A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have added about 2.1% in that time frame, underperforming 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 Delivers a Stellar Show in Q4
Marathon Oil posted posted fourth-quarter adjusted income from continuing operations of 15 cents per share, surpassing the Zacks Consensus Estimate of 13 cents. Better-than-anticipated performance from the U.S. Exploration & Production (E&P) unit drove the results.
The bottom line increased from the year-ago earnings of 7 cents a share on the back of higher year-over-year output and improved oil price realizations in the U.S. E&P segment. Notably, total net production in the quarter came in at 411,000 barrels of oil equivalent per day (Boe/d) compared with 383,000 Boe/d in the year-ago period.
Quarterly revenues of $1,765 million surpassed the Zacks Consensus Estimate of $1,440 million. Further, the top line was up 27.7% from the prior-year level.
Importantly, the company generated organic free cash flow of $257 million during the quarter, with year-to-date FCF amounting to $868 million.
U.S. E&P: Marathon Oil’s U.S. upstream segment reported a profit of $159 million, reflecting a 109.2% jump from the year-ago figure of $76 million. Improved year-over-year production, especially from the U.S. shale plays, drove the performance. Higher realized prices also contributed to the improved results.
The company reported net production available for sale of 305,000 Boe/d, up from 262,000 Boe/d in the fourth quarter of 2017. The recorded output was at the higher end of its guidance range. The improvement was mainly due to impressive contribution from U.S. resource plays in Bakken and Northern Delaware. Notably, Bakken output came in at 94,000 Boe/d, depicting a 37% rise from the year-ago level. Further, output from Northern Delaware totaled 26,000 Boe/d, marking a whopping 138% year-over-year increase.
The company realized liquids (crude oil and condensate) price of $56.01 per barrel, a tad higher than the year-earlier level of $55.46. Natural gas liquids (NGLs) price realizations also recorded a nominal increase of 4.6% to stand at $24.07 a barrel. Natural gas realizations increased 23.4% year over year to $3.27 per thousand cubic feet.
International E&P: The segment’s income decreased from $118 million in the prior-year quarter to $83 million on lower production and weak commodity price realizations.
Marathon Oil reported production available for sale of 105,000 Boe/d, down from 121,000 Boe/d in the fourth quarter of 2017. The decrease in output was primarily due to a fall in production from Equatorial Guinea and United Kingdom. The company’s exit from Libyan operations also led to the weaker output.
Marathon Oil realized liquids (crude oil and condensate) price of $58.25 per barrel, reflecting a 5% decline from the year-earlier quarter’s $61.32. Further, natural gas and natural gas liquids realizations also witnessed a year-over-year reduction in the quarter under review.
Costs & Expenses
Total expenses of the company increased to $1,298 million from $1,171 million in the corresponding quarter of the prior year. Its exploration expenses in the quarter increased almost 104% y/y to stand at $116 million. Depreciation and amortization costs also rose to $613 million from the year-ago figure of $583 million.
Capex & Balance Sheet
During the quarter, Marathon Oil’s capital expenditure came in at $677 million. Full-year capex totaled $2,620 million. As of Dec 31, 2018, it had cash and cash equivalents of $1,462 million, and long-term debt of $5,499 million. Debt-to-capitalization ratio of the company was 32%.
Marathon Oil expects 2019 capital expenditure to amount to $2.6 billion, almost flat with 2018’s spending. Almost 95% of the capital outlay will be directed toward the shale plays including Oklahoma, Bakken, Permian and Eagle Ford.
Marathon Oil expects total output in 2019 to increase 10% from a year ago, targeting 12% growth in the United States. For the first quarter of 2019, the upstream player foresees oil production of 195-215 barrels per day (bpd), with U.S. output likely to be in the band of 175-185 bpd. International production is likely to be impacted by a planned turnaround activity in Equatorial Guinea.
The company anticipates its cumulative two-year free cash flows for 2019 and 2020 to be around $750 million at oil price of $50 a barrel and $2.2 billion at crude price of $60.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 73.61% due to these changes.
At this time, Marathon Oil has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 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.
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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