Marathon Oil has entered into a purchase agreement to acquire the Eagle Ford assets of Ensign Natural Resources for total cash consideration of $3 billion.
The transaction is subject to customary terms and conditions, including closing adjustments, and the transaction is expected to close by year-end 2022 with an effective date of October 1, 2022.
Marathon Oil said that the transaction added immediate double-digit accretion to key financial metrics and shareholder distributions consistent with the return of capital framework and anticipated the raising base dividend an additional 11 percent post-close.
This adds significant high-return, high-working interest inventory that immediately competes for capital and is accretive to Marathon Oil’s inventory life. Compelling industrial logic that significantly increases Eagle Ford scale by nearly doubling Marathon Oil’s Basin position with high working interest acreage adjacent to the company’s legacy position. Executing transactions while maintaining low leverage and investment grade balance sheet.
“This acquisition in the core of the Eagle Ford satisfies every element of our exacting acquisition criteria, uniquely striking the right balance between immediate cash flow accretion and future development opportunity.”
“The transaction is immediately accretive to our key financial metrics, it will drive higher distributions to our shareholders consistent with our operating cash flow driven Return of Capital Framework, it’s accretive to our inventory life with high rate-of-return locations that immediately compete for capital, and it offers compelling industrial logic by nearly doubling our position in a Basin where we have a tremendous track record of execution excellence.”
“Importantly, we expect to execute this transaction while maintaining our investment grade balance sheet and while still delivering on our aggressive return of capital objectives in 2022 and beyond,” chairman, president, and CEO Lee Tillman said.
The transaction significantly expands Marathon Oil’s Eagle Ford position by adding 130,000 net acres with 97 percent working interest located primarily in the prolific condensate and wet gas phase windows of the play.
The company estimates it is acquiring more than 600 undrilled locations, representing an inventory life greater than 15 years, with inventory that immediately competes for capital in the Marathon Oil portfolio. The acreage is adjacent to Marathon Oil’s existing Eagle Ford position, enabling the company to leverage further its knowledge, experience, and operating strengths in the Basin, while materially increasing its Basin-scale to 290,000 net acres and contributing to optimized supply chain accessibility and cost control in a tight service market.
The acquisition also includes 700 existing wells, most of which were completed before 2015 with early-generation completion designs. These existing locations offer upside redevelopment potential, none of which was considered in the company’s valuation of the asset or inventory count.
The 130,000 net acres Marathon Oil is acquiring from Ensign Natural Resources span Live Oak, Bee, Karnes, and Dewitt Counties across the condensate, wet gas, and dry gas phase windows of the Eagle Ford.
The estimated fourth quarter 2022 oil equivalent production is 67,000 net boed. Marathon Oil believes it can hold fourth quarter production flat with approximately 1 rig and 35 to 40 wells to sales per year.
Morgan Stanley and White & Case provided financial and legal advice to Marathon Oil. Ensign was supported by investment bankers from Evercore and JPMorgan Chase and lawyers from Sidley Austin.
