Marathon Oil Debt Expected to Beat Peers on Higher Crude Output
February 23, 2012, 12:10 PM ESTBy Jim Polson
Feb. 23 (Bloomberg) -- Marathon Oil Corp.’s debt will return more to bondholders than its peers as the energy producer that spun off its refining business in June increases oil output and sells assets, Gimme Credit LLC said.
The difference in yield between U.S. Treasury notes and Marathon’s debt may narrow in the next six months relative to comparable companies, which means better total returns for its bondholders, Philip Adams, a Chicago-based analyst for Gimme Credit, said in a telephone interview yesterday.
Marathon has targeted a 5 percent increase in production this year funded from operations, Adams said. The Houston-based company has proposed selling as much as $3.3 billion of less- profitable assets, such as offshore pipelines, to add drilling prospects.
“From a bondholder’s perspective, that’s growing responsibly,” said Adams.
Marathon, along with Husky Energy Inc., is among two oil and natural-gas producers included on a semi-annual forecast of the ten best performing debt issuers distributed to Gimme Credit clients Feb. 21. and to the public today.
“Oil exploration and production is in pretty good shape,” Adams said. “Prices are high but not so high as to destroy demand.”
Southern Power
Southern Power debt may also provide better total returns than its peers, as the competitive-generation subsidiary of Southern Co. signs more long-term contracts with rural electric cooperatives and municipal utilities, Adams said.
Southern Power generates all of its electricity from gas- burning plants and has added market share the past three years as gas has become cheaper than coal, he said.
Debt of Southwestern Electric Power Co., a unit of American Electric Power Co., also should outperform peers, Adams said. Current debt prices don’t reflect the unit’s success at building a new power plant that will be included in regulated rates, he said.
Other debt forecast to outperform peers by Gimme Credit includes that issued by Bunge Ltd., a seed and grain miller based in White Plains, New York, and Quest Diagnostics Inc., the medical-testing service based in Madison, New Jersey.
--Editors: Jasmina Kelemen, Jessica Resnick-Ault
To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net
To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net
