Marathon Oil Corp. (NYSE:MRO)

The period under review demonstrates significant fluctuations in financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibited considerable volatility, moving from a loss of US$659 million in 2017 to a profit of US$1,350 million in 2018, before declining to a loss of US$1,242 million in 2020 and recovering to a profit of US$1,116 million in 2021. Invested capital generally decreased over the five-year period, starting at US$17,726 million and ending at US$14,862 million. The cost of capital also fluctuated, peaking at 33.74% in 2021.

Economic Profit Trend

Economic profit consistently remained negative throughout the analyzed period, ranging from a low of US$-5,973 million in 2017 to a high of US$-3,898 million in 2021. While the magnitude of the negative economic profit lessened in the later years, the company did not generate returns exceeding its cost of capital in any of the observed years. The least unfavorable year was 2021, with the smallest negative economic profit.

Relationship between NOPAT and Economic Profit

A clear correlation exists between NOPAT and economic profit. Years with higher NOPAT, such as 2018 and 2021, corresponded with less negative economic profit figures. Conversely, years with lower or negative NOPAT, like 2017 and 2020, resulted in more substantial negative economic profits. This indicates that improving NOPAT is crucial for moving towards positive economic profit.

Cost of Capital Impact

The cost of capital increased notably in 2021 to 33.74%, the highest value observed during the period. This increase coincided with a relatively smaller improvement in economic profit compared to the NOPAT increase, suggesting that a higher cost of capital significantly hindered the company’s ability to generate economic profit. The lower cost of capital in 2019, at 25.53%, did not translate into a significantly improved economic profit, likely due to the lower NOPAT that year.

Invested Capital and Economic Profit

The decreasing trend in invested capital did not lead to a corresponding improvement in economic profit. While a lower invested capital base might be expected to reduce the absolute value of economic loss, the continued negative economic profit suggests that the returns generated on the invested capital were consistently below the cost of that capital, regardless of the capital base size.

Net income (loss)

The net income demonstrated significant volatility over the five-year period. In 2017, the company experienced a substantial loss of $5,723 million. This negative outcome was followed by a strong recovery in 2018, with net income rising to a positive $1,096 million. However, the subsequent years showed fluctuating performance, with a decline to $480 million in 2019, then a return to a loss of $1,451 million in 2020. The year 2021 saw another recovery, bringing net income back to a positive $946 million. The trend indicates cyclical financial performance with significant swings between profit and loss.

Net operating profit after taxes (NOPAT)

The NOPAT followed a broadly similar pattern to net income, reflecting operational profitability after tax considerations. In 2017, NOPAT was negative at $659 million, switching to a positive $1,350 million in 2018, which aligns with the recovery in net income that year. The profit reduced to $654 million in 2019 and fell again to a loss of $1,242 million in 2020, paralleling the downturn in net income. In 2021, NOPAT increased to $1,116 million, indicating improved operational efficiency or market conditions. This pattern suggests that operational profitability was a significant factor in the company's overall net income variability.

Income Tax Provisions (Benefits)

The income tax provisions experienced a notable fluctuation over the analyzed period. Starting at a relatively high positive figure in 2017 with 376 million US dollars, the value decreased to 331 million in 2018. In 2019 and 2020, the provisions turned negative, reflecting benefits rather than expenses, with -88 million and -14 million US dollars respectively. This shift indicates a period of tax benefits or credits. In 2021, the figure returned to a positive value of 58 million US dollars, though this amount remains significantly lower than the earlier years, suggesting a partial return to tax liabilities but not to previous levels.

Cash Operating Taxes

Cash operating taxes displayed a steep decline from 2017 to 2019, falling from 559 million US dollars down to a minimal 1 million. This sharp reduction suggests substantial changes in taxable operating activities or enhanced tax strategies during these years. A gradual increase followed in 2020 and 2021, reaching 66 million and 139 million US dollars, respectively. Despite this recovery, the 2021 value remains well below the levels observed in 2017 and 2018, indicating that the company's cash tax payments have not reverted to prior higher levels.

Total Reported Debt & Leases

The total reported debt and leases demonstrated a relatively stable trend from 2017 to 2020 with slight fluctuations, starting at $5,600 million in 2017 and peaking modestly at $5,709 million in 2019. However, there was a significant reduction in 2021, where the figure dropped sharply to $4,107 million, indicating a considerable deleveraging effort or repayment of debt and leases during that year.

Stockholders’ Equity

Stockholders’ equity showed moderate growth between 2017 and 2019, increasing from $11,708 million in 2017 to $12,153 million in 2019. This was followed by a decline in 2020 down to $10,561 million, likely reflecting the impact of market or operational challenges during that period. In 2021, equity stabilized somewhat with a slight increase to $10,686 million, suggesting a period of recovery or improved financial performance.

