Enverus A&D Transactions, November 21, 2019
Q3 earnings information released by Marathon Oil revealed accelerated and wideranging dealmaking in support of the company’s resource capture strategy in the US onshore sector. This activity included a bolt-on of mostly undeveloped acreage in the Eagle Ford, the establishment of a new oil play in the southern Delaware Basin and an exploration JV with Norway’s Equinor in the nascent Louisiana Austin Chalk play.
The acquisitions—combined with exploration, acreage swaps mostly in the northern Delaware Basin, and organic Eagle Ford and Bakken core extension since early 2018— allowed the company to add more than 1,000 operated drilling locations, equivalent to about three years of inventory.
In the largest deal, signed after the end of Q3, Marathon will pay $185 million cash to acquire 18,000 contiguous net acres with ~50 drilling locations adjacent to its existing Shiner development area in the northeast Eagle Ford.
“The acquisition effectively cores up a high-return 70-well development area with upside potential that has demonstrated strong well performance from modern completions,” president and CEO Lee M. Tillman said on a Nov. 7 conference call. He also said the deal “satisfies all of our key criteria: contiguous, largely undeveloped with inventory upside, industrial logic with meaningful synergies and accretive financial return.
"Expected to close by Jan. 31, the deal boosts Marathon’s total net acreage in the Eagle Ford by 13% to 160,000 acres. While largely undeveloped, the acreage in Lavaca and DeWitt counties, Texas, comes with existing production of 7,000 boe/d (67% liquids) as well as gas lines, central facilities and freshwater wells.
Marathon’s Q3 report also revealed a new oil play targeting the Meramec and Woodford formations in the southern Delaware Basin. After leasing an initial ~20,000 net acres and drilling two wells with encouraging results, the company signed deals in early Q4 to acquire an additional ~40,000 net acres in the new play for $106 million. Overall, Marathon says it established its ~60,000-net-acre position in northern Ward and southern Winkler counties, Texas, for less than $2,400/acre, or ~$144 million. The company also said it has captured more than 100 drilling locations YTD through acreage swaps primarily in the northern Delaware Basin, where it now has 85,000 net acres.
Marathon says the position contains potential for more than 400 extended-lateral locations. Its first two wells, both targeting the Woodford, had initial 30-day production rates of 240 boe/d (48% oil) and 365 boe/d (78% oil) per 1,000 lateral ft. The results support funding a one-rig appraisal and delineation program next year.
In Louisiana, Marathon struck a deal in Q3 to bring on Equinor as a 25% non-operating partner on its 285,000-net-acre position in the Louisiana Austin Chalk’s western fairway in southern Rapides Parish. Marathon is advancing exploration through 3D seismic and exploration drilling, with results from its first well expected in early 2020 and a second exploration well expected to be spudded before YE19. With $1.16 billion in cash as of Sept. 30, Marathon has more dry powder than most of its peers to fuel expansion. The company generated $81 million of organic free cash flow after dividends, bringing YTD organic free cash flow to $298 million.
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