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

Marathon Oil Corporation MRO disclosed Monday that it reached a definitive purchase and sale agreement to buy PayRock Energy Holdings, LLC, a portfolio company of EnCap Investments, for $888 million. According to the company, PayRock has about 61,000 net surface acres and current production of 9,000 net barrels of oil equivalent per day (boed) in the oil window of the Anadarko Basin STACK play in Oklahoma. The transaction is expected to close in the third quarter.

Marathon Oil President and CEO, Lee Tillman, commented, "Acquiring PayRock's STACK position will meaningfully expand the quality and scale of Marathon Oil's existing portfolio in one of the best unconventional oil plays in the U.S. They've built a material position in the high margin oil window of the STACK, and have consistently delivered industry-leading well results. The recent moves we've taken to strengthen the Company's balance sheet, including the successful execution above the top end of our non-core asset divestiture target, have positioned us to be opportunistic to acquire what is an excellent strategic fit."

He continued, "We expect the 2016 capital program on the acquired acreage will be covered within our current $1.4 billion budget. As we look into 2017, we would anticipate a minimum four-rig drilling program in our pro forma STACK position, which will achieve leasehold drilling requirements while accelerating delineation work."

Marathon said that the high quality inventory competes for capital allocation within its portfolio immediate while $4.5-4.0 million completed well costs offer 60-80 percent before-tax IRRs at $50 WTI. Similarly, the company highlighted 330 million BOE 2P resources with 490 gross company operated locations and 700 million BOE total resources potential from increased well density in Meramec and Woodford, as well as Osage development.

Following the news, the stock traded 2.20 percent higher in the pre-market trading.