Weak Downstream to Hurt Marathon – Analyst Blog

Houston-based integrated oil major Marathon Oil Corporation (MRO) has provided an interim update for the first quarter of 2010 (covering the first two months of the quarter).

 

The company expects the Upstream segment to benefit from higher commodity prices, somewhat offset by weak production. However, Marathon’s Downstream business will see its refinery margin slip into the red amid higher crude oil input costs and heavy maintenance at its plants.

 

Marathon’s bearish refining update is in contrast to the one issued by larger rival Chevron Corp. (CVX), which expects the company’s downstream results to return to profit, buoyed by improved refining margins.

 

 

Marathon expects first-quarter oil and natural gas production available for sale from continuing operations to average 360,000 oil-equivalent barrels per day (BOE/d), which is within the company’s guidance for the quarter. This is below the previous quarter’s output of 403,000 BOE/d and the year-ago production of 429,000 BOE/d but at the midpoint of its 350,000–370,000 BOE/d guidance.

 

Marathon’s realized oil price domestically averaged $71.59 per barrel, up 4% sequentially and 96% year-over-year. The company’s domestic realized price was 8% below the benchmark oil price, primarily reflecting quality and locational variations. International realized oil price was $72.62 per barrel, up 2% sequentially and 74% from the year-ago levels.

 

Marathon’s domestic realized natural gas price of $5.82 per thousand cubic feet was up 22% from the December 2009 quarter and 30% from the price in the earlier-year quarter. International realized natural gas price of $1.54 per thousand cubic feet increased 20% from the previous quarter but was approximately 5% below the year-earlier levels.

 

 

Regarding Downstream operations, Marathon, the fifth largest refiner and marketer of petroleum products in the U.S., said that crude oil refined is likely to average approximately 1,000,000 barrels per day (Bbl/d) compared with 851,000 Bbl/d in the corresponding period last year and 999,000 Bbl/d in the fourth quarter of 2009. Total refinery throughput for the quarter is expected to be about 1,120,000 Bbl/d, up year-over-year but down sequentially.

 

Pulled down by the rise in crude oil prices and manufacturing costs, the company’s realized refining and wholesale marketing margin is expected to reflect a loss of 6 cents per gallon, as against last year’s income of 7.92 cents per gallon. Total refined product sales volumes are likely to be up 5% from the year-earlier level to 1,350 thousand barrels per day.

 

In the recent times, Marathon has witnessed plummeting Downstream profits on the back of a continued weak product demand.

 

 

For the first quarter of 2010, the Oil Sands Mining and Integrated Gas segments are expected to perform in line with its previous outlook.

 

Marathon plans to release its quarterly results on Tuesday, May 4, 2010, before the start of trading. The Zacks Consensus Estimate for Marathon’s first quarter earnings is 58 cents per share, higher than the 34 cents earned in the year-earlier period and 32 cents in the previous quarter.