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Gold/Mining/Energy : Marathon Oil

MRO 28.55

0.0%

Nov 22 4:00 PM EST

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From: Dennis Roth	2/1/2008 6:38:20 AM
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Marathon Oil Corp. (MRO): E&P news not positive, but refining remains key driver of shares - Goldman Sachs - January 31, 2008 United States News Marathon Oil announced: (1) sharply higher 2008 capital spending; (2) sharply lower 2008 E&P production guidance; (3) lackluster reserve replacement ex-oil sands; and (4) 4Q 2007 adjusted EPS of $0.70, which is below the $0.86 First Call consensus estimate and our $0.80 forecast. Analysis 2008 production guidance of 380-420 MBOE/d (ex-Western Oil Sands) was even lower than we expected, as we had thought our comparable 420 MBOE/d estimate would have been closer to a mid-point of a range rather than the high end. 2008 capital spending of $8 billion was well above our comparable $5.9 billion estimate, with higher refining spending accounting for $1.5 billion of the variance and traditional E&P accounting for the remaining $600 million. Implications The key driver of Marathon's shares has been and we think remains the outlook for refining. We are bullish on refining, which is the key reason we have kept a Buy rating on Marathon shares despite our concerns about 2008-2010 E&P production guidance. The higher capital spending and even sharper production shortfall will likely contribute to downward pressure on the shares in the near-term and raises the question as to whether our bullish refining outlook can overcome a less robust near-term E&P view. However, with the shares already down sharply (today and in recent months) and approaching what we view to be asset value support levels, we think most of the bad news is already reflected in the stock. A question is whether relative to the sector, Marathon still represents a better opportunity over the next 12 months than other stocks in the sector. Our rating, EPS estimates and target price are under review.

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