Marathon Oil (MRO) Up 13.4% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have added about 13.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Marathon Oil due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Marathon Oil Reports Better-Than-Expected Q4 Earnings
Marathon Oil Corporation reported fourth-quarter 2023 adjusted net income per share of 69 cents, beating the Zacks Consensus Estimate of 62 cents. The outperformance reflects strong domestic oil and gas production.
However, the company’s bottom line fell from the year-ago adjusted profit of 88 cents due to weaker oil realizations.
The company reported revenues of $1.7 billion, which came 2% above the consensus mark but fell 2.4% from the year-ago sales.
Segmental Performance
This Texas-based energy explorer’s total net production (from U.S. and International units) in the quarter under review came in at 404,000 barrels of oil equivalent per day (BOE/d) compared with 333,000 BOE/d in the year-ago period.
U.S. E&P: This U.S. upstream unit reported an income of $468 million, down from $510 million in the year-ago period due to lower commodity price realizations and higher costs, partly offset by stronger production. We modeled the segment income at $441.3 million.
Marathon Oil’s average realized liquids price (crude oil and condensate) of $77.28 per barrel were 8.3% lower than the year-earlier level of $84.29 and narrowly missed our projection of $77.80. Additionally, natural gas liquids’ average price realizations decreased 19.6% to $20.92 a barrel. Finally, average realized natural gas prices plunged 52.9% year over year to $2.32 per thousand cubic feet and missed our estimate of $2.84.
Meanwhile, production costs were $6.51 per BOE, representing a 3.5% year-over-year rise.
Net production of 352,000 BOE/d was up 26.6% from fourth-quarter 2022. Total U.S. output, which came ahead of our projection of 330,000 BOE/d, comprised approximately 56% oil, or 198,000 barrels per day (bpd).
Significantly higher year-over-year production from Eagle Ford favored the company’s quarterly performance. The Eagle Ford region recorded an average production of 144,000 BOE/d, surging 58.2% from the fourth-quarter 2022 level, while output from Bakken was 118,000 BOE/d compared with 94,000 BOE/d in the year-ago quarter. Meanwhile, the Oklahoma output came in at 49,000 BOE/d, just down from the year-ago level of 50,000 BOE/d.
International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, reported earnings of $51 million compared with $129 million in the year-ago period and our projection of $33.5 million. These results could be primarily blamed on lower output and liquid prices.
Marathon reported production available for sale of 52,000 BOE/d, down from 55,000 Boe/d in fourth-quarter 2022 and below our projection of 67,000 BOE/d.
Marathon’s average realized liquids prices (crude oil and condensate) of $47.43 per barrel reflected a 20% deterioration from the year-earlier quarter. Natural gas and natural gas liquids’ average price realizations came in at 24 cents per thousand cubic feet and $1 a barrel, respectively, the same as the corresponding period of 2022.
Financial Position
Total costs in the quarter were $1.2 billion, up 18.9% from the prior-year period and exceeded our expectation by 8.5%. Marathon Oil reported an adjusted operating cash flow of $1.2 billion for the fourth quarter, up 18.9% from a year ago.
As of Dec 31, 2023, it had cash and cash equivalents worth $155 million and long-term debt of $3.4 billion. The debt-to-capitalization ratio of the company was 23.2.
Marathon Oil spent $360 million in capital and exploratory expenditures during the quarter and raked in $624 million in adjusted free cash flow. This company also executed $352 million in share repurchases during the period.
2024 Guidance
Marathon has budgeted its capital spending between $1.9 billion and $2.1 billion this year. Meanwhile, MRO continues to prioritize shareholder returns over production growth. The company is targeting production between 380,000 BOE/d and 400,000 BOE/d. Further, Marathon expects oil volumes in the band of 185,000-195,000 barrels per day.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -11.92% due to these changes.
VGM Scores
At this time, Marathon Oil has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marathon Oil has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Marathon Oil is part of the Zacks Oil and Gas - Integrated - United States industry. Over the past month, Occidental Petroleum (OXY), a stock from the same industry, has gained 5.6%. The company reported its results for the quarter ended December 2023 more than a month ago.
Occidental reported revenues of $7.53 billion in the last reported quarter, representing a year-over-year change of -9.6%. EPS of $0.74 for the same period compares with $1.61 a year ago.
For the current quarter, Occidental is expected to post earnings of $0.63 per share, indicating a change of -42.2% from the year-ago quarter. The Zacks Consensus Estimate has changed -15.4% over the last 30 days.
Occidental has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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