Marathon Oil has agreed to pay $3.5 billion to acquire the Eagle Ford holdings of privately-owned Hilcorp Resources, about $25,000 per acre. The Eagle Ford is primarily a oil shale resource. Among other things, the purchase provides another public data point about the production promise of fracked shale resources. Much of the public controversy over the long-term productivity of fracked shale oil and gas was on the gas side of the business, perhaps because fracking was big news in shale gas before it became news in oil. The deal suggests increasing confidence that fracking quality oil shale resources can be done profitably.
Tom Fowler, FuelFix blog, interviewed Marathon’s Chairman/CEO Clarence Cazelot, CFO Janet Clark and Executive VP of Upstream Dave Robert. Some observers think the price paid was high. Unsurprisingly, the Marathon execs’ say it was worth the price:
FuelFix: The price tag seems to be a bit steep to some observers. KKR nearly tripled it $400 million investment in the partnership in just one year. How do you justify that to investors?
Cazelot: You’re exactly right about how KKR’s investment has grown since they came in, but we’ve seen several things happen since then.
A great deal of drilling has occurred since they entered and the play is much more significantly de-risked. There’s additional production history now in how these reservoirs perform.
We’ve seen oil prices at a higher level then when they entered as well . So I think there is much more comfort with the tremendous potential that the Eagle Ford has.
I would say that people who are opining on whether it’s pricy or not just because of a certain dollar price per acre, are taking a very naïve perspective. Not all acres out here are created equal. There’s a black oil trend, a volatile oil trend, a gas condensate trend, a dry gas trend. And every one of those has a very different set of economic results for the wells that are drilled. It is our belief that our acreage lies in the core of this trend where the economics are much better than other areas in part because of the higher liquids and higher pressures that lead to better recovery.
Dave Roberts: Beyond that, I would say there’s this 7,000 barrels per day of production from the assets that we just acquired. So we have a history of 45 to 50 wells that have been drilled on the asset in these core areas. So we have a very strong confidence have brought into the most significant value portion of this play.
Admittedly, the history of shale oil development in the Eagle Ford is still relatively short, but how many years of production from shale are required before the skeptics yield?
(The best known skeptic is still Art Berman. Here is a recent Berman presentation on shale gas. I’m not competent to judge the geological and engineering information presented, but many people in the business are. Among the many such competent people are folks working at Marathon and elsewhere agreeing to pay thousands of dollars per acre for shale resources. Why are there not more people persuaded to become shale skeptics after Berman’s years of arguing the merits of skepticism?)