Marathon Oil plans to return to Canada with its agreement toacquire Tarragon Oil and Gas Ltd. of Calgary for $1.1 billion,including $340 million of assumed debt. Marathon has not held oilor gas properties in Canada since divesting its Canadian holdingsin 1982.

Properties to be acquired are primarily in Alberta but alsoBritish Columbia and Saskatchewan. Gas properties are in BritishColumbia and throughout Alberta, a spokesman said. “We hadpositions in most of the major gas-producing basins of NorthAmerica, and with the addition of this we’re now in Canada, too. Sowe’ve got North America pretty well covered as far as gas,” saidspokesman William Ryder. Marathon has had a business developmentoffice in Calgary for the last two years, he said.

“Tarragon provides us with a very strategic fit in our growthstrategy and will enable us to establish a strategic platform forfuture growth in one of North America’s most attractive gasbasins,” said Thomas J. Usher, CEO of Marathon parent USX Corp. “Wehave increased our worldwide reserves by 20%, and the largeundeveloped leasehold position we are acquiring provides Marathonmultiple opportunities for growth in Canada.” He noted that whilethere could be minimal dilution of earnings in 1998, the impact in1999 should be accretive to earnings per share. The impact shouldbe positive on cash flow per share in both years.

In April, Tarragon acquired most of the Canadian assets ofUnocal Corp. for C$308 million in a deal that gave Unocal 27% ofTarragon shares, a C$100 million debenture and three seats onTarragon’s board. Like other Canadian oil and gas producers,Tarragon has suffered in an environment of low crude oil prices.First-quarter net earnings were C$450,000, down 95% from the sameperiod a year earlier.

Shareholders of Tarragon will receive C$14.25 for each Tarragonshare or, at their option, equivalent value in exchangeable sharesof a wholly-owned Canadian subsidiary of Marathon. Such shareswould be exchangeable into USX-Marathon Group common stock. No morethan 90% of the consideration is to be in exchangeable sharesunless consented to by Marathon. If the transaction is notcompleted, Marathon could be paid a fee of C$30 million.

Tarragon Oil and Gas has a balanced focus in gas, conventionalcrude oil and heavy crude oil. Current daily production is 210MMcf/d of gas and 21,000 barrels/d of liquids. Proven net reservesas estimated by Marathon are 260.1 million Boe, consisting of 727Bcf of gas, 55 million barrels of light oil and gas liquids, and 84million barrels of heavy oil. In addition, Tarragon’s undevelopedleasehold of 2.6 million acres offers added opportunities forfurther reserve additions.

The final agreement is subject to regulatory review and approvalby Tarragon shareholders. The transaction is expected close inAugust.

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