Marathon Oil output lags

HOUSTON: Marathon Oil and its former refining arm posted higher quarterly profits on Tuesday but the exploration and production company fell short of expectations as output lagged, and shares of the split-off Marathon Petroleum also fell after its first stand-alone report.

Marathon Oil spun off its refining arm in June in a bid to raise the valuation of both companies and offer better transparency to investors.

The second quarter is the first that the two have reported results as stand-alone companies, and expectations were especially high for Marathon Petroleum.

Shares of Marathon Oil Corp fell 5 percent while shares of Marathon Petroleum Corp lost 6 percent.

Marathon Oil's quarterly profit fell short of Wall Street forecasts as platform maintenance dented oil and gas output.

Oil and natural gas production in the quarter was 341,000 barrels oil equivalent, at the low end of company forecasts due to downtime at an offshore facility in Norway and downtime in Equatorial Guinea, Marathon said.

"Certainly as an exploration and production company, meeting your production guidance is an important thing," said Ann Kohler, analyst at CRT Capital Group.

The bulk of the earnings miss was due to the disruptions in the company's international operations, analysts at Simmons & Co, a Houston-based energy investment bank, told clients.

"I'm personally not satisfied with our overall second quarter performance, and I know our team feels the same way," Clarence Cazalot, Marathon Oil's chief executive officer told analysts on a conference call.

Marathon Oil, based in Houston, said its second-quarter profit rose 40 percent to $996 million, or $1.39 per share.

Excluding items, it earned 96 cents per share. Analysts on average had expected a profit of $1.00 per share, according to data compiled by Thomson Reuters I/B/E/S.

Marathon Oil's shares had a tremendous run up ahead of the split, but since the separation the stock had fallen 3 percent. By contrast, Marathon Petroleum's shares have climbed 6 percent since June.

Larger US rival ConocoPhillips said last month it would spin off its refining business as well.

That separation, which received mixed reviews from investors, is planned for next year.

Marathon Petroleum's profit almost doubled, beating most Wall Street estimates as the company's access to cheaper crude oil lifted margins.

Marathon Petroleum, the largest refiner in the US Midwest, is well-positioned to take advantage of cheaper crude in the region priced against US benchmark West Texas Intermediate (WTI).

Increasing production in the Bakken shale prospect in North Dakota and higher imports of heavy Canadian crude into the Midwest have created a supply glut at Cushing, Oklahoma, which led to a wider discount for WTI crude against world benchmark Brent.

Net earnings for the refiner were $802 million, or $2.24 per share, compared with $405 million, or $1.13 per share in the same period a year earlier.

Adjusted for special items, the earnings were $2.29 per share, the Finlay, Ohio-based company reported. On that basis, the earnings beat analysts' average estimate of $1.45 per share, according to Thomson Reuters I/B/E/S.

But analysts noted a wide disparity in earnings estimates due to the fact that Marathon Petroleum is reporting quarterly results for the first time and expectations were high for the company heading into the quarter.

"There were some expectations that the quarter might be significantly higher than consensus," Sam Margolin, analyst at Dahlman Rose & Co, said. "And the stock had outperformed heading into the quarter.

Earnings per share estimates for Marathon Petroleum ranged from $1.45 to $2.46.

Shares of both companies traded lower on Tuesday. Marathon Oil shares fell 5 percent to $29.18 while Marathon Petroleum shares were off 6 percent at $42.26, both in New York Stock Exchange trading.

Copyright Reuters, 2011