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$42.69 -1.09 (-2.49%)
7/23/2008 4:01 PM

Marathon Oil Corp (MRO)

CAPS Rating:
****

Engaged in worldwide exploration, production and marketing of crude oil and natural gas; domestic refining, marketing and transportation of crude oil and petroleum products.

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Avatar NetscribeEnergy (98.94) Submitted: 12/07/06 7:20 AM : Underperform Start Price: $46.21 MRO Score: -2.13

Marathon Oil is a global player in the energy sector with presence in up-stream, mid-stream, and down-stream segments. The company’s major focus is in the downstream segment, with refineries located in the U.S., making it one of the well-known players in the segment.

The company is slowly moving out of the U.S. market and focusing in the international arena by acquiring more assets. The company’s acquisition of an interest in Ashland has led to a strong presence in Libya. However, the company’s move in diversifying its asset base has exposed it to the geo-political risks embedded with working in the country. Marathon, over a period, has not been successful enough to replace its depleting reserves through new findings. However, it has strived hard in this process, but it could only replace the reserves with undeveloped and probable reserves. In addition, the annual production has fallen in the recent years. This exposes the company to higher risk associated with buying crude oil and refining, which otherwise would have been mitigated by its reserves to a certain extent.

On the other hand, the company is also working on better projects like developing liquefied natural gas in Equatorial Guinea in West Africa, a natural gas into synthetic diesel conversion project in Qatar, to name a few. This will help the company to generate pleasant returns in the future. However, the stock has discounted all the positive news and is trading currently at high levels. It is believed that the negatives will affect the stock fiercely and will further drive the stock to a southward journey.

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Avatar NetscribeEnergy (98.94) Submitted: 6/06/07 2:55 AM

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The fundamental outlook for the integrated oils sub-industry is positive. Oil prices are expected to remain relatively high although volatile in 2007 and 2008, reflecting strong global oil demand and continuing geopolitical tensions. Paralleling the same, Marathon Oil's solid business profile reflects its large and geographically diverse exploration and production. Besides, the strong refining operation ranks near the top of most operating metrics.

During the recent quarter, revenues decreased 21% to $13 billion reflecting decreased sales and a significant decrease in proceeds from matching buy/sell transaction. Net income from continuing operations decreased 7% to $717 million partially offset by an increase in gross margins due to lower costs of revenue.

It has recently increased its exploration and production exposure toward higher growth but politically challenging regions and placing greater emphasis on larger, longer lead time projects. Company’s recent highlights include two deepwater discoveries in Angola, Gulf of Mexico among others. It has also commenced construction for refinery expansions which will lead to further widening of operations.

But the company’s shares have risen about 38% since the beginning of 2007, discounting all these gains. Moreover it faces risk of a lengthy downturn in commodity prices due to slowing economy and refining margins which are substantially low compared to the industry. Political risk has increased as a result of Marathon's escalating international presence with operations in Equatorial Guinea, Libya, and Angola. Thus in spite of the aforesaid mentioned positives, the shares seem to have a negative view.

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