A quartet of deals announced by Marathon Oil Corp. (NYSE: MRO) on April 11 have the potential to stop the company’s hemorrhaging of cash—an estimated overspend of $1.4 billion through 2018, analysts said.

Marathon said it signed agreements totaling $950 million that would see the company sell its Wyoming upstream and midstream operations as well as acreage in Piceance Basin and West Texas. The company is also selling its 10% working interest in the Gulf of Mexico’s (GoM) Shenandoah discovery, which may have repercussions for Anadarko Petroleum Corp.’s (NYSE: APC) 30% stake in the project.

Merit Energy, a private E&P, agreed to purchase the Wyoming assets for $870 million, Marathon spokeswoman Lee Warren told Hart Energy. Marathon’s holdings include the 570-mile Red Butte pipeline and waterflood developments in the Big Horn and Wind River basins. The company reported 16,500 barrels of oil equivalent per day (boe/d) in first-quarter 2016.

While it’s difficult to calculate valuations for Marathon’s Wyoming upstream assets, it is “reasonable to assume that MRO received between $30,000 and $40,000 per flowing barrel of production,” said Guy Baber, senior research analyst for Piper Jaffray.

The upstream assets would have made up to $660 million of the $870 million price, a discount to historical transactions, he said.

The remaining value of $210 million to $370 million would have paid for the Red Butte midstream asset.

Buyers for the remaining $80 million worth of transactions weren’t disclosed. If closed by mid-year 2016 as expected, the deals could help sew up a large hole in Marathon’s pocket. Baber said Marathon is poised to outspend its cash flow by about:

  • $630 million in 2016;
  • $475 million in 2017; and
  • $350 million in 2018.

While Marathon is challenged to generate sufficient cash flow in the current environment, it’s a positive step for the stock and helps establish a “floor in the event of a lower for longer oil price environment,” Baber said.

With Marathon’s recent $1.1 billion equity offering and an additional $950 million in announced asset sales, the company has “more than covered their cash flow deficit for the next three years and answered any liquidity concerns that worried investors just a few months ago,” he said.

Since August, Marathon has announced or closed divestitures of $1.3 billion, exceeding its target of $1 billion. In February, Marathon set its 2016 capex at $1.4 billion, about half of 2015’s spending.

Devil’s Details

The timing for any upstream deals is less than ideal in the current commodity landscape, but “there is still logic to streamlining the asset base,” said Pavel Molchanov, an analyst at Raymond James.

In the GoM, the company’s divestiture from the Shenandoah removes capex burdens from its balance sheet—a move that isn’t surprising given its asset sales in the GoM last year, Molchanov said.

With the GoM, Piceance and West Texas sales lumped together at $80 million, it’s unclear how much consideration Marathon received for its 10 percent working interest.

If most of the $80 million was paid for the Sehanandoah working interest, the asset’s value is worth less than $800 million.

“For comparative purposes, we ascribe about $1.3 billion to Anadarko Petroleum’s 30% working interest,” said David Kistler, senior research analyst for Piper Jaffray.

But Marathon may have been willing to exit the GoM for far less money to avoid impending capital spending for wells in 2016 and 2017. As operator, Anadarko has the right to buy the partner’s interest, and “we would not be surprised to see this happen given APC’s positive outlook for the play,” Kistler said.

Lee Tillman, Marathon’s president and CEO, said on April 11 that ongoing portfolio management continues to drive the company’s transition to lower risk, higher return U.S. resource plays while protecting its balance sheet.

Darren Barbee can be reached at dbarbee@hartenergy.com.