Marathon Oil Corp sale of Permian Basin assets part of industry rationalization – economist

Marathon Oil sale of 349 wells: 185 active, 124 active injection, 34 inactive and 6 temporally abandoned

Rationalization of the Permian Basin oil and gas industry continues with news that Marathon Oil is selling its stake in non-operated wells and redeploying the capital to the STACK play in Oklahoma.

Ed Hirs, energy economist, University of Houston.

An analyst’s note from Credit Suisse Monday downgraded Marathon’s stock (MRO) to “neutral” from “outperform” while maintaining a $19 price target, as reported by TheStreet.

“When we look across the large cap energy and production space, and the leading edge well performance relative to our modeling assumptions, we continue to see more momentum in the purer play Permian names,” Credit Suisse said, noting that Marathon “has done an excellent job of increasing the resource base, mainly in Oklahoma, and lowering well costs, and has become more assertive on its completions.”

Energy economist Ed Hirs says the sale of the 349 wells and producing leasehold acres in Hockley County, Texas – operated by Occidental Permian Ltd., a subsidiary of Occidental Petroleum Corp. – is part of a trend by larger producers to focus their capital and operations on fields that provide the best opportunity to be profitable in a low price environment, which is expected to drag on into 2017.

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“Although I’m sure they had a pretty rigorous operating agreement with Oxy, Marathon wasn’t driving the boat,” said Hirs in an interview.

“This is a hot time in that market. They could cash out for pretty close to full value and maybe a little bit more at this point, then redeploy it, which is what they said they’re going to do, in assets in which they have a hundred per cent ownership and control of.”

Hirs expects to see more of this type of rationalization of assets by oil and gas companies in the coming months.

The West Texas assets will be sold in a sealed-bid offering through EnergyNet.com.

The offer includes nonoperated working interest in 349 wells and producing leasehold acres in Hockley County, Texas. The assets are operated by Occidental Permian Ltd., a subsidiary of Occidental Petroleum Corp. (NYSE: OXY).

Highlights:

7.5051% working interest and 6.56696% net revenue interest in the Southeast Levelland Unit; 349 wells consisting of 185 active, 124 active injection, 34 inactive and six temporally abandoned;
About 1,157.5 gross (709.86 net) producing leasehold acres;
Six-month average 8/8ths production of 1,664 barrels per day of oil and 1,081 thousand cubic feet per day; and
12-month average net income of $13,668 per month.