opportunity knocks, page-7

Article from deal.com on the 19/06/08

After recovering from a slowdown that followed an onslaught of severe weather, gas explorer and producer Marion Energy Ltd. is considering a sale and is already in talks to sell its assets in Oklahoma.

To help it explore its options, Victoria, Australia-based Marion Energy said Thursday, June 19, it hired Goldman, Sachs & Co.

Marion Energy CEO and managing director Jeff Clarke said in a phone interview that the company had always intended to market the company, either as a buyer, seller or joint venture partner.

However, no specific route has been chosen yet. "We just started the process," Clarke said, noting that a timeline hasn't been established. "We'll see what [our advisers] recommend."

One analyst had predicted a possible asset sale. Foster Stockbroking Pty. Ltd. analyst Paul Allard wrote that he believed "that the value in Marion is to be found in its assets and that a sale of these assets is the probable scenario for shareholders."

All of Marion Energy's assets are either in Oklahoma or Utah, and the ones in the latter were battered by seven months of snowstorms. The Utah operations are humming again and are able to produce amid the uptick in gas prices.

The company announced earlier in June that its operations had returned to near-normal levels and that natural gas sales had reached a combined gross rate between 3 million and 6 million Mmfc, or cubic feet of gas, per day.

In a research note, Patersons Securities Ltd. analyst Scott Simpson noted that Marion Energy's operations were back on track after the severe weather significantly delayed the buildup of gas production.

Simpson in March recommended buying Marion Energy's stock, putting a target of $1.32 on it. It traded at around 71 cents. In the aftermath of the Goldman Sachs hiring, it rose 11% in intraday trading on Thursday to $1.13. Simpson had also said the company has an opportunity to capitalize on current gas prices, which have remained strong.

The Energy Information Administration, in its June 12 natural gas weekly update, projected that the Henry Hub spot price will average about $11 per Mcf, or thousand cubic feet, in 2008 and 2009. (In May, it averaged $11.65 per Mcf, up $1.16 per Mcf from April.) The price increase was the result of lower imports of liquefied natural gas, higher oil prices and concerns about the adequacy of inventories, the update noted.

Total natural gas consumption is expected to grow by 2.2% in 2008, and then increase by another 0.9% in 2009.

Besides exploring strategic alternatives, Clarke said the company is already in discussions with several bidders for its assets in Oklahoma.

The possible divestiture of these assets was announced in May.

Marion Energy has a market cap of about $319 million.