Marathon Oil 4Q Net Falls 41% on Lower Exploration, Production Income

Marathon Oil Corp.'s fourth-quarter earnings fell 41%, partly due to write-downs and other charges, and the company fell short of analysts' expectations as high taxes and exploration costs offset increased oil and gas sales.

Marathon Oil spun off its downstream and petroleum assets in 2011, creating Marathon Petroleum Corp., in order to focus its drilling efforts on oil-rich unconventional fields in the U.S. The company's profits from oil and gas operations have risen in recent quarters as its production has exceeded expectations.

In the fourth quarter, the company reported a profit of $322 million, or 45 cents a share, down from $549 million, or 78 cents, a year earlier. Taking out items such as impairment, pension settlement and unrealized gains on crude-oil derivative instruments, earnings from continuing operations fell to 55 cents from 78 cents. Revenue jumped 11% to $4.24 billion. Marathon's fourth-quarter results came in 12 cents under the 67 cents per-share forecast of analysts polled by Thomson Reuters, who had anticipated revenue of $3.93 billion.

The company reported that its exploration-and production segment's income fell 10% to $501 million from the year-before period, as higher costs offset increased production volumes. Since last year, Marathon has seen a more-than-four-fold increase in average net production in the south Texas Eagle Ford formation, from about 15,000 barrels of oil equivalent per day in December 2011 to more than 65,000 BOE/D in December 2012. Output in the oil-rich Bakken formation increased by 45% in the same period. However, higher costs have accompanied the production ramp-up in those areas, the company said.

The fourth quarter also included an $85 million in expenses associated with the Innsbruck well in the Gulf of Mexico, a dry hole, and the company reported another well in Iraq's Kurdistan is being plugged and abandoned.

Raymond James analyst Stacey Hudson said Marathon's production came in ahead of expectations and prices held up well. In a note, Raymond James analysts wrote that the rate at which Marathon's reserves are being replaced through organic growth is "solid." But taxes were also higher than Ms. Hudson anticipated.

"It's taxes eating up the upside," she said. Late last year, Marathon resumed production in Libya, where the company has reported a statutory tax rate of 93%.

Marathon said in December it would bump up this year's capital, investment and exploration budget to $5.2 billion from $5 billion in 2012 and spend most of it in oil-bearing shale formations such as the Bakken in North Dakota, the Anadarko Woodford in Oklahoma and the Eagle Ford in South Texas. The company expects the effort to give it a 6% to 8% production boost this year.

Oil and mining income dropped 70% to $19 million while integrated-gas income climbed 75% to $35 million.

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

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