Marathon doubles Eagle Ford footprint

Houston-based Marathon Oil Corp. (NYSE: MRO) plans to double its position in the South Texas Eagle Ford shale with the acquisition of assets from Hilcorp Resources Holdings LP for $3.5 billion in cash. Hilcorp Resources is a partnership between privately held Hilcorp Energy Co., Houston, and private-equity company Kohlberg Kravis Roberts & Co. LP.

Marathon will acquire approximately 141,000 net acres (217,000 gross) primarily in Atascosa, Karnes, Gonzales and DeWitt counties, Texas, encompassing all three commodity windows, with the opportunity to acquire an additional 14,000 net acres through tag-along rights and other leasing.

The assets are 90% operated with an average 65% working interest. Production is 7,000 net BOE (17,000 gross; 80% liquids). Total net risked resource potential is 400- to 500 million BOE with upside potential from additional downspacing and other stacked-pay potential. Marathon reports the potential to book up to 100 million BOE of proved reserves by the end of 2011.

"Marathon has captured a top-five acreage position in the core of the premier resource play in the U.S. since first entering the Eagle Ford in November 2010," says Clarence P. Cazalot Jr., Marathon president and chief executive. "This transaction enhances our already strong North America position focused on unconventional, liquids-rich resource plays that provide low-risk, scalable and profitable growth. This acquisition is consistent with our overall strategic shift to low-cost, repeatable projects."

In June 2010, KKR invested $400 million for a 40% interest in 100,000 Eagle Ford acres contributed by Hilcorp. Led by chief executive officer Jeff Hildebrand, Hilcorp is the largest producer of conventional oil in South Texas.

Pro forma and including other transactions set to close by year-end, Marathon's Eagle Ford acreage position is expected to more than double to 285,000 net acres.

Ten additional wells have been drilled and are waiting on completion. Year-end production is estimated at 12,000 BOE per day net, going to 80,000 net BOE per day by 2016. Six rigs are currently operating on the assets with two dedicated hydraulic fracturing crews. The company estimates some 1,230 drilling locations, excluding dry-gas opportunities.

"This and other projects under development serve as a catalyst for Marathon to increase our projected upstream production growth to 5% to 7% on a compound average annual growth rate during the period of 2010 to 2016," Cazalot adds.

Closing is expected by Nov. 1. The effective date is May 1.

Barclays Capital is financial advisor to Marathon. Baker Botts is legal advisor. Jefferies & Co. Inc. is financial advisor to Hilcorp Resources Holdings. Andrews Kurth LLP is legal advisor to Hilcorp, and Simpson, Thacher & Bartlett LLP is legal advisor to KKR.

KeyBanc Capital Markets analyst Jack Aydin estimates that when applying a value of $75,000 BOE per day to the 7,000 BOE per day of production, the acreage value works out to approximately $21,100 per acre. "Either way, we think the value of this transaction is toward the high end of the market's expectations and considerably higher than other recent transactions in the play. We estimate the average price per net acre for 14 Eagle Ford transactions to be $12,772 per net acre."

ExxonMobil ups Marcellus holdings

ExxonMobil Corp., Irving, Texas, (NYSE: XOM) via subsidiary XTO Energy Inc., has added another 317,000 acres in Pennsylvania's Marcellus shale via acquisitions of privately held companies Phillips Resources Inc., Warrendale, Pa., and TWP Inc., Butler, Pa., for $1.69 billion in cash.

The acquisitions, centered in southwestern Pennsylvania, bring ExxonMobil's total Marcellus holdings to 707,000 net acres.

Alan Jeffers, a spokesman for ExxonMobil, says, "We believe the mergers will create significant value by leveraging the regional synergies in upstream operations and acreage holdings between XTO Energy and the Phillips companies."

The assets include 228 billion cu. ft. of proved reserves and production of 50 million cu. ft. of gas per day.

Analysts at Global Hunter Securities value the acreage at approximately $5,331 per acre and $7.41 per thousand cu. ft. equivalent for proved reserves. "We do not know the mix of proved developed to undeveloped reserves, so if we assume that the mix is 50/50 and assume the proved reserves are worth about $342 million, it would imply that Exxon paid approximately $4,250 per acre. This looks like a great deal for Exxon."

A year ago, ExxonMobil closed a $41-billion acquisition of XTO, gaining 45 trillion cu. ft. of reserves and a foothold in most major shale basins in the U.S. Subsequently, via XTO, ExxonMobil also acquired shale assets in the Haynesville shale from Ellora Energy for $700 million, and in the Fayetteville shale from Petrohawk Energy Corp., Houston, (NYSE: HK) for $650 million.

According to ExxonMobil, the deal closed on June 2. The production and employees of the two firms will be merged into Exxon Mobil's XTO Energy subsidiary, which will manage the assets from XTO's Appalachia division headquartered in western Pennsylvania.

