2023-04-12 03:37:22 ET
Summary
- The company reported a fourth-quarter 2022 adjusted net income per share of $0.88, which beat analysts' expectations compared to $0.77 a year ago.
- Total net production (from U.S. and International segments) in 4Q22 came in at 333K Boep/d compared to 357K Boepd in the year-ago period.
- Following the recent close of the Ensign Eagle Ford acquisition, the company announced a quarterly base dividend increase to $0.10 per share.
- I recommend buying MRO between $25.25 and $24.5, with potential lower support at $21.5.
Part I - Introduction
Texas-based energy explorer Marathon Oil Corporation ( MRO ) released its fourth-quarter and full-year 2022 results on February 25, 2023.
Note: This article is an update of my article published on November 21, 2022. I have followed MRO on Seeking Alpha since Dec. 2020.
The company owns a multi-basin portfolio in the USA. Furthermore, MRO is also producing oil from Equatorial Guinea, West Africa. The company expects significant financial uplift in Equatorial Guinea in 2024 from increasing global LNG exposure due to legacy Henry Hub contracts expiration.
Note: MRO owns a 63% operated working interest under a production sharing contract in the Alba field and an 80% operated working interest in Block D. Also, MRO owns a 52% interest in Alba Plant LLC, accounted for as an equity method investment, which uses an onshore LPG processing plant located on Bioko Island.
Furthermore, on November 2, 2022, Marathon Oil acquired the Eagle Ford assets of Ensign Natural Resources (a private company) for total cash consideration of $3.0 billion.
1 - 4Q22 and Full-year 2022 results snapshot
The company reported a fourth-quarter 2022 adjusted net income per share of $0.88, which beat analysts' expectations compared to $0.77 a year ago.
Marathon Oil's results were better than expected due to robust liquid realizations and domestic production of 277K Boe/d. Marathon Oil reported revenues of $1,733 million, below the year-ago revenues of $1,800 million, beating expectations. Free cash flow in 4Q22 was $794 million.
It was a record performance in 2022.
2 - Stock performance
A quick one-year comparison with a few E&P (primarily domestic) shows that MRO did not move much, with an increase of 1% on a one-year basis.
3 - Investment thesis
Marathon Oil is an attractive E&P company and a significant U.S. E&P producer. 83.5% of the total oil equivalent production in Q4 2022 comes from the USA. Fundamentals are solid
The stock price is highly correlated to oil and gas prices. Unfortunately, natural gas prices collapsed in 1Q23, and the market has not factored this new component into the stock price yet. Thus, waiting for the next stock leg down is prudent before considering accumulating the stock for the long term.
Thus, I recommend trading LIFO about 35-40% of your position to take advantage of those fluctuations while keeping a core long-term position. This dual strategy is what I am suggesting in my marketplace, "The Gold and Oil Corner."
CEO Lee Tillman said in the conference call:
2022 truly was an exceptional year. But our outlook for 2023 and beyond is equally compelling.
Marathon Oil - Financial Table 4Q22 - The Raw Numbers
Marathon Oil | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Revenues from contracts in $ million | 1,732 | 1,761 | 2,168 | 2,008 | 1,603 |
Revenues and others in $ Million | 1,800 | 1,753 | 2,303 | 2,247 | 1,733 |
Net Income in $ Million | 649 | 1,304 | 966 | 817 | 525 |
EBITDA $ Million | 937 | 1,244 | 1,608 | 1,333 | 1,574 |
EPS diluted in $/share | 0.84 | 1.78 | 1.37 | 1.22 | 0.82 |
Operating cash flow in $ Million | 1,146 | 1,067 | 1,678 | 1,556 | 1,127 |
CapEx in $ Million | 274 | 332 | 355 | 430 | 333 |
Free cash flow in $ Million | 872 | 735 | 1,323 | 1,126 | 794 |
Total cash $ million | 580 | 681 | 1,162 | 1,109 | 334 |
Long-Term Debt in $ million | 4,014 | 4,014 | 3,982 | 3,981 | 5,923 |
Dividend per share in $/share | 0.07 | 0.08 | 0.08 | 0.09 | 0.10 |
Shares outstanding (diluted) in Million | 779 | 732 | 705 | 672 | 639 |
Oil Production | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 |
Oil Equivalent Production in K Boe/d | 353 | 341 | 343 | 352 | 333 |
US Onshore Crude oil price ($/b) | 77.03 | 94.43 | 110.10 | 93.67 | 84.29 |
Sources: Marathon Oil release
Part II - Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, and Oil and Gas Production
1 - Total revenues were $1,733 million in 4Q22
The fourth quarter's revenues were $1,733 million, down 3.7% from the same quarter a year ago and down 22.9% sequentially.
