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Why Is Marathon Oil (MRO) Down 4.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have lost about 4.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Marathon Oil Q3 Earnings and Revenues Beat Estimates

Marathon Oil Corporation reported stellar third-quarter 2019 results wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. Better-than-expected net sales volumes led to this outperformance. Precisely, the same totalled 427 thousand barrels of oil equivalent per day (MBOE/d), topping the Zacks Consensus Estimate of 394 MBOE/d.

Its adjusted income from continuing operations came in at 14 cents per share, outpacing the Zacks Consensus Estimate of 4 cents. However, the metric plunged nearly 42% from the year-ago earnings of 24 cents. Notably, decreased average price realizations of crude oil and condensate from the International E&P segment induced this year-over-year fall.

However, quarterly revenues of $1,345 million beat the Zacks Consensus Estimate of $1,264 million. But the top line was 19.3% lower than the prior-year figure of $1,667 million.

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 426,000 BOE/d compared with 419,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit earned a profit of $180 million, down 10.4% from the year-ago figure of $201 million due to weak crude oil and condensate price realizations in the United States. Production costs came in at $4.75 per BOE, hitting the lowest quarterly average unit cost level since 2011 and representing a 23% year-over-year decline.

Net production available for sale of 339,000 BOE/d increased from 304,000 BOE/d in third-quarter 2018. The total U.S. output comprised 47% oil or 201,000 barrels per day (bpd), up 16.2% year over year. This was also marginally higher than the company’s guided range of 190,000-200,000 bpd.

The improved year-over-year production, especially from Bakken, Northern Delaware and Oklahoma aided the company’s quarterly performance. Notably, Bakken output came in at 109,000 BOE/d, mirroring a 28.23% rise from the year-ago level. While the Northern Delaware region recorded production of 30,000 BOE/d, surging 42.85% from third-quarter 2018. Also, output from Oklahoma came in at 84,000 BOE/d compared with 73,000 BOE/d in the year-ago quarter.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $55.09 per barrel was below the year-earlier level of $68.51. Moreover, natural gas liquids average price realizations tumbled 59.5% to $11.37 a barrel. Additionally, average realized natural gas prices dropped almost 25% year over year to $1.92 per thousand cubic feet.

International E&P: Income decreased from $116 million in the prior-year period to $43 million in the third quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 87,000 BOE/d, down from 115,000 Boe/d in third-quarter 2018. Moderate output from Equatorial Guinea along with the company’s exit from Libyan operations caused this downside.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $46.04 per barrel, reflects a 28.15% 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, respectively. In turn, the numbers account for a 52% and 51% year-over-year fall each.

Costs, Capex & Balance Sheet

Total costs in the quarter were $1,108 million, below $1,244 million in the prior-year period. Marathon Oil’s capital expenditure summed $646 million. Additionally, the company generated organic free cash flow (FCF) of $81 million with the year-to-date FCF amounting to $298 million.

Marathon Oil has repurchased $300 million of shares year to date. It also paid out $122 million as dividends.

As of Sep 30, it had cash and cash equivalents of $1,165 million and long-term debt of $4,903 million. Debt-to-capitalization ratio of the company was 28.5%.

Guidance

Marathon Oil’s 2019 capital expenditure is intact at $2.4 billion. For the ongoing year, the company raised its U.S. oil production guidance to 13% from 12% expected previously. It also lifted its total production guidance to 11% from 10% guided earlier.

Total U.S. oil output for the fourth quarter is anticipated in the band of 190,000-200,000 bpd. International oil production is likely to be within 12,000-16,000 bpd amid divestment of the U.K. and Kurdistan assets.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 27.27% due to these changes.

VGM Scores

Currently, Marathon Oil has an average Growth Score of C, a grade with the same score on the momentum front. 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 upward for the stock, and the magnitude of these revisions looks promising. 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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