Marathon Oil's Grim Q4 Interim Update

Yesterday, Marathon Oil Corporation (MRO) provided a weaker-than-expected fourth quarter 2008 interim update (covering the first two months of the quarter). While weak commodity-price realizations were built into estimates and were expected to be the primary reason for negative comparisons with previous results, Marathon's results will also be affected by upstream production shortfalls. We expect that yesterday's guidance will prompt downward earnings revisions. The company reports fourth-quarter 2008 results on February 3, 2009.

Marathon expects fourth-quarter production of oil and natural gas to average 415,000 oil-equivalent barrels per day (BOE/d), which is below the company's guidance for the quarter. Approximately two-thirds of Marathon's production comes from outside the U.S.

Three factors weighed on the upstream shortfall: a longer-than-expected downtime at the Alba platform in Equatorial Guinea, lingering effects of the Gulf of Mexico hurricanes, and the October-2008 sale of interest in an offshore Norway asset. Despite the shortfall, fourth-quarter volumes sold will still be above the previous and year-earlier levels, reflecting Marathon's revamped upstream asset portfolio and strong growth profile.

Marathon's realized oil price domestically averaged $55.70 per barrel, down 48% sequentially and 25% year over year. The company's domestic realized price was 18% below the benchmark oil price, primarily reflecting quality and locational variations. The company's international realized oil price was $63.30 per barrel, down 44% sequentially and 25% year over year. Domestic realized natural gas price of $4.59 per thousand cubic feet was down 40.4% from the September 2008 quarter and 19.5% from the year-earlier quarter. International realized natural gas price was up both sequentially as well as year over year.

In the downstream business, the rebound in marketing margins will be offset by continued refining weakness and the narrowing of the crude quality spread. Benchmark refining margins during the quarter were down both from the previous as well as the year-earlier quarters. Throughput levels, product sales volumes, and capacity utilization were inline with guidance. Production in the oil sands and integrated gas businesses were inline with previous guidance.

Comments

[Larry House:]

Energy stocks look very attractive here, but it is hard to have any confidence with a weakening economy world wide. Right now there is no catalyst to get energy stocks moving.

Jan 14 11:45 AM

[luckylibra:]

When its time to POP, Mro will be there. Oil can't stay low, its coming
back to reality.

Jan 14 08:03 PM

[prudentinve...:]

Oil stocks are a great buy for those with a 5-year investment horizon. Short-term, though, there could still be significant downside risk.

Regarding MRO in particular, it is now below half it's 2007 peak, but at about triple the last bear market's trough. So, it's now both cheap and expensive, depending on how you look at it.

Jan 17 11:28 AM