Houston-based integrated oil major Marathon Oil Corporation (MRO) provided an interim update for the fourth quarter of 2009 (covering the first two months of the quarter). Recovery in crude oil prices and robust production is expected to benefit the company’s upstream segment. However, Marathon’s downstream business will see lower refinery margin amid weak demand and higher crude oil input costs. The company plans to release its quarterly results on Feb 2, 2010.

Recently, Marathon’s larger rival, Chevron Corp. (CVX) issued a similar interim update, cautioning about a squeeze in its bottom line due to weak refining margins.

Upstream
Marathon expects fourth-quarter oil and natural gas production available for sale from continuing operations to average 400,000 oil-equivalent barrels per day (BOE/d), which is within the company’s guidance for the quarter. This is above the previous quarter’s output of 393,000 BOE/d and closer to the high end of its 385,000–405,000 BOE/d guidance but slightly below the year-ago production of 402,000 BOE/d.

Marathon’s realized oil price domestically averaged $69.37 per barrel, up 14% sequentially and 47% year-over-year. The company’s domestic realized price was 10% below the benchmark oil price, primarily reflecting quality and locational variations. International realized oil price was $70.82 per barrel, up 8% sequentially and 26% from the year-ago levels.

Marathon’s domestic realized natural gas price of $4.53 per thousand cubic feet was up 25% from the Sep 2009 quarter but was approximately 9% below the price in the earlier-year quarter. International realized natural gas price was down both sequentially as well as year-over-year.

Downstream
Regarding downstream operations, the fifth largest refiner and marketer of petroleum products in the U.S. said that crude oil refined is likely to average approximately 998,000 barrels per day (Bbl/d) compared to 952,000 Bbl/d in the corresponding period last year and 1,019,000 in the third quarter of 2009. Total refinery throughput for the quarter is expected to be about 1,190,000 Bbl/d, up slightly year-over-year and flat sequentially.

Oil Sands & Integrated Gas Production
The oil sands business is expected to be inline with previous guidance, while Marathon’s Integrated Gas segment’s sales are likely to exceed guidance.

We believe Marathon’s fourth quarter results will reflect the modest improvement in oil prices from the previous as well as the year-ago quarter. This is a key positive for the company as more than 60% of its operating income comes from the upstream segment. Marathon has extensive upstream operations in eleven countries and its international asset base is one of the most robust in the group.

However, results will be down from the year-ago period, as significantly narrower refining margins eat into its profits.

Zacks Investment Research

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