Marathon Sets Foot on Iraq - Analyst Blog

Marathon Oil Corporation (MRO) has signed an exploration deal with the government of Iraq, which marks the company's foray into the country's oil and gas industry. The financial terms of the deal were not disclosed.

Under the terms of the production sharing contracts (PSCs), Marathon acquired stakes in four exploration blocks in the Kurdistan Region of Iraq. The company will hold 80% ownership and operating interest in the two blocks - Harir and Safen, located northeast of Erbil. The remaining 20% will be under the Kurdistan Regional Government.

Marathon will also control 20% of the working interest in the Atrush block and 25% in the Sarsang block, north-northwest of Erbil.

In an attempt to revive the oil sector, mutilated by years of neglect and military violence, Iraq government is venturing into agreements with foreign companies. Over the last six months, Iraq has awarded various contracts to companies such as BP plc (BP), Royal Dutch Shell (RDS.A) and Halliburton (HAL).

We believe that Marathon's venture in the unexplored terrains of Iraq as a means of strengthening its foothold in the Middle East is impressive.

Integrated energy company, Marathon expects the exploration and production (E&P) volumes available for sale to be in the range of 385,000 – 405,000 barrels of oil equivalent per day (BOE/d) in the upcoming third quarter 2010. For the full year 2010, the company forecasts volumes in the range of 390,000 – 410,000 BOE/d.

We are maintaining our long-term Neutral recommendation on the stock, backed by the company's large and geographically-diverse reserve base and a wide array of development projects, partially offset by the volatile oil and gas prices along with macro-economic factors.

 Marathon currently retains a Zacks #3 Rank (short-term Hold rating).