Fitch: PayRock Acquisition Neutral to Marathon's Current Ratings
The acquisition will significantly increase MRO's runway in the STACK to approximately 200,000 acres, and is expected to provide multiple years of new drilling inventory. Marathon projects that Meramac oil wells in the new acreage are economic at current strip pricing, producing IRRs of 60% - 80% at $50 WTI.
Fitch expects that the company will fund the deal with current liquidity, primarily balance sheet cash. As calculated by Fitch, at March 31, 2016, MRO's total cash stood at $2.07 billion (prior to proceeds from the $950 million Wyoming asset sale). The company had full availability on its $3.3 billion revolver, which expires in 2020, for total liquidity of $5.37 billion. Marathon has bolstered its liquidity recently through its $1.2 billion equity offering earlier this year, as well as approximately $1.3 billion in non-core asset sales since mid-2015. Debt to cap at March 31, 2016 was 27%, versus a covenant maximum of 65%.
Fitch currently rates Marathon Oil as follows:
--Long-Term Issuer Default Rating (IDR) at 'BBB';
--Senior Unsecured Revolver and Notes at 'BBB';
--Industrial Revenue Bonds at 'BBB';
--Commercial Paper at 'F2';
--Short Term IDR at 'F2'.
The Rating Outlook is Negative.