Marathon Oil Corporation’s (MRO) fourth-quarter 2009 results came in weaker-than-expected, hampered by sharply lower downstream results on the back of depressed refining margins. Earnings per share, excluding special items, came in at 32 cents, 19 cents below the Zacks Consensus Estimate of 51 cents.
As has been the case with the other oil majors that have already reported — Exxon (XOM), ConocoPhillips (COP) and Chevron (CVX) — earnings comparisons with the year-earlier period were quite ugly, severely hampered by weak refining margins. Marathon’s adjusted earnings per share plunged 77.8%. However, quarterly revenue of $16.1 billion was up 9.3% from the year-earlier level, driven by robust upstream results.
Reported Quarter vs. Estimate Revisions Trend
Marathon’s quarterly miss didn’t come as a major surprise. Though there were no estimate revisions in either direction over the last 7 days, earnings estimates for the company have been trending down over the past month, with the quarterly Zacks Consensus Estimate going down by 10 cents. Overall, 10 out of the 18 analysts covering the stock pulled back on fourth quarter projections during that time, while 2 raised their estimates.
With respect to earnings surprises, Marathon has had a bearish run over the last four quarters (including the latest). This is the company’s 3rd negative surprise in the past 4 quarters.
Upstream Earnings Soar
Income from the upstream segment totaled $439 million during the quarter, up 82.9% from the year-ago level.
The company reported production (available for sale) of 403,000 oil-equivalent barrels per day (BOE/d), slightly above its interim guidance last month. This represents a 4% year-over-year production growth, reflecting Marathon’s strong project lineup.
Gains on the production front were supported by higher realized oil prices. Marathon’s worldwide realized crude oil price (from continuing operations) of $70.34 per barrel was 30.4% above the year-earlier level but natural gas realizations (also from continuing operations) dropped 26.3% to $2.64 per thousand cubic feet (Mcf).
Downstream Margins Plunge
Margins in the refining business decreased significantly from the year-earlier levels. The situation was further aggravated by narrower sweet/sour differentials. Marathon’s refining and marketing unit lost $18 million during the quarter, compared to income of $325 million last year — reflecting weak margins and crack spreads.
The company’s realized gross refining and wholesale marketing margin of approximately 0.6 cents per gallon was down markedly from last year’s income of 12.5 cents per gallon. Total refined product sales volumes were up 3.4% from the year-earlier level to 1,452 thousand barrels per day, while throughput was up 1.2% to 1,191 thousand barrels per day.
Capital Expenditure
During the quarter, Marathon spent roughly $1.6 billion on capital programs (43% on E&P and 36% on Refining, Marketing and Transportation), bringing the total capex for the full year 2009 to $6.0 billion.
Capex & Volume Guidance
Marathon earlier announced that it will prune its capital expenditures by about 17% in 2010, as the company allocates a larger percentage of funds towards the Exploration & Production (E&P) segment as against the under-pressure refining business.
The Houston-based firm has pegged its 2010 capital budget at $5.1 billion. As per the plan, expenditure on the downstream business (refining, marketing and transportation) will be 53% lower in 2010 compared to 2009, while the E&P segment will witness a 24% rise in spending. Management’s decision to significantly reduce expenditure on downstream operations was also influenced by the recent on-time completion of its refinery project in Garyville, Louisiana.
Marathon estimates 2010 E&P production available for sale to be in the range of 390,000 – 410,000 BOE/d, excluding the effect of any future acquisitions or dispositions.
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