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Marathon Oil Delivers Mixed Quarter

Zacks Equity Research

Oil and natural gas exploration and production firm Marathon Oil Corporation (MRO) reported weaker-than-expected fourth quarter 2011 profits, hurt by the absence of sales volumes in Libya and an increased tax rate.

Houston, Texas-based Marathon – which last year spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC) – announced earnings from continuing operations (excluding special items) of 78 cents per share, well below the Zacks Consensus Estimate of 85 cents per share. The now-separated downstream unit has been treated as discontinued operations.

However, compared with the year-ago period, Marathon’s adjusted earnings per share from continuing operations increased 11.4% (from 70 cents to 78 cents) on the back of higher liquids prices.

Revenues at $3,809.0 million were up 11.2% year over year and were also significantly above the Zacks Consensus Estimate of $2,810.0 million,

Segmental Performance

Exploration and Production: Income from the upstream segment totaled $558.0 million during the quarter, up from $497.0 million in the year-ago period. The company reported production (available for sale) of 375,000 oil-equivalent barrels per day (BOE/d), comparable with the previous-year level. Though Marathon restarted Libyan operations during the quarter under review, it did not realize any sales.   

Marathon's worldwide realized crude oil price of $98.46 per barrel was 20.8% above the year-earlier level, while natural gas realizations decreased by 2.3% to $3.00 per thousand cubic feet (Mcf).

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business increased from the year-earlier levels. The situation was further helped by improved price realizations. As a result, Marathon’s Oil Sands Mining segment recorded a profit of $63.0 million as against income of just $9.0 million in the year-ago period.

Integrated Gas: Income from the segment shot down 39.4% year-over-year, from $33.0 million to $20.0 million, hamstrung by lower LNG volumes and weak gas prices.

Proved Reserves

As of the end of 2011, Marathon had approximately 1.80 billion oil-equivalent barrels in proved reserves (75% liquids and 78% developed). For the three-year period ended December 31, 2011, the company added net proved reserves of 490 million oil-equivalent barrels, excluding oil sands.

Dividend Hike

Recently, Marathon announced a 13.3% increase in its quarterly dividend to 17 cents per share, or 68 cents per share annualized. The dividend is payable on March 12 to shareholders of record on February 16, 2012.

Capital Expenditure

During the quarter, Marathon spent $1,023.0 million on capital programs (92% on E&P).


Marathon shares currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. Longer term, we are maintaining our Neutral recommendation on the stock.

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