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Marathon Oil (MRO) Q2 Earnings Beat on High U.S. Output

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Marathon Oil Corporation (MRO - Free Report) reported stellar second-quarter 2019 results on Aug 7, wherein earnings and revenues surpassed the respective Zacks Consensus Estimate. Higher-than-expected net sales volumes led to the outperformance. Precisely, the company’s net sales volumes totaled 437 thousand barrels of oil equivalent per day (MBOE/d), topping the Zacks Consensus Estimate of 414 MBOE/d.

Its adjusted income from continuing operations came in at 23 cents per share, outpacing the Zacks Consensus Estimate of 11 cents and increasing from the year-ago earnings of 15 cents. Notably, increased year-over-year contribution from the U.S. E&P segment and reduced expenses led to improved y/y results. 

Quarterly revenues of $1,433 million surpassed the Zacks Consensus Estimate of $1,359 million. The top line was also marginally higher than the prior-year figure of $1,417 million.

Marathon Oil Corporation Price, Consensus and EPS Surprise

Marathon Oil Corporation Price, Consensus and EPS Surprise

Marathon Oil Corporation price-consensus-eps-surprise-chart | Marathon Oil Corporation Quote

Segmental Performance

The Texas-based energy explorer’s total net production (from U.S. and International units) in the quarter under review came in at 435,000 BOE/d compared with 419,000 BOE/d in the year-ago period.

U.S. E&P: Marathon Oil’s U.S. upstream segment reported a profit of $215 million, 75% higher than the year-ago figure of $123 million. The improvement was driven by higher output and lower production costs. Production costs came in at $4.89 per BOE, marking the lowest quarterly average unit cost since 2011 and representing a 14% y/y decline.

Net production available for sale of 332,000 BOE/d increased from 298,000 BOE/d in second-quarter 2018. The total U.S. output comprised 58% oil or 190,000 barrels per day (bpd), up 13% year over year. This was also at the higher end of the company’s guided range of 180,000-190,000 bpd.

The improved year-over-year production, especially from the Bakken, Northern Delaware and Eagle Ford, aided the company’s quarterly performance. Notably, Bakken output came in at 104,000 BOE/d, mirroring a 26.8% rise from the year-ago level. The Northern Delaware region recorded production of 28,000 BOE/d, surging 64.7% from second-quarter 2018. Output from Eagle Ford and Oklahoma came in at 109,000 BOE/d and 82,000 BOE/d compared with 106,000 BOE/d and 80,000 BOE/d, respectively, in the year-ago quarter.

Marathon Oil realized liquids (crude oil and condensate) price of $59.18 per barrel, lower than the year-earlier level of $66.03. Natural gas liquids price realizations also declined 34% to$14.60 a barrel. Natural gas realizations also decreased 13.3% year over year to $1.89 per thousand cubic feet.

International E&P: The segment’s income decreased from $142 million in the prior-year period to $96 million in the second quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 103,000 BOE/d, down from 121,000 Boe/d in second-quarter 2018. The decrease in output from Equatorial Guinea and the United Kingdom, along with the company’s exit from Libyan operations resulted in the weaker output.

Markedly, subsequent to the end of second-quarter 2019, Marathon Oil closed the divestment of U.K. assets, marking a complete exit from the country. In an effort to deepen focus on prolific U.S. shale plays, the company bided goodbye to 10 countries since 2013. Currently, the firm’s international operations are limited to the integrated business in Equatorial Guinea.  

Marathon Oil realized liquids (crude oil and condensate) price of $58.21 per barrel, reflecting a12% decline from the year-earlier quarter. Natural gas and natural gas liquids price realizations came in at $0.35 per thousand cubic feet and $1.67 a barrel, reflecting y/y decline of 33% and 42.6%, respectively.

Costs, Capex & Balance Sheet

Total costs in the quarter totaled $1,178 million, lower than $1,212 million in the prior-year period. During the quarter, Marathon Oil’s capital expenditure totaled $636 million. Additionally, the company generated organic free cash flow (FCF) of $137 million, with the year-to-date FCF amounting to $217 million.

As a show of confidence in its cash generating ability, the Houston producer boosted the share buyback program from $950 million to $1.5 billion.

As of Jun 30, it had cash and cash equivalents of $961 million, and a long-term debt of $4,902 million. Debt-to-capitalization ratio of the company was 28.8%.

Guidance

Marathon Oil’s 2019 capital expenditure remains intact at $2.6 billion. For 2019, the company expects total output to increase 10% from the year-ago level, targeting 12% growth in the United States. 

Total U.S. oil output in third-quarter 2019 is anticipated in the band of 190,000-200,000 bpd, suggesting a 2.6% sequential increase from the midpoint of the guided range. International oil production is likely to be within 12,000-16,000 bpd, amid divestment of U.K. and Kurdistan assets.

Zacks Rank & Key Picks

Marathon Oil currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Delek Logistics Partners, L.P. (DKL - Free Report) , Oasis Midstream Partners LP (OMP - Free Report) and TC PipeLines, LP (TCP - Free Report) . While Delek Logistics sports a Zacks Rank #1 (Strong Buy), Oasis Midstream and TC PipeLines carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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