MPC Marathon Petroleum Corp. Common Stock

Oil and natural gas exploration and production firm Marathon Oil Corporation (MRO) reported weak first quarter 2012 profits, hurt by lower volumes.

Houston, Texas-based Marathon – which last year spun off its refining/sales business into a separate, independent and publicly traded company Marathon Petroleum Corporation (MPC) – announced earnings (excluding special items) of 67 cents per share, well below the Zacks Consensus Estimate of 87 cents per share and the previous quarter adjusted profit of 78 cents.

Marathon did not provide a comparison with the year-ago quarter and instead compared the reported quarter figures with the fourth quarter of 2011. The company believes this will help with better understanding the overall performance and progress achieved by it following the implementation of its business strategy.  

Revenues at $4,040.0 million were up 6.1% sequentially and were also above the Zacks Consensus Estimate of $3,687.0 million on the back of higher liquids prices.

Segmental Performance

Exploration and Production: Income from the upstream segment totaled $477.0 million during the quarter, down from $558.0 million in the previous period.

The company reported production (available for sale) of 371,000 oil-equivalent barrels per day (BOE/d), a slight decline from the 375,000 BOE/d achieved in the fourth quarter of 2011. This primarily reflects downtime associated with planned turnaround in Equatorial Guinea and unplanned interruption at the BP plc (BP) operated Foinaven field in the U.K. North Sea, somewhat offset by improved volumes in the Eagle Ford and Bakken shale plays.

Marathon's worldwide realized crude oil price of $106.06 per barrel was 7.7% above the earlier quarter level, while natural gas realizations decreased by 1.3% to $2.96 per thousand cubic feet (Mcf).

Oil Sands Mining: Synthetic crude oil sales volumes in the oil sands business remained flat sequentially. The situation was further aggravated by lower price realizations and higher operating costs. As a result, Marathon’s Oil Sands Mining segment recorded a profit of $41.0 million as against income of $63.0 million in the December quarter.

Integrated Gas: Income from the segment shot down 80.0% sequentially, from $20.0 million to $4.0 million, hamstrung by lower liquefied natural gas volumes and weak gas prices.

Capital Expenditure

During the quarter, Marathon spent $1,095.0 million on capital programs (91% on E&P).

Recommendation & Rating

Marathon is a leading energy firm with a large and geographically-diverse reserve base and solid project pipeline. Additionally, the company possesses a healthy balance sheet, which helps it to capitalize on investment opportunities. We also like the strong growth potential of Marathon’s high-margin liquids-rich unconventional plays, which diversify its portfolio and are expected to further drive its overall volumes.

While being incrementally more positive on the company, we believe Marathon will take some time to fully absorb the outcome of the spin-off. Consequently, we would rather wait for a better entry point before accumulating shares.

As such, we see the stock performing in line with the broader market and maintain our long-term Neutral recommendation, supported by a Zacks #3 Rank (short-term Hold rating).

 
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