Marathon Earnings: Higher-Than-Expected Oil and Gas Production Offsets Drive Solid Performance

Key Morningstar Metrics for Marathon Oil

• Fair Value Estimate: $27.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Marathon Oil Earnings

Marathon Oil MRO delivered a strong third quarter, setting it on track to meet—if not exceed—its full-year production target of 395 thousand barrels of oil equivalent per day. Firmwide output came in at 422 mboe/d, nearly 6% higher sequentially, and management indicated full-year volumes will likely approach the high end of guidance provided in February.

Full-year capital expenditures also remain on track, with no revision. We expect service pricing will continue to soften through year-end, and maintain our estimate for a 5% reduction in well costs in 2024. Following the results, we’re raising our fair value estimate to $27 from $22.

Marathon remains focused on the continued success of its capital returns program. The firm is still conservative with its cash, spending less than half of its operating cash and returning about two-thirds of the surplus to its shareholders. We appreciate that the company targets shareholder returns in relation to operating cash rather than free cash, as this puts shareholder distributions ahead of drilling capital in the allocation queue.

We generally prefer to see more dividends and fewer buybacks in the distribution mix, however, since cash flow and stock prices tend to be elevated in upcycle environments. Marathon’s shares trade at a slight premium (about 2%) to our fair value estimate at the time of writing, making repurchases a slightly unfavorable distribution tactic at present. We reiterate that habitual buybacks are seldom the best strategy in a highly cyclical industry.