Is Marathon Oil Another Buying Opportunity?

Marathon Oil (NYSE: MRO  ) saw its shares slide by almost 5% on Tuesday, after the company announced its second-quarter results. The market's negative reaction was due to a drop in net income from continuing operations. This is just another example of knee-jerk reaction from investors, and the good news is that it provides Fools with an opportunity.

Numbers deceive
Following the spin-off of the downstream operations, net income from continuing operations for the second quarter fell to $298 million from $374 million a year ago. Thanks to the Libyan unrest, total production for sale slid to 341,000 barrels of oil equivalent per day from 375,000 BOEPD. The Libyan crisis shaved off more than 12% from last year's second-quarter production. While the impact is definitely substantial, this should hardly come as a surprise.

A closer look suggests something else
In fact, Marathon has been consolidating elsewhere. If last year's 47,000 BOEPD from Libya is excluded, total production actually grew by 4%. And this is despite other problems that the company had been facing, including nonproductivity at its Norwegian floating production facility for a couple of weeks.

In all, I believe production and sales were fairly impressive given the constraints that the company has been forced to operate under. Expectations for the rest of the year and for 2012 look pretty impressive even after factoring in consequences of a possible hurricane and nonproductivity in Libya. The company expects average production between 360,000 and 380,000 BOEPD next year, keeping in mind the restrictions.

Adjusted income (before depletion, depreciation, and amortization) from continuing operations did see a rise to $689 million from $440 million a year ago -- a 57% jump. Income for total exploration and production also saw significant 39% growth, thanks to higher oil price realizations.

The market's reaction, therefore, defies logic. Once initial teething problems associated with the spin-off are accounted for, this company should grow phenomenally. Keeping future growth potential in mind, the stock looks like a buying opportunity.

The most exciting prospect
Marathon's activity in the Bakken looks promising. The company plans to increase its rig count here from seven to 40 in the next 18 months. This indeed is phenomenal. Production could reach as high as 33,000 BOEPD in the next five years from the current 16,000 BOEPD.

This pure shale play has always looked promising, and why not? For instance, EOG Resources (NYSE: EOG  ) -- the largest Bakken player -- had a production of 49,000 BOEPD at the end of last year (a figure that is only bound to grow). Kodiak Oil & Gas (NYSE: KOG  ) and Continental Resources (NYSE: CLR  ) bear further testimony to the exciting prospects of this region.

Foolish bottom line
Post-spin-off, Marathon Oil appears to have a long way to go in terms of growth. The prospects look pretty good and the company looks capable of delivering on its promises. With a $3.5 billion acquisition of Eagle Ford assets still pending, it's clear that the company is keen on diversifying its asset portfolio and, more importantly, expanding operations in the United States. For Marathon, the future looks pretty exciting.

To stay up to speed on Marathon Oil, click here to add it to My Watchlist.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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