Marathon Oil Corporation (NYSE:MRO) reported a second quarter 2015 adjusted net loss of$155 million, or $0.23 per diluted share, excluding the impact of certain items not typically represented in analysts’ earnings estimates and that would otherwise affect comparability of results. The reported net loss was $386 million, or $0.57 per diluted share.
- Second quarter capital program at approx. $680 million, down 40% from first quarter; full-year capital program at or below$3.3 billion
- Total Company net production from continuing operations (excluding Libya) averaged 407,000 net boed, up 6% over the year-ago quarter; U.S. resource play net production of 220,000 net boed up nearly 30% over year-ago quarter
- Reaffirming total Company and U.S. resource play production growth rates of 5-7% and 20%, respectively, year over year
- Reduced North America E&P production costs per boe more than 30% below year-ago quarter; adjusting full-year guidance down $1.25 per boe
- Increased captured savings from U.S. unconventional drilling and completions (D&C) costs by an additional $50 million to greater than $300 million
- Top-performing Eagle Ford rig drilled two wells achieving an average of 3,100 feet per day
- Best three-horizon “stack-and-frac” in Eagle Ford achieved 30-day IP rates of 1,400-1,650 gross boed; Bakken Three Forks second bench well delivered 30-day IP rate of 1,226 gross boed
- Recorded 96% average operational availability for Company-operated assets
- Progressing non-core asset sales with signed agreement for approximately $100 million
“In the second quarter, we concentrated efforts on protecting margins and executing our planned reduction in activity and spending while delivering E&P production within guidance,” said Marathon Oil President and CEO Lee M. Tillman. “Capital spending in the quarter was down about 40 percent sequentially as we’ve moderated activity levels in the U.S. resource plays. Looking to the second half of the year, we expect to maintain production levels and achieve our year-over-year production growth of 5-7 percent for the total Company and 20 percent in the U.S. resource plays at or below our$3.3 billion capital program. With continuing uncertainty and volatility in oil prices, we remain resolutely focused on the fundamentals within our control that will position the Company for long-term success, including durable cost reductions, enhanced well productivity and sustainable operational efficiencies. Importantly, we’ve reduced E&P production expenses and total Company G&A costs, excluding special items, by more than 20 percent over the year-ago quarter.”
North America E&P
North America Exploration and Production (E&P) production available for sale averaged 274,000 net barrels of oil equivalent per day (boed) for second quarter 2015, a 21 percent increase over the year-ago quarter and compared to 283,000 net boed for first quarter 2015. The decrease from first quarter 2015 was in line with the planned reductions in resource play drilling activity resulting in the number of wells to sales down by more than 35 percent.North America production costs were reduced to $7.19 per barrel of oil equivalent (boe), down 31 percent from the year-ago period and 9 percent from the prior quarter, driven by a continued focus on leveraging efficiencies across production operations. Full-year guidance on unit production costs has been adjusted down by $1.25 per boe.
EAGLE FORD: In second quarter 2015, Marathon Oil’s production in the Eagle Ford averaged 135,000 net boed, a 32 percent increase above the year-ago quarter and compared to 147,000 net boed in the prior quarter. As anticipated, the Company brought fewer wells to sales — 52 during second quarter 2015 compared to 91 in the previous quarter. This more than 40 percent reduction in wells to sales drove the quarter-on-quarter decline. Importantly, continual improvement in drilling and completions drove efficiency gains, as evidenced by wells drilled at an average rate of 1,800 feet per day, a 15 percent improvement over the previous quarter. With this improvement, the time to drill an Eagle Ford well spud-to-total depth dropped to 11 days. Eleven Austin Chalk, eight upper Eagle Ford and 33 lower Eagle Ford wells were brought online during the quarter. A three-horizon “stack-and-frac” achieved 30-day initial production (IP) rates of 1,400-1,650 gross boed.
BAKKEN: Marathon Oil averaged 61,000 net boed of production in the Bakken during second quarter 2015, a 22 percent increase above the year-ago quarter and 7 percent over the previous quarter. Bakken results were driven by efficiency gains and outperformance relative to historical type curves. Application of enhanced completion designs is resulting in wells consistently outperforming historical type curves on average by more than 30 percent in cumulative production after 180 days. Also in the second quarter, Marathon Oil completed its first Company-operated Three Forks second bench well in the Myrmidon area, which exceeded expectations with a 30-day IP rate of 1,226 boed.
OKLAHOMA RESOURCE BASINS: The Company’s unconventional Oklahoma production averaged 24,000 net boed during second quarter 2015, an increase of 33 percent over the year-ago quarter and effectively flat sequentially. Marathon Oil brought online two Company-operated SCOOP wells and one Company-operated STACK-Osage well during the quarter; and all five operated Smith infill pilot wells have been drilled and are awaiting completion. Two outside-operated Meramec XL (extended-reach lateral) wells were also brought online in the quarter. The Company has re-allocated an additional $35 million of capital to the Oklahoma Resource Basins, bringing the total reallocation to $60 million for the year to high-value non-operated activity.
International E&P production available for sale from continuing operations (excluding Libya) averaged 108,000 net boed for second quarter 2015 compared to 120,000 net boed in the year-ago quarter and 119,000 net boed in the previous quarter. Lower production primarily resulted from planned maintenance activities in Equatorial Guinea, which were completed in second quarter 2015. Proactive cost management efforts across the Company-operated assets continue to yield repeatable savings, resulting in lower unit production costs. Full-year guidance on unit production costs is being reduced by $1.00 per boe (excluding Libya).
