Marathon Oil Is a Screaming Buy

Marathon Oil (MRO) announced first quarter ended March 31, 2016 total revenue of $772 million, down 34 percent sequentially from $1.20 billion in fourth quarter of 2015 and down 48 percent year-over-year from $1.50 billion in first quarter of 2016.

Marathon Oil declared first quarter of 2016 net loss of $407 million or $0.56 per diluted share compared to a net loss of $793 million or $1.17 per diluted share in fourth quarter of 2015 and a net loss of $276 million or $0.41 per diluted share in first quarter of 2015.

The independent oil and gas production company reported continued sequential and year-over-year decline in its top line primarily due to the ongoing weaker global commodity demand and pricing environment coupled with the rising exploration expenditures, eating into the margins of the company.

Adjusted net loss per diluted share intensified year-over-year in the first quarter of 2016 mainly due to weaker quarterly price realizations and volumes somewhat offset by weaker impairment and explorations.
Marathon successfully grew its first quarter ending cash balance with significant total liquidity of $5.4 billion that include $2.1 billion of quarter-ending cash as against just $1.2 billion of cash balance in the sequential fourth quarter of 2015. Net loss for first quarter of 2016 intensified year-over-year due to weaker price realizations for the quarter and rising impairment loss with exploration expenditures.

Smart moves  

Going forward, Marathon Oil is targeting lowered capital spending program for the quarter which is in line with its continued commitment to minimize losses, enhance high-quality production while delivering improved shareholder returns. Further, U.S. resource plays comprises of approximately 80 percent of the first quarter capital expenditure. First quarter production was also recorded at higher end of the guidance for the quarter but, it was hugely impacted by sequential decline from strategic EG stoppage and lowered resource play actions.

Despite a tough global operating environment, Marathon Oil is focused on optimizing the cash flow from operations and expanding its year-over-year cash balance by adopting reduced capital expenditure program and growing high-quality production for the quarter within the stipulated production guidance range.

Marathon Oil witnessed weaker N.A. E&P crude realizations and volumes in the quarter which were somewhat offset by lowered exploration expenditures. The company also illustrated continued decline in N.A. E&P expenses both on a total unit and absolute basis, mainly driven by unit and total production decline for the quarter which again is in line with the company’s unique cash preservation strategy.

Well optimizations are working well           

Marathon Oil is continuing to optimize its operations at Eagle Ford and targeted at enhancing efficiencies while minimizing costs. Eagle Ford production for the quarter averaged at 120 total MBOED, a decline of 6% sequentially from fourth quarter of 2015. Total number of wells declined 27% sequentially to 50 gross operated wells with nearly 35% year-over-year reduction in completed well costs to about $4.3 million. Marathon grew average ft drilled per day for wells to 2,300 with nearly 15% year-over-year reduction in production expense measured per boe. Moving ahead, Marathon has also achieved an operational breakthrough with the strategic implementation of 200’ stage spacing that yields impressive results.

The year-over-year and sequential decline in production volumes and non-core, capital expenditures for the quarter aligns well with the company’s continued commitment to optimize its financial position by maximizing free cash flows to continue with its daily operations profitably, despite tough global commodity demand and pricing environment.

Importantly, Marathon Oil recently declared $950 million worth of non-strategic asset sales during April with about $1.3 billion net sales since August 2015 and surpassing upper-end of the targeted divestment range.

Strategically, the board of directors at Marathon recently announced   a dividend of $0.05 per share on the company’s common stock payable on June 10, 2016 to all the key stakeholders as of May 18, 2016.

Going forward, Marathon Oil seems keen on expanding its cash position while delivering attractive shareholder returns in form of dividends and planned share repurchases.

Conclusion

Overall, the investors are advised to “Hold” their position in Marathon Oil Corporation considering the company’s significant long-term growth prospects but currently weaker financial position with notable total debt of $7.28 billion against weaker total cash position of $2.07 billion only, restricting the company to make future growth investments. The profit margin of -47.88% appears disappointing and indicate no profit but loss. The PEG ratio of 0.66 signifies weak company growth.
Published on Jun 27, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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