DENVER (AP) _ Marathon Oil Co., one of North America's largest oil companies, has announced it will acquire a Denver-based rival, Pennaco Energy Inc.

Marathon Oil, headquartered in Houston, will pay about $500 million in cash and assume some $54 million in Pennaco debt. The company said Friday it will pay about $19 each for Pennaco's outstanding shares.

Marathon said the aquisition will enable the company to expand its natural gas holdings and tap into growing consumer demand for energy. Energy and gas prices are sky high across the nation, and natural gas has become the fuel of choice for new power plants.

Both companies' boards agreed to the merger.

Pennaco produces coal bed methane gas from over 400,000 acres of land in Wyoming's Powder River Basin and Montana. It has output of about 50 million cubic feet of natural gas a day and estimated reserves of at least 200 billion cubic feet, with prospects of up to 800 billion cubic feet.

The deal was announced after trading ended Friday. Pennaco shares were unchanged at $14.63. Shares of Marathon, a separately traded unit of Pittsburgh-based USX Corp., rose 38 cents to $27.06.