Why Is Marathon Oil (MRO) Down 6% Since Last Earnings Report?

It has been about a month since the last earnings report for Marathon Oil (MRO). Shares have lost about 6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marathon Oil due for a breakout? 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 Better-Than-Expected Q3 Earnings

Marathon Oil Corporation reported third-quarter 2021 adjusted net income per share of 39 cents, beating the Zacks Consensus Estimate of 31 cents. In the year-ago period, the company had incurred a loss of 28 cents.

Its bottom line was favorably impacted by stronger liquids price realizations and higher year-over-year production contribution from the Bakken and Eagle Ford regions.

Revenues of $1.45 billion jumped from the year-ago sales of $754 million and also outpaced the Zacks Consensus Estimate by 10.30%.

The company stuck to its $1 billion-capital spending budget for 2021 and delivered a free cash flow of $478 million during the quarter.

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 345,000 BOE/d compared with 370,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit reported income of $305 million against a loss of $135 million in the year-ago period on stronger price realizations.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $69.40 per barrel were significantly above the year-earlier level of $37.78. Natural gas liquids average price realizations soared 160% to $30.68 a barrel. Additionally, average realized natural gas prices were up 134.3% year over year to $4.17 per thousand cubic feet.

Production costs were $4.59 per BOE, representing a 6.25% year-over-year rise.

Net production of 284,000 BOE/d decreased from 297,000 BOE/d in third-quarter 2020. The total U.S. output comprised 55.3% oil or 157,000 barrels per day (bpd), down 1.3% year over year.

The lower year-over-year production, especially from Oklahoma, dragged down the company’s quarterly performance. Oklahoma output came in at 55,000 BOE/d, reflecting a 24.7% fall from the year-ago level. Output from Bakken was 107,000 BOE/d compared with 98,000 BOE/d in the year-ago quarter. Also, the Eagle Ford region recorded production of 95,000 BOE/d, up 4.4% from the level in third-quarter 2020.

International E&P: The segment, which explores and produces oil and gas in Equatorial Guinea, reported earnings of $93 million, higher than $8 million of earnings recorded for the year-ago period owing to increase in liquids prices.

Marathon Oil reported production available for sale of 61,000 BOE/d, down from 73,000 Boe/d in third-quarter 2020.

Its average realized liquids prices (crude oil and condensate) of $56.36 per barrel reflected an 86.1% jump from the year-earlier quarter’s level. Natural gas and natural gas liquids’ average price realizations came in at 24 cents per thousand cubic feet and $1 a barrel, respectively, same as the figures reported in the corresponding periods of 2020.

Financials

Total costs in the quarter were $1.12 billion, up $110 million from the prior-year period’s level. Marathon Oil, which recently raised its quarterly dividend by a penny to 6 cents, reported an operating cash flow of $816 million for the third quarter compared with a mere $345 million a year ago.

As of Sep 30, it had cash and cash equivalents worth $485 million and a long-term debt of $4 billion. Debt-to-capitalization ratio of the company was 26.9. Marathon Oil spent $308 million on capital and exploratory expenditures during the quarter.

2021 Guidance

Marathon Oil projects $1 billion of capital budget for this year, down from $1.2 billion it spent in 2020. The company is targeting production in the range of 340,000-350,000 BOE/d. It expects oil volumes in the band of 169,000-175,000 barrels per day. Assuming $60 WTI, Marathon Oil expects to return a minimum of 40% of its cash flow from operations. The company estimates total oil production to rise between 176,000 net barrels per day and 180,000 net barrels per day in the fourth quarter, up from 168,000 net barrels per day in the third quarter. It expects total oil-equivalent output in the fourth quarter to be comparable to the third quarter's 345,000 net BOE/d.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 9.1% due to these changes.

VGM Scores

Currently, Marathon Oil has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Marathon Oil has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.