Oil and natural gas exploration and production firm Marathon Oil Corporation (MRO) reported weaker-than-expected second quarter 2011 results, as unplanned disruptions hurt production.

Houston, Texas-based Marathon – which recently spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC) – announced earnings from continuing operations (excluding special items) of 96 cents per share, below the Zacks Consensus estimate of 99 cents per share. The now-separated downstream unit has been treated as discontinued operations.  

However, compared with the year-ago period, Marathon’s adjusted earnings per share from continuing operations improved 54.8% (from 62 cents to 96 cents), while revenues were up 33.1% to $3,865.0 million, reflecting higher commodity prices.

Segmental Performance

Exploration and Production: Income from the upstream segment totaled $601.0 million during the quarter, up from $432.0 million in the year-ago period. Marathon’s worldwide realized crude oil price of $104.93 per barrel was 42.4% above the year-earlier level, while natural gas realizations increased by 23.0% to $3.21 per thousand cubic feet (Mcf).

The company reported production (available for sale) of 341,000 oil-equivalent barrels per day (BOE/d), 4.0% above the previous-year level. Despite the positive year-over-year performance, volumes were at the low end of guidance mainly due to unplanned downtime at a facility in Norway.  

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business increased significantly from the year-earlier levels. The situation was further helped by improved price realizations. As a result, Marathon’s ‘Oil Sands Mining’ segment recorded a profit of $69.0 million as against  a loss of $60.0 million in the year-ago period.

Integrated Gas: Income from the segment almost doubled year-over-year, from $24.0 million to $43.0 million, driven by higher volumes. This was partially offset by weak gas prices.  

Capital Expenditure

During the quarter, Marathon spent $853 million on capital programs (88% on E&P).

Guidance

Marathon estimates third quarter 2011 E&P production available for sale in the range of 330,000 – 350,000 BOE/d, excluding the effect of any future acquisitions or disposals. For the full year, volumes are expected to range between 350 and 360 BOE/d.

Rating

Marathon shares currently retain a Zacks #5 Rank, which translates into a short-term Strong Sell rating.

 
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