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Weakness Persists in Marathon Oil’s Geographical Operations

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Marathon Oil’s revenues by geography

Previously, we discussed the fall in Marathon Oil’s 1Q15 revenues and earnings. In this article, we will discuss how its North American and international operations have been doing. While North America contributed to 83% of MRO’s 1Q15 revenues, international operations made up for the balance of 17%.

In 1Q15, Marathon Oil’s North America segment revenue dropped 36% over 4Q14. In comparison, its revenues from international operations declined 54%. Compared with 1Q14, revenue declined by 44% and 54% in North American and international operations, respectively.

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Why North American revenue was relatively stronger

In 1Q15, Marathon Oil’s North American exploration and production (E&P) sales volume increased 33%, compared with an 8% volume decline in its international operations. The North American increase was primarily driven by the US, where production continued to grow. Lower international production reflected field decline and a planned turnaround at the MRO’s methanol facilities in Equatorial Guinea.

Libya continues to remain uncertain since its policy change in December 2014.

Overall, Marathon Oil’s total production increased 1% in 1Q15 over 1Q14. SM Energy’s (SM) total production increased 34% in 1Q15 over 1Q14, while LINN Energy’s (LINE) production increased 9% during the same period. MRO comprises 1.44% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and 1.4% of the Energy Select Sector SPDR (XLE).

North American earnings lower

In 1Q15, earnings from Marathon Oil’s geographical operations in North America were hit harder than in its international operations. It recorded a $161 million loss in North America versus $242 million in net income in 1Q14. In comparison, net income from its international operations fell 90% to $23 million in 1Q15.

Lower liquid hydrocarbon price realizations and higher depreciation costs led to the weaker North American results in 1Q15. We will discuss the production and price realization factors in depth in the following part.

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