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Why Is Marathon Oil (MRO) Up 3.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Marathon Oil (MRO - Free Report) . Shares have added about 3.8% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Marathon Oil Q2 Earnings Miss on Higher Costs

Marathon Oil posted second-quarter adjusted income from continuing operations of 15 cents per share, turning around from the year-ago quarter’s loss of 24 cents. The strong numbers are attributed to higher production in its United States E&P unit. However, the bottom line missed the Zacks Consensus Estimate of 21 cents, due to rise in operating cost and expenses.

Quarterly revenues of $1,417 million missed the Zacks Consensus Estimate of $1,495 million due to lower year-over-year production from the International E&P segment. However, the figure increased from the prior-year level of $1,059 million due to higher liquids prices.

Segmental Performance

United States E&P: Marathon Oil’s United States upstream segment reported a profit of $123 million against a loss of $107 million a year ago. Higher oil prices and production improved the segment’s results.

Marathon Oil reported production available for sale of 298,000 barrels of oil equivalent (BOE/d), up from 222,000 BOE/d in the second quarter of 2017. The output also surpassed the Zacks Consensus Estimate of 288 BOE/d. The improvement was mainly due impressive contribution from U.S. resource plays in Eagle Ford, Bakken, Oklahoma and Northern Delaware.

The company realized liquids (crude oil and condensate) price of $66.03 per barrel, 44.1% higher than the year-earlier quarter’s level of $45.81 per barrel. Natural gas liquids (NGLs) price realizations also recorded a year-over-year increase of 25.44% to stand at $22.09 a barrel. However, natural gas realizations decreased 28.5% year over year to $2.18 per thousand cubic feet (Mcf).

International E&P: The segment’s income increased from $59 million in the prior-year quarter to $142 million in the second quarter of 2018 on higher realized liquids and NGLs.

Marathon Oil reported production available for sale (excluding Libya) of 121,000 BOE/d, down from 127,000 BOE/d in the second quarter of 2017. The decrease in output was primarily due to a fall in natural gas production from Equatorial Guinea and United Kingdom.

The company realized liquids (crude oil and condensate) price of $66.12 per barrel, reflecting a 40.6% rise from the year-earlier quarter’s $47.04 per barrel. Also, natural gas liquids realizations rose to $2.91 a barrel compared with $1.77 per barrel in the second quarter of 2017. However, natural gas realizations were down to 52 cents per thousand cubic feet (Mcf) from 57 cents a year ago.

Costs & Expenses

The company’s exploration expenses in the quarter came in at $65 million, higher than $30 million in the year-earlier quarter. Production costs rose to $205 million from $178 million in the year-ago period.

Moreover, Shipping, handling and other operating costs surged to $126 million from $111 million in second-quarter 2017. All these led to total quarterly cost and expenses of $1,212 million for the company compared with the prior-year quarter’s $1,084 million.

Capex & Balance sheet

During the quarter, Marathon Oil’s capital expenditure came in at $608 million. As of Jun 30, 2018, Marathon Oil had cash and cash equivalents of $1.7 billion and a $3.4 billion worth undrawn revolving credit facility. At the end of the quarter, the company had long-term debt of around $5.5 billion. Debt-to-capitalization ratio of the company was 31.2%.

Guidance

Marathon Oil expects third-quarter 2018 United States E&P output available for sale in the range of 290,000-300,000 BOE/d. International E&P output is expected to remain within 105,000-115,000 BOE/d, down from the second-quarter level owing to planned maintenance in the United Kingdom and Equatorial Guinea.

Marathon Oil increased its full-year guidance to 400,000-415,000 BOE/d from prior expectation of 390,000-410,000 BOE/d, with capital expenditure budget remaining intact at $2.3 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -20.67% due to these changes.

VGM Scores

Currently, Marathon Oil has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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