The Houston oil firm, Marathon Oil Corp, plans to buy a company for almost $1 billion dollars to try their hand at horizontal drilling.
Marathon’s $888 million agreement for a private equity-backed firm will nab land in Oklahoma’s Stack play. Newfield Exploration, another Houston-based company, purchased land in this area just last month for $470 million.
Seaport Global Securities analyst Mike Kelly said about the newly in-demand area, “It’s getting attacked for the first time from a horizontal perspective and it has surprised…everyone with how productive it has been,” he continued, “They’ve amassed enough data to get comfortable in that acreage.”
The deal is part of another industry trend. Oil companies are looking to grow to further boost profits as crude prices continue to increase. Another example of this is Range Resources’ recent $3.3 billion acquisition of Memorial Resource Development Corp in Houston.
Lee Tillman, Marathon CEO, told investors the firm would increase drilling activity if prices for crude remained above $50 per barrel. The Oklahoma land is lucrative enough that it can vie for capital against Marathon’s other oil plays.
In a conference call Monday, Tillman said, “We see very compelling economics.”
The Houston company is paying for PayRock Energy Holdings with cash on hand. PayRock is owned by the private equity firm EnCap Investments of Houston. It’s alleged it could run four rigs in Oklahoma by 2017.
The majority of the land associated with the deal is in the oil window of Oklahoma’s STACK play. Oklahoma’s Sooner Trend Anadarko Basin Canadian and Kingfisher Counties (STACK) is producing upwards of 9,000 barrels per day, more than twice Marathon’s output in the area.
Marathon will clench over 200,000 acres in the Oklahoma STACK and in excess of 1 billion barrels in underground storage. It totals to nearly $11,800 per acre.
Article written by HEI contributor Briana Steptoe.