Marathon Oil's 2nd-Quarter Profit Fell 61%

Marathon Oil Corp.'s second-quarter earnings fell 61% from a year earlier, reflecting the divestiture of its refining operations, but its oil-and-gas sales rose.

The Houston company reported a profit of $393 million, or 56 cents a share, down from $996 million, or $1.39 a share, a year earlier. Adjusted earnings fell to 59 cents a share from 96 cents a share, matching Wall Street expectations.

Income from continuing operations--which reflects the spinoff last year of Marathon's refineries into a separate company, Marathon Petroleum Corp.--rose 32% on increased production. Revenue for continuing operations also increased.

Total world-wide sales of oil and gas rose to 407 million barrels of oil equivalent per day from 337 million barrels of oil equivalent per day in the second quarter of 2011.

Last year's spinoff came as Marathon sought to focus on unconventional U.S. oil fields such as the Bakken Shale in North Dakota and the Eagle Ford in South Texas. The move, however, has come with challenges: Wednesday, Marathon said commodity prices are falling faster than costs. The company said it will reduce its rig count in the Bakken in North Dakota and in Oklahoma's Anadarko Woodford sites for the remainder of 2012, and perhaps into 2013, due to lower commodity prices. Producers in these regions face bottlenecks getting their oil and natural-gas liquids to market, which affects prices.

"This lower-price environment, coupled with costs that have not declined at a comparable rate, dictate a more-disciplined level of domestic spending and activity," Chief Executive Clarence Cazalot Jr. said.

Several other oil companies, including ConocoPhillips and Occidental Petroleum Corp., are facing the same problems, but have disclosed plans to increase capital spending through the end of the year.

Wednesday, analysts said Marathon Oil's earnings were solid and praised the company's fiscal discipline.

While Marathon Oil is raising its exploration profile internationally with several new deals in recent months, Tuesday it said it has dropped the number of rigs to two from six in the Anadarko Woodford play as a result of the low prices for natural-gas liquids and natural gas. In the Bakken field, Marathon Oil has reduced its rig count to five from eight due to the volatile commodity prices.

In the Eagle Ford play, Marathon will cut back to 18 rigs from 20, but it said with gains in efficiencies, planned growth there will remain on track.

Raymond James analyst Pavel Molchanov said he expects most U.S. oil companies will have to slow down drilling activity and cut capital expenditures next year.

"Insofar as Marathon is taking its foot off the accelerator now, that seems like a smart move," he said.

Raymond James is forecasting Brent crude-oil prices of $80 a barrel and West Texas Intermediate crude-oil prices of $65 a barrel in 2013.

West Texas Intermediate crude, or light, sweet crude oil traded on the New York Mercantile Exchange, was up $1.23, or 1.4%, at $89.29 a barrel in midday trading Wednesday. Meanwhile, Brent crude oil, traded on the Intercontinental Exchange, was $1.11, or 1.1%, higher at $106.07.

Marathon Oil Wednesday said it still expects its planned sale of $375 million in Alaska oil-and-gas assets to close by the end of the year. Tuesday, the company confirmed the Federal Trade Commission has asked for more information to take a closer look at the disclosed sale to HilCorp Energy.

Tuesday, Marathon Petroleum said its second-quarter profit edged up 1.5% in its first full year as a standalone entity, as the refining-and-pipeline company booked profit gains in its Speedway and refining and marketing segments.

Copyright (c) 2012 Dow Jones & Company, Inc.


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