Marathon Oil Buys KKR-Backed Hilcorp for $3.5 Billion to Gain Texas Fields

Marathon Oil Corp. agreed to buy KKR & Co.-backed Hilcorp Resources Holdings LP’s assets for $3.5 billion, expanding output and reserves in the Eagle Ford oil and natural-gas field in south Texas.

Marathon will acquire leases on 141,000 net acres in southern Texas with production equivalent to 7,000 barrels of oil a day and may be able to claim reserves equivalent to 100 million barrels by year-end, the Houston-based producer said today in a statement.

The Eagle Ford shale-rock formation holds oil, petroleum liquids and gas. Producers use hydraulic fracturing to release the fuel, injecting a mixture of water, sand and chemicals. Marathon is paying the equivalent of $21,000 an acre, an analyst said.

“This represents the strongest price paid for Eagle Ford Shale acreage and compares favorably to the recent ‘record’ price of $16,000 an acre,” Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, wrote today in a note to clients.

Korea National Oil Corp. agreed March 21 to pay $1.55 billion, or $16,000 an acre, to Anadarko Petroleum Corp. (APC) for a joint-venture stake in the Eagle Ford.

Oil production in the Eagle Ford has risen from 130,819 barrels in 2008 to 3 million barrels in 2010, the Texas Railroad Commission says on its website.

The deal values KKR’s 40 percent stake in the partnership at $1.13 billion, the New York-based firm said today in a separate statement. KKR had invested $400 million in June and tripled the number of horizontal rigs Hilcorp operated in the Eagle Ford shale to six.

‘North American Position’

“This transaction enhances our already strong North American position,” Clarence P. Cazalot, Marathon’s chief executive officer said in today’s statement. Marathon, which produced the equivalent of 412,000 barrels of oil a day in 2010, expects annual increases of 5 percent to 7 percent, Cazalot said. That’s up from a previous forecast of 3 percent to 5 percent annually.

Marathon plans to spin off its refining and marketing businesses June 30 as Marathon Petroleum Corp. Marathon Oil Corp. (MRO) will then operate as an independent exploration and production company.

Jeffrey Hildebrand, CEO of closely held Hilcorp, ranked 205 on Forbes’s list of the 400 richest Americans this year, with a net worth of $1.9 billion. Hildebrand is a former Exxon Mobil Corp. geologist, according to the magazine.

KKR Energy Sales

The sale of Hilcorp marks the second time in a year that KKR exited an energy exploration and production investment with significant returns. KKR sold shale-gas developer East Resources Inc., a 1-year-old minority investment, to Royal Dutch Shell Plc, generating a four fold profit for the firm.

Marathon fell 94 cents, or 1.7 percent, to $53.23 at 9:49 a.m. in New York Stock Exchange composite trading. KKR rose 9 cents to $17.28.

Barclays Plc served as a financial adviser to Marathon and Baker Botts LLP was its legal adviser. Jefferies & Co. Inc. advised Hilcorp and Andrews Kurth LLP provided legal advice. Simpson, Thacher & Bartlett LLP served as legal adviser to KKR.

The transaction is expected to close Nov. 1, according to the statement.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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