Strong Q4 Performance for Marathon Oil (MRO)

Includes: BR, COP, MRO
by: Kurt Wulff

Marathon Oil Corporation (NYSE:MRO) -- buy-recommended by our firm -- delivered favorable performance in the fourth quarter of last year that prompts us to raise estimated net present value to $75 a share from $65. Reported cash flow from exploration and production as well as refining and marketing responded well to improving industry conditions.

A McDep Ratio below 1.0 tells us that Marathon’s market cap and debt, or enterprise value, is less than the estimated present value of its energy resources assuming a long-term real price of $50 a barrel for Light, Sweet Crude Oil. Meanwhile six-year oil futures are about $66 a barrel. Momentum has been positive for more than three years as the current quote stays above the 40- week average. Six-year oil has tripled in the four years we have been calculating it on a weekly basis. We do not need further gains in oil price to make money in buy recommendations. Yet our vision of $150 oil in 2010 implies additional scope to exceed common expectations.

Marathon’s McDep Ratio ranks in the midst of peer companies (see table below). Aside from the fundamental appreciation potential we outlined above, a McDep Ratio of 1.0 is an indication of takeover value. The McDep Ratio of buy-recommended Burlington Resources (NYSE:BR), increased to 1.0 immediately after buy-recommended ConocoPhillips (NYSE:COP) announced its takeover offer.

Original Publication Date: January 27, 2006

Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to or email Mr. Wulff at

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