How Has the Decline in Crude Affected Marathon Oil’s EBITDA?



Normalized EBITDA

On a YoY (year-over-year) basis, Marathon Oil’s 3Q16 normalized EBITDA (earnings before interest, tax, depreciation, and amortization) was ~320% higher than in 3Q15. Sequentially, Marathon Oil’s 3Q16 normalized EBITDA was ~240% higher than in 2Q16.

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Why MRO reported lower revenues but higher EBITDA

As we discussed in Part 1, Marathon Oil’s 3Q16 revenues fell ~17% YoY. Lower production coupled with lower realized prices for crude oil (USO) and natural gas (UNG) productions in 3Q16 negatively impacted Marathon Oil’s 3Q16 revenues.

But despite its lower YoY revenues, lower production expenses and lower exploration spending boosted MRO’s normalized EBITDA in 3Q16. MRO’s exploration expenses fell to ~$83 million in 3Q16 from ~$585 million in 3Q15.

Peers Range Resources (RRC), Devon Energy (DVN), and Occidental Petroleum (OXY) reported normalized EBITDA of ~$99.8 million, ~$822 million, and ~$949 million, respectively, in 3Q16.

Notably, the Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas companies.

EBITDA and crude oil prices

In 3Q14, Marathon Oil’s normalized EBITDA was ~$1.4 billion when crude oil prices averaged $97.24 per barrel. But as the crude oil (USO) downtrend progressed, Marathon Oil’s EBITDA got hit due to lower revenues resulting from lower production and lower realized prices. In 3Q16, Marathon Oil’s normalized EBITDA was ~71% lower than in 3Q14. This came as a direct result of a ~54% fall in average crude oil prices during the same period.

For 4Q16, Wall Street analysts estimate that Marathon Oil’s adjusted EBITDA will be ~$503 million.

Now let’s take a look at two interesting charts that are related to Marathon Oil’s 3Q16 adjusted EBITDA normalized to production and to how MRO’s gross profit margins are trending lower due to falling crude oil prices.


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