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During the last 12 months, the Eagle Ford Shale play has seen lots of renewed curiosity in funding in addition to M&A exercise. Simply this November, Marathon Oil Firm, (NYSE:MRO) introduced of their quarterly earnings name they’d acquired the Eagle Ford property of privately held Ensign Pure Sources. For a gross sales value of ~$3.0 bn in a mixture of money and debt devices, MRO bought 67,000 BOEPD of manufacturing, 130,000 bolt-on acres, and 600 new derisked drilling places. Not a foul deal at ~$23,000 per acre on its face, however what drove the deal within the Eagle Ford versus different shale performs?
Clearly, as you have a look at the deal slide from MRO under, the synergies turn into obvious. The legacy MRO acreage lies within the Unstable Oil and Condensate area of the play. The Ensign acreage continues within the Condensate area and dips down into the Moist Gasoline area, bringing a brand new horizon to MRO. The Ensign deal brings a double-down concentrate on the condensate and new horizons in Moist Gasoline to Marathon. This focus offers us a clue to the query posed within the paragraph above, and we’ll increase on this considering as we go ahead on this piece.
On this article, we’ll evaluation a few of the current Eagle Ford M&A exercise during the last 12 months or so. The offers have been coming quick and livid on this play lately, and we predict some frequent threads between them are being pushed considerably by takeoff realities popping out of the Permian presently, and the lure of the convenience of entry to Corpus Christie export and LNG services.
The rediscovery of the Eagle Ford
The Eagle Ford was one of many early shale breakout performs, as corporations like EOG Sources, (NYSE: EOG) started to ramp up drilling and manufacturing from 2010 on. Crude oil and gasoline manufacturing rose quickly from lower than 50K BOEPD in 2008 to over 1.7 mm BOEPD in 2015. A perform of a rocketing rig rely and cracking the code of shale with fracturing. Issues tapered off within the late teenagers and common manufacturing within the Eagle Ford progressively dropped towards 1.0 mm BOEPD, a stage which it sustained till earlier this 12 months when it rebounded towards 1.2 mm BOEPD.
The Eagle Ford started to shake off its sleepy, “finish of life” status with Penn Virginia and Lonestar Sources merger that gave the mixed firm — an Eagle Ford pure-play that rebranded as Ranger Oil, (NYSE:ROCC) — 140,000 internet acres in South Texas, manufacturing averaging greater than 40K BOEPD, and nearly 20 years of stock.
This was carefully adopted by Devon Power’s, (NYSE:DVN) acquisition of Validus Power final 12 months for $1.9 bn. This adopted on the heels of spate of smaller offers that included SilverBow Sources’ April 2022 announcement deal to accumulate Sundance Power’s Eagle Ford holdings for $354 million and SandPoint Working’s holdings within the play for $71 million.
So, we will say the Eagle Ford is again, however we have to perceive the core drivers to know the remainder of the story.
EOG and the Dorado discovery
First introduced in 2018, low gasoline costs muted the influence of the large Dorado discover within the Eagle Ford. As famous in an article carried on RBN Power’s weblog, in 2021 market situations shifted in Dorado’s favor.
“EOG Sources’ plan to considerably increase its manufacturing of pure gasoline at its Dorado gasoline play within the Eagle Ford. EOG, which controls about 516,000 internet acres within the Eagle Ford’s oily areas and one other 160,000 internet acres within the basin’s dry gasoline window in Webb County, has estimated that its Dorado discovery has about 21 trillion cubic toes (Tcf) of gasoline and a breakeven value of lower than $1.25/MMBtu. In February 2022, the corporate reached an settlement to provide one other 420 MMcf/d of gasoline to Cheniere Power’s Corpus Christi Liquefaction Stage III undertaking — a seven-train, 10-Mtpa growth of Cheniere’s LNG export terminal in Corpus on high of the 300 MMcf/d EOG had already agreed to supply to the undertaking as its new trains come on-line.”
EOG does a very good job of spelling out the market dynamics in play for Eagle Ford in its November Investor Presentation slide under. Amongst different issues noting the proximity of Dorado to the Corpus Christie export hub pictorially.
Wrapping it up
It seems just like the far-sighted producers we’ve got mentioned on this article, pissed off with the takeaway difficulties within the Permian as a result of rising GOR’s made a sound strategic transfer into the Eagle Ford.
Whenever you mix the numerous volumes of Wealthy Condensate, NGL’s and Moist Gasoline with the proximity to the processing and export market in close by Corpus Christie, the Eagle Ford competes for capital on a par with top-tier acreage in different performs.
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Traders wishing to reap the benefits of the continued progress within the Eagle Ford would possibly do effectively to take a look at Marathon. The corporate is buying and selling at 5.5X money move or a bit much less, given the commodity-led sell-off now underway. That is very aggressive with different shale gamers. The present value per flowing barrel is $63K per barrel, additionally very aggressive on that metric with a few of the large operators going for almost $100 per barrel.
The adjusted money move from Ensign’s 67K boe will add a $1.5 bn of OCF to MRO on an annual foundation. As an instance OCF goes to ~$6 bn. In that state of affairs, the OCF a number of drops down to three.5X and a P/FB foundation of $53K per barrel.
To get again to a 5.5X, MRO shares want to regulate towards $51-$53 per share. Analysts nonetheless want to regulate for this acreage pickup, as their high estimate is $42, so I could also be out over my skis a hair right here. I do not assume so, although. The maths is easy.
Backside-line MRO shares ought to proceed greater from the Ensign acreage pickup. It must also be famous there are different shareholder-friendly actions being taken by the corporate to dramatically scale back it share rely over the following a number of years.
By David Messler for Oilprice.com
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