Marathon Oil Selling Eagle Ford Acreage in Wilson, Karnes, and Bee Counties

Marathon Eagle Ford Acreage Map Q2 2012
Marathon Eagle Ford Acreage Map Q2 2012

Marathon Oil is selling almost one-third of its Eagle Ford acreage in South Texas. The company is selling acreage it doesn't consider essential to its exploration plans and production growth targets are not expected to be adjusted after the sale.

The company currently has approximately 325,000 net acres in the Eagle Ford and plans to focus future development on a core area of 200,000 net acres. The 97,000 net acres being marketed are predominately located in Wilson County, with some acreage and Bee and Karnes counties as well.

Marathon plans to spend $1.6 billion per year over the next five years, so this is no indication the company is changing direction. It's likely the company's Wilson County assets yield lower returns than the core area and the company wants to use the capital to reinvest in its best area.

This is also an interesting sign in the direction of Eagle Ford deal valuations. Marathon paid approximately $25,000 per acre for Hilcorp's assets, but I'll be surprised if this acreage package fetches a valuation that high. With both thoughts in mind, this deal could implicitly tell us non-core acreage is worth less than $25,000 per acre and core acreage is worth much more....

KKR Continues Aggressive Shale Strategy in the Eagle Ford

KKR is building on its shale experience. The company is rumored to be in play for Samson, a large U.S. based private exploration and production company. In the Eagle Ford, KKR's dealings continue. The company is reported to have recently sold acreage for $70 million. That's on the back of the $3.5 billion deal KKR and Hilcorp closed with Marathon Oil.

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Marathon Oil Closing Acquisitions - Ramping Up to 17 Rigs - Q311 Ops

Marathon Oil closed on the Hilcorp acquisition and has added another 19,000 net acres and a gathering system to its Eagle Ford holdings. The company expects to close on another 6,800 net acres in the Eagle Ford soon. That brings Marathon's total investment up to $4.5 billion for 167,000 net acres and additional gathering facilities. That's a hefty price tag, but the company believes it has positioned itself in the core of one of the best shale plays in the U.S. Don't expect development to slow down any time soon. Early indications are well performance will exceed expectations.  Current plans are to add another frack crew to the play this year and another in 2012 (total of 4) and to ramp up from 10 rigs currently to 17 by this time next year. Marathon has a strong belief in the long-term value of the Eagle Ford. That's a win for economic development in South Texas.

Today, as Marathon Oil closes on the Hilcorp acquisition of 141,000 net acres in the Eagle Ford shale, largely in the core of the play, we already see better performance from these assets than originally anticipated. We begin this first day as operator of these key assets already producing nearly 1,000 net barrels of oil equivalent per day (boepd) more than our originally projected year-end exit rate. We also are closing on or have agreements to acquire additional acreage, also in the core of the play, that are expected to increase our total Eagle Ford position to more than 300,000 net acres by year end. Combined with our substantial positions in the Bakken and Anadarko Woodford, along with the emerging Niobrara shale play .........assets......enabling us to deliver 5 to 7 percent compound average production growth, 80 percent of which is estimated to be liquids, from 2010 to 2016.

Recent Eagle Ford transactions are expected to be funded largely from existing cash. Marathon Oil now expects its year-end acreage position across the Eagle Ford to be in excess of 300,000 net acres. Marathon Oil's 2011 Eagle Ford exit rate is forecast to be approximately 18,000 net boepd, of which 80 percent is estimated to be liquids.

Marathon Oil is ramping up to 10 rigs by the end of the year and is scheduled to add a third crew dedicated to hydraulic fracturing in January 2012 and a fourth crew in June 2012. By this time next year, the Company expects to have 17 rigs operating in the play.

