Marathon Oil’s cash flows
In this part, we will discuss Marathon Oil’s (MRO) capex plans and free cash flow generation. In 2Q15, Marathon Oil’s cash flows from operations (or CFO) rose 32% to $408 million from $309 million a quarter ago. However, on a year-to-date basis, they decreased 72%. The fall was primarily due to lower oil and gas prices, partially offset by increased sales volumes in the North America E&P segment. In comparison, EOG Resources’ (EOG) 1H15 CFO dropped 56% over 1H14. Gulfport Energy’s (GPOR) 1H15 CFO decreased 31% compared to 1H14. SM Energy’s (SM) 1H15 CFO also decreased 23% over the same period. Marathon Oil is 0.8% of the iShares North American Natural Resources ETF (IGE).
Marathon Oil’s free cash flows
Marathon Oil’s free cash flows (or FCF), defined as operating cash flows less capital expenditure, had initially improved in the past 13 quarters. Between 4Q12 and 3Q14, it posted positive figures in four quarters. During this period, WTI (West Texas Intermediate) crude oil price averaged ~$97 per barrel, or more than double today’s price.
However, FCF has been registering negative figures since 3Q14, as crude oil prices started plummeting. In 2Q15, despite falling energy prices, MRO’s FCF improved to a negative $460 million from a negative $1.14 billion recorded in 1Q15. By 2Q15, MRO had $5.5 billion in liquidity, which consists of an undrawn $3 billion revolving credit facility, and $2.5 billion in cash and short-term investments. So, MRO has some leeway before its cash burn turns into a cash crunch.
Marathon Oil’s capex plans and FCF trend
Marathon Oil’s capex decreased from 1Q15 to 2Q15. This combined with the improvement in CFO reflects higher 2Q15 FCF. For 2015, its total capex is expected to be at or below $3.3 billion, nearly 39% lower than its 2014 capex.