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Marathon Announces Sale Of Nearly $1 Billion In Assets

Marathon Announces Sale Of Nearly $1 Billion In Assets

Marathon Oil announced it has found buyers for assets worth a total $950 million, to be sold as part of a divestment plan launched last year. The plan envisages selling assets worth between $750 and $1 billion, but now the total has been brought up to $1.3 billion, the company said.

The divestments include all of its E&P operations in Wyoming plus a pipeline there, together worth $870 million without the closing considerations, the company said. Also among the assets are a 10 percent stake in an undeveloped offshore discovery in the Gulf of Mexico, gas assets in Colorado, and land in Texas. Related: Natural Gas Trading Strategies

The most fascinating question regarding these deals is, who are the buyers? Marathon Oil is keeping that close to the vest. There are not a lot of companies clamoring to spend upwards of $1 billion to expand their operations, so the markets are no doubt curious to see who feels confident enough to make such an acquisition.

Whoever the buyer, the news is excellent for Marathon Oil; it immediately pushed its stock up: on April 12, the shares settled with a 12.4 percent gain and analysts all over the market are adopting a bullish stance on the company. Deutsche Bank, for instance, told CNBC that with the asset sales, Marathon Oil is effectively shedding excess weight, and positioning itself for the future in a way that will allow it to make the best of new opportunities and improving oil prices. Related: 70-90% Decline In Well Completions Raises Hope For Oil & Gas

Marathon Oil is acting like a cautious company, and so it should be, after posting a net loss of $869 million for 2015, from a profit of $1.16 billion a year earlier, accumulating debt of $6 billion by the end of 2015.

Now it is trying to turn things around. It has allocated $1.4 billion for its capex program for this year, which is half the amount for 2015, and it has trimmed its fourth-quarter dividend for 2015 in order to free more cash. As CEO Lee Tillman said, the company is aiming to “live within its means” for now, always a smart choice in a downturn. Related: Tesla And Other Tech Giants Scramble For Lithium As Prices Double

More importantly, however, Marathon Oil is thinking about its long-term future. In its 2015 operational and financial report, the company said it has replaced 157 percent of its oil and gas reserves. This is significantly more than what a lot of its peers are doing, which will very probably get them in trouble once oil prices start climbing up again.

Marathon Oil will be able to avoid having to respond to heightened demand and lacking the means to do it with this rate of reserves replacement. Its rate of replacement also means that it can comfortably proceed with its non-core operations divestments, streamlining the business and becoming more flexible in an environment that requires flexibility.

By Irina Slav for Oilprice.com

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