Marathon to buy Western Oil Sands for $5.56 bln

NEW YORK (Reuters) - Marathon Oil Corp (MRO.N) said on Tuesday it agreed to buy Canada's Western Oil Sands Inc.WTO.TO for about $5.56 billion, giving the U.S. oil company a foothold in one of the world's most promising streams of new crude oil.

Marathon said it will pay about $3.6 billion in cash plus 34.3 million shares or securities exchangeable for shares. It will also assume about $650 million of debt.

The company also said its second-quarter profit fell on a decline in oil and gas output and the absence of a year-ago gain from the sale of Russian operations.

Houston-based Marathon has long been looking for a partner in the Canadian oil sands. Still, it is expensive and requires special equipment to turn the tar-like sludge that comes from the region -- called bitumen -- into usable fuel.

The company plans to link the Canadian fields with its refining operations in the United States.

The deal also requires Western to spin-off its subsidiary with interests in Kurdistan -- WesternZagros -- before the deal closes, Marathon said.

Marathon said it would get access to proved mining reserves of 436 million barrels of bitumen through the deal and a total net resource of 2.6 billion barrels of bitumen that can be recovered through mining or "in situ" processing, which uses heat or solvents to remove the bitumen.

Marathon's net income slipped to $1.55 billion, or $2.25 a share, from $1.75 billion, or $2.08 a share, last year.

Excluding one-time items, the company said it earned $2.25 a share. On that basis, the average forecast of Wall Street analysts was $2.13 a share, according to Reuters Estimates.

The second quarter was a mixed bag for the integrated oil sector as soaring refining margins were offset by lower commodity prices and output at some large oil companies.

(Reporting by Michael Erman)