Of course that got me looking at Marathon, a company I don't usually watch, and that made me run all the numbers, the way I haven't done on our usual suspects in a while, and I noticed some strange things:
While cash has grown from $1B to $3B in the past 4 quarters, accounts payable had gone up too, from $6.6B to $8.3B! Receivables are up just $300M over the same period.
The company bought back $500M worth of stock in the past two quarters, and paid $500M in dividends in the past 4 -- so, why didn't they pay their bills? One possible explanation is they are, but spending is rising so quickly that they just can't pay it down fast enough.
Analysts are expecting MRO to rack up earnings of $3.57, substantially lower than the $4.16 they made last quarter, but still 75% higher than last year's $2.16.
Last October 20th MRO was trading at $56.28 and oil was $60, so with oil down at $60 again I have to like the $85 puts for $2.80, especially if they come down a little. I also will be watching the $80 puts at $1.30 with great interest as a possible roll.
But that's not what I found REALLY interesting...
I noticed something in Marathon's numbers that I hadn't noticed in my usual oil plays. I guess coming in to a fresh company gave me a different perspective, but here's something that should unnerve any retail analyst:
Inventories are rising!
Since last September, Marathon's inventory is up $500M, from $3.3B to $3.8B.
How can that be? Don't they know there's an oil shortage? Don't they know OPEC can barely keep up with demand?
OPEC Spare Capacity Chart -- SHOCKING (and from OPEC themselves)!
While inventory did draw down $300M in the post Katrina/Rita Q4 last year, it has risen $800M ($400M in Q1 and $400M in Q2) since then! Gosh that's a lot of oil! Especially when you consider that the company "only" sold $18B of it last quarter. That's a 2.5% sequential inventory build-up...
Just like any good retail analyst, that sets off some alarm bells for me, so I take a look at the sector to see if any other companies are having that problem, or if it's just Marathon brand oil that's gone out of fashion (to the point they have to start adding stuff to it and advertising!).
Tip of the iceberg? You bet and energy traders are the captains of the titanic!
ExxonMobil Corp.'s (XOM) inventory is up $900M, but up $2.5B since Q4 -- Oh my! If we assume that inventory at XOM is not iPods or DRAM chips, perhaps something like... oil, and we assume it really is worth $57 a barrel (choke), that's 43M barrels added to inventory in the past 3 quarters.
Exxon has $11.8B worth of inventory. In 2003 they had $8.9B, in 2004 they had $9.4B, in 2005 they had $9.3B. By the way, the companies maintain a fixed price of oil in storage, so these results are not due to fluctuations in price! How nice of them to hold all that oil for us!
But we know we can always count on Exxon to do their part -- the other majors are contributing too:
ConocoPhillips's (COP) inventory is up $1.6B since last Q3 -- up $2.7B since Rita.
Chevron Corp. (CVX) is up $1.3B since Q3, just $700M since Rita -- they must be in fashion!
The European majors are just as patriotic:
Royal Dutch Shell (RDS.A) is the most patriotic oil company I've seen... I don't have their 3rd quarter numbers, but between December 31st of 2005 and June 30th of this year, Shell was kind enough to hold $3.9B worth of oil for us! That's $24B warehoused versus just $15B in 2004. Thank goodness someone is saving some for a rainy day!
PetroChina Co. Ltd. (PTR), also near its all-time high, added $18B to inventory between 12/31 and 6/30 and, even if we assume that they price inventory at the price of oil -- that would only account for $8B of the increase! Dec $105 puts are $1.75.
Petroleo Brasileiro S.A. (PBR), also in just 6 months, added $1.9B
Just this little group of the big boys added $32.3B to their inventories in less than 9 months. Yes, I know some of it was gas too, but if we convert it to just oil, that's 560M barrels!
Legend has it that the modern Marathon gets its name as that city won a great battle in 490BC and a messenger was dispatched 25 miles to Athens to proclaim the victory. He ran all the way there, gave his message and died. Perhaps the message of this Marathon will reach the ears of oil traders before we have to write a Greek tragedy about them!
Something to think about next time you see a commercial from your favorite oil company.
Read all of Phil Davis's articles on Seeking Alpha.