Marathon Misses EPS, Beats Revenue - Analyst Blog

Oil and natural gas exploration and production firm Marathon Oil Corporation (MRO) reported weaker-than-expected third quarter 2011 profits, as field declines hurt production.

Houston, Texas-based Marathon – which recently spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC) – announced earnings from continuing operations (excluding special items) of 59 cents per share, well below the Zacks Consensus Estimate of 85 cents per share.

The now-separated downstream unit has been treated as discontinued operations. Compared with the year-ago period, Marathon’s adjusted earnings per share from continuing operations decreased 13.2% (from 68 cents to 59 cents).

However, revenues at $3,799.0 million were up 28.6% year over year and were also significantly above the Zacks Consensus Estimate of $2,702.0 million, reflecting higher commodity prices.

Segmental Performance

Exploration and Production: Income from the upstream segment totaled $330.0 million during the quarter, down from $510.0 million in the year-ago period. The company reported production (available for sale) of 343,000 oil-equivalent barrels per day (BOE/d), 4.5% below the previous-year level. Despite being at the high end of guidance, the negative year-over-year performance reflects lower Gulf of Mexico volumes due to field declines.

Marathon's worldwide realized crude oil price of $99.24 per barrel was 36.0% above the year-earlier level, while natural gas realizations increased by 4.5% to $2.81 per thousand cubic feet (Mcf).

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business increased significantly from the year-earlier levels. The situation was further helped by improved price realizations. As a result, Marathon’s Oil Sands Mining segment recorded a profit of $92.0 million as against income of just $18.0 million in the year-ago period.

Integrated Gas: Income from the segment shot up 34.2% year-over-year, from $41.0 million to $55.0 million, driven by gain on sale of assets as well as improved methanol sales volumes and realizations.

Capital Expenditure

During the quarter, Marathon spent $728 million on capital programs (94% on E&P).

Guidance

Marathon estimates fourth quarter 2011 E&P production available for sale in the range of 360,000–370,000 BOE/d, excluding the effect of any future acquisitions or disposals. For the full year, volumes are expected to range between 360 BOE/d and 365 BOE/d.

Rating

Marathon shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

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