Marathon Oil Lowers Capex by 20% Year over Year for 2015 - Analyst Blog

Plummeting Crude prices for more than six months this year have compelled oil and natural gas exploration and production (E&P) firm Marathon Oil Corporation (MRO) to reduce its 2015 capital spending in comparison with 2014. The company might invest between $4.3 and $4.5 billion next year, which is roughly 20% lower than the total expected spending for 2014.

Marathon Oil added that it has not finalized its 2015 capital budget as crude price and its effect on oil services expenses are highly volatile now. Hence the company needs more time to fix the amount that it will spend next year.

Although the company has reduced its 2015 capital spending, the amount will be allocated mostly toward highly profitable projects in three U.S. shale plays. The capital program reflects lower expenditure on exploratory operations. Moreover, with the investment, Marathon Oil believes that it will achieve high single-digit production growth next year in spite of the low oil price projection for 2015 too.

Management revealed that its anticipated 2015 capital budget is not constrained by the weak oil pricing scenario but rather reflects efficient capital management in the present operating market.

Amid plunging oil prices, E&P company ConocoPhillips (COP) also lowered its 2015 capital budget by about 20% to $13.5 billion.

Houston, TX-based Marathon Oil has extensive upstream operations. As of the end of 2013, Marathon had approximately 2.2 billion oil-equivalent barrels in proved reserves (80% liquids and 71% developed).

Presently, Marathon Oil carries a Zacks Rank #5 (Strong Sell), implying that it will significantly underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like SandRidge Mississippian Trust I (SDT) and Sandridge Mississippian Trust II (SDR). Both stocks sport a Zacks Rank #1 (Strong Buy).