Marathon Oil (MRO) Down 64.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Marathon Oil (MRO). Shares have lost about 64.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

Marathon Oil Q4 Earnings and Revenues Miss Estimates

Marathon Oil Corporation (NYSE:MRO) reported fourth-quarter 2019 results wherein both earnings and revenues missed the respective Zacks Consensus Estimate. Weaker-than-expected net sales volumes caused this underperformance. Precisely, the same totalled 411 thousand barrels of oil equivalent per day (MBOE/d), falling short of the Zacks Consensus Estimate of 418 MBOE/d.

Its adjusted income from continuing operations came in at 7cents per share, lagging the Zacks Consensus Estimate of 8 cents. Moreover, the metric plunged nearly 53.3% from the year-ago earnings of 15 cents. Notably, decreased average price realizations of crude oil and condensate from the International E&P segment induced this year-over-year fall.

Quarterly revenues of $1,215 million missed the Zacks Consensus Estimate of $1,267 million. The top line was also 31.2% lower than the prior-year figure of $1,765 million.

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 413,000 BOE/d compared with 411,000 BOE/d in the year-ago period.

U.S. E&P: This U.S. upstream unit earned a profit of $148 million, down 6.9% from the year-ago figure of $159 million due to weak crude oil and condensate price realizations in the United States. Production costs summed $5.13 per BOE, representing a 3.4% year-over-year decline.

However, net production available for sale of 328,000 BOE/d increased from 306,000 BOE/d in fourth-quarter 2018. The total U.S. output comprised 60% oil or 196,000 barrels per day (bpd), up 9% year over year.

The improved year-over-year production, especially from Bakken, Northern Delaware and Oklahoma aided the company’s quarterly performance. Notably, Bakken output came in at 108,000 BOE/d, mirroring a 15% rise from the year-ago level. While the Northern Delaware region recorded production of 28,000 BOE/d, up 7.7% from the level in fourth-quarter 2018. Also, output from Oklahoma was 82,000 BOE/d compared with 67,000 BOE/d in the year-ago quarter.

Marathon Oil’s average realized liquids prices (crude oil and condensate) of $54.83 per barrel were below the year-earlier level of $56.01. Moreover, natural gas liquids average price realizations tumbled 37.4% to $15.47 a barrel. Additionally, average realized natural gas prices dropped almost 36% year over year to $2.10 per thousand cubic feet.

International E&P: Income decreased from $83 million in the prior-year period to $33 million in the fourth quarter due to lower production and weak commodity price realizations.

Marathon Oil reported production available for sale of 85,000 BOE/d, down from 105,000 Boe/d in fourth-quarter 2018. 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 $48.26 per barrel reflect a 17.15% 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 51% and 55% year-over-year fall each.

Costs, Capex & Balance Sheet

Total costs in the quarter were $1,142 million, below $1,298 million in the prior-year period. Marathon Oil’s capital expenditure summed $556 million. Additionally, the company generated quarterly organic free cash flow (FCF) of $111 million with the full-year FCF amounting to $409 million.

Marathon Oil repurchased $350 million of shares in 2019. It also paid out $162 million as dividends.

As of Dec 31, it had cash and cash equivalents worth $858 million and long-term debt of 5,501 million. Debt-to-capitalization ratio of the company was 31.16%.

Guidance

Marathon Oil’s 2020 capital expenditure is trimmed by almost 11% to $2.4 billion (of which $2.2 billion is allocated to development capital) from $2.68 million in 2019. For the first quarter of the ongoing year, the company anticipates its U.S. oil production guidance between 192,000 and 202,000 bpd. It projects its total production guidance in the 204,000-218,000 bpd range.

For 2020, the company forecasts total U.S. oil production growth of 6% at the midpoint of 198,000-208,000 bpd guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -70.38% due to these changes.

VGM Scores

At this time, 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 second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.