Marathon Oil (MRO) Down 9.2% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Marathon Oil due for a breakout? 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 Better-Than-Expected Q3 Earnings
Marathon Oil Corporation reported third-quarter 2023 adjusted net income per share of 77 cents, beating the Zacks Consensus Estimate of 69 cents. The outperformance reflects strong domestic oil and gas production, to go with lower unit costs.
However, the company’s bottom line fell from the year-ago adjusted profit of $1.24 due to weaker oil realizations.
The company reported revenues of $1.8 billion, which came 3.4% above the consensus mark but fell 19.3% from the year-ago sales of $2.2 billion.
In important news for investors, MRO’s board of directors recently declared a quarterly cash dividend of 11 cents per share to its common shareholders of record on Nov 15. The payout, which represents a 10% sequential increase, will be made on Dec 11.
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 421,000 barrels of oil equivalent per day (BOE/d) compared to 353,000 BOE/d in the year-ago period.
U.S. E&P: This U.S. upstream unit reported an income of $505 million, down from $723 million in the year-ago period due to lower commodity price realizations, partly offset by stronger production and lower costs. We modeled the segment income at $479.8 million.
Marathon Oil’s average realized liquids prices (crude oil and condensate) of $80.90 per barrel were 13.6% lower than the year-earlier level of $93.67 but beat our projection of $79.56. Additionally, natural gas liquids’ average price realizations decreased 37.1% to $21.37 a barrel. Finally, average realized natural gas prices plunged 70.9% year over year to $2.28 per thousand cubic feet and missed our estimate of $2.44.
Meanwhile, production costs were $5.07 per BOE, representing a 20.8% year-over-year fall.
Net production of 369,000 BOE/d was up 25.1% from third-quarter 2022. Total U.S. output, which came ahead of our projection of 352 BOE/d, comprised approximately 51% oil, or 189,000 barrels per day (bpd).
Significantly higher year-over-year production from Eagle Ford favored the company’s quarterly performance, which was partly offset by lower volumes from the Oklahoma area. The Eagle Ford region recorded an average production of 158,000 BOE/d, surging 75.6% from the third-quarter 2022 level, while output from Bakken was 121,000 BOE/d compared with 118,000 BOE/d in the year-ago quarter. Meanwhile, the Oklahoma output came in at 46,000 BOE/d, down from the year-ago level of 54,000 BOE/d.
International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, reported earnings of $62 million compared with $181 million in the year-ago period and our projection of $74.6 million. These results could be primarily blamed on lower output and liquids prices.
Marathon reported production available for sale of 52,000 BOE/d, down from 58,000 Boe/d in third-quarter 2022 but in line with our expectations.
Marathon’s average realized liquids prices (crude oil and condensate) of $64.30 per barrel reflected a 13.1% 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 $1.1 billion, essentially unchanged from the prior-year period and marginally below our expectations. Marathon Oil reported an adjusted operating cash flow of $1.1 billion for the third quarter, down 20.6% from a year ago.
As of Sep 30, 2023, it had cash and cash equivalents worth $174 million and long-term debt of $4.9 billion. The debt-to-capitalization ratio of the company was 33.8.
Marathon Oil spent $449 million in capital and exploratory expenditures during the quarter and raked in $718 million in adjusted free cash flow. The company also executed $415 million in share repurchases during the period.
2023 Guidance
Marathon has maintained its budgeted capital spending between $1.9 billion and $2 billion this year. Meanwhile, MRO continues to prioritize shareholder returns over production growth. The company is targeting production toward the high end of its range of 385,000 BOE/d to 405,000 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?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Marathon Oil has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 belongs to the Zacks Oil and Gas - Integrated - United States industry. Another stock from the same industry, Antero Midstream Corporation (AM), has gained 2.9% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
Antero Midstream Corporation reported revenues of $263.84 million in the last reported quarter, representing a year-over-year change of +14.2%. EPS of $0.23 for the same period compares with $0.20 a year ago.
Antero Midstream Corporation is expected to post earnings of $0.21 per share for the current quarter, representing a year-over-year change of +5%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Antero Midstream Corporation. Also, the stock has a VGM Score of D.
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