Leading integrated oil and gas company Marathon Oil Corporation (MRO) announced plans to sell a part of its stake in the Niobrara shale oil project to a unit of the Japanese company Marubeni Corporation for $270 million. The deal is stated to be completed by the end of April 2011.

Per the terms of the agreement, the subsidiary, Marubeni Denver Julesburg LLC, will purchase 30% working interest in the 180,000 net acres in the DJ Basin of southeast Wyoming and northern Colorado. The deal values the assets at about $5,000 per acre.

Marathon started leasing its acreage in the DJ Basin last year and targets acquiring 2-D and 3-D seismic data as well as being part of 8 to 12 gross exploration wells by this year end. The company will continue to act as the operator of the jointly owned leasehold.

Marathonmanagement believes that this collaboration will be beneficial for exploration and appraisal of the prolific and fertile oil and gas fields. It expects to generate strong results from the low-risk yet resource-rich properties using advanced technological skills.

Based in Houston, Texas, Marathon exhibits an array of upstream and downstream activities with operations spread across the globe including countries like the U.S., Canada, U.K., Norway, Equatorial Guinea and Angola.

We remain optimistic on Marathon’s growth visibility in the near term given the large and geographically diverse reserve base, competitive downstream operation and solid project pipeline.

However, there appears limited upside potential for the company’s shares considering its sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project timing delays. Marathon also faces stiff competition from peers such as Chevron Corp. (CVX) and Exxon Mobil Corporation (XOM). As such, we expect Marathon to perform in line with the broader market and maintain our Neutral rating.

 
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