Marathon Oil’s stock surge on solid Q1 earnings beat

Marathon Oil Corporation (NYSE: MRO) saw its share price rose 1% in the post-market trading after the company crushed earnings estimates. However, revenue missed street expectations due to planned production declines in the International segment. Marathon’s stock has regained momentum this year increasing above 15% after touching a 52-week low of $12.57 in December.

Adjusted earnings for the first quarter jumped 72% to $0.31 per share helped by tax benefits and indemnification income, compared to 7 cents expected by the analysts. The company surpassed estimates by a huge margin. Revenue decreased 31% to $1.2 billion due to planned turnarounds in Equatorial Guinea resulting in a dip in production. Top line came in below estimates of $1.26 billion.

Lee Tillman, CEO of Marathon said, “First quarter featured strong execution across our advantaged multi-basin portfolio and was highlighted by solid well productivity and improving well costs in each of our basins.”

Oil production improved 6% to 203,000 bopd helped by improved well productivity and reduction in expenses continues to bode well for Marathon. The low-cost high-margin strategy followed by the firm would bring in stable revenues and improved earnings in 2019.

US oil production increased 11% while international division, as expected, saw its production decreasing 19% due to a planned shutdown in EG. However, the company expects EG returning to full production levels by early April. Marathon plans to exit the U.K. market by the second half of 2019. It plans to incur $950 million for the divestiture of assets.

In 2019, the company has spent $91 million on share repurchases and dividend payments. Despite this, free cash flow at the end of Q1 stood at $80 million. For the first quarter, capital spending decreased by 8% to $569 million.

Last quarter, Marathon stated that it plans to spend $2.6 billion in 2019 for oil production with the majority of the spending going to four plays in the US: Eagle Ford, Bakken, Oklahoma, and Northern Delaware. For 2019, total production is expected to increase by 10% and oil production in the US to see a 12% growth.

For the second quarter, US oil production is expected to increase by 5% over the first quarter. Total oil production is projected in the range of 200,000 to 220,000 bopd, with U.S. oil production expected at 180,000 to 190,000 bopd. International oil production is forecasted to come in the range of 20,000 to 30,000 bopd, impacted by the unplanned shutdown in the Foinaven complex.

Since the waivers on Iran are going to be discontinued by the US, oil demand is expected to increase. WTI price has already recovered sharply this year and trading at $63 levels, which is good news for oil production firms like Marathon and its peers. At $60 levels, the company is expected to generate organic free cash flow of $2.2 billion in the next two years, which is good news for investors.

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