Marathon Oil pays $888M for PayRock STACK position

Marathon Oil Corp. (NYSE:MRO) has signed a definitive purchase and sale agreement to acquire PayRock Energy Holdings LLC, a portfolio company of EnCap Investments, for $888 million. PayRock has approximately 61,000 net surface acres and current production of 9,000 net barrels of oil equivalent per day (boe/d) in the oil window of the Anadarko Basin STACK play in Oklahoma.

Highlights:

  • $4.5 - 4.0 million completed well costs offer 60 - 80% before-tax IRRs at $50 WTI
  • 330 million BOE 2P resource with 490 gross company operated locations
  • 700 million BOE total resource potential from increased well density in Meramec and Woodford, as well as Osage development
  • Implied acreage value of $11,800 / acre adjusting for proved developed producing (PDP) reserves

"Acquiring PayRock's STACK position will meaningfully expand the quality and scale of Marathon Oil's existing portfolio in one of the best unconventional oil plays in the US," said Marathon Oil president and CEO Lee Tillman.

"We expect the 2016 capital program on the acquired acreage will be covered within our current $1.4 billion budget.  As we look into 2017, we would anticipate a minimum four-rig drilling program in our pro forma STACK position, which will achieve leasehold drilling requirements while accelerating delineation work."

The deal “meaningfully” increases Marathon’s STACK scale (now at ~203K acres vs. 142K previously), said Seaport Global Securities analysts Monday, additionally noting that the buy doubles the company’s exposure to the Meramec.

“If IRR’s of 60%-80% at $50 oil are proved consistently valid across this position, we think a ~$12K/acre purchase price will be considered relatively cheap. We applaud MRO’s recent high grading efforts – management has brought in $1.3B from non-core asset sales over the last year, which allowed the company to pick up PayRock with cash on hand and without stressing the balance sheet,” the analysts said.

The transaction is subject to customary closing conditions and is expected to close in third quarter 2016, funded with cash on hand.

 

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