Analyzing Marathon Oil’s Realized Price Effectiveness
Marathon Oil’s realized price effectiveness
Realized price effectiveness tells us that for 2Q17, Marathon Oil’s (MRO) realized price, without hedging benefit, was ~123.0% above its production cash cost and ~10.0% below the total production cost for the same quarters.
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Sequentially, MRO’s 2Q17 realized price effectiveness in terms of cash cost has increased from ~129.0% in 1Q17 to ~123.0% in 2Q17. That increase in realized price effectiveness in terms of cash cost in 2Q17 can be attributed to the sequential decrease in cash cost despite the lower total realized price.
MRO’s peers Diamondback Energy (FANG) and ConocoPhillips (COP) have reported a positive 2Q17 realized price effectiveness in terms of total production cost. COP reported a realized price effectiveness in terms of cash cost of ~120.0% in 2Q17. Even its realized price effectiveness in terms of total production cost was positive at ~21.0% in 2Q17.
Realized price effectiveness
Realized price effectiveness is defined as a shortfall or excess of realized price to cost item, scaled by cost item.
- realized price = oil and gas revenue scaled by total production
- production cash cost = production and ad valorem taxes + LOE (lease operating expenses) + transportation expenses + general and administration cash expenses + interest cash expenses
- total production cost = DD&A (depletion, depreciation, and amortization) + cash cost