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01-08-2012 22:35:00

3rd UPDATE: Marathon Oil Grows Production, Curbs US Drilling

Relateret indhold

--Marathon Oil's second-quarter earnings fell 61% for the quarter, reflecting divestiture of refineries

--Marathon Oil is reducing rig counts in U.S. unconventional plays

--$375 million sale of Alaska assets expected to close in 2012 despite regulatory scrutiny

(Updates throughout with additional background)

By Alison Sider

Marathon Oil Corp. (MRO), which Wednesday reported rising profits from its oil and gas operations, is paring back its U.S. drilling amid volatile energy prices.

Marathon reported second-quarter earnings of $393 million, or 56 cents a share, down 61% from a year earlier, reflecting the divestiture of its refining operations, but its oil-and-gas sales rose as the company focused on tapping unconventional oil and gas fields in the U.S. Adjusted earnings were 59 cents a share, matching Wall Street expectations.

Income from continuing operations, which accounts for the spin-off last year of Marathon's refineries into the stand-alone refiner Marathon Petroleum Corp. (MPC), rose 32% because of higher production.

But a combination of rising costs and falling prices for crude is leading Marathon to slow down its spending to keep money going out in line with the cash coming in. Other large oil companies such as ConocoPhillips (COP) and Occidental Petroleum Corp. (OXY) have gone the opposite route--increasing capital expenditures to develop assets and produce higher volumes.

"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.

The company maintained its production guidance, however, in part because drilling in unconventional shales has been more productive than forecast. The rigs are being cut from the Anadarko Woodford basin in Oklahoma and the Bakken Shale in North Dakota, regions where producers have seen relatively weak prices due to bottlenecks in transportation.

During the second quarter, 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. The rise came as Marathon tapped unconventional U.S. oil fields such as the Bakken and the Eagle Ford in South Texas. The company's production in the Eagle Ford was up 50% in the second quarter compared to the first three months of the year, which helped drive a 20% overall production increase in the U.S. unconventional plays.

Analysts said Marathon's earnings were solid and applauded the company's moves to moderate spending.

"Insofar as Marathon is taking its foot off the accelerator now, that seems like a smart move," said Raymond James analyst Pavel Molchanov, who added that he expects most U.S. oil companies to follow similar steps next year. 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, settled 85 cents or 1% higher at $88.91 a barrel. Meanwhile, Brent crude oil, traded on the Intercontinental Exchange, settled at $1.04 or 1% higher at $105.96.

Marathon Oil Wednesday said it expects to complete $1.5 billion to $3 billion in asset sales by the end of 2013.

Among those is the planned sale of $375 million in Alaska oil-and-gas assets, which the company expects to close by the end of the year. On 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. The company also said it has received bids for its 50% stake in the Neptune gas plant in Louisiana, and expects to close on the sale by the end of the year.

On 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.

Marathon Oil shares were trading down 0.11% at $26.50 Wednesday afternoon.

Write to Alison Sider at alison.sider@dowjones.com.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 01, 2012 16:35 ET (20:35 GMT)

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

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