Jim:
How would you like
to own a company
that's considering
doing a little
"addition by
subtraction?"...
It's a beaten-down
name that might be
splitting itself
into two companies
which, separated,
should be worth
substantially more
than they are
together.
Do I have your
attention?...
I am talking about a
company that no
one's talking about,
that just had
numbers raised, is
cheap as all get
out, and can work
even if the market
starts reversing.
And I'm talking
about...
Marathon Oil Corp. (MRO)!
Yeah MRO... a
company that's been
both hurt and helped
by lower oil prices,
because it's one
part oil and
exploration and
production, and one
part refineries...
and refineries have
crushed every...
they've just killed
their shareholders
until now... because
they've become more
profitable as oil
prices fall.
The way this
company's structured
now is frankly
confusing to me and
to others...
This is not like one
of those gigantic
major oils. To me,
it just seems...
it's hard to
understand. It's too
complex. Wall Street
likes them simple.
So MRO - which just
reported that great
quarter yesterday -
has said it's
considering breaking
itself up, and this
is the kind of break
up that really is
better for all
involved...
If the separation
happens, MRO will be
splitting into what
is known as an
upstream business...
that's genuine oil
talk jibberish for
"exploration and
production"... and a
separate,
"downstream"
business, which is
also gibberish for
"refining, marketing
and transportation."
Right now, MRO
trades like the
"Marathon Man" when
he's being drilled
without Novocain...
It's down 50% from
its high, at $29...
See all
of
tonight's
stocks
mentioned
on
Yahoo!
Finance,
here...
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Even though oil and
natural gas prices
have been driven
through the floor,
its upstream
business alone is
worth... now,
remember, the stock
went out (closed) at
$29 today... the
upstream business is
worth $49.73 a share
to somebody else.
The downstream
business...
refining... by
itself, ought to be
worth $20-24 a
share... especially
because refining is
finally beginning to
be a good business.
I waited until
refining margins
expanded to do this
piece. And I waited
to see the quarter
to do this piece. I
did not want to be
premature. The time
is right for MRO...
If it comes... if it
happens... it would
be in the first
quarter of 2009, so
you've got a good
chance to get in
this...
If you own this
stock... I am not
kidding... it's
entirely possible
that you will see a
double... And, in
this market, you
only seem to get
doubles from short
squeezes.
Plus, MRO's paying
you to wait, with a
not unsubstantial
3.6% yield, based on
next year's expected
annual dividend
payout of $1.04.
Although, obviously,
we like this one
more if it goes
lower, and you can
snap it up with a
higher yield... You
know how we like to
buy stocks down on
yield. So you buy
some of it here at
3.6%, then you buy
some at 4%, then you
buy some at a 4.5%
yield...
So what are you
getting when you buy
MRO?... What are the
two sides of this
Janis-faced
company?...
In the upstream
business, MRO has
1.2 billion barrels
of oil-equivalent of
crude reserves, with
estimated resources
of four or five
times that amount.
The company's
expected to produce
420,000 barrels of
oil equivalent a day
next year. This is a
less-understood
exploration and
production operation
that's growing
production at 9%...
most are not growing
production... with a
reserve life of 10.8
years. That's longer
than most.
And MRO's got all
kinds of assets...
not just traditional
oilfields...
It's got the Bakken
Shale... estimated
to have 100 billion
barrels of oil
equivalent, with six
rigs in operation.
It's the Haynesville
Shale, it's in the
Piscean (?) Basin,
where MRO estimates
that are 750-800
billion cubic feet
of potential natural
gas reserves. I'm
giving you all of
this because no one
talks about MRO...
no one. It's just
like kind of this
unknown oil company.
The upstream
business also has
MRO's offshore
assets. Just in the
Gulf of Mexico, MRO
has 30 million
estimated barrels of
oil equivalent in
the Neptune Field...
much of it unbooked.
And an estimated
80-90 million
barrels of oil
equivalent in its
Droshky (?) field.
It's also got
assets... these guys
are everywhere...
Equatorial Guinea,
Angola, Norway,
Indonesia, Libya,
and oilsands in
Canada... Obviously,
as soon as you hear
"oilsands," you
freak out because
oil's so low, but
that's okay... MRO
does not overpay.
All of that is MRO's
upstream business...
$49 to $73 a share.
On its own.
Remember, the stock
went out (last
closing price was)
$29...
How about
downstream?...
MRO has a refining
capacity of a
million barrels a
day. It sells about
1.3 million barrels
a day of refined
products. Refining
has been a dog, but
it just turned up
for the first time,
and MRO is the
fifth-largest
refiner in the U.S.
Honestly... this has
been a bad business
for three years. We
finally got the
first good month.
I'm getting you in
ahead of the rest.
Right now, the
refinery business is
benefitting from oil
prices being lower.
It's a big part of
the reason it makes
so much sense to
split the company
up.
MRO's 14 cents
earnings per share
beat yesterday. It
came largely because
people didn't expect
that the refining
business was
starting to get
better.
The company also
noted a rebound in
the demand for
transport fuels,
with October comps
(comparisons
year-over-year) down
about 1-2%, compared
to decreases of 5%
in the previous
month... a
significant relative
improvement.
May I explain to you
again... Most of the
oils (oil stock
conference calls) I
listened to, it was
their last great
quarter... Everyone
is saying it's their
last great
quarter... That's
not the case with
MRO. There are good
quarters ahead.
MRO is expanding its
refining capacity
with two plant
upgrades... The
company is expanding
its capacity at its
Garyville refinery,
by 180,000 barrels a
day, and it's
upgrading its
refinery to process
a wider variety of
crude oils, to be
done in 2009... This
is meaningful, now
that refining is
back in vogue.
The second expansion
is in Detroit. MRO
says it might be
delayed because of
lower oil prices
here, but they do
want to increase
capacity by 15,000
barrels a day.
Again, by 2010.
Now, all of this
matters...
Now you know why, if
you own MRO and it
decides to break
itself up in two...
and we'll know their
decision by the end
of the year... I
think it's a... I
always hate to use
this term, but I'm
going to stick my
neck out... I think
this is about as
good a no-brainer in
the oil patch, when
everyone doesn't
want these stocks
anymore, because
people feel that the
peak earnings are
upon us... MRO won't
even exist at this
time, I think.
Here's the bottom
line...
The bottom line!:
Wall Street has lost
that lovin' feeling
for Marathon Oil Corp. (MRO),
but they could get
it back... MRO is a
simple case where
the whole is worth
less than the sum of
its parts. Together,
MRO's upstream and
downstream
businesses are
valued at $29 right
now... apart, I
think
conservatively, the
upstream business,
$49... downstream,
$20... I'm using a
$69 price target for
a $29 stock. I'll
buy MRO and take the
dividend while they
pay me to wait for
the breakup. If they
don't start creating
more value, I have
to believe that it
will be difficult
for MRO to stay
independent. That's
right. Either they
create value or
someone else will. A
lot of ways to win
with the "Marathon
Man"... And, by the
way, it is safe...
It is very safe...
