Marathon's Bright Flame

By Gene G. Marcial

Where Oil Is Fairly Cheap
Although Marathon Oil (MRO ) has trailed its peers amid rising crude-oil prices, some pros say it's the play for the long run. Shares are down from 42 in May to 35.73 on Jan. 5, in part because of Marathon's bid to buy the 38% stake it doesn't yet own in a refining joint venture with Ashland Oil. Marathon, a world oil-and-gas explorer and producer, is also big in refining and marketing. Robert Lyon, president of Institutional Capital, which owns a 2.4% stake in Marathon, sees it as a "triple play that could deliver a home run."

It has bright prospects in Libya, Russia, and West Africa; it is bound to get bigger in refining, where capacity is tight and demand strong; and it is attractive as a buyout target for ChevronTexaco (CVX ) or France's Total (TOT ). Marathon would "fit like a glove" with ChevronTexaco, says Lyon. And Total, he adds, would profit from Marathon's refining capacity. Lyon, whose 12-month target for the stock is 50, figures Marathon would be worth more than 50 in a buyout. He reckons Marathon's oil reserves nearly doubled in 2004 and should rise substantially again in 2005. Lyon sees Marathon earning $4 a share in 2005, vs. an estimated $3.26 in 2004, and he believes the Ashland deal is favorable for the long term. Douglas Terreson of Morgan Stanley (which has done banking for Marathon), rates the stock "overweight" and says exploration operations in 2005-07 appear "strong, as projects in Angola, Equatorial Guinea, Norway, and even Ireland may materialize." ChevronTexaco and Total both declined comment.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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