As of the end of the first quarter, ExxonMobil produced 3.9 billion cu. ft. of gas per day in the U.S.

SM Energy sells down Eagle Ford position

Houston's SM Energy Co. (NYSE: SM) announced it will sell a portion of its Eagle Ford shale position in South Texas to undisclosed buyers for $225 million in cash. The deal is the first of additionally anticipated sell downs of working interest in the Eagle Ford.

The assets include all of SM Energy's operated acreage in LaSalle County, Texas, as well as adjacent operated acreage in Dimmit County, totaling approximately 15,400 net acres. Three wells have been drilled but are shut in due to limited infrastructure. As of year-end 2010, the company ascribed only an immaterial amount of proved reserves to the acreage.

Additionally, the buyers will be entitled to approximately 12% of the takeaway capacity associated with SM Energy's agreement with Eagle Ford Gathering LLC, a joint venture between Kinder Morgan Energy Partners LP and Copano Energy LLC.

Closing is expected in August.

Analysts at Global Hunters Securities and Jefferies & Co. Inc. place the value at $14,600 per acre. Jefferies analyst Subash Chandra deems it "an exceptional value," but cautions against applying this value to the remainder of the company's Eagle Ford acreage. "The buyer paid for oily acreage and operatorship. The balance of SM's acreage to be sold will be nonoperated."

David Tameron, senior analyst with Wells Fargo Securities Inc., calculates $12,600 per acre after backing out $30 million for the three wells behind pipe, but notes he has assigned no value to the midstream. "Bottom line," he notes, "a good price for this chunk of acreage…and above expectations."

SM Energy is continuing negotiations on additional potential transactions involving a material portion of its total Eagle Ford shale position in South Texas. It previously reported it is targeting approximately 72,000 net acres in sales, or about 30% of its Eagle Ford shale position.

Enerplus to sell some Marcellus acreage

Enerplus Corp., Calgary, (NYSE: ERF) plans to sell a portion of its Marcellus gas interests in Pennsylvania, Maryland and West Virginia to an undisclosed buyer for US$575 million.

The interests include approximately 91,000 net acres, primarily nonoperated, in southwestern and central Pennsylvania, Garrett County, Maryland, and northern West Virginia. Production is approximately 5.4 million cu. ft. of gas equivalent per day. Proved and probable reserves as of year-end 2010 were 24.5 billion cu. ft. equivalent and the total contingent resource assessment is 1.6 trillion cu. ft. equivalent.

Enerplus will retain all of its nonoperated acreage in Bradford, Susquehanna, Lycoming, Columbia, Tioga, Wyoming and Sullivan counties in northern Pennsylvania and operated acreage in Clinton County, Pennsylvania, Garrett County, Maryland, and Preston County, West Virginia.

It also retains ownership in approximately 110,000 net acres of land with an independent best estimate of 2.3 trillion cu. ft. equivalent of natural gas contingent resource and 92 billion cu. ft. equivalent of proved and probable gas reserves, each as of Dec. 31, 2010.

Proceeds from the transaction will be used to pay current bank debt.

BMO Capital Markets is financial advisor to Enerplus.

Australia's Linc Energy acquires Gulf Coast fields

Linc Energy Operations USA, a U.S. subsidiary of Linc Energy Ltd., Queensland, Australia, (Australia: LNC) has acquired assets on the Texas and Louisiana Gulf Coast from Houston-based, privately held ERG Resources LLC for US$236 million.

The assets include 14 producing oil fields on 156 leases spanning 13,400 acres. Fields include Black Bayou, Port Neches, Hull, Barber's Hill, Goose Creek, Atkinson Island, High Island, Cedar Point, Lafittes Gold, Aquarium, Hoskins Mound and Grass Island. Linc plans an enhanced oil recovery program using CO2.

Production is 3,300 bbl. of oil per day. Net proved reserves are 20.5 million bbl. of oil consisting of 4.5 million bbl. proved developed producing, 4.4 million proved nonproducing and 11.6 million proved undeveloped. Proved and probable reserves are 22.3 bbl. of oil.

Linc plans to open offices in Baton Rouge, La., and Houston. The majority of ERG's operational and office-based staff will work for Linc on the acquired assets.

Linc Energy chief executive Peter Bond says, "I hope to exceed 6,300 bbl. per day by the fourth quarter of 2012 on the ERG fields."

ERG, led by Scott Y. Wood, focuses on the onshore Gulf Coast as well as California.

