Mcfd and 800 Bo/d

  4. Turnbull 4H: IP rate of 2300 Mcfd and 1000 Bo/d

Marathon states its Eagle Ford EURs will range from 300 to 1000 Mboe. Well costs are $5.5 to $8.1 million. Eleven rigs will be operating here by the end of this year. In 2012, Marathon will be adding one rig per month until optimized. By 2016, it estimates the Eagle Ford will produce 100000 net Boe/d.

Marathon hopes to have production of 13000 Boe/d by the end of this year. When breaking down the Eagle Ford, there is a large difference in production from three separate windows that make up this play. This is why we have heard so many reasons that the Eagle Ford is the best producer in the United States. The black oil window has:

30-day IP of 385 Boe/d

  1. EUR of 445 Mboe

  2. Undiscounted Payout in 4.7 years

The Eagle Ford volatile oil window has:

  1. 30-day IP of 675 Boe/d

  2. EUR of 645 Mboe

  3. Undiscounted Payout of 3 years

The Eagle Ford condensate window has:

  1. 30-day IP of 1650 Boe/d

  2. EUR of 965 Boe/d

  3. Undiscounted Payout of 1.9 years

Marathon has 410000 net acres in the Bakken. The focal point of this acreage is in Dunn County, North Dakota. It has six well results in and around this area:

  1. Danks USA 11-3H: IP rate of 1300 Bo/d

  2. Pennington USA 14-22H: IP rate of 1400 Bo/d

  3. Elk USA 11-17H: IP rate of 1400 Bo/d

  4. Darwin 14-35H: IP rate of 1100 Bo/d

  5. Guenther 31-29H: IP rate of 1200 Bo/d

  6. Hartman 14-32H: IP rate of 1000 Bo/d

Expected 30-day IP rates are 325 to 700 Boe/d. EURs should stay in the range from 350 to 580 Mboe. Total well costs are expected to $8.5 million. Marathon has 6 rigs in the Bakken and plans to increase to 8 by mid-2012. It recently announced it will be moving from 20 to 30 stages. This is very important, as I believe IP rates and EURs will benefit. Marathon plans to have 20000 net Boe/d of production by the end of 2011. Its acreage is just south of Kodiak's (NYSE:KOG) 34000 net acres in Dunn County. Kodiak completed four long laterals in Dunn County last year. Two were curtailed by weather, but the other two had 30-day IP rates of 1259 and 1082 Boe/d. A little further north is Enerplus (NYSE:ERF), where it spent $456 million on its Dunn County acreage. North of Enerplus is William's (NYSE:WMB) acreage, which cost $925 million. Directly west of Marathon's acreage is ConocoPhillips (NYSE:COP) and northwest is Continental (NYSE:CLR).

Marathon's Williams County acreage is just north of Brigham's (BEXP). There has been more said about its Ross wells, but Brigham's Williams IP rates have been quite good:

  • Stanley Larson 8-5: IP rate of 1020 Boe/d

  • Kalil Farms 14-23: IP rate of 1603 Boe/d

  • MacMaster 11-2: IP rate of 1129 Boe/d

  • M. Macklin 15-22: IP rate of 2534 Boe/d

  • Smith Farm 23-14: IP rate of 2417 Boe/d

Continental's Obert 1-13H is a Three Forks well with an IP rate of 896 Boe/d. This well is to the southwest of Marathon's acreage in Williams County. Brigham's State 36-1 #2H is a Three Forks well in the northeast of its acreage. It had an IP rate of 2356 Boe/d. To the southwest of Marathon's Williams acreage, Kodiak purchased 13500 net acres for approximately $17500/acre.

