Since the middle of April, the price of Marathon Oil Corporation (NYSE:MRO) has moved up significantly on the market, from around $29.80 per share to nearly $37.50 per share at the time of writing. The company also announced it was buying back its shares with the proceeds from the sale of Block 31 offshore of Angola. Is Marathon Oil Corporation (NYSE:MRO) a good buy for investors after the recent divestment? Let’s take a closer look and find out.
Asset sales and potential share buybacks
Marathon Oil Corporation (NYSE:MRO) is involved in the exploration and production of oil & gas, including oil sands mining and integrated gas, in many countries such as the U.S., Canada, Equatorial Guinea and Angola. Its total proved reserves have reached the highest level in 40 years, at more than 2 billion BOE, including 901 mmbbl liquid hydrocarbons, nearly 2.8 tcfe and 653 mmbbl of synthetic crude oil. The majority of its proved reserves, 1.3 billion BOE, was in North America, while the proved reserves in Africa were 609 million BOE. In the U.S., Marathon Oil Corporation (NYSE:MRO) had around 200,000 core net acres in Eagle Ford and around 390,000 net acres in the Bakken Shale area.
Recently, Marathon Oil announced that it has agreed to divest its 10% working interest in Block 31 offshore Angola to SSI Thirty-One Limited, with the total transaction value of around $1.5 billion. Angola Block 31 has five production and two injection wells online, with two active rigs building well inventory. Interestingly, Marathon Oil Corporation (NYSE:MRO) intended to use the proceeds from Block 31 in Angola to repurchase its shares and strengthen the company’s balance sheet. After this divestiture, Marathon Oil has reached $2.9 billion in asset sales, meeting the target of $1.5-$3 billion asset sales in the period of 2011-2013.
What I like about Marathon Oil Corporation (NYSE:MRO) is its consistent dividend payment in the past ten years. In 2012, its dividend was $0.68 per share, with a conservative payout ratio of only 25%. It is trading at $37.50 per share, with a total market cap of around $26.60 billion. The market values Marathon Oil at only 3.42 times its trailing EBITDA, and the dividend yield is only 1.8%. If we assumed that $1 billion was spent on share repurchase, investors could get an additional share buyback yield at 3.76% at the current trading price.
Lowest valuation among its peers
Compared to its peers Apache Corporation (NYSE:APA) and Exxon Mobil Corporation (NYSE:XOM), Marathon Oil is the cheapest valued among the three. Apache is trading at $85 per share, with a total market cap of around $33.30 billion. The market values Apache at 3.76 times its trailing EBITDA. Apache is more conservative than Marathon Oil in dividend policy, with a low dividend payout at only 15%. Investors could get the dividend with a yield at 1% at its current price.