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Marathon to buy Canadian oil firm

With the $5.5-billion deal, the U.S. refiner gets a 20% interest in a major oil-sands project.

August 01, 2007|From the Associated Press

HOUSTON — Marathon Oil Corp. is poised to break into Canada's growing oil-sands market, announcing Tuesday that it has agreed to buy Western Oil Sands Inc. for $5.5 billion in cash and stock.

Shareholders of Western Oil, based in Calgary, Canada, will get $3.6 billion in cash and $1.9 billion in Marathon stock. Marathon also will assume $650 million in Western Oil debt, valuing the total deal at about $6.2 billion.

As part of the agreement, Western is required to spin off WesternZagros, its wholly owned subsidiary with interests in Kurdistan, before the transaction closes. The deal is expected to close in the fourth quarter of this year.

Marathon said the deal would give it a 20% interest in the Athabasca Oil Sands Project in Alberta currently held by Western Oil. Shell Canada Ltd. and Chevron Canada Ltd. hold 60% and 20% stakes, respectively.

The benefit, Marathon said, was immediate net production of about 31,000 barrels per day of bitumen, a thick oil. The Athabasca project, which includes facilities owned by the joint venture and third parties, mines the oil-sands deposits and extracts the bitumen, which is upgraded to synthetic crude oil.

Clarence P. Cazalot Jr., Marathon's chief executive, said the company's extensive operations in the Midwest, including its refining capabilities, positioned it well to tap in to Canada's bitumen resources. Marathon is the fifth-largest U.S. petroleum refiner.

"We're joining an ongoing and expanding project with strong partners and, collectively, we'll be able to apply our technical and commercial skills to maximize both the recovery and value of these resources," Cazalot said.

The oil-sands mining operation includes the Muskeg River Mine, north of Fort McMurray, and the Scotford Upgrader near Edmonton in the province of Alberta.

The deal is subject to approval by Western shareholders and other conditions.

Canada's western region is home to vast reserves of sands rich in oil. Oil-containing sands are more expensive to develop than traditional oil fields, but costs are falling as extraction technology improves.

Canada's political stability, particularly in comparison with many oil-producing regions of the world, gives assets there a premium.

Marathon shares fell $1.80, or 3.2%, to $55.20.

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