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Marathon Sets Foot on Gabon Again

MRO CIE

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Leading U.S. energy firm, Marathon Oil Corporation (MRO - Analyst Report) has inked a farm-out agreement with Total Gabon, marking a re-emergence in the West African country of Gabon.

Marathon quit its operations in the country in 2009, with the sale of its interests in three offshore production blocks – Tchatamba Marin, Tchatamba South and Tchatamba West.

Per the terms, Marathon Upstream Gabon Limited – an affiliate of Marathon Oil – will take over a 21.25% working interest in the Diaba License G4-223 and its associated permit.

Located about 31.1 miles from the southern coast of Gabon and at water depths of 328.1 feet to 11,482.9 feet, the Diaba license spans over an area of approximately 3,503.9 square miles.

Following this deal, Total Gabon will continue to act as the operator of the license with 42.50% interest. The other partners in the holding are CIE Gabon Diaba Ltd. (21.25% stake) – a unit of Cobalt International Energy (CIE - Snapshot Report) and the Republic of Gabon (15% interest).

Pending certain regulatory approvals by the domestic authority, the deal is expected to be closed in the third quarter of 2012.

The company plans to commence drilling on the concession in the first quarter of 2013, after the necessary seismic surveys and interpretations are complete.

Marathon management remains highly optimistic about this alliance that will allow work on the pre-salt regions in the Diaba permit. Marathon believes that this collaboration will broaden its portfolio of assets on the global platform and pave way for further exploration opportunities.

Houston, Texas-based Marathon Oil is an integrated oil and gas firm with extensive upstream operations, worldwide. The company’s business is organized in three segments – Exploration and Production (accounting for more than 80% of Marathon’s total income), Oil Sands Mining, and Integrated Gas.

We believe that Marathon exhibits a geographically diverse reserve base and solid project pipeline. Additionally, the company possesses a healthy balance sheet, which helps it to capitalize on investment opportunities. Marathon’s emphasis on the high-margin North American unconventional resource plays should further improve its growth profile.

However, due to its integrated nature, Marathon is particularly susceptible to the downside risk from any weakness in the global economy. We are also concerned about business risks associated with operations in oversea areas as well as technical disruptions and cost overruns in various projects.

Hence, we believe that the upside potential of Marathon is limited and maintain our long-term Neutral recommendation on the stock. Marathon shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

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