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Marathon Oil (MRO) Down 12.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Marathon Oil (MRO - Free Report) . 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 drivers.

Marathon Oil Q2 Loss Narrower Than Expected, Revenues Miss Mark

Marathon Oil Corporation reported second-quarter 2020 adjusted net loss per share of 60 cents, narrower than the Zacks Consensus Estimate of a loss of 62 cents, attributable to lower year-over-year U.S. production costs. Though a year ago, the company earned 23 cents per share. This time, its bottom line was unfavorably impacted by the commodity price crash triggered by the coronavirus-induced demand slump amid a supply glut.

Meanwhile, Marathon Oil reported revenues of $272 million that missed the Zacks Consensus Estimate of $531 million and also fell from the year-ago figure of $1.43 billion.

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 390,000 barrels of oil equivalent per day (BOE/d) compared with 435,000 BOE/d in the year-ago period.

U.S. E&P: This upstream unit suffered a loss of $365 million against a profit of $215 million in the year-ago period due to weak commodity price realizations and lower output.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $21.65 per barrel were below the year-earlier level of $59.18. Moreover, natural gas liquids’ average price realizations tumbled 51.4% to $7.09 a barrel. Additionally, average realized natural gas prices dropped 23.8% year over year to $1.44 per thousand cubic feet.

On a brighter note, production costs summed $4.09 per BOE, representing a16.35% year-over-year decline, marking the lowest since Marathon Oil became a standalone E&P entity.

However, net production of 307,000 BOE/d decreased from 332,000 BOE/d in second-quarter 2019. The total U.S. output comprised 59.3% oil or 182,000 barrels per day (bpd), down 5.2% year over year.

The declined year-over-year production, especially from Eagle Ford, Bakken and Oklahoma hampered the company’s quarterly performance. Notably, Eagle Ford and Bakken output came in at 108,000 BOE/d and 103,000 BOE/d, respectively, reflecting a marginal fall from the year-ago level while the output from Oklahoma was 60,000 BOE/d compared with 82,000 BOE/d in the year-ago quarter.

International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, plunged into the red with a loss of $6 million against earnings of $96 million in the comparable quarter last year due to ramped-down production activity and weak commodity price realizations.

Marathon Oil reported production available for sale of 83,000 BOE/d, down from 103,000 Boe/d in second-quarter 2019. Moderate output from Equatorial Guinea along with the company’s exit from U.K. business caused this downside.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $13.79 per barrel reflect a 76.3% 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, accounting for a 31.4% and 40.1% year-over-year fall each.

Financials

Total costs in the quarter were $975 million, lower than $1.18 billion in the prior-year period.

The company reported an operating cash flow of $9 million in the second quarter, down from $797 million a year ago.

As of Jun 30, it had cash and cash equivalents worth $522 million and a long-term debt of 5.5 billion. Debt-to-capitalization of the company was 33%.

Guidance

Marathon Oil raises its current-year oil output guidance to 190,000 net barrels per day while curbing its full-year capex view to $1.2 billion from the prior projection of $1.3 billion, resulting from strong execution and an improved capital efficiency.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 5.9% due to these changes.

VGM Scores

Currently, Marathon Oil has a poor Growth Score of F, however its Momentum Score is doing a lot 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 C. 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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