Total costs in 4Q22 were $985 million, $158 million lower than the prior-year period. Marathon Oil reported a CFO of $1,127 million for the fourth quarter, down slightly from $1,146 million a year ago.
2 - Generic free cash flow was $794 million in 4Q22
Note: The generic free cash flow is cash from operating activities minus CapEx.
Trailing twelve-month free cash flow was $3,978 million, with a 4Q22 free cash flow of $794 million.
This quarter, the quarterly dividend has been increased to $0.10 per share, which means a yearly cash expense of $256 million, easily covered by free cash flow. The company said in the press release:
During 2022, Marathon Oil meaningfully exceeded its framework minimum, returning 55% of adjusted CFO (approximately $3.0 billion) to equity holders in the form of base dividends and share repurchases. Marathon Oil executed approximately $2.8 billion of share repurchases during 2022, driving a 15% reduction to outstanding share count and contributing to significant underlying improvement in all per-share metrics. Since Marathon Oil re-initiated its share repurchase program in October 2021, the Company has reduced its outstanding share count by more than 20%.
3 - Production of oil equivalent was 333K Boe/d in 4Q22
Total net production (from U.S. and International segments) in 4Q22 came in at 333K Boe/d compared to 357K Boe/d in the year-ago period.
2022 Reserves totaled 1,338 M Boe/d, an increase of 21% from last year. In the press release:
2022 proved reserve additions were primarily attributable to acquisitions, the expansion of proved areas, higher commodity prices, and 5-year plan optimization. Oil and liquids accounted for 48% and 71% of the Company's year-end 2022 proved reserves, respectively.
3.1 - US segment
This U.S. upstream segment reported an income of $510 million, up significantly from $553 million in the year-ago period due to higher oil and gas prices. Winter Storm Elliot negatively affected the fourth-quarter oil production by approximately 5K net bop/d, with the impact primarily concentrated in the Bakken.
U.S. unit production costs were $6.29 per boe for the fourth quarter.
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- Marathon Oil's average realized liquids prices (crude oil and condensate) of $84.29 per barrel were considerably above the year-earlier level of $77.03.
- Average realized natural gas prices were down year-over-year to $8.84 per Mcf.
3.2 - Equatorial Guinea
The second bullet point in the image above is a crucial topic. MRO sells its LNG at $1 per barrel and NG at $0.24 per Mcf.
Production was 55K Boe/d in 4Q22, up from 53K Boe/d last year. The international segment, which explores and produces oil and gas in Equatorial Guinea, declared earnings of $129 million compared with $106 million in the year-ago period due to higher output.
On March 30, 2023, Marathon Oil signed an HOA with Chevron (CVX) and the Republic of Equatorial Guinea to progress the following phases (Phases II and III) in the development of the Equatorial Guinea Regional Gas Mega Hub (GMH).
3.3 - Oil and gas prices
Marathon Oil's average realized liquids prices (crude oil and condensate) of $84.29 per barrel were above the year-earlier $77.03.
Natural gas liquids' average price realization was $26.02 a barrel compared to $34.00 in 3Q22.
Also, the average realized natural gas prices were $4.93 per thousand cubic feet in 4Q22.
4 - Net debt was $5.59 billion in 4Q22
As of December 31, 2022, MRO had cash and cash equivalents worth $334 million and long-term debt of 5.923 billion, including current.
Marathon Oil ended the fourth quarter with total liquidity of $2.4 billion. Available borrowings on the Company's revolving credit facility have been extended to 2027.
The debt-to-capitalization ratio of the company was 34.2.
5 - 2023 Guidance
Marathon Oil announced a $1.9 to $2.0 billion capital expenditure budget for 2023.
Marathon Oil expects to deliver maintenance-level total Company oil production of 190K net bop/d at the midpoint of its 2023 guidance range.
Total Company oil-equivalent production is expected to be 395K net boe/d at the guidance's midpoint, including downtime associated with a planned second-quarter Equatorial Guinea turnaround.
Technical Analysis (Short Term) and Commentary
Note: The graph is adjusted for the dividend.
MRO forms an ascending triangle pattern with resistance at $26.75 and support at $25.
The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns.
The trading strategy is to sell about 40-45% of your position between $26.5 and $27.2, with possible higher resistance at $28.6, if oil prices turn bullish, which is not likely, in my opinion.
Conversely, I recommend buying MRO between $25.25 and $24.5, with potential lower support at $21.5.
Watch oil and gas prices like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Marathon Oil: A Massive Drop In Gas Price May Hurt Q1 2023