Marathon Oil Corp.’s decision last week to become the sole owner of Marathon Ashland Petroleum LLC (MAP) will strengthen its business mix and long-term strategy, and the transaction eventually will enhance the growth of its emerging integrated natural gas business, analysts said.

Marathon, which already held 62% of MAP, agreed last week to acquire Ashland’s 38% stake in a transaction valued at $2.93 billion. The buyout is expected to be completed by the fourth quarter.

MAP, a top quartile U.S. refining, marketing and transportation company, is “highly complementary” to Marathon’s long term-growth strategy,” according to CEO Clarence Cazalot. And in a research note, CreditSights analysts Brian M. Gibbons and Spencer Siino seemed to agree.

The transaction, said the analysts, will give Marathon a “more diversified business mix” and will increase sales. But it also is expected to give Marathon more leverage into upstream projects, a stated long-term goal.

“The transaction is a transformational event for Marathon in that the downstream is now a much larger component of the overall business mix than prior and versus the company’s goal of becoming increasingly levered to the upstream,” said the analysts. “Upon completion of the deal, the downstream will comprise 48% of capital employed. Management reiterated its commitment to maintaining a 60% upstream capital employed focus, but this is now a 2008 target. To meet this goal, MRO will clearly have to invest more heavily in the upstream than the downstream, with acquisitions likely to play a key part.”

The analysts noted that the “less obvious” strategic rationale behind the deal is that Marathon “will have increased leverage and flexibility to work with major crude suppliers looking to tap the Midwest and Gulf Coast markets, including potential opportunities to tie the downstream into higher return upstream projects.”

Marathon was “quick to highlight that Canadian heavy oil and oil sands projects, as well as other opportunities with Russian and Middle Eastern producers, will be key areas where it will look to leverage into upstream opportunities.” The analysts said Marathon will have to “evaluate where it can generate the highest returns in the value chain, whether it will be in the upstream or downstream, as it pertains to crude supply and upstream projects.”

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