Houston, Texas-based
Marathon Oil Corporation
(
MRO
) plans to sell its natural gas-rich acreage in the Marcellus Shale
formation as it aims to shed the non-core properties while
reviewing its portfolio following last year's spin-off of its
refining division. However, the company declined to comment on any
such transaction.
A leading integrated oil and gas firm − Marathon − will likely shed
about 80,000 acres in West Virginia and Pennsylvania and could
receive up to $1,000 an acre. The company now considers its
Marcellus assets as non-core and minor to its operations.
Marathon had drilled its first well in the Marcellus region
sometime back in 2009. Last year, the company entered into a joint
venture agreement with an independent oil and gas exploration
company, Triana Energy Investments LLC, backed by Morgan Stanley
Private Equity, for the development of its acreage in the region.
However, in response to the low gas price environment, Marathon and
other energy giants are focusing more on liquid-rich profitable
areas. A supply glut has resulted in cascading natural gas prices
during the past year or so, as production from dense rock
formations (shale) - through novel techniques of horizontal
drilling and hydraulic fracturing - remains robust. The grossly
oversupplied market continues to pressure commodity prices in the
backdrop of sustained strong production.
Again, in July 2011, Marathon completed the spin-off of its
refining/sales business into a separate, independent and publicly
traded company
Marathon Petroleum Corporation
(
MPC
). We believe the transfer of the downstream assets (post-split)
has left Marathon with a less diversified business. As a result,
the business risk profile of the reorganized Marathon is weaker
than that of the pre-spin-off company. Hence, this divestiture of
non-core assets will likely reflect its endeavor to reposition its
portfolio post spin-off.
We maintain our long-term Neutral recommendation on Marathon
shares, which currently retains a Zacks #3 Rank (short-term Hold
rating).
MARATHON PETROL (MPC): Free Stock Analysis
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MARATHON OIL CP (MRO): Free Stock Analysis
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