Why Is Marathon Oil (MRO) Down 12.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have lost about 12.2% 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 catalysts.

Marathon Oil Q1 Earnings Beat on U.S. E&P Segment

Marathon Oil reported mixed first-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

The company’s adjusted income from continuing operations came in at 31 cents per share, outpacing the Zacks Consensus Estimate of 6 cents and the year-ago earnings of 18 cents a share. Notably, increased year-over-year contribution from the U.S. E&P segment along with reduced expenses led to the outperformance.

Total expenses of the company decreased to $1,126 million from $1,161 million in the corresponding quarter of the prior year. Per unit production costs at the United States declined 12% to $5.21/boe.

However, the quarterly revenues of $1,197 million missed the Zacks Consensus Estimate of $1,227 million. The top line also decreased 31% from the prior-year figure, primarily due to weak oil price realizations.

Segmental Performance

The Texas-based energy explorer’s total net production (from the U.S. and International units) in the quarter under review came in at 388,000 barrels of oil equivalent per day (Boe/d) compared with 426,000 Boe/d in the year-ago period.

U.S. E&P: Marathon Oil’s U.S. upstream segment reported a profit of $132 million, reflecting a 5.6% improvement from the year-ago figure of $125 million. Also, net production available for sale of 296,000 Boe/d increased from 284,000 Boe/d in the first quarter of 2018. The total U.S. output comprised 60% oil or 177,000 barrels per day (bpd), up 8% year over year and also within the company’s guided range of 175,000-185,000 bpd.

The improved year-over-year production, especially from the Bakken, Northern Delaware and Eagle Ford aided the company’s quarterly performance. Notably, Bakken output came in at 92,000 Boe/d, mirroring a 24% rise from the year-ago level. Northern Delaware region recorded production of 26,000 Boe/d, surging 62.5% from the first quarter of 2018. Meanwhile, output levels from Eagle Ford and Oklahoma came in at 105,000 Boe/d and 63,000 Boe/d compared with 104,000 Boe/d and 75,000 Boe/d, respectively, in the year-ago quarter.

Marathon Oil realized liquids (crude oil and condensate) price of $54.05 per barrel, lower than the year-earlier level of $62.22. Natural gas liquids (NGLs) price realizations also declined 31.7% to stand at $15.66 a barrel. Meanwhile, natural gas realizations increased 13.1% year over year to $2.93 per thousand cubic feet.

International E&P: The segment’s income decreased from $132 million in the prior-year quarter to $61 million in the first quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 92,000 Boe/d, down from 114,000 Boe/d in the first quarter of 2018. The decrease in output from Equatorial Guinea and the United Kingdom along with the company’s exit from Libyan operations resulted in the weaker output.

Furthermore, Marathon Oil realized liquids (crude oil and condensate) price of $53.93 per barrel, reflecting an 18.6% decline from the year-earlier quarter. While natural gas price realizations came in at $0.48 per mcf, down 26% year over year, natural gas liquids realizations witnessed a year-over-year increase in the quarter under review.

Capex & Balance Sheet

During the first quarter, Marathon Oil’s capital expenditure totaled $569 million. Additionally, the company generated organic free cash flow of $80 million in the same period.

As of Mar 31, it had cash and cash equivalents of $1,019 million, and long-term debt of $5,501 million. Debt-to-capitalization ratio of the company was 31%.

Guidance

Marathon Oil’s 2019 capital expenditure remains intact at $2.6 billion. Almost 95% of the capital outlay will be directed toward the shale plays including Oklahoma, Bakken, Permian and Eagle Ford. For 2019, the company expects total output to increase 10% from a year-ago level, targeting 12% growth in the United States.

Total oil output in second-quarter 2019 is anticipated to be in the band of 200,000-220,000 barrels per day. U.S. oil production is estimated at 180,000-190,000 bpd, reflecting a 5% sequential increase from the midpoint of the guided range. International oil production is likely to be within the range of 20,000-30,000 bpd amid downtime at Foinaven complex.

The company’s cumulative two-year free cash flows for 2019 and 2020 are anticipated to be around $750 million at oil price of $50 a barrel and $2.2 billion at crude price of $60 a barrel.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 13.64% due to these changes.

VGM Scores

Currently, Marathon Oil has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been 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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