OGJ Senior Staff Writer
HOUSTON, June 1 -- Marathon Oil Corp. agreed to purchase Eagle Ford shale assets in south Texas from privately held Hilcorp Resources Holdings LP for $3.5 billion subject to closing adjustments, customary terms and conditions, and federal government approval.
Clarence P. Cazalot Jr., Marathon president and chief executive officer, said the acquisition involves “the highest value oil and condensate core area of the Eagle Ford shale.”
He expects the acquisition will provide immediate production and reserve additions, along with an active company-operated drilling program. Cazalot called the transaction “a transformational piece of business” for Marathon.
Hilcorp Resources Holdings of Houston is a partnership between affiliates of Hilcorp Energy Co. and Kohlberg Kravis Roberts & Co. LP. An investment firm, KKR said it is exiting its investment in Hilcorp Resources through the Marathon transaction.
Marathon, which entered the Eagle Ford in November 2010, expects to close the Hilcorp Resources acquisition during the fourth quarter.
Along with other transactions expected to close by yearend, Marathon anticipates its Eagle Ford acreage position will more than double to 285,000 net acres of which 90% is operated with an 80% average working interest.
The Hilcorp acreage acquisition involves 141,000 net acres (217,000 gross) primarily in Atascosa, Karnes, Gonzales, and DeWitt counties in Texas. Of the assets being acquired, about 90% is operated with 65% average working interest. Yearend production is expected to be 12,000 boe/d net.
Marathon also has the option to acquire another 14,000 additional net acres through tag-along rights and other leasing.
As of May 1, 36 wells produced 7,000 boe/d net (17,000 boe/d gross) of which 80% was liquids with three-fourths being crude oil and condensate. Ten wells await completion. Hilcorp Resources is running six rigs operating and two dedicated hydraulic fracturing crews.
Marathon estimates the assets have total net risked resource potential of 400-500 million boe with upside potential from additional downspacing and other stacked pay potential. The company sees potential to book up to 100 million boe of proved reserves by yearend. Production is expected to reach 80,000 net boe/d by 2016.
The cash flow generated by the assets is expected to cover the operating costs by 2014, the company said, adding this does not mean that the initial investment will have been recuperated by that time.
Upon closing, the acquisition brings Marathon's holdings to nearly 1 million net acres across US and Canada liquids-rich plays in the Eagle Ford, North Dakota Bakken, Oklahoma Anadarko Woodford, the emerging Niobrara in Colorado and Wyoming, and an in-situ position in the Alberta oil sands.
Contact Paula Dittrick at email@example.com.