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Marathon Oil's Earnings Miss, Sales Beat

Zacks Equity Research

Oil and natural gas exploration and production (E&P) firm Marathon Oil Corp. (MRO) reported lower-than-expected second quarter profits on weak oil sands results.

Houston, TX-based Marathon Oil, which spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corp. (MPC) in 2011 – announced earnings (excluding special items) of 67 cents per share, below the Zacks Consensus Estimate of 71 cents.

However, the company’s per share adjusted profits came higher than the second quarter 2012 level of 59 cents amid improved natural gas realizations.

Revenues at $3,898.0 million were up 3.0% year over year and were also above the Zacks Consensus Estimate of $3,835.0 million.

Segment Analysis

North America E&P: Income from Marathon Oil’s North American upstream segment totaled $221.0 million during the quarter, up significantly from $70.0 million in the previous-year period. This was mainly on account of increased liquids sales volumes and lesser property write-downs associated with cancelled or expiring leases.

International E&P: Income from the segment was up 2.4% year over year, from $373.0 million to $382.0 million, buoyed by stronger gas prices and volumes.

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business fell slightly year over year – from 43,000 barrels per day to 42,000 barrels per day – on the back of plant downtime and turnaround. The turnaround also led to higher operating costs. As a result, Marathon Oil’s Oil Sands Mining segment recorded a profit of $20.0 million, down from an income of $50.0 million in the corresponding quarter of last year. The negative factors were partially offset by improved price realizations.

Capital Expenditure

During the quarter, Marathon Oil spent $1,257.0 million on capital programs (91% on E&P).

Guidance

Marathon Oil expects full year output to be in the range of 410,000–425,000 oil-equivalent barrels per day, while oil sands volumes are likely to be between 40,000 and 44,000 barrels per day.

Zacks Rank & Stock Picks

Marathon Oil currently retains 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, one can look at Range Resources Corp. (RRC) and Clayton Williams Energy Inc. (CWEI) as a good buying opportunity. These North American energy explorers – sporting a Zacks Rank #1 (Strong Buy) – offer tremendous value and are worth buying now.
 

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