Every once in a while, there is positive news in the energy space.
On Monday, Marathon Oil (MRO) announced that it signed agreements to divest itself of $950 million in non-core assets, with $870 million of the planned sales coming from its complete sale of its Wyoming upstream and midstream assets, which are also known as production and transport assets, respectively. The transaction is expected to close in the middle of 2016.
Shares of Marathon Oil rallied as much as 14% to $13.35 in midday trading on Tuesday.
In February, the Houston-based company said that it was targeting $750 million to $1 billion in asset sales for 2016. The planned sales put Marathon well within this range and look more impressive considering that it brings the company's total of shed assets to $1.3 billion since August.
"We expect a positive reaction to the fact that MRO has exceeded its asset sales target," Tom Driscoll of Barclay's said in a note released Monday. "We do believe the transaction will likely be a neutral to our valuation -- but the impact on the balance sheet is a material positive."
The asset sales are part of Marathon Oil's effort to address its balance sheet in an era of low energy prices.
"Ongoing portfolio management continues to drive the simplification and concentration of our portfolio to lower risk, higher return U.S. resource plays and support our 2016 objective of balance sheet protection," CEO Lee Tillman said in Monday's press release.
Other measures the company has taken to address its balance sheet include cutting its 2016 capital spending target to $1.4 billion, representing a more than 50% decrease in spending from 2015. Marathon Oil also issued $1.3 billion in new shares in March in an effort to strengthen its balance sheet and fund some of its planned spending.
The company has a long-term debt load of $7.3 billion, which is rated "BBB-" (one notch above "junk" territory) by Standard and Poor's Ratings Service. Marathon Oil's next debt maturity is a 6% note for $682 million coming due in October 2017.
Marathon Oil reported $1.2 billion in cash for the fourth quarter of 2015. The proceeds of the announced asset sales coupled with its equity offering last month are important steps in its effort to right its balance sheet.