With the four largest U.S.-based integrated oil and gas companies having reported, we have anything but a consensus on the strength of the refining segment for the quarter. Indeed, Marathon (NYSE: MRO), the fourth-largest of the integrated companies, joins Chevron (NYSE: CVX) in watching its downstream numbers plummet, while ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) actually improved their refining contributions.
The result for Marathon from downstream earnings that cascaded to $4 million, from $533 million a year ago -- more than 99% -- was a slide in total earnings to $668 million, or $0.94 a shares, from last year's $1.08 billion, or $1.53 per share. If you adjust for the seemingly inevitable one-time items, the most recent quarter's earnings came in at $500 million, down 40% from the final quarter of 2006.
The downstream results were exacerbated by all the company's refining operations occurring in the U.S., where even those companies that managed to grow overall segment earnings were challenged. The company's new Canadian oil sands mining operation turned in a loss of $63 million, more than half of which was tied to the use of derivative instruments at the time that Marathon company bought Western Oil Sands.
As you would expect, the company improved its lot upstream with 51% more earnings than a year ago. However, it was all done on price, as production volumes lowered.
Marathon, which has recently announced a new North Sea discovery with BP (NYSE: BP), plans to spend about two-thirds more on capital improvements this year than last. Part of the funds will be used to improve the company's refining operations, a direction that could benefit future downstream earnings.
Nevertheless, and while slipping crude oil prices should remove some of the pressure from the refining and marketing segment, I'm inclined to steer clear of its shares for now. Lower crude prices and lower production stand to affect the upstream contribution, just as refining begins to benefit.
Indeed, it's for that very reason that I'd sooner see my Foolish friends remain attentive to the oilfield services stocks these days, including Schlumberger (NYSE: SLB) or Baker Hughes (NYSE: BHI) rather than to the producers.
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