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Marathon Oil Q2 Earnings Beat Estimates on Higher Production

Zacks Equity Research

Marathon Oil Corporation (MRO), the oil and natural gas exploration and production (E&P) firm, reported better-than-expected second-quarter 2014 earnings. The performance was bolstered by solid production growth from the U.S. resource plays and improved realizations.

Following the earnings release, Marathon Oil’s shares gained about 2% in the after-market trading session on Aug 4.

The Houston, TX-based company posted second-quarter adjusted earnings of 89 cents per share, a substantial improvement from 67 cents in second-quarter 2013. The reported figure also easily surpassed the Zacks Consensus Estimate of 74 cents.

However, quarterly revenues of $2,941 million failed to meet the Zacks Consensus Estimate of $3,194 million. The top line also declined from the prior-year quarter level of $2,990 million. A weak performance by the company’s International E&P segment affected the results.

Segmental Performance

North America E&P: Income from Marathon Oil’s North American upstream segment totaled $302 million in the reported quarter, compared with 221 million in the prior-year period. Production growth and better realizations led to the segment’s strong performance.

Marathon Oil reported production (available for sale) of 227,000 oil-equivalent barrels per day (BOE/d), up from 201,000 BOE/d in the second quarter of 2013. The increase was primarily driven by higher output from the U.S. resource plays, partially offset by shut-in of operations in the Powder River Basin and production decline from the Gulf of Mexico.

The company realized crude oil and condensate price of $95.95 per barrel, higher than the year-earlier quarter level of $93.75 per barrel, while natural gas realizations increased over 19% year over year to $5.00 per thousand cubic feet (Mcf).   

International E&P: The segment’s income was down about 6% year over year to $160 million. Lower production and a substantial decrease in natural gas realizations weighed on the results.

Marathon Oil reported production (excluding Libya and Discontinued Operations) of 120,000 oil-equivalent barrels per day (BOE/d), compared with 123,000 BOE/d in the second quarter of 2013. An increase in unplanned downtime at the Foinaven field, natural field declines in Brae and higher maintenance activities in the Brae complex led to the decline. However, these factors were partly offset by higher volumes from Equatorial Guinea.

Marathon Oil’s natural gas realizations decreased nearly 44.4% year over year to $0.69 per thousand cubic feet (Mcf).

Oil Sands Mining: Marathon’s Oil Sands Mining segment recorded an income of $55 million against $20 million in the comparable year-ago period. The rise came on the back of higher realizations.

Synthetic crude oil sales volumes in the oil sands business was 36,000 barrels per day, marginally lower than 37,000 barrels per day in the year-ago quarter, due to lower mine reliability.

Price realization from Synthetic Crude Oil came in at $94.17 per barrel, up 5.3% from $89.39 per barrel in the year-ago period.

Capital Expenditure

During the reported quarter, Marathon Oil spent $1,423 million on capital programs (85.5% on E&P).

Marathon Oil expects third-quarter North America E&P output in the range of 235,000–248,000 BOE/d, International E&P (excluding Libya and discontinued operations) output in the range of 115,000–122,000 BOE/d and Oil Sands Mining output in the range of 40,000–45,000 BOE/d.

For 2014, the company expects North America and International E&P output in the range of 345,000 – 360,000 BOE/d and Oil Sands Mining output in the 37,000 – 42,000 BOE/d band.

Zacks Rank & Other Stocks to Consider

Marathon Oil currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, investors interested in the energy sector could consider better-ranked stocks like Clayton Williams Energy, Inc. (CWEI), Pioneer Energy Services Corp. (PES) and Weatherford International plc (WFT). All of these have a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on WFT
Read the Full Research Report on MRO
Read the Full Research Report on CWEI
Read the Full Research Report on PES

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