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Oil and natural gas exploration and production firm Marathon Oil Corporation (MRO - Analyst Report) reported weak fourth quarter profits, as exploration costs jumped.

Houston, Texas-based Marathon, which spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC - Analyst Report) in 2011 – announced earnings (excluding special items) of 55 cents per share, below the Zacks Consensus Estimate of 68 cents and the fourth quarter 2011 level of 78 cents.

Revenues at $4,236.0 million were up 11.2% year over year and were also above the Zacks Consensus Estimate of $3,772.0 million amid robust volumes from key resource plays.

Segmental Performance

Exploration and Production: Income from the upstream segment totaled $501.0 million during the quarter, down from $558.0 million in the previous-year period. This was mainly on account of heightened exploration costs, which skyrocketed 70.0% to $238.0 million.

The company reported production (available for sale) of 420,000 oil-equivalent barrels per day (BOE/d), reflecting a 12.0% increase from the 375,000 BOE/d achieved in the fourth quarter of 2011. This primarily reflects improved output in Marathon’s U.S. resource plays.

Marathon's worldwide realized crude oil price of $97.86 per barrel was slightly below the year-earlier quarter level of $98.46 per barrel, while natural gas realizations increased by 8.7% year over year to $3.26 per thousand cubic feet (Mcf).

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business improved 9.1% year over year to 48,000 barrels per day. However, this was more than offset by lower throughput due to unplanned downtime at the Scotford upgrader. As a result, Marathon’s Oil Sands Mining segment recorded a profit of $19.0 million as against an income of $63.0 million in the corresponding quarter of last year.

Integrated Gas: Income from the segment shot up 75.0% year over year, from $20.0 million to $35.0 million, buoyed by stronger gas prices.

Proved Reserves

As of the end of 2012, Marathon had approximately 2.0 billion oil-equivalent barrels in proved reserves (77% liquids and 72% developed). For the three-year period ended Dec 31, 2012, the company added net proved reserves of 808 million oil-equivalent barrels, excluding dispositions.

Capital Expenditure

During the quarter, Marathon spent $1,482.0 million on capital programs (95% on E&P).

Guidance

Marathon expects first quarter output to be in the range of 415,000–430,000 BOE/d, while full year volumes are likely to be between 395,000 and 420,000 BOE/d.

Stocks to Consider

Marathon currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at other domestic energy explorers like Breitburn Energy Partners L.P. (BBEP - Snapshot Report) and Cabot Oil & Gas Corporation (COG - Analyst Report) as attractive investments. Both these companies – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

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