Marathon Anticipates Return to Growth Mode in Fourth Quarter
Analyst Note | by Dave Meats
Marathon Oil delivered production of 392 thousand barrels of oil equivalent per day in the second quarter, which was 6% lower sequentially and 10% lower year over year. In any other quarter, that would be a substantial loss of volumes, but like many of its peers, Marathon has taken drastic action to ride out the COVID-19-related crude oil downturn. That included second-quarter production curtailments to the tune of 11 thousand barrels of oil per day, about 5% of firmwide oil volumes. The firm also suspended completion operations during the period, and as a result, production is now expected to decline further in the third quarter. But now that crude prices have rebounded to some extent, Marathon has restarted development activity and is eyeing a return to growth in the fourth quarter. Capital efficiency is improving, enabling management to further reduce the full-year budget to $1.2 billion (down $100 million).
Though the reported decline was severe, the market was bracing for an even steeper loss of production and underestimating the success of Marathon's cost-cutting initiatives (unit production costs fell to a company record of $4.09/boe). As a result, the firm's financial results were slightly better than expected overall, with adjusted EBITDA and adjusted earnings per share coming in at $154 million and negative $0.71, respectively (CapIQ consensus estimates were $148 million and negative $0.93).
We plan to incorporate these operating and financial results in our model shortly, but after this first look, our fair value estimate and no-moat rating are unchanged.