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Marathon Oil (MRO) Q3 Earnings Beat on High U.S. Output

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Marathon Oil Corporation (MRO - Free Report) reported stellar third-quarter 2019 results wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate. Better-than-expected net sales volumes led to this outperformance. Precisely, the same totalled 427 thousand barrels of oil equivalent per day (MBOE/d), topping the Zacks Consensus Estimate of 394 MBOE/d.

Its adjusted income from continuing operations came in at 14 cents per share, outpacing the Zacks Consensus Estimate of 4 cents. However, the metric plunged nearly 42% from the year-ago earnings of 24 cents. Notably, decreased average price realizations of crude oil and condensate from the International E&P segment induced this year-over-year fall.

However, quarterly revenues of $1,345 million beat the Zacks Consensus Estimate of $1,264 million. But the top line was 19.3% lower than the prior-year figure of $1,667 million.

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 426,000 BOE/d compared with 419,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit earned a profit of $180 million, down 10.4% from the year-ago figure of $201 million due to weak crude oil and condensate price realizations in the United States. Production costs came in at $4.75 per BOE, hitting the lowest quarterly average unit cost level since 2011 and representing a 23% year-over-year decline.

Net production available for sale of 339,000 BOE/d increased from 304,000 BOE/d in third-quarter 2018. The total U.S. output comprised 47% oil or 201,000 barrels per day (bpd), up 16.2% year over year. This was also marginally higher than the company’s guided range of 190,000-200,000 bpd.

The improved year-over-year production, especially from Bakken, Northern Delaware and Oklahoma aided the company’s quarterly performance. Notably, Bakken output came in at 109,000 BOE/d, mirroring a 28.23% rise from the year-ago level. While the Northern Delaware region recorded production of 30,000 BOE/d, surging 42.85% from third-quarter 2018. Also, output from Oklahoma came in at 84,000 BOE/d compared with 73,000 BOE/d in the year-ago quarter.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $55.09 per barrel was below the year-earlier level of $68.51. Moreover, natural gas liquids average price realizations tumbled 59.5% to $11.37 a barrel. Additionally, average realized natural gas prices dropped almost 25% year over year to $1.92 per thousand cubic feet.

International E&P: Income decreased from $116 million in the prior-year period to $43 million in the third quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 87,000 BOE/d, down from 115,000 Boe/d in third-quarter 2018. Moderate output from Equatorial Guinea along with the company’s exit from Libyan operations caused this downside.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $46.04 per barrel, reflects a 28.15% 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. In turn, the numbers account for a 52% and 51% year-over-year fall each.

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

Costs, Capex & Balance Sheet

Total costs in the quarter were $1,108 million, below $1,244 million in the prior-year period. Marathon Oil’s capital expenditure summed $646 million. Additionally, the company generated organic free cash flow (FCF) of $81 million with the year-to-date FCF amounting to $298 million.

Marathon Oil has repurchased $300 million of shares year to date. It also paid out $122 million as dividends.

As of Sep 30, it had cash and cash equivalents of $1,165 million and long-term debt of $4,903 million. Debt-to-capitalization ratio of the company was 28.5%.

Guidance

Marathon Oil’s 2019 capital expenditure is intact at $2.4 billion. For the ongoing year, the company raised its U.S. oil production guidance to 13% from 12% expected previously. It also lifted its total production guidance to 11% from 10% guided earlier.

Total U.S. oil output for the fourth quarter is anticipated in the band of 190,000-200,000 bpd. International oil production is likely to be within 12,000-16,000 bpd amid divestment of the U.K. and Kurdistan assets.

Zacks Rank & Key Picks

Marathon Oil has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Subsea 7 SA, Inc. (SUBCY - Free Report) , Phillips 66 (PSX - Free Report) and Murphy USA Inc. (MUSA - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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