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It has been about a month since the last earnings report for Marathon Oil (MRO). Shares have added about 44.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Marathon Oil Reports In-Line Q3 Loss
Marathon Oil Corporation reported third-quarter 2020 adjusted net loss per share of 28 cents, matching the Zacks Consensus Estimate. This performance can be attributed to weak oil and gas price realizations, and lower output, partially offset by a fall in year-over-year U.S. production costs. However, a year ago, the company earned 14 cents per share.
Meanwhile, Marathon Oil’s revenues of $754 million outpaced the Zacks Consensus Estimate of $752 million but fell from the year-ago top-line of $1.35 billion.
This Texas-based energy explorer’s total net production (from U.S. and International units) in the quarter under review came in at 370,000 barrels of oil equivalent per day (BOE/d) compared with 426,000 BOE/d in the year-ago period.
U.S. E&P: This upstream unit suffered a loss of $135 million against a profit of $180 million in the year-ago period due to reduced oil and gas price realizations, and soft output.
Marathon Oil’s average realized liquids prices (crude oil and condensate) of $37.78 per barrel were below the year-earlier level of $55.09. However, natural gas liquids’ average price realizations increased 3.8% to $11.80 a barrel. Meanwhile, average realized natural gas prices dropped 7.3% year over year to $1.78 per thousand cubic feet.
On a brighter note, production costs summed $4.32 per BOE, representing a 13% year-over-year decline, attributable to strong cost-control measures.
However, net production of 297,000 BOE/d decreased from 339,000 BOE/d in third-quarter 2019. The total U.S. output comprised 53.5% oil or 159,000 barrels per day (bpd), down 21% year over year.
The declined year-over-year production, especially from Eagle Ford, Bakken and Oklahoma hampered the company’s quarterly performance. Notably, Eagle Ford and Bakken output came in at 91,000 BOE/d and 98,000 BOE/d, respectively, reflecting a 14.9% and 10.1% fall each from the respective year-ago levels while the Oklahoma output was 73,000 BOE/d compared with 84,000 BOE/d in the year-ago quarter.
International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, reported a profit of $8 million compared with $96 million earned in the comparable quarter last year due to ramped-down production activity and dwindled commodity price realizations.
Marathon Oil reported production available for sale of 73,000 BOE/d, down from 87,000 Boe/d in third-quarter 2019. Lower output from Equatorial Guinea caused this downside.
The company’s average realized liquids prices (crude oil and condensate) of $30.28 per barrel reflect a 34.2% decline 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 each, in line with the respective year-over-year numbers.
Total costs in the quarter were $996 million, lower than $1.11 billion in the prior-year period. The company reported an operating cash flow of $345 million in the third quarter, down from $737 million a year ago. Further, Marathon Oil generated free cash flow of $180 million in the third quarter through a robust performance across all elements of business. As of Sep 30, it had cash and cash equivalents worth $1.1 billion and a long-term debt of 5.41 billion. Debt-to-capitalization of the company was 33.2%.
Marathon Oil slashes its current-year unit output operating expense view for both U.S. and International segments by over 5% and 8%, respectively. Further, it raises its 2020 U.S. oil-equivalent production guidance by 5,000 net BOE/d at the midpoint.
Meanwhile, Marathon Oil reiterates its current-year oil output projection at 190,000 net barrels per day while maintaining its full-year capex view of $1.2 billion, led by strong execution and improved capital efficiency.
Marathon Oil's ability to withstand soft commodity prices is supported by its assertion of a free cash flow breakeven even at a WTI price below $35 per barrel in 2021. Further, the company expects to restrict next year’s capital spending within $1 billion and targets an average production level similar to that of the fourth-quarter 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -15.53% due to these changes.
At this time, Marathon Oil has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
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.
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