How Marathon’s Bet on Domestic Oil Production Paid Off in Q2

Energy exploration and production (E&P) company Marathon Oil Corp. (NYSE: MRO | MRO Price Prediction) reported second-quarter results on Wednesday evening that exceeded consensus estimates for both revenue and earnings, due to a domestic production increase of 17% to 322,000 net barrels of oil equivalent production per day. The company’s U.S. production costs totaled $4.89 a barrel, the lowest since the company became an independent E&P in 2011 after spinning off its downstream business.

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In its quarterly report, the company noted that its assets in the Eagle Ford play achieved a record for 30-day initial well productivity. Eagle Ford production accounted for just over a third of the company’s total oil-equivalent production in the quarter.

International production totaled 103,000 barrels of oil equivalent per day in the second quarter, including about 12,000 barrels from assets in Kurdistan and the United Kingdom that have since been sold. The company’s sole remaining international assets are located in Equatorial Guinea.

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Lee Tilman, the board chair and chief executive, focused on Marathon’s shareholder returns in his comments:

Already in 2019, we’ve returned about 25% of our net operating cash flow back to our shareholders. Since the beginning of 2018, we have repurchased $950 million of our own shares, funded entirely by post-dividend organic free cash flow, equating to about a 6% reduction in our share count. … This is our sixth consecutive quarter of organic free cash flow generation, and our underlying free cash flow momentum only continues to improve.

Marathon also added $1.5 billion to its share repurchase authorization. Tilman said that the increase “positions us well to continue executing against our well-defined strategic framework.” The company’s annual dividend of $0.80 per share reflects a yield of 1.51%.

For the current quarter, Marathon forecasts total U.S. production of 190,000 to 200,000 net barrels of oil per day and international production of 12,000 to 16,000 net barrels. Analysts have forecast earnings per share of $0.10 and revenues of $1.33 billion for the current quarter. For the full year, consensus estimates call for per-share earnings of $0.71 and revenue of $5.28 billion.

Shares traded as much as 6% higher after markets closed Wednesday and traded around $12.51 (up 3.8%) in the late morning Thursday. The stock’s 52-week range is $11.56 to $24.20, and the consensus 12-month price target is $19.55.

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