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Marathon looking to sell Powder River CBM assets Pennaco Energy, acquired in 2001, no longer a good fit; Marathon now focused on stranded gas worldwide, including West Africa LNG Ray Tyson Petroleum News Houston Correspondent
Marathon Oil is taking offers for U.S. Rockies subsidiary Pennaco Energy, a little over three years after acquiring the independent coalbed methane producer in a deal valued at about $500 million.
When closing the transaction in March 2001, Marathon said Pennaco was “a great strategic fit” for the company and would provide “a significant new reserve base that we can develop and deliver quickly to the marketplace.”
Marathon has altered its tune, saying June 8 it intends to solicit offers for Pennaco, which operates solely in the gas-rich Powder River Basin of northern Wyoming and southern Montana.
“Marathon’s decision to market Pennaco and its assets is part of the company’s ongoing efforts to actively manage its global asset portfolio to ensure alignment with its business strategy and to generate sustainable value growth,” Marathon said in a written statement.
Translated that means the value of Pennaco no longer measures up to other opportunities, such as Marathon’s desire to capture more of its stranded gas around the world, including West Africa where the company wants to construct a large liquefied natural gas plant to process gas from its Alba field.
“Assets need to be reviewed and stacked up against other opportunities,” Marathon spokesman Paul Weeditz said of Pennaco.” Hopefully, he added, “the value to them (potential buyers) is greater than it is to us.” Strong prices, recent sales in Rockies a factor Moreover, strong natural gas prices and recent sales transactions in the Rocky Mountains “indicate that now is the appropriate time to solicit potential offers for these interests,” Marathon said.
In a similar effort to high-grade its portfolio, Marathon last year sold its upstream assets in Western Canada to Husky Energy for about $588 million. The company said then the assets no longer represented “a strategic fit.” That deal included booked reserves of about 69 million barrels of oil equivalent and average net production of about 21,000 barrels of oil equivalent per day. However, if Marathon does not receive a “compelling offer” for Pennaco, Marathon will keep the assets and “simply move on” with current development plans for the Powder River basin, Weeditz said.
“These are quality assets,” he said. Bidding to conclude in third quarter Marathon said it plans to conclude the bidding process in the third quarter of this year. If an acceptable offer for Pennaco is received, Marathon said it would anticipate closing the transaction during the fourth quarter. Three years ago Denver-based Pennaco, founded in 1998, was among the largest leaseholders in the Powder River basin with more than 400,000 net acres and net production exceeding 50 million cubic feet of natural gas per day. Net proven reserves at the time were estimated at about 200 billion cubic feet, with more than 800 billion cubic feet of upside potential.
Marathon is currently the largest holder of coalbed methane acreage in the Powder River basin, with more than 650,000 net acres. Production from its operations averaged about 72 million cubic feet of natural gas per day during the first quarter of 2004.
At year-end 2003, Marathon’s total resource base in the Powder River basin exceeded 2 trillion cubic feet of natural gas, of which 388 billion cubic feet were booked as proved reserves. Pennaco only 10 percent of Marathon’s U.S. gas production Marathon noted that while it has a major presence in the Powder River basin, production from Pennaco assets represent only about 10 percent of its total U.S. natural gas production of around 732 million cubic feet per day, and about 3 percent of worldwide oil and gas production of about 365,000 barrels of oil equivalent per day.
The marketing and potential sale of Pennaco does not include any of Marathon’s conventional oil and natural gas exploration and production operations in Wyoming and Montana, the company said. That represents 21,000 barrels of oil per day and 39.8 million cubic feet per day.
In 2001, Marathon acquired for cash all the outstanding common shares of Pennaco for $19 a share in a transaction valued at about $500 million, including $54 million in debt. Before the deal was approved, Marathon estimated the final acquisition and development costs of Pennaco’s proven, plus probable reserve base would be around $4.50 per barrel of oil equivalent.
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