Aug 20, 2015

Sympathetic to low price of oil, Park County cuts Marathon a break on rent

Amid tough times in the oil and gas industry, Park County is giving a small break to the area’s largest minerals producer.

County commissioners recently gave Marathon Oil Corporation a discount on the space the company rents from the county.

Marathon is also reducing the physical size of its Cody office — located inside the Park County Complex — to trim the company’s costs.

“Due to oil prices being down nearly 70 percent, we’re facing several challenges,” Marathon attorney Kirby Iler told commissioners Aug. 4.

Marathon previously owned the Park County Complex. Cody News Co. photo by CJ Baker
At the company’s request, the commission provided Marathon a two-year reprieve from the annual 2.4 percent rate hikes they typically demand of the county complex’s tenants.

That decision could save Marathon (and cost the county) somewhere in the neighborhood of $22,500 over the new five-year lease, although the actual figure depends on how the region’s cost of living changes in the coming years. The new deal would amount to not much more than a 2 percent discount for Marathon Oil Corp., with the county still collecting around $1.023 million over the five years, if costs of living continue rising at their current pace.

Marathon will pay a little more than $12 per square-foot each year for space in the building that the company once owned.

“It’s a good relationship and we just hope for your sake — and our assessed valuation’s sake — that oil comes back up in price,” Commissioner Tim French said during the discussion. “I’m sure it will at some point, but, you know, tough situation right now.”

Marathon has been leasing about 19,200 square feet in the complex, but by the start of 2016, the company will give up roughly 2,950 square feet on the third floor and consolidate on the second. It will remain the largest renter in the complex.

A company banner in the complex commemorates Marathon's century-long presence in Wyoming.
Legacy Reserves LP — another oil and gas company housed in the complex — plans to expand their office by taking over the third floor space Marathon is vacating.

French asked if Marathon really wanted to give up the square footage, wondering what will happen if the oil market rebounds.

“The way it’s going right now, unfortunately, at least looking forward, things ... seem like they’re going to stay somewhat stable where they’re at for some time,” Iler responded. “And that’s something that’s been a hard decision.”

A multi-national corporation, Marathon is currently focusing its resources on three “high return areas” in the United States: the Eagle Ford Shale in South Texas, the Bakken Shale in North Dakota and eastern Montana and the Oklahoma Resource Basins.

Iler said if Marathon ends up needing more room in Cody in the future, the company will hope “that somehow the good Lord gives us the space.”

“But for right now, we just didn’t feel right coming to you and asking for ... the rent to remain constant, and at the same time not doing other things we can to control costs,” Iler said.

Across the company, Marathon slashed roughly 400 jobs from its payroll in early 2015, saving roughly $100 million a year, Marathon Oil CEO Lee Tillman recently told analysts and investors. The company’s Wyoming workforce was included in the cut-backs.

Marathon attorney Kirby Iler distributes copies of some remodeling plans for the company's space in the Park County Complex. Cody News Co. photo by CJ Baker
“In this uncertain commodity price environment, we’ve been laser-focused on rigorous cost control to help protect our margins,” Tillman said in a statement about the company’s earnings for April through June. The company posted a $386 million loss for the second quarter.

Noting the other tenants at the complex, Commission Chairman Joe Tilden initially expressed some reservations about giving Marathon a discount.

“We need to be treating everybody the same, and so far we haven’t waived any of the price increases. That’s my only concern,” Tilden said, adding, “You guys have been great renters and we love Marathon — because you do bring a lot of money into the county and those types of things — but we do have to be consistent throughout the entire county.”

Commissioner Bucky Hall said it was a good point, but he countered that the county doesn’t have to be fair.

Both he and French noted Marathon’s long-standing presence in Park County and pointed out that Marathon gave the county a substantial discount when it sold the complex to the county in 2005.

“We need to be treating everybody the same, and so far we haven’t waived any of the price increases. That’s my only concern,” Tilden said. He later went along with a discount.

The discount on the complex space was a compromise from Marathon's original proposal.

The oil company had asked the county to pause the annual 2.4 percent rate hikes for two years, then simply resume them in 2018.  Instead, the rate in 2018 will be adjusted for the change in the cost of living between 2016 and 2018, then go up by 2.4 percent in the years after that.

If prices follow recent trends, Marathon will save somewhere around $22,500, as compared to the $34,000 the company would have saved under its initial proposal.

“I think we’re all sympathetic about the price of oil, and it’s certainly impacted Park County as much as it has Marathon,” Commissioner Loren Grosskopf said in proposing the compromise. Grosskopf said he wished the county could get a break on its increased utility and maintenance costs.

The lease runs through Aug. 1, 2020.

Marathon will continue to get the first chance to rent any space that becomes available in the building.

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