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Marathon Oil Vends Libyan Assets to Streamline Portfolio

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In a bid to deepen its focus on U.S. shale plays, Marathon Oil (MRO - Free Report) recently offloaded its oil acreage in Libya to France-based supermajor TOTAL S.A. . This development marks the exit of Marathon Oil from Libya.

Deal Highlights

Per the deal, Marathon Oil divested 16.3% interest in the Waha acreage in Libya. Other partners in Waha concessions include Libya’s national oil company with 60% stake, along with ConocoPhillips and Hess Corp. with 16.3% and 8.2% stake, respectively. At the end of 2017, Marathon Oil held 199 million barrels of oil equivalent (boe) of proved reserves in Libya.

The divestment deal was valued at $450 million.

Marathon Oil on a Divestment Spree

In the last couple of years, the Texas-based energy explorer has inked several deals to sell non-core assets that do not fit into the company’s long-term growth plan. In August 2015, the company divested its Wilburton, OK assets for an amount of $102 million. In November 2015, Marathon Oil jettisoned Gulf of Mexico (GoM) assets for a total price of $205 million.

In April 2016, the company inked a deal to divest its Wyoming upstream and midstream assets to Merit Energy for $950 million. Further, in October 2016, the upstream player signed a deal to sell some of its non-core assets in West Texas and New Mexico for $235 million. Additionally, in March 2017, the company exited the high-cost Canadian oil-sands operations for $2.5 billion.

In fact, over the last two years, the company has garnered proceeds of over $4 billion from its divestment deals. Notably, Marathon Oil has made an exit from seven countries since 2013.

Deal Rationale

The recent divestment of Libyan holdings is just another move by Marathon Petroleum to further streamline its portfolio. Over the last two years, the company has successfully positioned itself into the Delaware Basin and low cost-high margin STACK/SCOOP resource plays while exiting non-core property assets with limited upside.

In fact, driven by the key low cost-high margin U.S. resource shales including Permian, Eagle Ford and Bakken, Marathon Oil has projected an increase of 18% in its total production for 2018. The company announced a 2018 capital program of $2,300 million, with around 95% of the outlay earmarked for high return U.S. resource plays.

Also, the deal is in sync with the company’s focus to boost its financials. In the recent earnings release, the company restated its commitment toward strengthening its balance sheet and driving cash flows. With $450 million coming in from the latest divestment, along with the remaining proceeds from the sale of Canadian oil-sands business, Marathon Oil is set for a robust cash influx in the coming quarter. This will also position the company to tap on strategic growth opportunities through bolt-on acquisitions.  

Moreover, Marathon Oil has been bearing the brunt of stuttering operations in Libya amid political instability and conflicts in the region. Production from the region once accounted for over 11% of the company’s total oil and gas output. However, amid the political and security scenario, the company’s operations in the region had become uncertain and consequently the output was declining. As such, Marathon Oil generated little cash flow from the region in comparison with the rest of its portfolio.

Nevertheless, TOTAL — having operated in Libya for nearly 65 years — looks better positioned to handle the political uncertainty of the region. Despite the risks, TOTAL believes that the acquisition will provide growth opportunities and bolster its historic strengths in the Middle East and North African regions. The acquisition signifies TOTAL’s vote of confidence in the country that is making efforts to ramp-up production amid political turmoil.

Zacks Rank & Key Picks

Marathon Oil carries a Zacks Rank #3 (Hold). Shares of Marathon Oil have increased almost 27% over the last six months, outperforming the broader industry’s gain of 12%.



We believe that the company's high emphasis on exiting non-core business, and focusing on strategic acquisitions and balance sheet strengthening will drive growth. However, management’s low priority toward dividend growth and share buyback programs may dampen investor's confidence.

A few better-ranked players within the same industry include ConocoPhillips (COP - Free Report) and Occidental Petroleum Corp. (OXY - Free Report) , each sporting a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips delivered an average positive earnings surprise of 144.45% in the last four quarters.

Occidental Petroleum delivered a positive earnings surprise in each of the trailing four quarters, with an average beat of 24.57%.

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