uploads///MRO Q EBITDA

How Has the Continued Decline in Crude Oil Prices Affected Marathon Oil’s Earnings?

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Sep. 27 2016, Published 2:04 p.m. ET

Marathon Oil’s 2Q16 revenues

For 2Q16, Marathon Oil (MRO) reported adjusted revenues of ~$1.3 billion, which was ~21% than the Wall Street analyst consensus estimate of ~$1.1 billion. Marathon Oil’s 2Q16 revenues fell ~15% from its 2Q15 revenues of ~$1.5 billion in 2Q15. But when compared sequentially with 1Q16, Marathon Oil’s 2Q16 revenues rose ~78%.

Due to the steep downward trend in energy prices, almost all S&P 500 (SPY) upstream companies like Devon Energy (DVN), Occidental Petroleum (OXY), and ConocoPhillips (COP) have reported ~23%, ~27%, and ~33% YoY (year-over-year) falls, respectively, in their 2Q15 adjusted revenues.

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Marathon Oil’s 2Q16 EBITDA

For 2Q16, Marathon Oil reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of ~$249 million, which is a fall of ~38% from the Wall Street analyst consensus estimate for adjusted EBITDA of ~$403 million.

Marathon Oil’s 2Q16 adjusted EBITDA fell ~54% from its 2Q15 adjusted EBITDA of ~$539 million. But when compared sequentially with 4Q15, Marathon Oil’s 2Q16 adjusted EBITDA rose ~215%.

Marathon Oil’s EBITDA and crude oil prices

The “lower for longer” trend in crude oil prices during the past two years has seen the value of crude oil and Marathon Oil’s stock fall by ~58% and ~64%, respectively. The trend has also taken its toll on the Marathon Oil’s earnings. In 3Q14, Marathon Oil’s adjusted EBITDA was ~$1.3 billion when crude oil prices averaged $97.24 per barrel. But as the crude oil downtrend progressed, Marathon Oil’s EBITDA was hit by lower production as well as lower realized prices for its production.

In 2Q16, Marathon Oil’s adjusted EBITDA fell ~80% from its 3Q14 EBITDA. This fall is a direct result of a ~53% fall in average crude oil prices during the same period.

For 3Q16, Wall Street analysts estimate for Marathon Oil’s adjusted EBITDA is ~$431 million, which would be ~33% lower than in 3Q15.

Now let’s take a look at Marathon Oil’s 2Q16 adjusted EBITDA normalized to production and discuss why MRO’s gross profit margins are trending low.

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