Marathon Oil (MRO) Up 13.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Marathon Oil (MRO). Shares have added about 13.1% 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 Wider-Than-Expected Q1 Loss, Sales Beat

Marathon Oil Corporation reported adjusted net loss per share of 16 cents, wider than the Zacks Consensus Estimate of a loss of 13 cents. A year ago, the company earned 31 cents per share. The company’s bottom line was unfavorably impacted by the commodity price crash triggered by the coronavirus-induced demand slump amid a supply glut.

Meanwhile, Marathon Oil reported revenues of $1.2 billion that beat the Zacks Consensus Estimate of $1 billion and rose 2.8% year over year on strong sales volumes.

Forced by the historic oil market crash and the coronavirus-induced demand destruction for oil, the company temporarily suspended its quarterly dividend and its share repurchase program to conserve cash.
 
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 422,000 barrels of oil equivalent per day (BOE/d) compared with 388,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit reported a loss of $20 million, as against a profit of $132 million in the year-ago period due to weak commodity price realizations.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $44.23 per barrel were below the year-earlier level of $54.05. Moreover, natural gas liquids average price realizations tumbled 36.3% to $9.97 a barrel. Additionally, average realized natural gas prices dropped 45.4% year over year to $1.60 per thousand cubic feet.

On a brighter note, production costs summed $4.63 per BOE, representing an 11.1% year-over-year decline and the lowest since Marathon Oil became a standalone E&P entity.

Moreover, net production of 340,000 BOE/d increased from 296,000 BOE/d in first-quarter 2019. The total U.S. output comprised 61% oil or 207,000 barrels per day (bpd), up 15.8% year over year.

The improved year-over-year production, especially from Eagle Ford, Bakken and Oklahoma aided the company’s quarterly performance. Notably, Bakken output came in at 110,000 BOE/d, reflecting a 19.6% rise from the year-ago level. While the Eagle Ford region recorded production of 114,000 BOE/d, up 8.6% from the level in first-quarter 2019, output from Oklahoma was 74,000 BOE/d compared with 63,000 BOE/d in the year-ago quarter.

International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, plunged into the red with a loss of $1 million, compared with earnings of $61 million in last year’s first quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 82,000 BOE/d, down from 92,000 Boe/d in first-quarter 2019. Moderate output from Equatorial Guinea along with the company’s exit from U.K. business caused this downside.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $36.88 per barrel reflect a 31.6% 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 50% and 49% year-over-year fall each.

Financials

Total costs in the quarter were $1.2 billion, moderately higher than $1.1 billion in the prior-year period.

Marathon Oil repurchased $85 million of shares in the first quarter of 2020. It also paid out $40 million as dividends.

The company reported an operating cash flow of $701 million in the first quarter, up from $515 million a year ago.

As of Mar 31, it had cash and cash equivalents worth $817 million and long-term debt of 5.5 billion. Debt-to-capitalization ratio of the company was 31.5.

Guidance

Marathon Oil has decided to take back its previously provided guidance, citing the slump in commodity prices and market uncertainties related to the coronavirus pandemic. The company has already cut capital expenditure budget for 2020 by 46% to $1.3 billion (or less) from its original guidance of $2.4 billion due to current market conditions.

Marathon Oil anticipates its U.S. oil production to be down from the first quarter primarily on account of voluntary curtailments. For 2020, the company forecasts total U.S. oil production decline of 8%, while international oil volumes are expected to be 7% lower from 2019.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Marathon Oil has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marathon Oil has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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