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Financial Times: Marathon buys Western Oil Sands stake

By Daina Lawrencein Ottawa
Published: August 1 2007 03:00 | Last updated: August 1 2007 03:00

Marathon Oilhas agreed to buy Canada’s Western Oil Sands in a $6.2bn deal, giving the US’s fourth-largest oil and gas company control of a 20 per cent stake in the Athabasca Oil Sands Project, one of the world’s largest untapped reservoirs of unconventional crude oil.

The deal will see Marathon pay $3.6bn in cash and about $1.9bn in shares and assume debt of $650m.

It gives Marathon its first toehold in the Alberta oil sands project in northern Canada, a move that the company has been studying for some time.

The 20 per cent stake in Athabasca will give Marathon access to more than 300,000 acres of oil sands, of which more than 200,000 acres are expected to be developed by mining.

The Athabasca project is a joint venture, which includes Shell Canada, with 60 per cent, and Chevron Canada with the remaining 20 per cent.

Alberta’s oil sands deposits yield a heavy bitumen, the thickest form of petroleum, which is more difficult and expensive to process. Marathon said that it had the capability in its Detroit refinery to take on this heavy oil.

It is studying an expansion of the site, including the construction of a 28,000 bpd heavy oil coker.

Marathon announced the deal as it reported a drop in second-quarter earnings to $1.55bn, or $2.25 a share, from $1.75bn, or $2.08 a share, for the same period a year earlier.

Despite the threat from rising production and labour costs, Clarence Cazalot, Marathon’s chief executive officer hailed the Athabasca Oil Sands Project as “a world-class asset with multibillion barrel, long-life resource potential”.

The deal is expected to close in the fourth quarter and is subject to both shareholder and regulatory approvals.

The deal would see Western Oil spinning off its WesternZagros unit, its wholly owned subsidiary with interests in Kurdistan.

*Valero Energy, the US’s biggest refiner, reported its best quarterly profits yesterday, as global demand for refined products continued to rise, writes Sheila McNulty in Houston.

The company reported net income of $2.2bn, or $3.89 a share, up 16 per cent from $1.9bn, or $2.98 per share, in the second quarter of last year. Demand was driven by supply constraints, caused partly by more stringent product specifications, and a shortage of skilled labour and equipment.

According to Bill Klesse, the company’s chief executive officer: “The environment for refining margins was terrific in the second quarter and we continued to benefit from our complex, geographically diverse refining system.”

Valero took a risk to build that system over the past decade, when the refining industry was still considered the stepchild of the oil industry.

Copyright The Financial Times Limited 2007

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