Marathon Oil Corporation (MRO - Analyst Report), the oil and natural gas exploration and production (E&P) firm, reported weak third-quarter 2014 earnings. Considerable lower realized crude oil and condensate prices along with higher exploration expenses hurt the results. The negatives were partially compensated by solid production growth in the U.S. resource plays.

The Houston, TX-based company posted third-quarter adjusted earnings – from continuing operation − of 57 cents per share, which failed to beat the Zacks Consensus Estimate by a penny. The bottom line fell almost 10% from 63 cents in third-quarter 2013.

Marathon Oil Corporation - Earnings Surprise | FindTheBest

Quarterly revenues of $2,971 million surpassed the Zacks Consensus Estimate of $2,963 million but declined from the prior-year quarter level of $3,127 million.

Segmental Performance

North America E&P: Income from Marathon Oil’s North American upstream segment totaled $292 million in the reported quarter compared with $242 million in the prior-year period. Production growth primarily led to the segment’s strong performance.  

Marathon Oil reported production (available for sale) of 250,000 oil-equivalent barrels per day (BOE/d), up from 200,000 BOE/d in the third quarter of 2013. The improvement was mainly driven by increased output from the U.S. resource plays.

The company realized crude oil and condensate price of $89.65 per barrel, significantly lower than the year-earlier quarter level of $101.05 per barrel, however natural gas realizations increased over 19% year over year to $4.21 per thousand cubic feet (Mcf).   

International E&P: The segment’s income plunged almost 45% year over year to $106 million. Lower production and a substantial decrease in natural gas realizations weighed on the results.

Marathon Oil reported production (excluding Libya and Discontinued Operations) of 112,000 oil-equivalent barrels per day (BOE/d) compared with 124,000 BOE/d in the third quarter of 2013. Decrease in output in the U.K. and Equatorial Guinea restricted growth.

Marathon Oil’s natural gas realizations plummeted 49% year over year to $0.56 per thousand cubic feet (Mcf).

Oil Sands Mining: Marathon’s Oil Sands Mining segment recorded an income of $93 million against $106 million in the year-ago quarter. The decline stemmed from lower realizations.

Synthetic crude oil sales volumes in the oil sands business was 55,000 barrels per day, higher than 49,000 barrels per day in the year-ago quarter.

Price realization from Synthetic Crude Oil came in at $88.22 per barrel, down 14% from $102.64 per barrel in the year-ago period.

Exploration Expenses

The company’s exploration expenses for the quarter came at $96 million, almost 16% higher than the year-ago quarter.

Capital Expenditure

During the reported quarter, Marathon Oil spent $1,633 million on capital programs (more than 88% was on E&P).

Guidance

Marathon Oil expects fourth-quarter North America E&P output in the range of 255,000–267,000 BOE/d, International E&P (excluding Libya and discontinued operations) output in the range of 115,000–123,000 BOE/d and Oil Sands Mining output of 37,000–42,000 BOE/d.

For 2014, the company expects North America and International E&P output in the 350,000 – 360,000 BOE/d band and Oil Sands Mining output of 37,000 – 42,000 BOE/d.

Zacks Rank & Stocks to Consider

Marathon Oil currently has a Zacks Rank #5 (Strong Sell), implying that it will significantly underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like Magellan Midstream Partners LP (MMP - Analyst Report), Cobalt International Energy Inc. (CIE - Snapshot Report) and Murphy USA Inc. (MUSA - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

 Get the full Analyst Report on MMP - FREE

Get the full Analyst Report on MRO - FREE

Get the full Snapshot Report on CIE - FREE

Get the full Snapshot Report on MUSA - FREE