Marathon Oil cuts $3B deal for Eagle Ford assets

Independent driller Marathon Oil Corp.'s $3 billion purchase of Eagle Ford Shale assets in South Texas drew some positive commentary from industry analysts, and the deal may provide clues to Eagle Ford asset prices.

The shale oil producer said it agreed to buy the Eagle Ford assets of its privately held neighbor, Ensign Natural Resources LLC. The deal bolts on 130,000 acres adjacent to Marathon holdings in four South Texas counties, with 600 undrilled well locations and 700 existing wells producing 67,000 barrels of oil equivalent per day. The revenue and production will be immediately accretive to Marathon Oil while increasing the company's drilling inventory to 15 years, Marathon Oil said.

"Based on early investor comments, we think the Street will view the deal as mostly positive, eliminating any upcoming questions over Marathon Oil's inventory," Truist Securities Inc. oil and gas analyst Neal Dingmann told clients.

Marathon shares closed the Nov. 3 market up nearly 6% in heavier-than-normal trading.

Marathon more than doubled its net income in the third quarter to $832 million, or $1.24 per share, compared to the same period a year ago. The results, reported Nov. 2, surpassed the S&P Capital IQ consensus normalized EPS estimate by 7 cents.

The Marathon deal does not provide a clear indicator of what buyers might pay for Chesapeake Energy Corp.'s Eagle Ford package that went on the market in August, Siebert Williams Shank & Co. LLC oil and gas analyst Gabriele Sorbara said in an email. More than a year ago, Chesapeake was said to be looking to get $2 billion for its Eagle Ford operations.

"Chesapeake has different Eagle Ford assets, mostly west in Dimmit and LaSalle [counties]," Sorbara said. "Chesapeake is also including its Burleson County Eagle Ford and Austin Chalk assets (Brazos Valley) in their package."

Benchmark Co. analyst Subash Chandra said Devon Energy Corp.'s $1.8 billion purchase of Validus Energy Services LLC's 42,000 acres and 35,000 boe/d of Eagle Ford oil and gas production is a better comparison. "So, we have a couple of similar deals," Chandra said in an email. "It's not substantially smaller in terms of production so should be relevant to Chesapeake."

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