Marathon Oil’s Refining Profit More Than Doubles (Update3)

Marathon Oil Corp., the largest refiner in the U.S. Midwest, said profit from making and selling fuels more than doubled as an expansion boosted capacity at the company’s Garyville, Louisiana, plant.

Second-quarter profit from the refining segment rose to $421 million from $165 million a year earlier, Houston-based Marathon said today in a statement. Earnings from oil and gas wells also doubled, to $432 million. New York oil futures averaged $78.05 a barrel in the quarter, a gain of 31 percent.

Net income climbed 72 percent to $709 million, or $1 a share, from $413 million, or 58 cents. Excluding such items as costs related to an asset sale, Marathon earned $1.11 a share, 31 cents higher than the average of 18 analysts’ estimates compiled by Bloomberg. Revenue rose 39 percent to $18.6 billion.

“The rare combination of favorable crude-oil prices combined with very positive refining margins made for a very good second quarter,” said Gianna Bern, president of Brookshire Advisory & Research Inc., a firm based near Chicago that advises investors and oil companies on risk management and strategies.

This was the first full-quarter contribution from the Garyville plant, Marathon said. The refinery’s daily crude- processing capacity rose to 436,000 barrels from 256,000 barrels, Marathon said earlier this year.

Marathon fell 13 cents to $34.15 at 4 p.m. in composite trading on the New York Stock Exchange. The stock has 9 buy ratings from analysts, 12 holds and 2 sells.

Economic Reports

Robbert Van Batenburg, head of equity research at Louis Capital Markets in New York, said Marathon may have declined in part because of broader economic factors. Consumer spending and personal incomes in the U.S. unexpectedly stagnated in June, according to figures today from the U.S. Commerce Department.

Jim Byrne, an analyst at BMO Capital Markets in Calgary who has an “underperform” rating on Marathon shares and doesn’t own any, said some investors may have been disappointed by the size of a loss from oil-sands operations while also hoping for stronger exploration and production earnings.

Marathon’s oil-sands mining business had a loss of $60 million in the second quarter, compared with profit of $2 million a year earlier. The company said its operations were affected by maintenance work that was completed in the quarter.

Marathon said its overall oil and gas output in the quarter was 375,000 barrels of oil equivalent a day, within a previous company forecast of 365,000 to 380,000 barrels. Production was down 7.4 percent from a year earlier, in part because of maintenance in Equatorial Guinea and the sale of Permian Basin assets.

Output in 2010

Marathon said it still expects output of 390,000 to 410,000 barrels a day for 2010, with daily production estimated at 385,000 to 405,000 barrels in the third quarter.

An expansion at the Athabasca Oil Sands Project, in which Marathon has a 20 percent stake, is set to start mining operations in the third quarter, the company said.

Marathon also said today that it plans to spend about $675 million over a four-year period that started in 2008 related to its refinery system’s compliance with toxic-air regulations. That’s down from an earlier estimate of $1 billion over six years, according to the company.

Worldwide demand for oil in the second quarter increased an estimated 3.2 percent from a year earlier, according to the International Energy Agency in Paris.

Marathon follows U.S. oil companies such as Exxon Mobil Corp. and Chevron Corp. in reporting earnings. Those companies said second-quarter profit rose on higher crude prices and wider margins from refining oil into gasoline and other products.

Exxon Mobil, the largest U.S. oil company, said last week that second-quarter profit surged 91 percent to $7.56 billion. Net income tripled at Chevron to $5.41 billion, and ConocoPhillips said profit jumped almost fivefold to $4.16 billion.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.

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