Marathon also has acreage in Fort Berthold. This is probably its best Bakken acreage and is located in south Mountrail and northwest McLean counties. William's acreage is directly west of Marathon's Fort Berthold acreage, while QEP Resources (NYSE:QEP) is directly to the east. Whiting (NYSE:WLL) is to the north where its Sanish and Parshall Field acreage has outperformed. EOG Resources (NYSE:EOG) is located to the northeast. EOG's well results in the area are:

  • Fertile 19-29H: IP rate of 1008 Bo/d

  • Fertile 45-29H: IP rate of 1223 Bo/d

  • Liberty LR 21-36H: IP rate of 1201 Bo/d

  • Clarks Creek 3-0805H: IP rate of 1384 Bo/d

The first three wells are middle Bakken and in the Fort Berthold Indian Reservation. The Clarks Creek well is a Three Forks and across the Missouri River in McKenzie County. QEP Resources has had favorable success with long laterals in Fort Berthold. Of the four, I found IP rates ranged from 1948 Bo/d to 1385 Bo/d. Whiting's Sanish Field has had six new wells placed into production:

  1. Brehm 42-35XH: IP rate of 1888 Boe/d

  2. Brehm 41-35XH: IP rate of 1979 Boe/d

  3. Brehm 12-7TFH: IP rate of 1627 Boe/d

  4. Lacey 14-3XH: IP rate of 1955 Boe/d

  5. Hansen 14-20XH: IP rate of 2893 Boe/d

  6. Snyder 21-11H: IP rate of 2193 Boe/d

Even with these good middle Bakken results, it is difficult to know if Marathon's acreage will be as productive. But, Brigham has pad drilling results in the northern part of its Williams acreage that are very good. It also has started testing the Rough Rider with its 5.5 well density pilot unit.

Marathon has 126000 net acres in the Anadarko Woodford. This play is often overlooked, but might be Marathon's best asset. It is broken down into three separate windows or areas:

  1. Oil

  2. Condensate

  3. Dry Gas

Most of Marathon's acreage is in the oil and condensate areas. Of its completed wells in the Anadarko, here are five results:

  1. Gordon: IP rate of 4300 Mcfd and 125 Bcpd

  2. Caroline: IP rate of 3200 Mcfd and 2 Bcpd

  3. Kennedy: IP rate of 2300 Mcfd and 108 Bcpd

  4. Annie May: IP rate of 5600 Mcfd and 28 Bcpd

  5. MRO Shi Randall: IP rate of 9300 Mcfd and 136 Bcpd

Marathon projects EURs of 350 to 1000 Mboe. Thirty day IP rates project as 400 to 900 Boe/d. Total well costs will average $8 million. Marathon has five rigs running in the Anadarko Woodford and expects to increase to eight by year end. In 2011, exit production is estimated to be 5000 Boe/d.

Marathon has acreage in the DJ Basin of the Niobrara. This area is well known since the transaction between Chesapeake (NYSE:CHK) and Samson (NYSEMKT:SSN). This transaction paid approximately $3150/acre to Samson. Shortly after Marathon paid approximately $5000/acre. For more information on deals in the Niobrara, please read Samson Oil: Competitors Paying Top Dollar for Presence in the D-J Basin. Marathon expects 30-day IP rates between 200 and 300 Boe/d. These locations will have EURs of 250 to 300 Mboe. Well costs are very low at $4.3 million. Marathon is taking this play slow. It has two rigs in the play. Some 8 to 12 wells will be drilled here in 2011. I do not think we will see much of a ramp in the D-J Basin development. With prime acreage in three big U.S. land liquids plays, Marathon can take its time getting acclimated to this play.

In summary, Marathon seems to have significant upside. This depends on oil prices, but it has the ability to increase production quickly over the next few years. I have one concern, as it seems Marathon has lagged in initial production numbers when compared to its competitors. It has been a little slower in the increase of frac stages and lateral lengths. Because of this, numbers have not been as good with respect to aggressive oil producers. This said, I am sure Marathon will continue to see large improvements in IP rates and EURs in its acreages. Marathon also has conservative estimates for well spacing:

  • Eagle Ford 160 to 80 acre spacing

  • Williston Basin 420 to 640 acre spacing

  • Anadarko Woodford 160 acre spacing

  • Niobrara 160 acre spacing

It would not be surprising if Marathon could see 20 to 40 acre spacing in the Eagle Ford and Anadarko Woodford. Many Bakken operators believe eight wells per 1280 acres is possible. This would decrease estimated well spacing to 160. Look for Marathon to continue purchasing acreages in these four plays and would not be surprised if it gambles on some of the other areas in the United States.

Disclosure: I am long BEXP, KOG.

Disclaimer: This is part three of a series of articles on large oil and gas names with large exposure to United States land liquids plays. It is not a buy recommendation.