Marathon Oil Corporation (NYSE:MRO) reported a first quarter 2016 adjusted net loss of $317 million, or $0.43 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 $407 million, or $0.56 per diluted share.
- First quarter total Company net production averaged 388,000 net boed at the upper end of guidance; U.S. resource play production averaged 204,000 net boed
- Reduced North America E&P production costs to $6.17 per boe, or 22% below year-ago quarter
- New Eagle Ford high-GOR oil wells with tighter stage spacing continue to perform approximately 20% above offset wells; high-GOR oil wells represent approximately 60% of Eagle Ford future well inventory
- Announced $950 million in sales of non-core assets in April, bringing total to approximately $1.3 billion since August 2015, exceeding high end of targeted range
- Quarter-end liquidity of $5.4 billion comprised of $2.1 billion in cash and undrawn $3.3 billion revolving credit facility
“Since the beginning of the year, we’ve made significant additional progress strengthening our balance sheet. This provides us substantial flexibility in this period of market uncertainty and prepares us to respond to more constructive and sustainable pricing,” said Marathon Oil President and CEO Lee Tillman. “With the backdrop of crude and condensate realizations falling more than 20 percent in the first quarter, we remained focused on lowering costs, reducing our capital program consistent with our plan, and delivering production at the upper end of guidance. Additionally, we maintained our commitment to portfolio management with the recently announced $950 million of non-core asset sale transactions, exceeding our target for 2016. With these actions, we’re on track to achieve our objective of living within our means in 2016.”
North America E&P
North America Exploration and Production (E&P) production available for sale averaged 239,000 net barrels of oil equivalent per day (boed) for first quarter 2016. On a divestiture-adjusted basis, it was down 5 percent from the prior quarter and down 10 percent from the year-ago period due to reduced drilling and completion activities. First quarter North America production costs were 18 percent lower than the previous quarter. On a per barrel basis, unit production costs were $6.17 per barrel of oil equivalent (boe), 11 percent lower than fourth quarter 2015 and down 22 percent from the year-ago period.
EAGLE FORD: In first quarter 2016, Marathon Oil’s production in the Eagle Ford averaged 120,000 net boed, compared to 147,000 net boed in the year-ago quarter and 128,000 net boed in the prior quarter. The production decreases were principally due to decreased drilling and completion activity resulting in fewer wells brought to sales. During first quarter 2016, 50 gross Company operated (32 net) wells to sales were brought online, of which 23 were lower Eagle Ford, 19 upper Eagle Ford and eight Austin Chalk, compared to 76 gross (44 net) wells to sales in the previous quarter. Fifteen of the first quarter wells brought to sales were high-GOR oil at reduced 200-foot stage spacing. These wells are performing approximately 20 percent above offset wells with 250-foot stage spacing on average, and results are consistent with a group of 16 wells brought to sales in 2015. High-GOR oil wells comprise more than half of the Company’s 2016 Eagle Ford program, and all will be completed at 200-foot, or tighter, stage spacing. First quarter completed well costs were $4.3 million, down approximately 35 percent from the year-ago quarter. Additional drilling efficiencies were captured as first quarter wells were drilled at an average rate of 2,300 feet per day and an average spud-to-total depth of eight days while achieving geo-steering within zone at a 97 percent rate. The top-performing Eagle Ford rigs drilled four wells in excess of 3,300 feet per day.
OKLAHOMA RESOURCE BASINS: The Company’s unconventional Oklahoma production averaged 27,000 net boed during first quarter 2016, compared to 25,000 net boed in the year-ago quarter and 28,000 net boed in the prior quarter. Marathon Oil continued its focus on leasehold protection and delineation, and brought online three gross Company-operated single lateral (SL) wells, of which one was in the SCOOP Woodford, one in the SCOOP Springer and one in the STACK Meramec. The 5,000-foot lateral STACK Meramec well was completed in the volatile oil phase window and had a 30-day initial production (IP) rate of 755 boed with 78 percent liquids. In the SCOOP, the Company tested the updip oil extension in the northeast Springer trend, but encountered mechanical wellbore issues and the well has been plugged back to a shorter lateral length. The Company expects to bring four STACK Meramec extended-reach lateral (XL) wells and three SCOOP Woodford XL wells to sales in the second quarter.
BAKKEN: Marathon Oil averaged 57,000 net boed of production in the Bakken during first quarter 2016, flat to the year-ago quarter and compared to 58,000 net boed in the prior quarter as strong well productivity and high reliability continued supporting the Company’s base production. The remaining drilling rig was released and six gross wells were brought to sales in the quarter — four Middle Bakken and two Three Forks — as the Company continued its shift to higher intensity completions. Additionally, five wells on the Clark’s Creek pad in West Myrmidon have been drilled and are expected online in the second quarter. Bakken production costs have decreased by over 35 percent compared to the year-ago quarter primarily a result of lower water handling and contract labor costs. More than half of produced water is now moved via pipeline.
International E&P production available for sale (excluding Libya) averaged 100,000 net boed for first quarter 2016 compared to 119,000 net boed in the year-ago quarter and 123,000 net boed in the previous quarter. The sequential decrease was primarily a result of planned downtime in Equatorial Guinea and repairs at Brae Alpha in the U.K. First quarter production costs (excluding Libya) were 15 percent lower than the previous quarter. On a per barrel basis, unit production costs (excluding Libya) were $5.09 per boe.
