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What You Can Expect from Marathon Oil’s 1Q16 Earnings

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Part 2
What You Can Expect from Marathon Oil’s 1Q16 Earnings PART 2 OF 4

Marathon Oil’s Must-Know Q1 Production Guidance and Strategies

Marathon Oil’s production guidance

For 1Q16, Marathon Oil (MRO) expects total production of 365–390 MBoe (thousand barrels of oil equivalent) per day. The midpoint of the 1Q16 production guidance is ~378 MBoe per day, which is ~18% lower than Marathon Oil’s production volumes in 1Q15. Sequentially, Marathon Oil’s production guidance is ~14% lower compared with 4Q15.

Other upstream companies like Occidental Petroleum (OXY) and Diamondback Energy (FANG) have reported ~10% and ~46% year-over-year increases in their 4Q15 total production respectively, whereas Murphy Oil (MUR) reported a ~23% year-over-year decrease in its 4Q15 total production. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) generally invests at least 80% of its total assets in oil and gas exploration companies.

Marathon Oil’s Must-Know Q1 Production Guidance and Strategies

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For 1Q16, MRO expects North American production of 230–240 MBoe per day, a mid-point decrease of ~17% from its 1Q15 North America E&P production of 283 MBoe per day. For 1Q16, MRO expects international production of 90–100 MBoe per day, a mid-point decrease of ~18% from its 1Q15 International E&P production of 116 MBoe per day. For 1Q16, MRO expects synthetic crude oil production of 45–50 MBoe per day.

For 2016, MRO expects total production volume of 375–405 Mboe per day, a mid-point decrease of ~9% from its 2015 production of 429 MBoe per day. On a divestiture adjusted basis, Marathon Oil’s production is expected to be 6%–8% lower than 2015 due to a significantly lower 2016 capital program. Many upstream companies, like EOG Resources (EOG), Chesapeake Energy (CHK), Southwestern Energy (SWN), and Energen Corporation (EGN), are also expecting lower production volumes for 2016.

Marathon Oil’s balance sheet protection plan

Due to the current low crude oil (USO)(UWTI)(DWTI) and natural gas (UNG)(UGAZ)(DGAZ) price environment, MRO’s top priority is to protect its balance sheet and stay within its means. For 2016, Marathon Oil expects a total capital program of ~$1.4 billion, a reduction of ~52% from its 2015 capital program of $3 billion. In order to protect its balance sheet in 2016, MRO not only reduced its capital program but is also targeting non-core asset sales in a range of $750 million to $1 billion.

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