Analyzing the Financial Health of 4 Upstream Energy Companies
Marathon Oil’s debt
We have already discussed Marathon Oil’s (MRO) production trend over the past 13 quarters. In this series, we will find out whether weakening production translated into lower income. We will also analyze whether its debt levels decreased.
Marathon Oil’s net debt has been volatile since 2Q12. In 2Q15, MRO’s net debt (total debt less cash and cash equivalents) increased 11% from 1Q15 to ~5.85 billion, due primarily to higher long-term borrowing. In comparison, EOG Resources (EOG) saw a 5.5% increase in 2Q15 net debt over 1Q15. MRO’s smaller market cap peer Gulfport Energy’s (GPOR) net debt, however, decreased 38% from 1Q15 to 2Q15. Marathon Oil makes up 0.07% of the SPDR S&P 500 ETF (SPY) and 1.14% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Marathon Oil’s indebtedness
Marathon Oil’s net debt to EBITDA ratio increased to 2.3x in 2Q15 compared to 1.6x in 1Q15. The ratio, starting from 2Q12, has been moving upwards. Since 4Q14, it has turned sharply upwards. In 1H15, MRO’s long-term debt increased. In June, MRO issued $2.0 billion in senior notes to repay $1.0 billion senior notes, which are due for repayment in 4Q15. Although its cash and marketable securities also increased sixfold to $525 million in 2Q15, net debt also jumped as a result of much higher debt obligations.
Compared to 1Q15, MRO’s EBITDA fell by more than half in 2Q15 due to lower sales volume, coupled with lower average realized prices for its energy products. Compared to a year ago, EBITDA fell 31%. This was primarily due to a 47% fall in its liquid hydrocarbons average realized prices, and a 45% natural gas price decline in 2Q15 compared to 2Q14. MRO plans to generate $500 million from select non-core asset sales. This, plus the company’s natural gas asset sale should help improve net debt and lower its cash crunch.
Marathon Oil’s leverage
Marathon Oil’s debt to equity, or leverage, was 41.4% in 2Q15, up from 32.3% a year ago. A higher debt-to-equity ratio typically indicates higher risk, as it shows the company has been aggressively financing its growth through debt.
Next, we will discuss Marathon Oil’s capex plans and cash flow trends.
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