Marathon Oil: Cost Reductions Will Be Catalysts

Though Marathon Oil (MRO) is in a soup this year due to weak oil pricing, the company is adopting the right steps to improve its operational profile by consistently reducing costs. Let’s take a look at the impact that Marathon’s cost reductions are having on its operations.

Marathon’s moves

Considering the G&A costs, Marathon has focused on optimizing its workforce by downsizing it, which is believed to deliver yearly cost savings of about $100 million. The continued cost cutting efforts executed by Marathon all through its key operations is believed to preserve the much-needed cash flows of the company, strategically positioning it for long-term prospective growth.

The successful reduction of services and G&A costs by Marathon is forecasted to deliver improved cash flows for the company, enabling it to carry on with its daily operations smoothly.
As a result of its cost-reduction moves, Marathon has affirmed a dividend of $0.21 per share. The year-over-year improvement in E&P production combined with continued successful cost reduction initiatives is estimated to significantly expand the company’s top line growth, benefiting the key stakeholders.

Areas to drive growth

Marathon has a total of 370,000 acres in the Bakken shale, and its production has become twice to approximately 50 mboe per day during the previous three years. The energy major has also successfully achieved cost control and efficiency enhancements in the Bakken shale. Moving ahead, enhancements in stimulation design, reducing pilots, and strategic testing of innovative plays on current acreage is expected grow the company’s already robust resource base and deliver improved returns.

Moreover, a consensus estimate among 29 polled investment analysts evaluating Marathon Oil Corporation suggests that the company would outperform the market. This consensus rating has been maintained for over four years despite the weakness in the oil patch in the past year.

All in all, I think that it might be a good idea to stay invested in Marathon for long-term gains since the company will be able to do well even in a weak oil pricing environment due to the cost reduction strategies adopted by it.
Published on Oct 29, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

Posted in ...