Marathon sells oil sands, buys shale assets

14 March 2017, Week 10, Issue 347

Marathon Oil is buying 70,000 net acres (283 square km) in the oil-rich Permian Basin for US$1.1 billion in cash. Meanwhile, the company is selling its Canadian oil sands business for US$2.5 billion. 

The Permian Basin in Texas and New Mexico is the US’ most economically attractive shale region, with drillers rushing to buy up land, whereas Canada’s oil sands are languishing because of high costs and low oil prices, as well as short-term takeaway capacity challenges.

The Permian acreage being purchased consists of up to 10 target benches within around 5,000 feet (1,524 metres) of stacked pay. Marathon said its base case projection assumed up to six target benches. The primary targets are in the “world-class” Wolfcamp and Bone Spring plays, the company added.

The purchase includes 51,500 net acres (208 square km) in the Permian’s northern Delaware sub-basin in New Mexico. The total implied acreage cost is around US$13,900 per acre (US$3.5 million per square km), adjusted for existing production, said Marathon. This is not as expensive as some acreage in the region. Land prices in the Permian have skyrocketed to US$60,000 per acre (US$15 million per square km) in some sweet spots, which is around 12 times higher than in 2012, when the rush to buy up acreage in the region started.

The Northern Delaware assets have before-tax internal rates of return (IRRs) of over 90% at a WTI oil price of US$55 per barrel and compete for capital allocation at the top of Marathon’s portfolio, said the company.

The risked resource is estimated at around 350 million boe at a cost of about US$2.80 per boe with 630 gross Marathon-operated locations. Marathon also said there was roughly 900 million boe of total resource potential with 1,700 total upside locations from both tighter density and secondary targets.

Further growth opportunities will come from purchased acreage in the Northwest Shelf as well as further bolt-on acquisitions, said Marathon. The firm is planning to run one operated rig on the acreage being acquired, with a second rig being added in mid-2017. One rig is required to hold the term lease, the company added.

The acquisition is expected to close in the second quarter of 2017 with an effective date of January 1, 2017.

 

Edited by

Anna Kachkova

Editor

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