Marathon Earnings: On Track To Hit Prior Output and Spending Targets; Ensign Integration Progressing

Marathon Stock at a Glance

• Fair Value Estimate: $123
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

Marathon Earnings Update

At first glance Marathon’s MPC first-quarter results look solid. The firm delivered production of 396 thousand barrels of oil equivalent per day (47% oil), which was a hair above our forecast and 19% higher sequentially (reflecting the integration of the firm’s Eagle Ford acquisition, Ensign Natural Resources, which closed in December). Capital spending was slightly ahead of the run rate implied by the $1.9 billion to $2 billion budget, but the budget itself was left unchanged, as was the full-year outlook for production.

Likewise, the firm reiterated its guidance for operating costs, and is still expecting a 10% decline in cash costs per boe compared with 2022 due to Ensign synergies. First-quarter production costs were below the midpoint of this guidance and shipping and handling costs were below the bottom of the range. The firm’s financial results were generally better than expected, with adjusted EBITDA and adjusted EPS coming in 3% and 13%, respectively, ahead of FactSet consensus estimates.

At this stage, the only piece of the 2023 outlook to change is the forecast for net income from Marathon’s equity investments in Equatorial Guinea (down $50 million at the midpoint due to lower gas prices). However, the outlook for these assets remains positive with the expiry of a Henry Hub linked contract giving Marathon exposure to much stronger global liquefied natural gas pricing instead for its gas-processing operations in the region. On March 30, the firm announced an agreement with Chevron, its partner, and the government in Equatorial Guinea, to progress the next phases of their Regional Gas Mega Hub, which processes gas from Chevron’s Alen field, and shortly its Alba and Aseng fields, in exchange for a fee and profit share. We were already expecting a steep uptick in equity income in the back half of 2023 as a result.

We intend to incorporate these results shortly, but after this first look, our estimates and our $23 per share fair value estimate, are unchanged.