EQUATORIAL GUINEA: Production available for sale averaged 86,000 net boed in second quarter 2015 compared to 106,000 net boed in the year-ago quarter and 99,000 net boed in the previous quarter. Planned maintenance activity in the second quarter was completed ahead of schedule and within budget. Drilling on the Alba C21 development well reached total depth and completion activities are under way, and results to date indicate well performance consistent with pre-drill estimates.
U.K.: Production available for sale averaged 22,000 net boed in second quarter 2015, compared to 14,000 net boed in the year-ago quarter and 20,000 net boed in the previous quarter. The second West Brae infill well was brought online during the quarter with initial production rates well above pre-drill estimates. This completed the Company’s planned five-well Brae infill drilling program begun in 2014. At the non-operated Foinaven field, full compression was reinstated, which contributed to improved reliability in second quarter 2015 and increased production over the year-ago and previous quarters.
Oil Sands Mining
Oil Sands Mining (OSM) production available for sale for second quarter 2015 averaged 25,000 net boed compared to 36,000 net boed in the prior-year quarter and 50,000 net boed in first quarter 2015. The sequential decline was primarily due to planned turnarounds at the base upgrader and theMuskeg River Mine which were completed on time and under budget in the current quarter, as well as unplanned downtime at the expansion upgrader.
For third quarter 2015, the Company expects North America E&P production available for sale to average 260,000 to 270,000 net boed, reflecting a full quarter at reduced drilling activity levels across the U.S. resource plays. Importantly, however, Marathon Oil confirms the resource plays remain on track to achieve annual growth in available for sale volumes of 20 percent year-over-year. Third quarter International E&P production available for sale (excluding Libya) is expected to be within a range of 105,000 to 115,000 net boed. Marathon Oil had no liftings in Libya during second quarter 2015. Considerable uncertainty remains around the timing of future production and sales levels from Libya, and Marathon Oil continues to exclude Libyavolumes from its production forecasts. OSM synthetic crude oil production is expected to increase to a range of 43,000 to 48,000 net boed in the third quarter, following the completed turnaround activity from second quarter.
The Company is raising the lower end of its full-year 2015 E&P production guidance range, resulting in a new range of 375,000 to 390,000 net boed. Full-year 2015 guidance for the total Company production growth rate remains 5-7 percent.
Corporate and Special Items
Net cash provided by continuing operations before changes in working capital was $520 million during second quarter 2015, and net cash provided by operating activities was $408 million. During the quarter, use of working capital included the annual tax payment to Equatorial Guinea, as well as severance and benefit payments associated with the Company’s recent workforce reduction. Additions to property, plant and equipment including accruals were $678 million in second quarter 2015 compared to $1.1 billion in the prior quarter, nearly 40 percent lower. The Company’s 2015 capital, investment and exploration program is expected to be at or below $3.3 billion. At the end of the quarter, the Company had $5.5 billion in liquidity, which consists of an undrawn $3 billion revolving credit facility, and $2.5 billion in cash and short-term investments.
Marathon Oil reduced E&P production expenses and total Company general and administrative costs, excluding special items, by about $100 million($44 million not excluding special items) for second quarter 2015 compared to the same quarter in 2014. These savings represent an overall reduction of more than 20 percent.
As previously announced, Marathon Oil anticipates divestitures of at least $500 million in an ongoing effort to optimize the Company’s portfolio. The Company has recently signed an agreement for the sale of its East Texas, North Louisiana and Wilburton, Oklahoma natural gas assets for expected proceeds of approximately $100 million, excluding closing adjustments.
The adjustments to net loss for second quarter 2015 included a non-cash deferred tax expense of $135 million related to the Alberta provincial corporate tax rate increase, a settlement charge of $40 million ($64 million pre-tax) in connection with the U.S. pension plans, an unrealized loss of $28 million ($44 million pre-tax) on crude oil derivatives, and an impairment expense of $28 million ($44 million pre-tax) related to East Texas, North Louisiana and Wilburton properties as a result of the anticipated sale. (Original Source)
Shares of Marathon Oil Corp closed today at $19.79, down $0.72 or 3.51%. The stock’s 50-day moving average is $24.32 and its 200-day moving average is $26.82.
On the ratings front, Marathon Oil Corp has been the subject of a number of recent research reports. In a report issued on July 13, Barclays analyst Thomas Driscoll maintained a Hold rating on MRO, with a price target of $25, which represents a potential upside of 26.3% from where the stock is currently trading. Separately, on June 25, UBS’s William Featherston upgraded the stock to Buy and has a price target of $32.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Thomas Driscoll and William Featherston have a total average return of 0.6% and 1.5% respectively. Driscoll has a success rate of 48.5% and is ranked #2041 out of 3724 analysts, while Featherston has a success rate of 47.4% and is ranked #1981.
Overall, one research analyst has assigned a Hold rating and 4 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $31.00 which is 56.6% above where the stock opened today.
Marathon Oil Corp is an energy company engaged in the exploration, production and marketing of liquid hydrocarbons and natural gas, production and marketing of products manufactured from natural gas and oil sands mining.