Marathon Mulls Split as Refining Comes Under Pressure

Marathon Oilmay split its its oil and gas production business and its refining and marketing operations into separate entities, the company said on Thursday, sending its shares sharply higher.

Marathon , the sixth-largest U.S. oil refiner, said it was likely to decide during the fourth quarter whether to undertake the move. If it proceeds, the split would probably occur in the first quarter of 2009, it said.

Analysts, who have long said the company's refinery business is a drag on its exploration and production operations, welcomed the potential split.

"I think it makes sense," said Phil Weiss, an analyst with Argus Research. "Marathon is still treated like a refiner in my view, and they really have a growing E&P business that has great prospects.Maybe this is what is needed to get investors to recognize that growth."

Marathon shares jumped nearly 8 percent $48.70 in premarket trading.

Marathon also reported lower second-quarter earnings on Thursday. Net income fell to $774 million, or $1.08 a share, from $1.55 billion, or $2.25 a share, a year earlier.

Excluding a $220 million after-tax mark-to-market loss in the value of its trading positions and other one-time items, Marathon earned $1.20 per share. On that basis, the earnings fell well short of analysts' average forecast of $1.50, according to Reuters Estimates.

Companies that refine oil to produce gasoline and other products have struggled to pass through record crude prices to their customers.

In the second quarter, the price of oil in the United States averaged just under $125 a barrel, nearly double what it cost a year earlier. But gasoline prices were up only about 25 percent.

Houston-based Marathon was separated out of USX in 2002, two decades after it was purchased by U.S. Steel.