Marathon Leaving Irish Project

Marathon Sells Interest in Corrib Natural Gas Development

On Wednesday, June 24, 2009, Texas-based Marathon Oil Corporation (MRO - Analyst Report) announced the sale of its interest in the Corrib offshore natural gas development project on Ireland's northwest coast, a joint-venture between Shell (RDS.A - Snapshot Report), StatoilHydro (STO - Analyst Report) and Marathon. The company has reached an agreement in this regard with Alberta-based oil and gas company Vermilion Energy Trust.

Per the agreement, Marathon will sell its wholly owned Irish subsidiary, Marathon International Petroleum Hibernia Ltd. (having an 18.5% interest in the Corrib development) to Vermilion in a deal worth between $235 million and $400 million, subject to the timing of first commercial gas at Corrib.

Under the terms of the deal, Vermilion will pay Marathon an initial payment of $100 million at the closure of the transaction, expected during the second half of 2009, subject to government and regulatory approvals. The remaining portion will be due at the time of first production from the site, which is expected between late 2010 and late 2011. Additionally, Vermilion is slated to invest up to $300 million to complete the facilities needed to reach the gas.

As of December 31, 2008, Marathon's total net proved reserves associated with the Corrib development were 98 billion cubic feet of natural gas. Shell is the operator of the project with a 45% interest, while StatoilHydro holds a 36.5% stake.

As a result of this deal, Marathon is expected to record an after-tax loss (currently estimated at $150 million) in the second quarter. We currently rate Marathon shares as Buy with a 12-month target price of $35. We continue to like Marathon's attractive inventory of development projects, strong financial health and compelling valuation.