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Marathon Sheds Burns Point Unit

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Marathon Oil Corporation (MRO - Free Report) has agreed to sell its 50% interest in the Burns Point Gas Plant to American Midstream Partners, L.P. . The deal will be executed through the wholly owned subsidiary – Marathon Oil Company – and will fetch $38 million in cash.

Located in St. Mary Parish, Burns Point is a cryogenic processing plant with a capacity of about 165 million cubic feet per day. The unit is co-owned by Enterprise Gas Processing LLC – an affiliate of Enterprise Products Partners L.P. (EPD - Free Report) , which controls the remaining 50% stake and acts as the operator.

The operations of the plant involve the process of raw gas sourced offshore from the American Midstream’s Quivira system, the Gulf South Pipeline and other onshore producers. While the residue gas is transported via pipeline to Gulf South Pipeline and Tennessee Gas Pipeline, the while the natural gas liquids (NGLs) are supplied through a pipeline to an Enterprise-operated fractionator.

Denver-based American Midstream intends to finance the acquisition with its existing revolving credit facility and expects the deal to be immediately accretive to its distributable cash flow per unit upon closing. The transaction, pending customary regulations, is slated to be closed in the fourth quarter of 2011.

The disposition is in sync with Marathon’s strategy of divesting assets that do not fit into its long-term growth plan. During the last five years, Marathon has sold approximately $3.5 billion worth of non-core oil and gas properties around the world, thereby freeing up capital to concentrate on its longer-term high-grade prospects. The company targets to divest an additional $1.5–$3.0 billion of assets over the next two to three years.

Houston, Texas-based Marathon is a leading integrated oil and gas firm with extensive upstream operations. The company’s business is organized into three segments – Exploration and Production, Oil Sands Mining, and Integrated Gas.

We believe that Marathon is a leading energy firm with a large and geographically diverse reserve base and solid project pipeline. Additionally, the company possesses a healthy balance sheet, which helps it to capitalize on investment opportunities.

However, the transfer of the refining/sales operations has left Marathon with a less diversified business, thereby heightening its risk profile. Moreover, the company remains exposed to international business risks, operational hindrances and volatile macro conditions.

Hence, we see restricted upside potential for the stock and maintain a long-term Neutral recommendation. Marathon has a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.

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