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Marathon Earnings: Still Delivering on Capital Returns Despite Lower Oil Prices

For now, our narrow moat and fair value estimate of Marathon stock are unchanged.

Marathon logo seen at a petrol station in Ohio.
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Marathon Oil Corp

Marathon Oil Stock at a Glance

Marathon Oil Earnings Update

Marathon Oil’s MRO second-quarter results were ahead of FactSet consensus estimates, and the firm still expects to meet its previous full-year production target of 395 thousand barrels of oil equivalent per day. Firmwide output in the second quarter came in at 399 mboe/d (1% higher sequentially), and management believes third-quarter volumes will meet or exceed the annual target as well.

Full-year capital expenditures are also on track, with no revision. We do expect service pricing to soften in the back half of the year, but this is more likely to affect 2024 spending, and we already incorporate a 5% reduction in well costs starting next year.

The company focused on the continued success of its capital returns program. The gusher of free cash the firm enjoyed last year has moderated with declining commodity prices, but the firm is still only spending about half of its operating cash, leaving a surplus of about $500 million—80% of which was funneled back to shareholders.

We appreciate that Marathon aims to return a fixed portion of its operating cash, rather than its free cash, as this puts shareholder distributions ahead of drilling capital in the allocation queue. However, in general, we would prefer to see more cash and fewer buybacks in the mix, as firms are typically more flush with cash during upcycle environments when their stocks also tend to be elevated. In Marathon’s case, shares currently trade slightly below our fair value estimate, making repurchases accretive, but habitual buybacks are often not the best strategy in a highly cyclical industry.

We intend to incorporate these results shortly, but for now, our narrow moat and $27 per share fair value estimate are unchanged.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dave Meats, CFA

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David Meats, CFA, is director of research, energy and utilities, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Before joining Morningstar in 2014, Meats was an associate analyst for Raymond James. Previously, he worked as a geophysicist for Burren Energy, a London-based exploration and production firm, and Italian multinational oil and gas firm Eni SpA, which acquired Burren in 2008.

Meats holds an undergraduate degree in physics from the University of Nottingham, a master’s degree in petroleum geoscience from Royal Holloway, University of London, and a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

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