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Advantages of Marathon Oil’s Bolt-On Permian Acquisition

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Marathon Oil’s Permian Basin acquisition

On March 21, 2017, Marathon Oil (MRO) announced a bolt-on acquisition in the Permian Basin by acquiring 21,000 net surface acres from Black Mountain Oil & Gas and other private sellers. Out of these acres, ~20,000 net surface acres are located in the northern Delaware Basin. Currently, the assets have production of 400 boepd (barrels of oil equivalent per day).

According to Marathon Oil’s press release, key highlights of the acquisition are:

  • Marathon Oil will pay $700 million in cash to acquire these Permian assets.
  • There’s an implied acreage value of $18,400 per acre after adjusting for 400 boepd of current production (USO) (UNG).
  • There’s a risked resource of ~230 MMBoe (million barrels of oil equivalent).
  • The acquisition has 440 gross company-operated locations.
  • The bolt-on Permian acquisition is expected to close in 2Q17—pending customary closing conditions. The transaction will have an effective date of March 1, 2017.
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Marathon Oil’s advantage

The acquisition will help Marathon Oil strengthen its position in the Permian Basin, specifically into the northern Delaware Basin’s Wolfcamp and Bone Spring targets, which are one of the best unconventional resources in the US. Northern Delaware acreage is high quality with superior well performance. Its 180-day cumulative production increased more than 100% in the last three years. According to Marathon Oil’s press release, northern Delaware Basin acreage offers 90% internal rate of return at $55 per barrel.

While commenting on the acquisition, Marathon Oil’s president and CEO, Lee Tillman, said, “While we expect to pursue additional trades and grassroots leasing, this bolt-on achieves the scale necessary for efficient long-term development in the basin.”

In 2016, many upstream companies ventured out to add quality acreage to their portfolios at attractive prices. Range Resources (RRC) merged with Memorial Resource Development (MRD) in an all-stock transaction valued at $4.4 billion. Antero Resources (AR) acquired Marcellus Shale acreage from Southwestern Energy (SWN) for ~$450 million.

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