Marathon Oil Abandons Oil Sands Stake Sale - Analyst Blog


Energy exploration and production firm Marathon Oil Corp. ( MRO ) has confirmed that it has pulled out of talks with potential buyers regarding the partial sale of its 20% interest in the Athabasca Oil Sands Project (AOSP) in Alberta, Canada.

The venture - involved in the extraction of bitumen (a sticky, tar-like form of petroleum) from sand formations - is a collaboration between the Canadian subsidiaries of Europe's largest oil company Royal Dutch Shell plc ( RDS.A ), U.S. energy giant Chevron Corp. ( CVX ) and Marathon Oil. Shell has a 60% operated interest in the project, while the remaining 40% is equally split between the other partners.

In an announcement, Marathon Oil revealed that it has ended discussions with prospective purchasers without reaching any agreement and is not involved in any further negotiations for possible stake sale of the said property.

Despite Marathon Oil's inability to secure a deal for its Canadian oil sands project, the company still plans to generate $1.5-$3 billion from selling assets - those that do not fit into its long-term growth plan - over the period 2011-2013. To date, Marathon Oil has raised roughly $1.3 billion through property divestitures.       

Houston, Texas-based Marathon Oil is a leading energy firm with a large and geographically-diverse reserve base and solid project pipeline. Additionally, the company possesses a healthy balance sheet, which helps it to capitalize on investment opportunities. We also like the strong growth potential of Marathon Oil's high-margin liquids-rich unconventional plays, which diversify its portfolio and are expected to further drive its overall volumes.

However, we think the current valuation is fair and adequately reflects the partnership's future growth prospects. Moreover, Marathon Oil will take some time to fully absorb the outcome of the spin-off of its downstream business, which is expected to further limit its ability to generate positive earnings surprises.

This accounts for Marathon Oil's current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at TransAtlantic Petroleum Ltd. ( TAT ) as a good buying opportunity. This U.S. integrated energy firm - sporting a Zacks Rank #2 (Buy) - have solid secular growth stories with potential to rise from current levels.

CHEVRON CORP (CVX): Free Stock Analysis Report

MARATHON OIL CP (MRO): Free Stock Analysis Report

ROYAL DTCH SH-A (RDS.A): Free Stock Analysis Report

TRANSATL PETROL (TAT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: CVX , MRO , RDS.A , TAT

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