When Lee Tillman took over Houston-based Marathon Oil (MRO - Get Report) in August 2013 after 24 years at Exxon Mobil (XOM - Get Report) , a lot of folks scratched their heads. Why would an Exxon lifer -- he started his career at the company as a research engineer in 1989 -- leave to lead what had always been thought of as an also-ran among larger U.S. integrated oil companies?
According to some analysts, Tillman's time to shine could be approaching, if he's willing to do a deal.
Marathon was spun off from U.S. Steel (X - Get Report) in 2002 with an assorted collection of refining, marketing and exploration and production assets. But over his tenure Tillman's predecessor, Clarence Cazalot, focused on exploring for "tight oil" with techniques like hydraulic fracturing and horizontal drilling that worked well in plumbing natural gas, focusing on properties in the Eagle Ford shale in South Texas and the Bakken Shale in the Rockies. He also spun off the company's refineries and gas stations into Marathon Petroleum (MPC - Get Report) , which was considered another smart move.
So how has Marathon performed since Tillman took over? If you look at the company's stock price, not so well. Marathon's shares closed at $35.20 each on Aug. 1, 2013, the day he took over. As of the close on Monday, the stock was at $14.78.
The oil and gas industry has gone through a lot since Tillman became chief. Oil prices are half of what they were 16 months ago, which has led to layoffs, capital expenditure cuts and dividend reductions. Marathon itself let go 200 employees recently, has cut its capital expenditures by $150 million next year to around $100 million (versus $500 million in 2014) and sliced its dividend by 76% in October - sooner and more substantially than most people had expected. "We believe the revised dividend appropriately addresses the uncertainty of a lower-for-longer commodity price environment," Tillman said at the time.
Sure, a lot of oil and gas companies are hurting. But as Oppenheimer & Co. analyst Fadel Gheit points out, Marathon's stock has declined 41% so far this year versus 33% for its peers on average and also lagged in the last three years. "It remains to be seen how the stock will perform next year both in absolute terms and relative to peers," he said, noting the company needs to cut costs, improve efficiency and consider mergers and acquisitions to improve itself.
Tillman has tinkered with what was left at the company from the Cazalot days, including selling some of the company's disparate assets, even before the oil price drop.
In June of last year, for example, Marathon sold its Norwegian operations to billionaire Kjell Inge Roekke's Det Norske Oljeselskap (DETNF) for $2.7 billion.
This year the company targeted $500 million in asset sales that analysts think will help it cover an estimated $150 million shortfall for next year's capital spending and dividend.
So far, Marathon has sold exploration acreage in East Africa and in the third quarter closed on $100 million in non-core gas asset sales in East Texas, Northern Louisiana and Oklahoma. Last month it said shed most of its operated and non-operated producing oil and gas properties in the Gulf of Mexico to an unnamed buyer for $205 million, keeping interests in other producing assets and acreage in the Gulf of Mexico and its stakes in the Gunflint development and Shenandoah discovery.
Marathon's North Sea assets may be next to be sold, which some thought could fetch $3 billion before the oil price slide but would probably only bring in half that today, or $1.5 billion.
"We believe MRO is well on its way to becoming a streamlined [exploration and production company] with a more profitable U.S. unconventional focus," Seaport Global Securities analyst Mike Kelly said last month after meeting with management.
The company has also hit some dry holes. This week it was announced its closely watched Solomon exploration well in the Gulf of Mexico had been plugged and abandoned, its rig had been released and no further activity is planned on the block. Simmons & Co. International analyst Guy Baber said the news was disappointing because the well's initial resource estimates were between 200 million and 450 million of barrels of oil equivalent. Analysts estimate Marathon lost around $157 million on the effort.
Still, Luana Siegfried, a research associate at Raymond James, said the firm welcomes the way Tillman has been running the company, which she calls "a safe oil play" with its sound balance sheet and steep spending cuts that will could keep the company cash flow positive next year. She even thinks it could use its cash on hand to make acquisitions to bring additional returns to shareholders, but that would require "more enticing opportunities" than are available now.
Those opportunities may be coming as other companies become more distressed -- especially if oil prices continue to hover around $40 per barrel.