Marathon Oil Profit Falls 61% Amid Low Crude-Oil Prices
08/01/2012| 12:08pm US/Eastern
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--Marathon Oil earnings down 61% for the quarter
--Marathon Oil reducing rig counts in U.S. unconventional plays
--$375 million sale of Alaska assets expected to close in 2012 despite regulatory scrutiny
(Adds analyst comments, additional details and share price, throughout.)
By Melodie Warner and Alison Sider
Marathon Oil Corp.'s (>> Marathon Oil Corporation) second-quarter earnings fell 61% as lower prices for crude oil and natural-gas liquids hurt its exploration-and-production earnings, prompting the company to adjust its U.S. drilling activity.
Last year, Marathon Oil spun off its downstream and petroleum assets--creating Marathon Petroleum Corp. (>> Marathon Petroleum Corp)--as it looked to focus its drilling efforts on unconventional U.S. oil shales, such as the Bakken field in North Dakota, Anadarko Woodford in Oklahoma and Eagle Ford in Texas.
Now, facing commodity prices that are falling faster than costs, Marathon Oil is taking rigs out of those same areas. Marathon said Wednesday it will reduce its rig count in its Bakken and Anadarko Woodford sites for the remainder of 2012, and perhaps into 2013, due to lower commodity prices, especially in the inland U.S. crude-oil and natural-gas liquids markets. Natural-gas liquids include propane and butane.
"This lower-price environment, coupled with costs that have not declined at a comparable rate, dictate a more-disciplined level of domestic spending and activity," Chief Executive Clarence Cazalot Jr. said.
Several other oil companies, including ConocoPhillips (>> ConocoPhillips) and Occidental Petroleum Corp. (>> Occidental Petroleum Corporation), are facing the same problems, but have disclosed plans to increase capital spending through the end of the year.
Marathon Oil reported a second-quarter profit of $393 million, or 56 cents a share, down from $996 million, or $1.39, a year earlier. Excluding items such as gains or losses on asset sales and impairments, adjusted earnings fell to 59 cents from 96 cents. Revenue fell 2.1% to $3.78 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 59 cents a share on revenue of $3.35 billion.
Gross margin rose to 39% from 24%.
Analysts on Wednesday said the company's earnings were solid and praised its fiscal discipline.
While Marathon Oil is raising its exploration profile internationally with several new deals in recent months, on Tuesday it said it has dropped the number of rigs to two from six in the Anadarko Woodford play as a result of low prices for natural-gas liquids and natural gas. In the Bakken field, Marathon Oil has reduced its rig count to five from eight due to volatile commodity prices.
In the Eagle Ford play, Marathon will cut back to 18 rigs from 20, but said that, with gains in efficiencies, planned growth there will remain on track.
Raymond James analyst Pavel Molchanov said he expects most U.S. oil companies will have to slow down drilling activity and cut capital expenditures next year. Raymond James is forecasting Brent crude-oil prices of $80 a barrel and West Texas Intermediate crude-oil prices of $65 a barrel in 2013.
"Insofar as Marathon is taking its foot off the accelerator now, that seems like a smart move," he said.
WTI crude oil, or light, sweet crude oil traded on the New York Mercantile Exchange, was up 64 cents, or 0.7%, at $88.67 a barrel in midday trading. Meanwhile, Brent crude oil, traded on the IntercontinentalExchange, recently was $1.11, or 1.1%, higher at $106.07.
Marathon Oil's exploration-and-production earnings dropped 44% from a year earlier.
The company Wednesday said it still expects its planned sale of $375 million in Alaska oil-and-gas assets to close by the end of the year. On Tuesday, Marathon Oil confirmed that the Federal Trade Commission has asked for more information to take a closer look at the disclosed sale to HilCorp Energy Corp.
On Tuesday, Marathon Petroleum said its second-quarter profit edged up 1.5% in its first full year as a standalone entity, as the refining-and-pipeline company booked profit gains in its Speedway and refining and marketing segments.
Marathon Oil shares were trading down 1.17% at $26.16 Wednesday morning.
Write to Melodie Warner at melodie.warner@dowjones.com and Alison Sider at alison.sider@dowjones.com.
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