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Marathon Oil Bids Adieu to UK to Deepen Focus on US Plays

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Marathon Oil (MRO - Free Report) recently closed the divestment of North Sea operations, marking a complete exit from the United Kingdom. In accordance with the deal that was inked in February 2019, the company jettisoned a 40% operating stake in the Greater Brae Area and 28% stake in BP plc (BP - Free Report) operated Foinaven oilfield to RockRose Energy for $95 million.

Deal Benefits for RockRose

The transaction is in line with RockRose’s intention of bolstering operations in the North Sea region, and uplifting the firm’s reserves and production forecast. The deal added 28.4 million barrels of oil equivalent (BOE) to its proved and probable reserves, which came in at 62.9 million BOE as of March 2019. Anticipated output from acquired assets is likely to be around 13,000 BOE per day, in turn raising RockRose’s total net production in 2019 to approximately 24,000 BOE.

Notably, this London-based firm has been exploring many acquisition opportunities over the past couple of years to have improved operations of scale in the North Sea. In this regard, in 2017, the company had snapped up assets from Idemitsu Petroleum IK Limited, Egerton Energy Ventures limited and Sojitz Energy Project Limited to expand foothold in the North Sea. RockRose also closed EUR €107 Dyas B.V. buyout in October 2018, which added more than 5,000 BOE per day of production to the company’s portfolio.

Deal in Sync With Marathon Oil’s Strategies

Over the past few years, the Texas-based energy explorer inked several deals to sell non-core assets that do not fit into the company’s long-term growth plan. With the closure of this deal, Marathon Oil bided goodbye to 10 countries since 2013. Markedly, while the company will derive total oil production from the United States, it will retain LNG operations in Equatorial Guinea.

The strategic sell-offs not only bolstered its portfolio but also boosted financials of the firm.We believe that Marathon Oil’s high emphasis on exiting the non-core business, and focus on strategic acquisitions and strengthening balance sheet will drive growth. However, management’s low priority toward dividend growth and share buyback programs may dampen investors’ confidence in the stock.

The company, which intends to optimize its portfolio with high-return and low-risk investments, wants to deepen focus on prolific U.S. shale plays.The upstream player’s strategic portfolio in key resource shale plays like Bakken, Eagle Ford, Permian and STACK/SCOOP signals visible production growth in the upcoming years. Given enhanced completion designs and effective spacing strategies, the firm has been improving the quality of assets, and is well positioned to ramp up production and revenues. For 2019, Marathon Oil targets 12% output growth in the United States.

Zacks Rank and Key Picks

Marathon Oil currently carries a Zacks Rank #3 (Hold).

Some better-ranked oil and gas explorers include Approach Resources Inc. and Comstock Resources, Inc. (CRK - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

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