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Has Marathon Oil (MRO) Put Its North Sea Assets on the Block?

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Reportedly, Marathon Oil Corporation (MRO - Free Report) recently kicked off the sale process of its North Sea oil and gas fields, in a bid to streamline portfolio and focus on U.S. shale production.

The assets it intends to offload include its minority stakes in Foinaven fields in the west of Shetland area and interests in the Brae complex northeast of Aberdeen. According to banking sources, the divestment of these properties can fetch Marathon Oil around $200 million. The assets to be jettisoned have an average production capacity of 15,000 barrels of oil equivalent per day.

Plans in Sync With Marathon Oil’s Strategies

The divestment plan is part of Marathon Oil’s strategic review of global portfolio to determine the competitiveness of all its projects. The company, which intends to optimize its portfolio with high return and low risk investments, wants to deepen its focus on the prolific U.S. shale plays.

Over the past 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 key low cost-high margin U.S. resource shales including Permian, Eagle Ford and Bakken, Marathon Oil has increased its production guidance for 2018.

The deal is in sync with the company’s focus on boosting its financials, as Marathon Oil remains committed toward strengthening its balance sheet and driving cash flows. Delivering on its commitment, Marathon Oil achieved cash flow neutrality last year and is poised for strong free cash flow generation through the end of the decade.

The divestment plan seems to be a prudent one as extracting oil from North Sea is not so economical since production costs are much higher than returns. Even other biggies like Bp plc (BP - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) have jettisoned their non-core assets in the region. Early last year, Shell offloaded a large chunk of its North Sea assets to smaller rival Chrysaor Holdings Ltd. for $3.8 billion. BP also divested 25% of its stake in the Magnus Field to EnQuest PLC. Very recently, Chevron inked a deal to sell its Rosebank Oilfield Stakes in North Sea to Equinor ASA.

Marathon Oil on a Divestment Spree

Over 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. Marathon Oil also exited Libya this March, offloading its oil acreage in the country to France-based supermajor TOTAL S.A. (TOT - Free Report) .

In fact, over the past two years, Marathon Oil, which is a Zacks Rank #3 (Hold) company, has garnered proceeds of more than $4 billion from its divestment deals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We believe that the company's high emphasis on exiting non-core business, as well as 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.

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