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Will US E&P Unit Buoy Marathon Oil's (MRO) Q3 Earnings?

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Marathon Oil Corporation (MRO - Free Report) is set to report third-quarter 2018 financial results on Nov 7, after the closing bell. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at a profit of 20 cents on revenues of $1,501 million.

The Zacks Consensus Estimate for earnings has moved south by a penny over the past month. However, its earnings estimates of 20 cents signal a turnaround from a loss of 8 cents per share incurred in the year-ago quarter. Further, revenues are also expected to record year-over-year growth of 19.8% in the to-be-reported quarter.

Notably, in the last reported quarter, the company delivered weaker-than expected earnings on high operating expenses. Nonetheless, Marathon Oil displays a sound earnings history, having gone past estimates in three of the last four quarters, with average positive surprise of 71.07%.

Let’s take a look at the factors that are likely to impact its performance in the to-be-reported quarter.

Factors at Play

Marathon Oil’s strong inventories of development projects place it well for growth. The company has been improving the quality of assets, which bodes well for production. The company has successfully established itself in the Delaware Basin and STACK/SCOOP resource plays, while exiting the oil sands and conventional assets with limited upside.

Management had earlier predicted third-quarter 2018 U.S. Exploration & Production (E&P) output available for sale in the range of 290,000-300,000 BOE/d. Even the Zacks Consensus Estimate for total sales volume at the U.S. (E&P) segment for the third quarter is pegged at 300,000 barrels of oil equivalent per day (BOE/d), which is well above the year-ago figure of 244,000 BOE/d.

Along with expanded production volumes, the North American market is likely to benefit from higher commodity price realizations. Notably, oil prices were fueled by concerns over U.S. sanctions on Iran, OPEC’s efforts to tighten the market and strong global demand. The Zacks Consensus Estimate for realized prices in the United States is projected to increase on a year-over-year basis, which might boost Marathon Oil’s top line. The Zacks Consensus Estimate for average oil price is expected to jump 47.9% from the prior-year level to $66 a barrel.

Nonetheless, the company is expected to bear the brunt of receding output from international E&P activities. Notably, the Zacks Consensus Estimate for net sales volumes from international operations is pegged at $11,000 Boe/d, which is below the year-ago level of $165,000 Boe/d. In fact, in the last reported quarter, the company had forecast weaker output from international operations for the quarter to be reported. Marathon Oil expects International E&P output 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.

Hence, while we expect Marathon Oil’s U.S. Production and Exploration segment to buoy the company’s earnings, lower volumes from international operations may limit overall profits.

Earnings Whispers

Our proven model does not conclusively show that Marathon Oil is likely to beat earnings estimates in the to-be-reported quarter, as it does not have the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are both pegged at 20 cents.

Zacks Rank: Marathon Oil currently holds a Zacks Rank #2. Though a Zacks Rank #2 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few firms from the energy space that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

TC Pipelines LP (TCP - Free Report) has an Earnings ESP of +13.29% and a Zacks Rank #1. The firm is expected to release third-quarter earnings on Nov 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

Summit Midstream Partners LP (SMLP - Free Report) has an Earnings ESP of +64.00% and sports a Zacks Rank #1. The partnership is anticipated to release quarterly results on Nov 8.

Jagged Peak Energy Inc. (JAG - Free Report) has an Earnings ESP of +12.05% and a Zacks Rank #3. The company is anticipated to release quarterly numbers on Nov 8.

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