Marathon Oil Announces $2.5 Billion Canadian Oil Sands Divestiture and $1.1 Billion Permian Basin Acquisition
March 09 2017 - 2:08AM
Marathon Oil Corporation (NYSE: MRO) announced today it has signed
an agreement to sell its Canadian subsidiary, which includes the
Company’s 20 percent non-operated interest in the Athabasca Oil
Sands Project (AOSP), to Shell and Canadian Natural Resources
Limited for $2.5 billion in cash, excluding closing adjustments.
Marathon Oil also announced the signing of a definitive agreement
to acquire approximately 70,000 net surface acres in the Permian
basin from BC Operating, Inc. and other entities for $1.1 billion
in cash, excluding closing adjustments. The acquisition includes
51,500 acres in the Northern Delaware basin of New Mexico, and
current production of approximately 5,000 net barrels of oil
equivalent per day (boed).
“Divesting of our Oil Sands Mining business at an attractive
value while also acquiring 70,000 net acres in the world-class
Permian basin are transformative milestones that will further align
our portfolio with our strategy," Marathon Oil President and CEO
Lee Tillman said. “Historically, our interest in the Canadian oil
sands has represented about a third of our Company’s other
operating and production expenses, yet only about 12 percent of our
production volumes. The Northern Delaware basin features
outstanding well economics that compete at the top of our organic
portfolio and is experiencing a positive rate of change in well
performance unrivaled in U.S. unconventional basins. This deal
expands the quality and depth of our already robust inventory while
securing a foundational footprint in the Delaware basin with 5,000
feet of oil-rich stacked pay. Today’s announcements give us even
greater focus and concentration on our diverse set of high-return
opportunities in the U.S. resource plays, and strongly position us
to generate long-term value for our shareholders for many years to
come.”
Divestiture of Canadian Oil Sands Business
Under the terms of the Canadian divestiture, $1.75 billion will
be paid to Marathon Oil upon closing and the remaining proceeds
will be paid in first quarter 2018. The sale is expected to close
in mid-2017 with an effective date of Jan. 1, 2017, and concurrent
with a related transaction between Shell and Canadian Natural
Resources, also announced today. Proceeds will be used to fund
resource capture, organic investment, to reduce gross debt and for
general corporate purposes.
Divestiture Highlights:
- Further simplifies and concentrates Marathon Oil’s portfolio to
the lower cost, higher margin U.S. resource plays
- Anticipating approx. 25% reduction in 2017 Company expenses
(production and other operating) based on expected closing dates
for both transactions
- $2.5 billion sale price equates to approximately 15 times 2016
OSM operating cash flow
- Avoids material future capital requirements in a non-operated
business
- Net synthetic crude oil production averaged 48,000 barrels per
day in 2016
- Year-end 2016 proved reserves from Canada totaled 692 million
barrels of synthetic crude oil
Permian Basin Acquisition Highlights:
- Up to 10 target benches within approximately 5,000 feet of
stacked pay; base case assumes up to 6 target benches
- 70,000 total net acres with 51,500 net acres in the Northern
Delaware basin
- Total implied acreage cost of approximately $13,900 per acre,
adjusting for existing production
- High quality Northern Delaware inventory produces greater than
90% before-tax IRRs at $55 WTI flat and competes for capital
allocation at top of Marathon Oil’s portfolio
- Primary targets in world-class Wolfcamp and Bone Spring
- Approximately 350 million BOE of risked resource at a cost of
about $2.80 per BOE with 630 gross Company operated locations
- Approximately 900 million BOE of total resource potential with
1,700 total upside locations from both tighter density and
secondary targets
- Further growth opportunities from acquired acreage in Northwest
Shelf as well as further bolt-on acquisitions
- One operated rig drilling with plans to add a second rig
mid-year; one rig required to hold term lease
The BC acquisition is expected to close in second quarter 2017
with an effective date of Jan. 1, 2017.
Goldman, Sachs & Co. and TD Securities served as advisors on
the divestiture transaction, and Evercore served as advisor on the
acquisition transaction.
Marathon Oil will conduct a question and answer webcast / call
Thursday, March 9, at 9:00 a.m. ET to discuss the acquisition. To
participate in the call, please dial 800-447-0521 and ask for the
Marathon Oil conference call. The conference call ID is 44520502.
The associated commentary and answers to questions will include
forward-looking information. To listen to the live webcast, visit
the Marathon Oil website at http://www.marathonoil.com.
Associated slides will be posted to the Company's website and to
its mobile app approximately one hour before the scheduled
call.
###
Definitions:
BOE: barrels of oil equivalent
IRR: Internal rate of return
OSM: Oil Sands Mining
WTI: West Texas intermediate crude
This release (and oral statements made regarding the subjects of
this release) contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including statements
related to the Company’s 2017 capital program and the program
objectives and flexibility; the sale of the Company's Canadian
business and the expected timing and use of proceeds thereof; the
proposed Permian basin acquisition and expected timing and
projected impacts, including valuation, resource estimates,
production estimates, asset quality and internal rates of return;
the Company’s operational, financial and growth strategies,
including drilling plans, rig count, asset development, planned
projects, capital discipline, balance sheet protection, operational
flexibility, cost reductions, efficiencies and non-core asset
sales; and the Company’s ability to successfully effect those
strategies and the expected timing thereof. While the Company
believes that the assumptions concerning future events are
reasonable, a number of factors could cause results to differ
materially including, but not limited to: conditions in the oil and
gas industry; capital available; drilling and operational risks,
well production timing; availability of drilling rigs, materials
and labor, including the costs associated therewith; the inability
to obtain or delay in obtaining necessary government or third-party
approvals and permits; the inability of any party to satisfy
closing conditions with respect to the disposition and acquisition;
and any non-performance by third parties of their contractual
obligations. These forward-looking statements are also affected by
the risk factors, forward-looking statements and challenges and
uncertainties described in the Company's 2016 Annual Report on Form
10-K and other public filings and press releases, available at
www.marathonoil.com. Except as required by law, the Company
undertakes no obligation to revise or update any forward-looking
statements as a result of new information, future events or
otherwise.
Cautionary Note to Investors - The U.S. Securities and Exchange
Commission (“SEC”) permits oil and gas companies, in their filings
with the SEC, to disclose only proved, probable and possible
reserves that meet the SEC’s definitions for such terms. Any
resource estimates in this release, such as risked resource or
total resource potential, that are not specifically designated as
being estimates of proved, probable or possible reserves, may
include other estimated resources that the SEC's guidelines
prohibit us from including in filings with the SEC. Investors are
urged to closely consider the disclosures in the Company’s periodic
filings with the SEC, available at www.marathonoil.com or on the
SEC’s website at www.sec.gov.
Media Relations Contact
Lee Warren: 713-296-4103
Investor Relations Contact
Zach Dailey: 713-296-4140
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