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Marathon Oil (MRO) Q3 Earnings Beat on Price & Output Gains

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Marathon Oil Corporation (MRO - Free Report) posted third-quarter adjusted income from continuing operations of 24 cents per share, surpassing the Zacks Consensus Estimate of 20 cents. The better-than-expected performance was driven by higher-than-anticipated production from both its United States Exploration & Production (E&P) unit and the International segment. Precisely, the U.S. (E&P) output available for sale in the quarter under review totaled 304,000 barrels of oil equivalent per day (Boe/d), surpassing the consensus estimate of 300,00 Boe/d. Output from international operations came in at 115,000 Boe/d, topping the consensus estimate of 110,000 Boe/d.

The bottom line also turned around from the year-ago quarter’s loss of 8 cents on the back of higher year-over-year output and improved oil price realizations, along with lower costs. Notably, total net production in the quarter came in at 419,000 Boe/d compared with 394,000 Boe/d in the year-ago quarter.

Quarterly revenues of $1,667 million also surpassed the Zacks Consensus Estimate of $1,501 million. Further, the top line was up 33.1% from the prior-year level.

Importantly, the company generated organic free cash flow of $320 million during the quarter, with year-to date FCF amounting to $632 million.

Marathon Oil Corporation Price, Consensus and EPS Surprise


Marathon Oil Corporation Price, Consensus and EPS Surprise | Marathon Oil Corporation Quote

Segmental Performance

United States E&P: Marathon Oil’s United States upstream segment reported a profit of $201 million against a loss of $38 million a year ago. Higher oil prices and production improved the segment’s results.

The company reported production available for sale of 304,000 Boe/d, up from 245,000 Boe/d in the third quarter of 2017. The output also surpassed the higher end of the company’s guidance range. The improvement was mainly due to impressive contribution from U.S. resource plays in Eagle Ford, Bakken and Northern Delaware.

The company realized liquids (crude oil and condensate) price of $68.51 per barrel, 46.8% higher than the year-earlier level of $46.65. Natural gas liquids (NGLs) price realizations also recorded a year-over-year increase of 34.5% to stand at $28.07 a barrel. However, natural gas realizations decreased 5.9% year over year to $2.55 per thousand cubic feet.

International E&P: The segment’s income increased from $104 million in the prior-year quarter to $116 million in the third quarter of 2018 on higher crude realizations.

Marathon Oil reported production available for sale of 115,000 Boe/d, down from 149,000 BOE/d in the third quarter of 2017. The decrease in output was primarily due to a fall in production from Equatorial Guinea and United Kingdom. The company’s exit from Libyan operations also led to weaker output.

However, Marathon Oil realized liquids (crude oil and condensate) price of $64.08 per barrel, reflecting a 25% rise from the year-earlier quarter’s $51.23 per barrel. However, natural gas and natural gas liquids realizations witnessed a year-over-year reduction in the quarter under review.

Costs & Expenses

Importantly, total expenses of the company also reduced 24.6% to a total of $1,244 million in the third quarter of 2018 compared with $1,624 million in the corresponding quarter of the prior year. Its exploration expenses in the quarter reduced almost 81% y/y to stand at $56 million. Depreciation and amortization costs also declined to $626 million from the year-ago figure of $641 million.

Capex & Balance sheet

During the quarter, Marathon Oil’s capital expenditure came in at $691 million. As of Sep 30, 2018, it had cash and cash equivalents of $1,564 million, and long-term debt of $5,498 million. Debt-to-capitalization ratio of the company was 31.3%.

2018 Guidance Raised

Marathon Oil expects its 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.

Driven by robust third-quarter performance, it increased its full-year production guidance to 405,000-415,000 Boe/d from prior expectation of 400,000-415,000 Boe/d. The company also hiked its guidance for annual resource play oil and Boe growth from prior expectation of 28-32% to 30-34%, with capital expenditure budget remaining intact at $2.3 billion.

Zacks Rank and Key Picks

Currently, Houston, TX-based Marathon Oil has a Zacks Rank #3 (Hold).

Investors interested in the Energy sector can opt for some better-ranked stocks like Bonanza Creek Energy, Inc. (BCEI - Free Report) , Murphy Oil Corporation (MUR - Free Report) and Hess Corporation (HES - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek delivered average positive earnings surprise of 74.88% in the last four reported quarters.

Murphy Oil posted positive earnings surprise in each of the trailing four quarters, with average beat of 96.50%.

Hess pulled off average positive earnings surprise of 230.48% in the trailing four reported quarters.

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