EQUATORIAL GUINEA: Production available for sale averaged 84,000 net boed in first quarter 2016 compared to 99,000 net boed in the year-ago quarter and 104,000 net boed in the previous quarter. During the quarter, the Alba compression jacket and topsides were installed, and planned maintenance was completed ahead of schedule and under budget. The compression project remains on schedule for first production mid-year while base production continues to benefit from last year’s re-completion and development programs.
U.K.: Production available for sale averaged 16,000 net boed in first quarter 2016, compared to 20,000 net boed in the year-ago quarter and 18,000 net boed in the previous quarter. First quarter 2016 was impacted by repair activities following a process pipe failure in December at the Brae Alpha facilities, partially offset by improved reliability from the outside-operated Foinaven field. Full production from Brae Alpha resumed in late April.
Oil Sands Mining
Oil Sands Mining (OSM) production available for sale for first quarter 2016 averaged 49,000 net barrels per day (bbld) compared to 50,000 net bbld in the prior-year quarter and flat with fourth quarter 2015. In mid-March, planned maintenance activities began ahead of schedule at the expansion upgrader and the Jackpine mine. Despite the impacts associated with the planned maintenance activities, operating expense per synthetic barrel (before royalties) was $28.80, 17 percent below the year-ago quarter as a result of sustainable reductions in mine expenses, reliability and currency effects. Operating expense has been below $30 per synthetic barrel (before royalties) for three consecutive quarters.
Marathon Oil expects second quarter 2016 North America E&P production available for sale to average 220,000 to 230,000 net boed reflecting declines as a result of reduced capital investment. Second quarter International E&P production available for sale (excluding Libya) is expected to be within a range of 115,000 to 125,000 net boed as the Alba field in Equatorial Guinea returned to normal operations in February and Brae Alpha in the U.K. resumed production in April. Considerable uncertainty remains around the timing of future production and sales levels from Libya, and Marathon Oil continues to exclude Libya volumes from its production forecasts. OSM synthetic crude oil production is expected to range from 40,000 to 45,000 net bbld reflecting continuation of planned maintenance activities in the second quarter. Second quarter OSM guidance does not include any potential impact from the wildfires in the Fort McMurray area. Operations at the Muskeg River and Jackpine mines, which are approximately 45 miles north, have been suspended to support emergency response efforts, but are not currently threatened by fire.
Corporate and Special Items
Net cash provided by operations before changes in working capital was $55 million during first quarter 2016, and net cash provided by operating activities was $74 million. Additions to property, plant and equipment including accruals were $359 million in first quarter 2016, a 36 percent decrease from the previous quarter and down 67 percent from the year-ago quarter. Total liquidity as of March 31 was $5.4 billion, which consists of $2.1 billion in cash and cash equivalents and an undrawn revolving credit facility that was increased to $3.3 billion in the quarter.
Marathon Oil reduced E&P production expenses and total Company adjusted general and administrative expenses by 26 percent in the first quarter 2016 compared to the same quarter in 2015, or 23 percent lower on an unadjusted basis.
In April, the Company announced agreements for the sale of its Wyoming upstream and midstream assets for $870 million, excluding closing adjustments. The effective date is Jan. 1, 2016, and closing is expected mid-year 2016. In separate transactions, the Company signed agreements for the sale of its 10 percent working interest in the outside-operated Shenandoah discovery in the Gulf of Mexico, operated natural gas assets in the Piceance basin in Colorado, and certain undeveloped acreage in West Texas for a combined total of approximately $80 million before closing adjustments.
The adjustments to net loss for first quarter 2016 total $90 million ($141 million pre-tax) and consist of: a net loss on the sale of assets of $40 million ($63 million pre-tax); a pension settlement of $30 million ($48 million pre-tax); an unrealized loss on derivatives of $15 million ($23 million pre-tax); and a severance expense of $5 million ($7 million pre-tax) related to previously announced workforce reductions. (Original Source)
Shares of Marathon Oil are down 1.36% to $12.00 in after-hours trading. MRO has a 1-year high of $30.55 and a 1-year low of $6.52. The stock’s 50-day moving average is $12.24 and its 200-day moving average is $12.59.
On the ratings front, Marathon Oil has been the subject of a number of recent research reports. In a report issued on April 26, UBS analyst William Featherston maintained a Buy rating on MRO, with a price target of $16, which implies an upside of 31.5% from current levels. Separately, on April 14, Merrill Lynch’s Doug Leggate reiterated a Hold rating on the stock and has a price target of $19.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, William Featherston and Doug Leggate have a total average return of -2.6% and -6.5% respectively. Featherston has a success rate of 50.0% and is ranked #3042 out of 3838 analysts, while Leggate has a success rate of 40.4% and is ranked #3474.
The street is mostly Bullish on MRO stock. Out of 6 analysts who cover the stock, 4 suggest a Buy rating and 2 recommend to Hold the stock. The 12-month average price target assigned to the stock is $13.00, which implies an upside of 6.8% from current levels.
Marathon Oil Corp. engages in the exploration, production, and market of liquid hydrocarbons and natural gas. It operates through the following segments: North America E&P, International E&P, and Oil Sands Mining. The North America E&P segment engages in the oil and gas exploration, development and production activities in the United States and Canada. The International E&P segment involves oil and gas exploration, development, and production activities in Angola, Equatorial Guinea, Ethiopia, Gabon, Kenya, the Kurdistan Region of Iraq, Libya, Norway, and the United Kingdom. The Oil Sands segment includes mining, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil. The company was founded in 1887 and is headquartered in Houston, TX.