In Eagle Ford, Texas, Marathon Oil completes a $3 billion transaction and doubles the size of its basin .
A promising acquisition
At Eagle Ford, Marathon Oil is acquiring the Eagle Ford assets from Ensign Natural Resources. The company is expected to complete the transaction by the end of 2022. The Eagle Ford transaction results in a significant financial accumulation for the company.
Thus it allows an improvement of the return on capital. Finally, the company maintains a convincing industrial logic as well as a track record in investment quality. The transaction significantly and immediately improves Marathon Oil‘s key financial indicators .
As such, it is expected to result in a 17% increase in cash flow from operations in 2023. In addition, it would increase free cash flow by 15%. The company is making the transaction at approximately 3.4 times 2023 EBITDA.
As the transaction improves Marathon Oil’s cash flow profile, it immediately improves distributions to shareholders. The increase is carried out in accordance with the company’s capital repayment framework. Marathon Oil aims to return at least 40% of annual operating cash flow to shareholders.
In fact, the company expects to increase its distribution capacity to shareholders in 2023 by approximately 17%. In addition, the company plans to increase its quarterly base dividend by an additional 11% after the transaction. Marathon Oil still expects to achieve its goal of returning at least 50% of adjusted operating cash flow to shareholders.
A solid outlook
This transaction expands Marathon Oil’s position with the addition of 130,000 net acres, or approximately 526 square kilometers. This acquisition includes a 97% working interest located mainly in prolific condensate and wet gas areas. In addition, the company estimates that it is acquiring over 600 undrilled locations.
The acquisition of Marathon Oil represents an inventory life of over 15 years. These stocks immediately compete for capital in the company’s portfolio. The acreage is adjacent to the existing Eagle Ford position.
The situation allows the company to further leverage its experience and operational strengths in the basin. This increases the company’s basin area to 290,000 net acres, or approximately 1174 square kilometers. This increase contributes to optimize supply chain accessibility and cost control.
The company’s acquisition also includes 700 existing wells. Most were entering service before 2015 with first-generation designs. These existing locations have the potential for upward redevelopment. However, this has not been taken into account in the valuation of the assets or the inventory by the company.
Marathon Oil plans to finance the transaction with a combination of cash and debt. The company is taking out these loans on the company’s revolving credit facility and a new callable debt. The company does not expect the transaction to significantly affect its debt profile.
