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Why Is Marathon Oil (MRO) Up 2.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Marathon Oil (MRO - Free Report) . Shares have added about 2.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Marathon Oil Reports Better-Than-Expected Q2 Earnings

Marathon Oil Corporation reported second-quarter 2023 adjusted net income per share of 48 cents, beating the Zacks Consensus Estimate of 43 cents. The outperformance reflects strong domestic oil and gas production.

However, the company’s bottom line fell from the year-ago adjusted profit of $1.32 due to weaker oil realizations and higher production costs in the United States.

The company reported revenues of $1.5 billion, which came 0.4% above the consensus mark but fell 34.3% from the year-ago sales of $2.3 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 399,000 barrels of oil equivalent per day (BOE/d) compared to 343,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit reported an income of $365 million, down from $846 million in the year-ago period due to lower oil realizations and higher costs, partly offset by stronger production. We modeled the segment income at $378.9 million.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $72.49 per barrel were significantly lower than the year-earlier level of $110.10 and marginally missed our projection of $72.72. Additionally, natural gas liquids’ average price realizations decreased 53.6% to $18.72 a barrel. Finally, average realized natural gas prices plunged 72.4% year over year to $1.89 per thousand cubic feet though it managed to beat our estimate of $1.79.

Meanwhile, production costs were $5.88 per BOE, representing a 1.4% year-over-year rise.

Net production of 356,000 BOE/d was up 25.8% from second-quarter 2022. Total U.S. output, which came ahead of our projection of 346 BOE/d, comprised approximately 51% oil, or 181,000 barrels per day (bpd).

Significantly higher year-over-year production from Eagle Ford favorably affected the company’s quarterly performance, which was partly offset by lower volumes from the Bakken and Oklahoma areas. The Eagle Ford region recorded an average production of 156,000 BOE/d, surging 85.7% from the level in second-quarter 2022, while output from Bakken was 109,000 BOE/d compared with 114,000 BOE/d in the year-ago quarter. Meanwhile, the Oklahoma output came in at 50,000 BOE/d, down from the year-ago level of 56,000 BOE/d.

International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, reported earnings of $30 million compared with $160 million in the year-ago period and our projection of $89.2 million. These results could be primarily blamed on lower output.

Marathon reported production available for sale of 43,000 BOE/d, down from 60,000 Boe/d in second-quarter 2022 and below our expectation of 49 BOE/d.

Marathon’s average realized liquids prices (crude oil and condensate) of $53.64 per barrel reflected a 32.7% deterioration 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, the same as the corresponding period of 2022.

Financial Position

Total costs in the quarter were $1.1 billion, $50 million higher than the prior-year period and marginally above our expectations. Marathon Oil reported an adjusted operating cash flow of $1.1 billion for the second quarter, down 29.3% from a year ago.

As of Jun 30, 2023, it had cash and cash equivalents worth $215 million and long-term debt of 5.7 billion. The debt-to-capitalization ratio of the company was 34.2.

Marathon Oil spent $623 million in capital and exploratory expenditures during the quarter and raked in $531 million in adjusted free cash flow. The company also executed $372 million in share repurchases during the period.

2023 Guidance

Marathon has maintained its budgeted capital spending between $1.9 billion and $2 billion this year. Meanwhile, MRO continues to prioritize shareholder returns over production growth. The company is targeting production in the range of 385,000 BOE/d to 405,000 BOE/d, up more than 15% (at the midpoint) from last year. Further, Marathon expects oil volumes in the band of 185,000-195,000 barrels per day. Assuming $80 WTI, Marathon Oil expects to return a minimum of 40% of its cash flow from operations.



 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 9.79% due to these changes.

VGM Scores

Currently, Marathon Oil has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 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 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.

Performance of an Industry Player

Marathon Oil belongs to the Zacks Oil and Gas - Integrated - United States industry. Another stock from the same industry, Hess (HES - Free Report) , has gained 1.7% over the past month. More than a month has passed since the company reported results for the quarter ended June 2023.

Hess reported revenues of $2.32 billion in the last reported quarter, representing a year-over-year change of -22.4%. EPS of $0.65 for the same period compares with $2.15 a year ago.

Hess is expected to post earnings of $1.05 per share for the current quarter, representing a year-over-year change of -44.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.8%.

Hess has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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