Should You Stay Away from Marathon Oil?

PHOTO CREDIT: Marathon Oil

OVERVIEW

Marathon Oil Corporation is a large oil and gas company based in the United States. They explore for oil and natural gas reserves and extract them from the ground in the United States as well as Canada and Equatorial Guinea. They later distribute these products and products related to them to several countries around the world.

Why You Should?

1. Marathon Oil has several products related to the exploration and extraction of Natural Gas which can be made into several Natural Gas products and LNG. These products are in the future of clean energy and Marathon Oil will benefit from the increase in demand for these products.
2. Marathon Oil Distributes large amounts of crude oil around the world. Though they divested from all of their consumer gas station division, they still extract over 100 thousand barrels of oil every day. They have millions of barrels in reserve around the world. These holdings will benefit the company during the recovery period as the company can step up production and sell them for higher prices.

Why you Should Not?

1. Marathon Oil has had several divestitures of its assets over the past couple of financial years as the company looks to be an extraction and exploration juggernaut. They divested from their consumer end gas stations to 7-Eleven and the Marathon Petroleum Company. They also invested in several large exploration projects. This caused a dip in their top and bottom line.
2. The COVID-19 Pandemic has caused the price of oil to drop as the demand for energy fell as people did not travel and stayed indoors. As Marathon Oil relies on strong oil prices, the stock price tanked and so did the company’s top and bottom lines. Marathon Oil does not have the strongest balance sheet amongst other oil giants like Chevron. This will negatively impact the company in the future.
3. Oil is not the future of energy. Marathon Oil still gets a bulk of its revenues and profits through selling crude oil and products related to crude oil. However, as governments and consumers look to combat the impacts of climate change, Marathon Oil will need to invest large amounts of money into clean energy to stay afloat. If they are unable to do this, they run the risk of going bust.
4. Marathon Oil faces tough competition from large oil companies. Chevron, Exxon Mobil, and many others offer similar products in a price-sensitive market. Considering that Marathon Oil has a weak balance sheet, this competition has a good chance of putting the company out of business. This will negatively impact the company and the shareholders.
5. Marathon Oil has seen falling revenues and profits due to the reasons mentioned above for the past couple of financial years. Due to divestitures and large investments, Marathon Oil needs to be careful and conserve cash for the future. Their large oil reserves might be able to help them pull through and help them return to profitability in the future. In the financial year of 2019, they reported revenues of around 5.1 billion and profits of around 480 million. Both of these metrics are lower than what the company reported in the financial year of 2018 when they had revenues of around 6 billion and profits of 1.1 billion.

PHOTO CREDIT: Yahoo Finance

MY OPINION

In my opinion, I would stay away from Marathon Oil. Their divestitures negatively impacted the company’s long term growth and competition might hurt the company as well. The COVID-19 Pandemic has driven large oil companies into the ground and Marathon Oil might be next. However, Marathon Oil is a good recovery play as people start to go out again. Their production of clean energy might also aid the company.