Marathon Oil’s debt trends
In 2Q16 Marathon Oil’s total debt of ~$7.3 billion is ~$918 million higher, or by ~14%, than its total debt of ~$6.4 billion at the end of 2014. In 3Q15, Marathon Oil reported its highest-ever debt of ~$8.7 billion since 1Q10.
Marathon Oil’s equity trend
Lower crude oil prices have resulted in steep declines in Marathon Oil’s total profit margin and have caused MRO to take non-cash impairment charges related to its proved and unproved reserves. These charges have caused a declining trend in Marathon Oil’s retained earnings since 1Q15. From 4Q14 to 2Q16 Marathon Oil’s retained earnings fell from ~$17.6 billion in 4Q14 to ~$14.3 billion in 2Q16.
But despite its ~$3.3 billion fall in retained earnings, Marathon Oil’s total stockholder’s equity only fell from ~$21.0 billion in 4Q14 to ~$19.2 billion in 2Q16, or by ~$1.87 billion, due to MRO’s various equity offerings during the same period.
Marathon Oil’s leverage
Due to its rise in total debt and its fall stockholder equity, Marathon Oil’s total debt-to-equity ratio, or leverage, rose from ~30% in 4Q14 to ~38% in 2Q16. This level of leverage is much lower than that of other oil and gas companies. SM Energy (SM), Gulfport Energy (GPOR), and WPX Energy (WPX) have debt-to-equity ratios of ~170%, ~43%, and ~87%, respectively.
A higher debt-to-equity ratio usually indicates a higher risk of default because it can hint at difficulty a company may be having in repaying or servicing its debt through the assets that the debt financed.
Now let’s take a look at how the negative change in Marathon Oil’s retained earnings has affected its stockholder equity.