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Marathon Oil Corporation Message Board

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  • staggelee staggelee Nov 3, 2010 9:56 AM Flag

    what is wrong with this stock?

    credibility is shot with production - should always under promise and over deliver.

    redic

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    • Boy, they left us holding the bag on this didn't they?
      A few weeks ago they upgraded the stock and the price went from 30 to 36 in only 8 weeks. 20% run-up. Then.......drumroll....woops we aren't meeting upstream production expectations. LOL.

      Barclay's, Goldman, and Deutsche banks all downgraded the stock today and lowered price estimates.....

      From the company website, talking about Droshky:

      ........"First oil from Droshky, a major Gulf of Mexico subsea oil development 160 miles off the Louisiana coast, came in on time and under budget in July 2010. Marathon owns a 100 percent working interest in Droshky, which is expected to produce approximately 45 thousand net barrels of oil equivalent per day (mboepd) at its peak and develop net potential resources of 60 million barrels.
      Executed properly, accelerated project development enhances both project and shareholder value. The Company was able to move Droshky forward at a rapid pace by making sound investment decisions quickly, applying technology skillfully at every stage of exploration and development, and rigorously implementing its project management system."......

      Conference call yesterday, the explaination for the Droshky performance:

      "The Droshky development was modeled based on a nearby analog field, Aspen , that we had direct evidence was in pressure communication with our field. Based on the pressure, flow and aquifer support history at Aspen, we anticipated similar reservoir performance at Droshky.

      The analysis we've done and continue to do shows the initial and subsequent engineerings have been carried out in the professional and quality manner, and I'm at present hard-pressed to offer could've-should've-would've scenario for this development.

      As our pressures have fallen more rapidly than anticipated, we recognized our recoveries are going to be lower and our volume projections will have to be modified as well. Droshky averaged net 21,000 barrels of oil equivalent per day in the third quarter and is estimated to average net 31,000 barrels of oil equivalent per day in the fourth quarter. As a result, we expect as reported our full year 2010 Upstream production to be approximately 413,000 barrels of oil equivalent per day, a testament, I think, to the overall strength of our global portfolio.

      In 2011, Droshky is expected to produce an average of net 15,000 barrels of oil equivalent per day, and we're guiding to $70 per barrel as a representative of DD&A rate for the remainder of 2010. We'll give further guidance for 2011 as appropriate."

      So there you go, estimated to reach 45,000 net barrels per day at its peak. Now, as soon as 2011, it will only yield 15,000 net barrels per day. HUGE miss in expectations from this well. So, instead of 60 million barrels of net potential resources, its more like 15 to 20 million. The math works out well if you do the dollar per share correction in value of the company. 60 million - 20 million = 40 million barrels in assets that dont exist. (40 million barrels in net proved reserves that wont be realized) x ($70 per barrel estimated revenue from reserves) = 2.8 billion of net worth gone, just like that. Which, on a per share basis, works out to this:

      ~ 710 million shares divided into 2.8 billion = almost $4/share in lost value. So for Goldman and these other investment houses to drop stock price estimates from 42/share to 36 makes perfect sense.

      Their value correction figures may be more agressive than the ones I just threw up there, but you get the point. This is why we beat earnings but got hammered in stock value. Wall St doesnt care about beating earnings projections when they lose faith in a company's ability to price existing assets correctly.

      • 1 Reply to bigpayout2010
      • A very nice even tempered commentary on what happened with this stock over the past few days. Nice going but watch out for the sniping by those who feel you are not behind the managment team here. Interesting of you to note how much touting they did for this field, booking the assets which helped their growth rate and now having to back them out. That is the sign of a management team eager to show some achievements in a lack luster development program.

        Drosky is one of the few projects wherein they have a 100% interest, choosing instead to farm into projects as that defuses risk. Given how they handled this one, my sense is they should continue with their prior approach. Meanwhile, HES, a similar cap company has been going gangbusters of late with the price of crude zooming.

 
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