Marathon Oil’s Cazalot to step down

An engineer who spent his entire career at Exxon Mobil has been chosen to lead Marathon Oil Corp., taking over the exploration and production company as it doubles down on its acreage in North American shale plays.

Lee M. Tillman was named Thursday to succeed Clarence Cazalot Jr. as president and CEO at Marathon.

Cazalot has led the company for almost 14 years, taking it through a defining split from its downstream assets in 2011, a move that left the company far smaller but which Cazalot said at the time was “the right thing for both companies.”

The refining arm, Marathon Petroleum, now is based in Ohio.

Tillman will take over Aug. 1. Cazalot will remain as chairman until his retirement Dec. 31.

The company said the board will nominate Dennis H. Reilley, currently Marathon Oil lead director, as non-executive chairman upon Cazalot’s retirement.

A company spokeswoman said neither Cazalot nor Tillman were available for interviews Thursday.

Tillman, 51, most recently served as vice president of engineering for ExxonMobil Development Company.

Cazalot, 62, foreshadowed his retirement in February, telling analysts during a conference call to discuss Marathon’s fourth-quarter earnings that the board had made a priority of planning for his succession.

“I will assure you, when it’s time for me to step aside the company will be in very good hands,” he said at the time.

Analysts and the stock market agreed, as Marathon’s stock rose almost 3 percent Thursday, to end at $34.37 a share.

“He’s the right age, the right credentials, the right experience, coming from the largest energy company,” said Fadel Gheit, an analyst with Oppenheimer & Co. “He went through a rigorous training program to prepare him for higher and bigger possibilities.”

Leadership changes: Marathon Oil chief information officer retires, new exec named

Tillman is a chemical engineer by training, with a bachelors degree from Texas A&M University and a PhD from Auburn University. He began working at Exxon as a research engineer in 1989 and has worked in Indonesia, Scotland, Norway, Equatorial Guinea, Dallas and New Orleans.

His time at Exxon includes several years as upstream advisor to the ExxonMobil management committee, experience that Gheit said gave him a good overview of the company’s operations.

Houston-based Marathon operates in North America, the Gulf of Mexico, Europe, Africa and Kurdistan.

Exploration costs took a hit on earnings last year, and the company reported a 41 percent drop in fourth-quarter profits despite an increase in revenue. But Cazalot said at the time that the company intended to continue an aggressive exploration program, with the Eagle Ford shale in South Texas as a key area of growth.

Execution in the Eagle Ford will be a key challenge for Tillman, said Paul O’Donnell, an analyst with IHS.

Marathon paid more for assets in the Eagle Ford because it expanded its footprint there later than many other players, he said, “so they need to do well to make a return.”

“Up until the last quarter, they’ve not been performing the way they should in those plays,” O’Donnell said. “But they’ve recently seen a lot of improvement.”

But a research note from Raymond James analyst Pavel Molchanov suggested the choice of Tillman indicates Marathon’s board wants to remain “international-centric,” despite its current focus on North American shale plays.

“The fact that they opted for someone with a truly global background confirms that an international project management skillset remains an important one for the company,” he wrote.

O’Donnell said recent asset sales have strengthened the company’s balance sheet, leaving it well-positioned as Tillman takes the reins.

Gheit agreed, saying Cazalot’s legacy is his decision to break up the company.

“This is the crowning achievement of his career,” he said. “This is a guy that put everything aside to create value for shareholders, not to run a bigger company.”

Other companies followed suit, including ConocoPhillips and Murphy Oil, but Cazalot created the blueprint, Gheit said.

“Very few executives would even dare to think this way,” he said. “All these executives want to run bigger companies. This guy looked at the model and said, it doesn’t fit us anymore. I cannot create value for my shareholders with the status quo.”

Cazalot originally hoped to spin off the downstream assets in 2008, but waited after the economy cooled. After the split became official in 2011, the market didn’t immediately warm to the idea.

“But within six months, people realized how wonderful the idea was,” Gheit said. “And the rest is history.”

Read more FuelFix coverage of Marathon Oil:

Marathon Oil ends talks to sell Canadian oil sands stake (May 23)
Annell R. Bay: Technology leads to abundant energy (May 8)
Marathon Oil’s big Eagle Ford plans (Feb. 21)
Marathon Oil reports 41 percent drop in 4Q profit (Feb. 6)
Marathon Oil creates new position to oversee upstream activities (Jan. 29)