Investment banker UBS Warburg last week lowered its estimates for Marathon Oil Corp.’s 12-month price target and earnings-per-share (EPS) in 2003 and 2004 following the producer’s announcement last week that it expects lower production levels in the next two years.

Due to forecasts for reduced production and incremental capital and exploration spending, UBS Warburg said it cut its 2003 EPS estimate for the Houston-based producer to $2.01 from $2.19, and its 2004 EPS estimate to $1.65 from $1.87. In light of the lower earnings projections, it also reduced its 12-month price target for Marathon stock to $22 from $26.

Earlier this month, Marathon estimated production for next year and 2004 will fall by 4.4% to 5.6% from the level expected in 2002 due to project delays in the United States and overseas.

The company anticipates production in 2003 and 2004 will average between 390,000 to 395,000 barrels of oil equivalent per day (boepd), compared to an estimated 2002 production of 413,000 boepd. Marathon cited project delays in Norway and a slower response time for new production in the Powder River Basin as the reasons for the lower 2003 production forecast.

Marathon said its production for 2004 initially had been pegged at 430,000 to 435,000 boepd. But it noted it was forced to revise the forecast due to the delayed production response in the Power River Basin, permitting delays for an onshore facility associated with the Corrib field off the west coast of Ireland, and uncertainty involving the development of the Ozona deepwater discovery in the Gulf of Mexico.

In addition to the domestic and foreign project delays, “we believe that it [the production downgrade] reflects Marathon’s poor reserve replacement during recent years and steeper than expected natural field declines across mature assets,” said UBS Warburg analyst Matthew Warburton. “[W]e believe that this production downgrade has only amplified Marathon’s above-average commodity price sensitivity and limited growth potential vs. the integrated peer group. We are, therefore, reiterating our ‘Hold’ rating.”

“Marathon’s base business continues to perform well and is meeting our expectations. However, due to delays in our growth projects…our overall production for the next two years will be lower than previously anticipated,” said Marathon President and CEO Clarence P. Cazalot Jr. “While we are disappointed with the reduction in our production forecast, we continue to project a significant increase in our proven reserve base to approximately 1.4 billion barrels of oil equivalent by the end of 2004, at competitive finding and development costs.”

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