So far, 2013 has been a shaky year for exploration and production companies. Marathon Oil Corporation (NYSE:MRO) represents that trend well. The Jan. 16 attack on the natural gas plant in Algeria, run jointly by Statoil ASA (ADR) (NYSE:STO), BP plc (ADR) (NYSE:BP), and Algerian Sonatrach caused a negative ripple effect on most E&P companies with North African operations, Marathon Oil included.
A lackluster Q4 2012 didn’t help matters either, despite posting slightly higher revenues than the previous quarter, EPS came in at $0.45 per share, down 29% from the previous quarter and 42% year on year. Between reporting Q4 2012 results on Feb. 22 and March 1, the company’s share price sunk about 5%.
Personally, I feel this represents an opportunity to purchase a great energy company at a discount. When evaluating potential long-term investments, The Motley Fool favors the ‘SWOT’ method. A balanced look at Strengths, Weaknesses, Opportunities, and Threats facing Marathon Oil Corporation (NYSE:MRO) should help us decide if its recent price weakness is an opportunity, or a sign to back off.
Consistent growth of shareholder equity
In June 2011, Marathon Oil Corporation (NYSE:MRO) spun off its refining business into Marathon Petroleum Corp (NYSE:MPC). At that time, shareholders received one share of the new downstream company for every two shares of common stock previously held in Marathon Oil. All downstream operations at Marathon Oil ceased after the split. Although it was a difficult transition, when viewed as a whole, the two companies managed to retain their book value immediately following the split. Since then, long-term investors have enjoyed steady growth from both companies, an especially impressive feat for a highly cyclical commodity-based businesses.
Although Marathon Petroleum is also a fine company, it may be trading at too much of a premium at the moment. The Ohio-based refiner hit a 52-week high on March 1, 2013. Several U.S.-based downstream companies are getting a great deal of attention lately. Domestic oil and gas production has experienced explosive growth in the past few years. Refineries located in the Mid-West, like Marathon Petroleum, are taking advantage of cheap domestic oil and gas, and then selling it based on globally determined prices. If the Brent-WTI spread narrows, a pullback in refinery profitability is likely.
Consistently performing base assets
Viewed annually, Marathon Oil has not posted a loss since 1995. One of the reasons for its rock-steady growth are its stable group of base assets. Oil sands mining in Canada, liquids rich plays in the Eagle Ford and Bakken shales, and highly profitable conventional oil wells in Libya are just a few of Marathons diverse base assets. Their consistent production allows the company to safely invest in numerous growth and exploration projects using cash, instead of taking on heavy levels of debt.
Map Source: Marathon Oil Annual Report 2012
The Waha Oil Company is an enormous consortium led by Libya’s National Oil Company (NOC). Foreign oil companies operating in partnership with the NOC include Marathon Oil, ConocoPhillips (NYSE:COP) , and Hess Corp. (NYSE:HES) . During Libya’s civil war in 2011, the Waha Oil Consortium ceased operations for most of the year. Further turmoil within Libya could result in losses for Marathon Oil and the rest of the Waha consortium.