R.F. Lafferty Bullish On Marathon Oil, Says PayRock Deal Is A 'Good' Buy

R.F. Lafferty & Co., Inc. said Marathon Oil Corporation MRO's acquisition of PayRock Energy Holdings should increase its acreage position and production profile.

With this transaction, Marathon Oil increased its acreage position in the STACK play by 41 percent to 200,000 net acres. The deal is comprised of 61,000 net acres valued at $11,800 per acre. Current production from these wells is 9,000 barrels per day within Kingfisher and Canadian county.

"The STACK play in Oklahoma is an up and coming oil play that has some of the largest independents accumulating acreage and locating capital in this play," energy strategist Jaime Perez wrote in a note.

On a pro forma basis, Perez said Marathon Oil will control over 200,000 net acres with 1 billion BOE of 2P resources in the STACK. Production in the STACK after the closing of the deal will increase 98 percent to 17,000 barrels per day for Marathon Oil. For 2017, the company plans to allocate a minimum of four rigs in the STACK.

Related Link: Marathon Signs Deal To Divest And Acquire PayRock Energy For $888 Million

Using a $14 proved reserve value per Boe and 2015 FYE proved reserve estimate of 2,163 Mmboe, Perez arrived at a NAV of $34 per share based on reported first quarter cash, debt and share count.

"Based on our calculated NAV per share, we continue to be of the view that Marathon's equity is undervalued, and it should be a core holding for long-term investors," Perez added.

Shares of Marathon Oil closed Monday's regular trading at $14.48.