Invested Capital

Invested capital exhibited an overall downward trend over the five-year period. Beginning at $17,726 million in 2017, it remained relatively steady through 2018 and 2019 but declined sharply in 2020 to $16,214 million and further decreased in 2021 to $14,862 million. This decrease may indicate asset disposals, decreased capital expenditures, or a strategic shift in the company’s investment approach.

Summary Insights

Over the five-year span, the company appeared to strategically reduce its financial leverage, as evidenced by the significant decline in total reported debt and leases in 2021. This deleveraging was concurrent with a reduction in invested capital, possibly reflecting a realignment of capital allocation or divestitures. Stockholders’ equity experienced volatility, with a peak around 2019 followed by a contraction and slight rebound, which may be connected to broader market conditions or company-specific operational factors. Overall, the financial data indicates a trend toward lower debt levels and reduced invested capital, alongside a cautious stabilization of equity in the latest period.

The period under review demonstrates consistent negative economic profit for each year, ranging from approximately negative US$3.9 billion to negative US$5.9 billion. Invested capital experienced a general decline over the five-year period, decreasing from US$17.7 billion in 2017 to US$14.9 billion in 2021. The economic spread ratio, reflecting the relationship between economic profit and invested capital, consistently registered negative values throughout the analyzed timeframe.

Economic Profit

Economic profit exhibited volatility, with a decrease from negative US$5.973 billion in 2017 to negative US$4.142 billion in 2018, followed by a slight improvement to negative US$3.930 billion in 2019. A substantial increase in the negative economic profit was observed in 2020, reaching negative US$5.540 billion, before partially recovering to negative US$3.898 billion in 2021. This suggests fluctuations in the company’s ability to generate returns exceeding its cost of capital.

Invested Capital

Invested capital generally trended downward. A minor decrease occurred between 2017 and 2018, from US$17.726 billion to US$17.565 billion. A slight increase was noted in 2019, reaching US$17.954 billion, but this was followed by more pronounced declines in 2020 and 2021, to US$16.214 billion and US$14.862 billion respectively. This reduction in invested capital could be attributed to asset sales, reduced capital expenditures, or other strategic decisions.

Economic Spread Ratio

The economic spread ratio consistently remained negative, indicating that the company’s returns on invested capital were less than its cost of capital. The ratio fluctuated between -21.89% and -34.17% during the period. A relative improvement was observed from -33.70% in 2017 to -23.58% in 2018, and again to -21.89% in 2019. However, the ratio worsened significantly in 2020 to -34.17%, before improving slightly to -26.23% in 2021. The persistent negativity suggests ongoing challenges in generating sufficient returns to cover the cost of capital employed.

Overall, the analysis reveals a consistent pattern of negative economic profit and a declining economic spread ratio, despite a reduction in invested capital. This indicates a sustained period where the company’s investments have not generated returns sufficient to cover their cost, potentially signaling underlying performance issues or unfavorable economic conditions.

The period under review demonstrates consistent negative economic profit for the entity, alongside fluctuating revenues. The economic profit margin consistently reflects this negative economic profit, exhibiting substantial volatility across the observed years.

Economic Profit

Economic profit remained negative throughout the five-year period, ranging from a low of -US$5,973 million to a high of -US$3,898 million. While there was a reduction in the magnitude of the negative economic profit from 2017 to 2018 and 2019, it increased significantly in 2020 before decreasing again in 2021. This suggests periods of improved, but still insufficient, profitability followed by a substantial decline and subsequent partial recovery.

Revenues

Revenues increased from US$4,373 million in 2017 to US$5,902 million in 2018, representing a significant gain. However, revenues then decreased to US$5,063 million in 2019 and experienced a substantial drop to US$3,097 million in 2020. A recovery was observed in 2021, with revenues reaching US$5,601 million. This pattern indicates revenue sensitivity to external factors, potentially including commodity price fluctuations or market conditions.

Economic Profit Margin

The economic profit margin was consistently negative, indicating that the entity’s returns were insufficient to cover its cost of capital. The margin exhibited considerable fluctuation, ranging from -70.18% to -178.90%. The most substantial negative margin occurred in 2020, coinciding with the lowest revenue figure. The margin improved in 2021, aligning with the revenue increase, but remained significantly negative. The large swings in the margin suggest a strong correlation between revenue changes and the entity’s ability to generate economic profit.

In summary, the entity consistently failed to generate economic profit over the analyzed period. Revenue fluctuations appear to significantly impact the economic profit margin, with the largest margin decline occurring during the year with the lowest revenues. The observed trends suggest a vulnerability to external market forces and a persistent challenge in achieving returns exceeding the cost of capital.