marathon may have increased the value of...., page-19

Sharejon,

please refer to Kohlberg Kravis Roberts as KKR and not KRR.

MRO's press release of 1 June refers to the purchase of assets from the limited partnership owned 60/40 by Hilcorp & KKR.

As interests in land can only be transferred by written instrument, and not by transfer of possession, I would suspect that MRO is buying one or more companies formed to hold those land interests for the partners - but that's just a technical issue.

The "Hilcorp" that we refer to generally is the private company that is the parent that owns these assets indirectly through various vehicles that may include the 'Hilcorp' name. There is no take-over of "Hilcorp" - just purchase of assets from one of its envelope vehicles or purchase of the envelope vehicle.

KKR are normally associated with private equity and capital markets. They funded Hilcorp taking an equity stake in the underlying asset. They're good at making money using money.

It was inevitable that Hilcorp would sell out but I thought it would be after the reserves had been proved up. However, according to Euroz's note of 2 June attributing $3bn of the purchase consideration to the acreage shared with AUT, the implied EV of AUT is pretty much equal to the market capitalisation, which reflects NPV 10 of the 3p reserves. In other words, if Euroz is right, Hilcorp & KKR got pretty much the value of the NSAI certified 3p reserves, but before having to complete drilling to recategorise all of the 3p reserves as 2p.

So, why didn't Hilcorp keep a stake? Possibly for 2 reasons. KKR wanted to take profit and it may have been difficult to disentangle their interests. And, Hilcorp may have a policy of investing only in oil assets as operator - that would have been in conflict with MRO.

Focus should be on why MRO is buying in not on why Hilcorp is selling out.