Marathon Oil ‘high-grading’ Eagle Ford position with non-core sale

Marathon Oil Corp. plans to sell certain Eagle Ford Shale properties deemed no longer essential to its exploration plans. And, while the Houston-based company has put 96,738 net acres of its estimated 325,000 acres in the South Texas play up for sale with bids due October 25, the divestiture may enable the company to add to its core area in the same play, according to some analysts.

The large, undeveloped oil and gas acreage is located in Wilson, Karnes, and Bee Counties, according to a brochure put out by the Oil and Gas Asset Clearinghouse, the advisor of the sale. Global Hunter Securities (GHS) added additional color to the assets up for grabs in note to investors following news of the proposed sale. “The acreage is being offered in nine lots, seven of which are in Wilson County, which MRO includes in the oil window of the Eagle Ford. Of the total net acres for sale Wilson County accounts for 77%, Karnes County 11% and Bee County 13%,” the analysts said.

A full sale would leave Marathon with roughly 228,000 acres in the play (roughly 200,000 of which are deemed in the ‘core area of the play,’ according to Marathon) pending any other deals, they continued.

With its liquids-rich content, the Eagle Ford Shale became a darling of the unconventional resources space in recent years, and with gas prices continually depressed, the Eagle Ford remains a significant asset for the energy industry.

Marathon is one of many energy-centric companies investing heavily in the play. In June 2011, Marathon agreed to a $3.5 billion acquisition of Eagle Ford Shale assets from Hilcorp Resources Holdings, a partnership between affiliates of Hilcorp Energy and Kohlberg Kravis Roberts & Co. LP (KKR). And while Marathon has cut its rigs in the play (GHS expects to see 18 rigs in the play by year-end), the company remains focused on the Eagle Ford.

During its 2Q earnings call, the company noted that output from the Eagle Ford rose 50% from the prior quarter and that the company still expects to hit its guided 30,000 boe/d average production rate for 2012.

Since the start of 2011, data for the play shows a median $5,000/acre value and average of $8,460/acre, noted GHS. “Assuming all the lots are sold, the lower value for this sale would net Marathon $483 million ($0.69/share),” the analysts said.

The divestiture is part of the company’s larger plan to divest $1.5 billion to $3 billion across the portfolio by year-end 2013. From 1Q11 to present, nearly $1.09 billion has been sold toward that goal, according to calculations by GHS, who notes that in that context, this Eagle Ford asset sale is Marathon’s way of “high-grading its Eagle Ford position,” as it expects Marathon will ultimately buy more assets in and around its core Eagle Ford areas.

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