Petronas joins Progress Energy in $1.1B Montney JV

Progress Energy Resources Corp., Calgary, (Toronto: PRQ) has entered into a strategic partnership with the Malaysian national oil company, Petronas, to develop a portion of Progress' Montney shale assets in the Foothills region of northeastern British Columbia. Progress will sell 50% of its working interest in its Altares, Lily and Kahta properties to Petronas for US$1.1 billion (C$1.07 billion). The deal reflects the desire by both parties to explore additional opportunities to develop liquefied natural gas export capacity in British Columbia.

"This is a breakthrough transaction for Progress: the partnership we are launching will enable us to accelerate our growth strategy," says Michael Culbert, president and chief executive officer of Progress. "We are very pleased to form this long-term partnership with Petronas.

Petronas will pay 25% of the total consideration (C$267.5 million) in cash at closing and 75% of the total consideration in the form of a capital carry, whereby Petronas will pay 75% of Progress' share of future capital expenditures in the North Montney joint venture over the next five years to a total of C$802.5 million. The transaction provides Progress with the capital required to accelerate the development of its unconventional assets and unlock the value underlying the company's vast Montney land holdings.

Petronas and Progress will also establish an LNG export joint venture to be 80% and 20% owned, respectively. The venture will launch a feasibility study to evaluate building and operating a new LNG export facility on the west coast of British Columbia. Petronas would be the operator of this facility, and Petronas and Progress would jointly market the LNG utilizing Petronas' network of customers in the largest LNG markets found globally.

In connection with the LNG export joint venture, Petronas will provide a standby equity financing commitment of up to $600 million, for Progress' capital requirements arising from the North Montney and LNG Export joint ventures, from which Progress can draw down at the time of a successful LNG final investment decision.

The North Montney joint venture comprises 149,910 working interest acres in which Petronas will acquire a 50% interest and Progress will be the operator. The North Montney Joint Venture lands represent approximately 20% of Progress' rights in its northeast British Columbia Foothills land holdings, which total approximately 700,000 net acres. Progress holds some 900,000 net acres of Montney rights over its entire British Columbia and Alberta land base, making it one of the largest Montney land rights holders. The joint venture properties include five wells with minimal production at this time.

BMO Capital Markets acted as exclusive financial advisor to Progress on the transaction.

Joy Global to acquire LeTourneau Technologies

Joy Global Inc., Milwaukee, (Nasdaq: JOYG) plans to acquire a 100% ownership interest in LeTourneau Technologies Inc. from Rowan Companies Inc., Houston, (NYSE: RDC) for $1.1 billion in cash.

LeTourneau designs, builds and supports equipment for the mining and oil and gas drilling industries. LeTourneau operates two business segments—mining products and drilling products. The latter designs offshore jack-up drilling rigs and manufactures the primary components for these rigs. It is also a major manufacturer of drilling equipment for large land and offshore rigs and of specialty steel products.

Bank of America Merrill Lynch is financial advisor to Joy Global and Covington & Burling LLP is legal advisor. Barclays Capital is financial advisor to Rowan.

The deal is expected to close by mid-July.

Additional M&A news

• Bill Barrett Corp., Denver, (NYSE: BBG) plans to acquire an undisclosed private owner and operator of certain Uinta Basin assets in Utah for some $120 million.

The assets consist of a 20,155-net-acre leasehold with an estimated 5 million BOE of net proved reserves; an estimated 25 million BOE of net risked proved, probable and possible reserves; approximately 750 BOE per day of production; and associated gathering and transportation infrastructure.

The properties are also near the company's Blacktail Ridge-Lake Canyon project and are prospective in the Green River and Wasatch formations. The proximity of the asset to existing Bill Barrett operations is expected to allow for drilling and operating efficiencies at both the new and existing programs.

Bill Barrett intends to fund the purchase using its revolving line of credit.

The deal is expected to close during second-quarter 2011.

David Tameron, senior analyst with Wells Fargo Securities LLC, says the metrics "look steep" at $5,954 per acre, $160,000 per flowing BOE and $24 per bbl. proved, but noted Bill Barrett is also acquiring an undisclosed amount of gathering and transportation infrastructure as well as corporate assets. The transaction compares to the recent acquisition by Newfield Exploration Co., Houston, (NYSE: NFX) of 70,000 net acres from Harvest Natural Resources Inc., Houston, (NYSE: HNR) and a private seller at a cost of $4,400/acre, also a raw number with no reserve or production data provided.

"In spite of the seemingly high price, we like the acquisition as an additional diversifier to the company's gas development programs," says Tameron. "We think that if Bill Barrett is able to ramp development of Uinta oil and continue to grow rich gas and liquids production in the Piceance and West Tavaputs, a full development program could allow the exploration portfolio to exit the doghouse and regain its status as a nice option on Rockies potential. Not there yet, but we are interested in hearing more about the future plans."

• Contango Oil & Gas Co., Houston, (NYSE: MCF) has closed the sale of substantially all of its onshore Texas assets to Houston-based, privately held Patara Oil & Gas LLC for $40 million.

