Marathon Oil Corp. has entered a deal to acquire the natural gas and condensate-weighted Eagle Ford Shale assets of Ensign Natural Resources for $3 billion in cash.


The assets span 130,000 net acres in South Texas’ Live Oak, Bee, Karnes and Dewitt counties across the condensate, wet gas and dry gas phase windows of the Eagle Ford, management said. 

Fourth quarter production from the acreage is expected to average about 67,000 boe/d net, including 22,000 b/d of oil. Marathon Oil believes it can hold fourth quarter production flat with about one rig and 35 to 40 wells to sales per year, management said.

“This acquisition in the core of the Eagle Ford satisfies every element of our exacting acquisition criteria, uniquely striking the right balance between immediate cash flow accretion and future development opportunity,” said Marathon Oil CEO Lee Tillman. “The transaction is immediately accretive to our key financial metrics; it will drive higher distributions to our shareholders consistent with our operating cash flow driven return of capital framework; it’s accretive to our inventory life with high rate-of-return locations that immediately compete for capital; and it offers compelling industrial logic by nearly doubling our position in a basin where we have a tremendous track record of execution excellence. 

“Importantly, we expect to execute this transaction while maintaining our investment grade balance sheet and while still delivering on our aggressive return of capital objectives in 2022 and beyond.”

The acquisition is expected to close by year-end.

“The Company estimates it is acquiring more than 600 undrilled locations, representing an inventory life greater than 15 years, with inventory that immediately competes for capital in the Marathon Oil portfolio,” management said. “The acreage is adjacent to Marathon Oil’s existing Eagle Ford position, enabling the company to further leverage its knowledge, experience, and operating strengths in the basin, while materially increasing its basin scale to 290,000 net acres and contributing to optimized supply chain accessibility and cost control in a tight service market.”

Marathon Oil added, “The acquisition also includes 700 existing wells, most of which were completed before 2015 with early generation completion designs. These existing locations offer upside redevelopment potential, none of which was considered in the Company’s valuation of the asset or inventory count.”

Record Returns

Marathon Oil disclosed the Ensign acquisition in conjunction with its third-quarter earnings and outlook for the remainder of 2022.

Marathon Oil has mandated the return of at least 40% of cash flow from operations to equity investors, assuming a $60/bbl or higher West Texas Intermediate oil price.

“Looking ahead to 2023, while the macro environment will likely remain volatile, our commitment to our framework for success is steadfast,” Tillman said. “Our case to beat is a maintenance capital program that integrates our recently announced Eagle Ford acquisition, as we will continue to prioritize strong corporate returns, sustainable free cash flow generation, significant return of capital to shareholders and ESG excellence.”

Marathon Oil has raised its full-year 2022 capital spend forecast to $1.4 billion from $1.3 billion, “due to incremental inflation and targeted efforts to protect execution resilience and operational momentum into 2023.”

The company is projecting a 2022 reinvestment rate of about 25% at recent forward curve commodity pricing, a rate that management said is among the lowest in the exploration and production sector.

In the United States, Marathon Oil operates primarily in the Eagle Ford and Bakken Shales, along with Oklahoma and the Permian Basin’s Delaware sub-basin.

U.S. net production averaged 295,000 boe/d during the third quarter, with oil accounting for 166,000 b/d of the total. These figures are up from 284,000 boe/d and 157,000 b/d in the same period last year.

Marathon Oil fetched average prices of $7.84/Mcf for natural gas, $93.67/bbl for crude oil and condensate, and $34/bbl for natural gas liquids during the period. These figures compare to $4.17/Mcf, $69.40/bbl and $30.68/bbl, respectively, a year earlier.

Out of the U.S. geographic regions where the company operates, Oklahoma posted the highest realized average natural gas price at $8.25/Mcf.

Marathon Oil’s Michael Henderson, senior vice president of operations, highlighted the company’s exposure to high European liquefied natural gas prices. He explained that, “while we already have differentiated European LNG price exposure that has contributed to stronger financial performance…we will see a significant increase to our global LNG price leverage in 2024 as our legacy Henry Hub-linked LNG contract expires…”

This could “potentially drive a step-change increase in our financial performance as we have more equity molecules exposed to the global LNG market.”

Marathon Oil’s highest realized U.S. oil price, meanwhile, was averaged in the Eagle Ford at $94.05/bbl, followed by the Bakken at $94.01.

Capital expenditures totaled $413 million for the period, up from a year-ago figure of $308 million.

The company returned a quarterly record $1.18 billion to shareholders during 3Q, including $1.12 billion of share repurchases and a $54 million base dividend.

“Since achieving our leverage objective in October 2021, we have reduced our share count by a peer-leading 20%, driving significant growth in our per share metrics while also funding our latest base dividend increase,” Tillman said.

Marathon Oil posted net income of $817 million ($1.22/share) for the period, up from $184 million (23 cents) in 3Q2021. Quarterly revenue grew to $2.25 billion from $1.45 billion.