Marathon Production Still Strong

Earlier today, Marathon Oil Corp.  (MRO) provided an interim update of its first-quarter 2009 results, with contribution from better than expected oil and natural gas production offset by lower realized commodity prices. We continue to like Marathon for its revitalized upstream business, top-tier Midwest-centered refining business, and very cheap valuation.

As we mentioned in our comments on Chevron Corp's  (CVX) preannouncement yesterday, look for negative revisions to earnings estimates for the entire group in the coming days. Marathon is scheduled to report first-quarter results on April 30th.

Marathon performed very well in its upstream business, with oil and natural gas production above its own guidance range. The company reported production (available for sale) of 429,000 oil-equivalent barrels per day (BOE/d), significantly above its guidance range of 400,000 to 415,000 BOE/d.

This is a 7% sequential production growth, reflecting strong operating performance from the company's Alvheim oil field in the North Sea and natural gas assets in Equatorial Guinea. Production in the company's oil sands business in Canada was up modestly from both the previous and year-earlier quarters.

These upstream gains were more than offset by weak commodity prices. Marathon's domestic realized oil price in the first two months of the quarter averaged $33.36 per barrel, down 29.1% sequentially and 60.3% year over year. International oil price realization was down 27.2% sequentially and 55% year over year. Natural gas price realizations were similarly down.

Margins in the refining business improved from the weak levels in the previous and year-earlier quarters, particularly in Marathon's core Midwest region. Partly offsetting the improved indicator margins were narrower sweet/sour differentials, dampening overall capture rates.

On a per gallon basis, the company earned approximately $0.08 in refining and wholesale gross margin, up from a negative $0.002 in the year-earlier quarter. Its total refining utilization averaged 86% during the quarter, compared to 94% in the previous and 83% in the year-earlier quarter.

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