Marathon to pay $3.5B for Eagle Ford acreage

Marathon Oil will pay $3.5 billion to buy Hilcorp Resources’ Eagle Ford shale holdings, a move that will double Marathon’s holdings in the South Texas play.

The deal includes 141,000 net acres mostly in Atascosa, Karnes, Gonzales and DeWitt counties and the potential to acquire 14,000 more acres through tag-along rights and other leasing.

(Marathon execs answer more questions on the deal in a Q&A here).

As of May 1 there were 36 wells producing about 7,000 barrels of oil equivalent per day, of which 80 percent is liquids. There are 10 additional wells drilled and awaiting completion, with six rigs currently operating and two dedicated hydraulic fracturing crews.

“This transaction enhances our already strong North America position focused on unconventional, liquids-rich resource plays that provide low-risk, scalable and profitable growth,” Clarence P. Cazalot Jr., Marathon president and CEO, said in a statement. “This and other projects under development serve as a catalyst for Marathon to increase our projected upstream production growth to 5 to 7 percent on a compound average annual growth rate during the period 2010–2016.”

The transaction also represents an exit for private equity giant Kohlberg Kravis Roberts from a partnership  with Hilcorp Energy that started last June.

In that deal, KKR made an initial investment of $400 million to speed up drilling and development activity across Hilcorp Resources’ acreage in return for a 40 percent ownership interest in the company. KKR ‘s stake is now worth about $1.13 billion.

“While this exit is earlier than we anticipated, it has been remarkably rewarding to be a part of the development of this part of the Eagle Ford Shale. Hilcorp is a world class oil and gas company and has been an exceptional partner,” said Marc Lipschultz, a member of KKR and global head of energy and infrastructure.