Following completion of the review process by U.S. Securities and Exchange Commission (“SEC”) and declaration of the ‘Registration Statement’ as effective, leading integrated energy firm Marathon Oil Corporation (MRO) has completed all regulatory requirements on its way to separating the refining/sales business from its exploration/production operations, and creating two independent companies in the process.
Last month, Marathon got a positive nod from the U.S. Internal Revenue Service (IRS). The IRS approved that the spin-off of the company’s downstream unit will be tax free to Marathon shareowners. This was followed by authorization from the company’s Board of Directors. As a result, the transaction – announced in January – is now ready to take effect on June 30, 2011.
The deal will lead to the formation of a new downstream company called Marathon Petroleum Corporation, expected to be the fifth largest domestic refiner. It will include Marathon’s six refineries having a combined capacity of 1.1 million barrels a day and also deal with marketing and pipeline transportation.
The remaining business will continue as an upstream venture under the ‘Marathon Oil Corp.’ name and comprise the company's exploration and production unit and its Canadian oil sands operations.
Post separation, current stockholders of Marathon will get one share of Marathon Petroleum for every two shares held. Marathon Oil will remain in Houston, Texas, while the new company will trade on the New York Stock Exchange under the symbol ‘MPC’ beginning July 1 and will be headquartered in Findlay, Ohio.
Marathon’s move to split itself into two is seen as an attempt to focus on its core, profitable business of finding and producing energy. Marathon also reasoned that it has become difficult to carry out two different kinds of businesses simultaneously, considering the lack of physical integration between the two.
Just about 5% of the crude churned out by the company was being utilized by its refineries, Marathon pointed out. The timing of the spin-off also makes sense, as it had almost wound up a major capital expenditure program that was incurring $7–$8 billion annually.
We remain positive on the outlook for new Marathon post-split, as it holds the promise of unlocking significant value. Creation of two separate companies will allow both of them to pursue great opportunities in their respective market segments without the constraints of the parent company and better serve the needs of both investor groups.
Marathon, the fourth largest U.S.-based integrated oil company behind ExxonMobil (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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