Will This Oil Stock Keep Its Foot on the Accelerator in Q4?

Marathon Oil (NYSE:MRO) delivered strong operational and financial results through the third quarter of last year, which had the company on track to end 2018 on a high note. Investors will find out whether that's the case when the company reports its fourth-quarter results. That's one of several things they should keep their eye on when reviewing that report.

See if production exceeded expectations again

Marathon Oil's drilling machine generated a gusher of production through the first nine months of last year as the company exceeded its expectations in each quarter. Because of that, anything less than a high-end result in the fourth quarter would likely disappoint the market.

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After producing an average of 419,000 barrels of oil equivalent per day (BOE/D) during the third quarter, Marathon sees its production averaging between 400,000 and 420,000 BOE/D during the final period, which is lower at the midpoint due in part to recent asset sales. However, achieving that forecast would enable the company to produce between 405,000 to 415,000 BOE/D for the full year, which would be 15% to 19% higher than 2017's average. Ideally, the company will achieve the high end of both ranges.

There's a good reason to believe it could deliver another strong quarter. One factor driving that view is Marathon's announcement in December that its four-well test in the Ajax area of North Dakota's Bakken shale achieved strong initial production results, which marked a continuation of the company's drilling success in that region. As long as it didn't disappoint elsewhere, then there's an excellent chance Marathon produced another gusher in the fourth quarter.

Check if it kept a lid on capital spending

As oil prices rose through the first nine months of last year, it caused several of Marathon's peers to boost their capital spending plans. ConocoPhillips (NYSE:COP), for example, increased its budget twice, going from an initial level of $5.5 billion up to $6.1 billion by year-end. Meanwhile, Anadarko Petroleum (NYSE:APC) set its budget range between $4.2 billion and $4.6 billion but ended up spending $4.8 billion. Marathon, on the other hand, had resisted the temptation to boost spending, keeping a tight lid on its budget at $2.3 billion.

Because of that, investors should see if the company maintained its capital discipline during the fourth quarter. There's a high probability that was the case since oil prices crashed 40% during the period, which caused many drillers to slow down their activities and spending level. Further, the company noted in December that it repurchased another $150 million in stock during the quarter, which it likely wouldn't have done if capital spending was running above budget. While those two factors suggest that the company did achieve its aim of sticking to its budget last year, investors should still make sure that was the case. If not, they should see if the company had a good reason to go over budget. 

Take a close look at its plans for 2019

Marathon Oil expects to unveil its 2019 capital plans when it reports fourth-quarter results. The company has made it clear in the past that its strategy is to keep spending to the cash flows it can generate on $50 oil, which last year was $2.3 billion. As such, investors should see if the company plans to stick to that same strategy this year, which would line up with what rivals ConocoPhillips and Anadarko Petroleum are planning to do.

In addition to checking out its capital plans, investors should see if the company intends on sending them any more money this year. While Marathon has joined both ConocoPhillips and Anadarko Petroleum in buying back its shares, it has yet to start increasing its dividend. Because of that, the company's yield has fallen behind those two rivals, which have raised their payouts several times over the past few years. As such, word of an upcoming dividend increase would be excellent news. 

Anticipating a strong result

Marathon Oil has a history of under-promising and over-delivering. Because of that, it would be rather disappointing to see the company miss its production guidance and spend above its budget. However, it could partially offset any disappointment by remaining disciplined in 2019 and aiming to return more cash to shareholders, because those actions would keep it among an elite group of oil stocks.