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GAIL - Carrizo Joint Venture Agreement in the Eagle Ford

The Gas Authority of India Limiated (GAIL) becomes the latest international company to enter the Eagle Ford. On September 28, 2011, GAIL announced a joint venture agreement with Carrizo Oil & Gas on a portion of the company's Eagle Ford Shale assets. The Indian oil & gas company will gain a 20% interest in 20,200 net acres owned by Carrizo in South Texas. That's 4,040 net acres to the company for $95 million in total consideration. Almost $64 million will be paid upfront and more than $31 million will be paid over the next year in the form of a drilling carry. Carrizo is selling an interest in eight existing horizontal wells as part of the deal. Production from the wells is running at a rate of 1,700 barrels per day and 3.8 mmcfd. With consideration for production, the acreage traded for somewhere between $13,000 and $14,000 per acre. That's off previous acreage prices paid in the Talisman-SM Energy deal, as well as the record Marathon-Hilcorp deal, but don't forget oil prices are down almost $20 per barrel in that same period.

Carrizo Oil & Gas, Inc. (NASDAQ: CRZO) today announced the closing of an unincorporated joint venture with a wholly owned subsidiary of GAIL. Under the joint venture agreement, Carrizo sold 20% of Carrizo's interest in approximately 20,200 net mineral acres leased by the Company in the highly prospective condensate zone of the Eagle Ford Shale for total consideration of $95 million, comprised of $63.65 million in cash and the assumption of an additional $31.35 million of Carrizo's future drilling and development costs ("drilling carry"). The cash proceeds from the transaction were used to reduce the outstanding balance under Carrizo's revolving credit facility. The consideration payable to Carrizo is subject to customary post-closing adjustments and indemnities.

The Eagle Ford Shale assets conveyed to GAIL under the terms of the agreement include approximately 4,040 net acres located primarily in La Salle County, Texas and a 20% interest in eight horizontal wells currently producing approximately 1,700 net barrels of oil per day (340 barrels per day net to GAIL) and 3,800 net Mcf per day of rich gas (760 Mcfpd net to GAIL). Carrizo's internally estimated mid-year 2011 proved reserves allocated to these acres amount to 13.8 million boe (2.76 million boe net to GAIL), of which 2.5 million boe are classified as proved developed (0.5 million boe net to GAIL). A drilling rig is currently in the process of drilling a four well pad on the joint venture property which is expected to be completed and brought on production near the end of this year. Carrizo continues as operator of these properties, and currently expects the $31.35 million drilling carry to be fully realized in less than one year.

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Marathon, Hilcorp, and KKR Reach $3.5 Billion Eagle Ford Shale Acreage Deal

Marathon Oil reaches an agreement to buy Eagle Ford Shale Acreage for $3.5 billion ($24,822 per acre without consideration for production) from Hilcorp Resources.  Industry experts peg acreage value at approximately $21,000 per acre when considering production. [quote]Marathon Oil Corporation (NYSE: MRO) announced today it has reached a definitive agreement with Hilcorp Resources Holdings, LP to purchase its assets in the core of the Eagle Ford shale formation in Texas in a transaction valued at $3.5 billion subject to closing adjustments, customary terms and conditions, and Hart-Scott-Rodino approval. Hilcorp Resources Holdings is a partnership between affiliates of Hilcorp Energy Company and Kohlberg Kravis Roberts & Co. LP. Along with other transactions expected to close by the end of 2011, Marathon's Eagle Ford acreage position is expected to more than double to 285,000 net acres. The Hilcorp transaction is expected to close Nov. 1, 2011 with an effective date of May 1, 2011. Hilcorp acreage acquisition highlights:

Approximately 141,000 net acres (217,000 gross) primarily in Atascosa, Karnes, Gonzales and DeWitt counties in Texas (see attached map). Potential opportunity to acquire approximately 14,000 additional net acres through tag-along rights and other leasing.

•Approximately 90 percent operated with 65 percent average working interest. As of May 1, there were 36 wells producing approximately 7,000 net (17,000 gross) barrels of oil equivalent (boe) per day, of which 80 percent is liquids (three-fourths of which is crude oil and condensate)

10 additional wells drilled and awaiting completion. Six rigs currently operating and two dedicated hydraulic fracturing crews

Total net risked resource potential of 400 - 500 million boe with upside potential from additional downspacing and other stacked pay potential. Potential to book up to 100 million boe of proved reserves by the end of 2011.

Year-end production expected to be approximately 12,000 net boe per day. Production expected to increase to approximately 80,000 net boe per day by 2016

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