Will Marathon Oil Feel the Heat as Oil Prices Remain Low?
We issued an updated research report on Marathon Oil Corporation MRO on Sep 14, 2015. The leading energy firm has a large and geographically diverse reserve base along with a solid project pipeline. However, we believe Marathon’s earnings and cash flows are bound to suffer from the prolonged oil price slump.
The positives and the negatives are reflected in Marathon’s current Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Marathon Oil’s strong inventory of development projects (in liquid rich resource plays and other focus areas such as Equatorial Guinea and the Kurdistan Region of Iraq) provides for visible production growth over the coming years. We believe that management’s guidance of 20% production growth rate for 2015 (from key resource plays) is on the conservative side.
Moreover, the acquisition of a sizeable acreage in the burgeoning Eagle Ford shale formation in South Texas from Hilcorp Resources Holdings, L.P. has offered Marathon a meaningful production growth opportunity in the high-margin North American unconventional resource plays and will further drive overall volumes.
Most importantly, management has not been shy of divesting assets, particularly those that do not fit into the company’s long-term growth plan. During 2014, Marathon sold approximately $45 million worth of non-core oil and gas properties around the world, thereby freeing up capital to concentrate on its longer-term, high-grade prospects.
However, with crude prices remaining low, Marathon has been able to extract less value for its products. This has put pressure on the group’s profit margins.
Stocks to Consider
Some better-ranked players in the same space are Seadrill Partners LLC SDLP, Alon USA Partners LP ALDW and Tesoro Corporation TSO. Each of the stocks sports a Zacks Rank #1 (Strong Buy).
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TESORO CORP (TSO): Free Stock Analysis Report
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