Entering text into the input field will update the search result below

Marathon Oil: No Mercy For Costs And Capex

May 08, 2020 10:36 AM ETMarathon Oil Corporation (MRO)3 Comments
Vasily Zyryanov profile picture
Vasily Zyryanov


  • MRO's 1Q20 total revenues and other income were buttressed by commodity derivatives and rose by 2.7% vs. 1Q19.
  • The company has been radically cutting costs and investments to weather the crisis.
  • Profound reduction in the 2020 capex will likely result in around 8% U.S. oil production decline.
  • The 1Q20 results did not fully reflect the impact of the oil price meltdown, and the 2Q20 figures will likely be much weaker.

Marathon Oil Corporation (NYSE:MRO) has recently presented the disappointing first-quarter results, announced profound capex cuts and suspension of completion activities, and halted shareholder rewards. Sapping demand for crude oil sent its 1Q20 profit plunging and shattered output growth plans. But, in the first quarter, its hardships only began to mount, and the worst is ahead.

The dividend suspension is disappointing but unavoidable. An upstream, tight oil-focused company in the world upended by the pandemic cannot please shareowners with solid returns ad infinitum. The news the supermajor Royal Dutch Shell (RDS.A) slashed the dividend for the first time since WWII is horrible and perplexing; MRO's decision to suspend shareholder rewards is unpleasant but fully explainable and inevitable.

The previous article was titled "Be careful with Marathon Oil in 2020." Since the piece was published in February, the stock has lost more than 46% in value, even despite the April rebound. Now, the stock is even cheaper than it was in 2016, the year which was overshadowed by the previous oil price slump. So, some investors might point out that there is a value investing opportunity here. Let's assess the 1Q20 results to answer that question.

The top line

Last year, it was the trade war and its ramifications that caused WTI gyrations and affected Marathon's top line, margins, and cash flows. But the trade war-induced uncertainty can be barely compared with the pandemic and the oil market turmoil in 2020. However, as the first quarter figures vividly illustrate, the company emerged from the March meltdown relatively unscathed, and Q2 will likely be much weaker. As of data presented by Seeking Alpha PREMIUM, analysts are predicting the Q2 revenue to plummet by around 60% to $561 million, and their bearishness is entirely justified.

First, the 1Q20 revenues from contracts with customers dipped by

This article was written by

Vasily Zyryanov profile picture
Vasily Zyryanov is an individual investor and writer.He uses various techniques to find both relatively underpriced equities with strong upside potential and relatively overappreciated companies that have inflated valuation for a reason.In his research, he pays much attention to the energy sector (oil & gas supermajors, mid-cap, and small-cap exploration & production companies, the oilfield services firms), while he also covers a plethora of other industries from mining and chemicals to luxury bellwethers.He firmly believes that apart from simple profit and sales analysis, a meticulous investor must assess Free Cash Flow and Return on Capital to gain deeper insights and avoid sophomoric conclusions.While he favors underappreciated and misunderstood equities, he also acknowledges that some growth stocks do deserve their premium valuation, and its an investor's primary goal to delve deeper and uncover if the market's current opinion is correct or not.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.