Tags: Marathon | Oil | spinoff | MRO

Marathon Oil Downstream Spinoff Seen Positive for Growth

By Greg Brown   |   Tuesday, 14 Aug 2012 07:28 PM

Marathon Oil (MRO) is a global energy play with a footprint in the hot shale energy business in the United States, as well as emerging oil and gas projects abroad. Analysts see a recent decision to spin off its downstream (sales and distribution) arm as a positive growth move for shareholders.

Marathon Oil is an international energy company engaged in exploration and production, oil sands mining and integrated gas with operations in the United States, Angola, Canada, Equatorial Guinea, Indonesia, the Iraqi Kurdistan Region, Libya, Norway, Poland and the United Kingdom.

On June 30, 2011, the spin-off of Marathon’s downstream business was completed, creating two independent energy companies: Marathon Oil and MPC. Assets within the company’s three segments are at various stages in their lifecycle, the company said in a recent filing: base, growth or exploration.

“Growth assets are where we expect to make significant investment in order to realize oil and gas production and reserve increases,” MRO management said.

“We are focused on U.S. liquid hydrocarbon growth by developing liquids-rich shale play positions, including most recently the establishment of a strong position in the core of the Eagle Ford shale play,” it said in the filing. 

In addition to the U.S. shale plays, growth assets include the development of Angola Block 31, discoveries in the Iraqi Kurdistan Region, select Gulf of Mexico blocks and Canadian in-situ assets, Marathon said.

Marathon Oil has a market cap of $19.43 billion in a sector, oil, gas and consumable fuels, where the average company size is $48.6 billion. Its trailing 12-month P/E ratio is 11.02 and its five-year projected price-to-earnings-growth (PEG) ratio is 110.2, compared to 1.9 for the sector.

Its projected earnings per share growth for the coming year is 21.72 percent, compared to a sector average of 14.1 percent.

Upstream growth


Analysts are generally positive on MRO, with buy or outperform calls from Standard & Poor’s Equity Research, Deutsche Bank, and Smith Barney.

“MRO spun off its downstream business to shareholders in a tax-free transaction effective June 30, 2011. We had been looking for reduced refining contributions over the next five years and believe lifted exposure to upstream projects in new international and U.S. onshore basins will drive upstream growth,” S&P analysts wrote in early August.

Marathon Oil next reports on Oct. 31.

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