The assets include 90% working interest (72% net revenue interest) and a subsequent 5% overriding royalty interest in the 21 wells drilled in Panola County, Texas, in a joint venture with Patara; 100% working interest (72.5% net revenue interest) in Rexer #1, drilled in South Texas; and 75% working interest (54.4 % net revenue interest) in Rexer #2, which was spudded on May 11. Net proved reserves are approximately 17.2 billion cu. ft. equivalent.

Contango will use the proceeds to fund its 2011 capex program.

Contango chairman and chief executive Kenneth R. Peak says, "We began investing in our Conterra joint venture about 18 months ago, and with this sale we will have received an 8% cash-on-cash rate of return on our Conterra investment."

• Triangle Petroleum Corp., Denver, (Amex: TPLM) has acquired approximately 42,000 net acres prospective for the Bakken and Three Forks formations in the Montana Williston Basin from an undisclosed seller for an undisclosed price.

The acquisition, called the Station prospect, is in an undisclosed area of Montana in an area prospective for both the Middle Bakken and Three Forks formations. The acreage is largely contiguous and Triangle plans to operate 100% of all the acquired acres. Due to ongoing leasing efforts and competitive concerns, Triangle is not disclosing the location of the prospect or the price paid.

The deal brings Triangle's total net acreage position in the Williston Basin to approximately 72,000 net acres and brings its total operated acres to approximately 51,000 net acres.

There are no changes to the previously announced 2011 capex budget.

Triangle chief executive Peter Hill says, "The Station prospect acquisition brings us closer to our long-term goal of 100,000 net acres and a two-thirds operated and one-third nonoperated leasehold position. The Station prospect is located in a thermally mature area of the basin and provides us with a significant number of net drilling locations in a largely contiguous block."

Additional news

• SandRidge Permian Trust, a trust formed to own interests in producing and developmental wells within the Permian Basin, filed with the SEC to raise up to $721 million in an initial public offering. SandRidge Permian's offering follows another SandRidge-sponsored trust, SandRidge Mississippian Trust (SDT), which was offered on April 6, 2011, and is currently trading up 25% from its listed price.

SandRidge Permian is based in Austin, Texas, and booked $72 million in sales for the 12 months ended March 31, 2011. It plans to list on the NYSE under the symbol PER. Morgan Stanley is the lead underwriters on the deal. No pricing terms were disclosed.

• ConocoPhillips, Houston, (NYSE: COP) is making significant progress on its plan to deliver long-term value, the company said on May 11 at its annual meeting of shareholders. The company initiated its multiyear returns-enhancement plan in 2010, designed to increase distributions to shareholders, refocus the company's portfolio and renew the company's commitment to strategic, financial and operational discipline.

"Our performance has delivered significant value to our shareholders, and our 2010 total shareholder return of 39% was the highest among our industry peer group," said Jim Mulva, chairman and chief executive officer. "We have continued our commitment to increase shareholder distributions in 2011, announcing a 20% increase in the quarterly dividend rate and an additional $10-billion share-repurchase program."

During the next two years, ConocoPhillips plans to execute a $28-billion capital program, almost 90% of which has been allocated to exploration and production, supporting the company's greater-than-100% reserve-replacement target. During this time frame, the company plans to sell an additional $5- to $10 billion of noncore assets.

•Momentum Oil & Gas LLC, Houston, announced plans to purchase Newfield Exploration Co. South Texas oil and gas properties in Fashing Field, in Atascosa and Karnes counties, for an undisclosed sum. The acquisition of 5,000 net acres will make Momentum the field's largest asset holder. Momentum is acquiring all of Newfield's interests below the top of the Georgetown formation at 9,700 ft., including the Edwards, Georgetown, and Pearsall shale formations.

Fashing is the largest Edwards gas discovery in Texas with more than 1.2 trillion cu. ft. of cumulative gas production since 1957. Momentum said the assets provide it with a stable base of long-life gas production and a solid inventory of development projects.

The properties consist of interests in 60 wells with current net production of approximately 3.8 million cu. ft. of gas equivalent per day, approximately 6% of which is condensate and 9% of which is natural gas liquids. Momentum will operate 16 wells with 100% working interest. The remaining wells are operated by a third party, with Momentum acquiring an approximately 47% working interest.

The source of funding for the acquisition is a combination of equity from Kayne Anderson and the management team and debt from Momentum's recently announced $100-million credit agreement with BNP Paribas, Union Bank and Bank of Texas.

The company was formed in late 2010 to acquire and develop oil and gas properties in the Midcontinent and onshore Gulf Coast regions. Momentum is an investment portfolio company of Kayne Anderson Energy Funds with an initial equity commitment of $50 million.