gregor,
What do you think of this? Once again MRO is down today - arghhh
Do its strengths make Marathon a buyout target?
LaRiche Toyota Subaru
By LOU WILIN
thecourier.com
STAFF WRITER
Gary Heminger will not speculate about a report calling Marathon Oil Corp. a buyout target.
But one of his missions as executive vice president is to make a buyout more difficult.
"Our job is to be able to execute our strategies as good as, if not better than, the competition and, therefore, make our stock one of the most expensive on the Street," he says.
One of Marathon's best defenses is an "expensive" stock price, oil analysts say.
But some analysts believe Marathon's stock is underpriced, considering the company's projected growth in production.
Most foresee a buyout somewhere in the oil industry in the next year or two, and some say Marathon is a possible target.
With its underpriced stock, Marathon is a victim of mistaken identity: It is viewed by some investors as a struggling refining company, said Neil McMahon, an analyst for Sanford C. Bernstein & Co. of New York.
McMahon is the analyst who last month called Marathon attractive for a takeover.
It is true that refining margins are low for everyone. But what investors are missing, McMahon and others said, is that Marathon has had strong growth in oil production and is projected to sustain that growth.
Heminger agrees.
"The market does not reflect the outstanding performance and improvements Marathon has made in the (exploration and production) side of our business," he said.
Marathon has blossoming exploration and production operations in the North Sea, Gulf of Mexico, Libya, Angola and Indonesia, Equatorial Guinea and North Dakota.
Last year, it gained access to possibly the largest crude deposits outside of Saudi Arabia when it bought Western Oil Sands Inc. in Alberta, Canada.
Others have noticed.
"They (Marathon) have production growth and resources that would be coveted," said Daniel Katzenberg, analyst for Oppenheimer & Co., New York.
Finding new exploration and production areas overseas is getting harder. Because the price of oil is up, countries are becoming more demanding of companies tapping into their natural resource, said Matti Teittinen, senior equity analyst for John S. Herold Inc., Norwalk, Conn.
In some countries, oil companies face the added risk of political instability, as they always have.
And while their drilling choices have shrunk, the "super-majors," including Exxon Mobil, Royal Dutch Shell, Chevron Corp., ConocoPhillips, BP and Total, have plenty of cash to buy other companies.
Rising oil prices have enabled them to pile up cash and reduce debt, Teittinen said.
The super-majors "are just generating a lot more (cash) than they are spending," Teittenen said. "At some point, it makes sense to go beyond that and look to the future ... to growth."
Marathon is not the only company that could draw their interest. Hess Corp. of New York and Murphy Oil Corp. of El Dorado, Ark., also are mentioned by analysts.
"Anybody that's not quite a whale, but a smaller bite ... you've got to watch your back," said John Parry, vice president and senior analyst for Herold Inc., Norwalk, Conn.
Marathon's value, based on its stock price, was about $30.8 billion this week. Hess' was $32.6 billion, and Murphy's was $15.6 billion.
But Marathon's stock price has fallen in the past year, while Murphy's and Hess's stock have grown pricier.
Heminger called the differing stock prices a "timing issue."
"Both (Hess and Murphy) had big exploration successes in late 2007 and early 2008 and that has driven their prices up," Heminger said.
Marathon from December 2004 to December 2007 had the highest total shareholder return among the 13 largest oil and gas companies, 231 percent, he said. Shareholder return measures stock appreciation and dividends.
Analysts said Marathon's price will eventually climb higher.
Regardless, other barriers to a buyout exist.
If the bidder would be an American company with its own refining operations, it might be required by the Federal Trade Commission to sell refining assets out of concerns about competition.
Or, a company already heavily weighted toward refining and its small profit margins might be dissuaded by Marathon's extensive refining holdings, Teittenen said.
Foreign companies wanting more exposure to the United States could find Congress in the way. Congress would be particularly concerned about a foreign company that is state-owned, analysts said.
More likely than an acquisition, according to Parry: A company would team up with Marathon or one of its peers, setting up a joint venture made up of portions of the assets of each company.
The joint venture would be separate from Marathon and the other company. It would simply involve "marrying the two (sets of) assets into interdependence," he said.
Contact staff writer Lou Wilin at: |
