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Marathon sales net $1.1bn for Eagle Ford

Marathon Oil has signed asset-sale deals worth more than $1.1 billion, which it plans to spend at its Eagle Ford shale project

Marathon, which spun off its downstream division last year to focus on its upstream business, said it has closed more than $700 million in deals to date and is waiting on another $400 million in transactions to close.

The biggest deal announced to date was the sale of the company’s Cook Inlet properties in Alaska, which fetched around $375 million.

In addition, Marathon has said it is in discussions to reduce its 20% stake in the Athabasca Oil Sands Project (Athabasca) in northern Canada. The oil-sands mine, operated by Shell, is producing about 350,000 barrels per day (b/d).

But given “the uncertainty of such a transaction,” potential proceeds have not been included in the company’s official guidance of $1.5 billion to $3 billion worth of divestitures by 2013.

Assuming an asking price of about $100,000 per flowing barrel, Marathon’s Athabasca stake could add $750 million to $1 billion to its divestment programme, depending on the terms of any deal.

The move makes Marathon the latest US independent to turn its attention back to its home turf. Houston-based Marathon said it aims to redouble efforts in the Eagle Ford, where it plans to spend about $1.6 billion a year.

In addition to drilling, the company has spent $1 billion so far in 2012 acquiring almost 25,000 additional net acres in the shale play.

In August, Marathon bought Paloma Partners, acquiring 17,100 net acres at a cost of $750 million. A subsequent deal to purchase 4,300 net acres for $227 million is pending and is expected to close in the fourth quarter.

The properties are producing 2,900 barrels of oil equivalent per day (boe/d) and will add 40 net locations to Marathon’s drilling inventory.

Marathon’s land position in the Eagle Ford is now approaching 325,000 net acres, the company said. The company has set an ambitious target of 120,000 boe/d of Eagle Ford output by 2016.

Eagle Ford production has grown at an annualised average rate of 435% since 2006, according to research firm GlobalData. Production surpassed 500,000 boe/d in 2012 and is expected to reach 3.5 million boe/d by 2020.

Reaction from financial analysts was mixed. Marathon shares were mainly flat in the wake of the deals. On 26 October shares closed at $29.91 on the New York Stock Exchange.

Chicago-based Zacks Investment Research said: “We like the strong growth potential of Marathon's high-margin liquids-rich unconventional plays, which diversify its portfolio and are expected to further drive its overall volumes. While being incrementally more positive on the company, we believe Marathon will take some time to fully absorb the outcome of the spin-off.”

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