Marathon Oil Corporation 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.
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 1 Nov. 2011 with an effective date of 1 May 2011.
Highlights of the Hilcorp acreage acquisition include:
Approximately 141,000 net acres (217,000 gross) primarily in Atascosa, Karnes, Gonzales and DeWitt counties in Texas.
Potential opportunity to acquire approximately 14,000 additional net acres through tag-along rights and other leasing.
Approximately 90% operated with 65% average working interest .
As of 1 May there were 36 wells producing approximately 7,000 net (17,000 gross) barrels of oil equivalent (boe) per day, of which 80% 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 US 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. This and other projects under development serve as a catalyst for Marathon to increase our projected Upstream production growth to 5–7% on a compound average annual growth rate (CAGR) during the period 2010–2016.—Clarence P. Cazalot Jr., Marathon president and CEO
Marathon will use cash on hand and cash generated from operations to fund the transaction. With an anticipated fourth quarter closing, Marathon’s upstream capital, investment and exploration spending for 2011 (excluding acquisitions) is not anticipated to increase materially as a result of this transaction.
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.
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 US basins.
Within 12 months of closing this transaction, Marathon expects to be operating 35–40 rigs across the US. This drilling activity, along with a potential phased development of its Birchwood in-situ acreage, provides a defined growth trajectory to achieve production from its 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.