Marathon announces multi-billion-dollar oil sands divestiture, Permian acquisition

March 09, 2017

HOUSTON -- Marathon Oil Corporation announced today that it has signed an agreement to sell its Canadian subsidiary, which includes the Company's 20% non-operated interest in the Athabasca Oil Sands Project (AOSP), to Shell and Canadian Natural Resources Limited for $2.5 billion in cash, excluding closing adjustments.

Marathon Oil also announced the signing of a definitive agreement to acquire approximately 70,000 net surface acres in the Permian basin from BC Operating, Inc. and other entities for $1.1 billion in cash, excluding closing adjustments. The acquisition includes 51,500 acres in the Northern Delaware basin of New Mexico, and current production of approximately 5,000 net boed.

"Divesting of our oil sands mining business at an attractive value while also acquiring 70,000 net acres in the world-class Permian basin are transformative milestones that will further align our portfolio with our strategy," Marathon Oil President and CEO Lee Tillman said. "Historically, our interest in the Canadian oil sands has represented about a third of our Company's other operating and production expenses, yet only about 12% of our production volumes. The Northern Delaware basin features outstanding well economics that compete at the top of our organic portfolio and is experiencing a positive rate of change in well performance unrivaled in U.S. unconventional basins. This deal expands the quality and depth of our already robust inventory while securing a foundational footprint in the Delaware basin with 5,000 ft of oil-rich stacked pay. Today's announcements give us even greater focus and concentration on our diverse set of high-return opportunities in the U.S. resource plays, and strongly position us to generate long-term value for our shareholders for many years to come."

Divestiture of Canadian oil sands business

Under the terms of the Canadian divestiture, $1.75 billion will be paid to Marathon Oil upon closing and the remaining proceeds will be paid in first quarter 2018. The sale is expected to close in mid-2017 with an effective date of Jan. 1, 2017, and concurrent with a related transaction between Shell and Canadian Natural Resources, also announced today. Proceeds will be used to fund resource capture, organic investment, to reduce gross debt and for general corporate purposes.

Divestiture highlights:

Further simplifies and concentrates Marathon Oil's portfolio to the lower cost, higher margin U.S. resource plays
Anticipating approx. 25% reduction in 2017 Company expenses (production and other operating) based on expected closing dates for both transactions
$2.5-billion sale price equates to approximately 15 times 2016 OSM operating cash flow
Avoids material future capital requirements in a non-operated business
Net synthetic crude oil production averaged 48,000 bpd in 2016
Year-end 2016 proved reserves from Canada totaled 692 MMbpd of synthetic crude oil

Permian basin acquisition highlights:

Up to 10 target benches within approximately 5,000 ft of stacked pay; base case assumes up to 6 target benches
70,000 total net acres with 51,500 net acres in the Northern Delaware basin
Total implied acreage cost of approximately $13,900/acre, adjusting for existing production
High quality Northern Delaware inventory produces greater than 90% before-tax IRRs at $55 WTI flat, and competes for capital allocation at top of Marathon Oil's portfolio
Primary targets in world-class Wolfcamp and Bone Spring
Approximately 350 MMboe of risked resource at a cost of about $2.80/boe with 630 gross Company operated locations
Approximately 900 MMboe of total resource potential with 1,700 total upside locations from both tighter density and secondary targets
Further growth opportunities from acquired acreage in Northwest Shelf as well as further bolt-on acquisitions
One operated rig drilling with plans to add a second rig mid-year; one rig required to hold term lease

The BC acquisition is expected to close in second-quarter 2017, with an effective date of Jan. 1, 2017.