Marathon Oil Corporation (ticker: MRO) will have a $2.3 billion capital budget for 2018. The company said the budget is self-funding at $50 average WTI and will generate free cash flow at $60 average WTI. More than 90% will be directed to four U.S. resource plays.
Almost 60% of the development budget will be allocated to the Eagle Ford and Bakken. Approximately one-third of the development budget will be allocated to the company’s Northern Delaware and Oklahoma assets, where the majority of drilling activity will be transitioning to multi-well pads. As a result of this concentrated capital allocation, the U.S. resource plays will increase to about 70% of the total company production mix.
2018 production forecast
For full year 2018, the company forecasts total production available for sale, excluding Libya, to average 390,000 to 410,000 net BOEPD, up 12% at the midpoint compared to 2017 on a divestiture-adjusted basis.
Total annual oil production available for sale, excluding Libya, is expected to increase about 18% at the midpoint, driven by 20-25% annual oil growth in the U.S. resource plays.
For first quarter 2018, U.S. production is expected to average 265,000-275,000 net BOEPD. International production, excluding Libya, is expected to average 105,000-115,000 net BOEPD.
2017 in review
- Reached cash flow neutrality*, including dividends and working capital, with $51 average WTI
- Total production (excluding Libya) of 358,000 net BOEPD, up 9% year over year
- U.S. resource plays exited 2017 with oil production 31% higher than fourth quarter 2016
- Entered Northern Delaware basin and divested Canadian oil sands business
- Reduced gross debt by approximately $1.75 billion, lowering annualized interest expense by $115 million
- Reserve replacement of 121%, excluding acquisitions and dispositions
* Excludes a one-time $108 million U.K. tax payment that is currently under appeal
Q4 2017 – more than 250 MBOEPD available for sale
Marathon Oil reported a fourth quarter 2017 net loss of $28 million, or ($0.03) per diluted share. Adjusted net income was $56 million, or $0.07 per diluted share. Net operating cash flow was $501 million, or $637 million before changes in working capital and the one-time U.K. tax payment.
U.S. E&P production available for sale averaged 262,000 net BOEPD for fourth quarter 2017. Production was up 8% compared to the prior quarter and up 27% from the year-ago quarter.
Marathon Oil’s production in the Eagle Ford averaged 105,000 net BOEPD in the fourth quarter, up from 101,000 net BOEPD in the prior quarter. The company brought 33 gross company-operated wells to sales in the fourth quarter with average 30-day initial production (IP) rates of 1,800 BOEPD (73% oil).
In fourth quarter 2017, Marathon Oil’s Bakken production averaged 69,000 net BOEPD, up 17% compared to 59,000 net BOEPD in the prior quarter. Marathon Oil brought 13 gross company-operated wells to sales in the fourth quarter, nine of which came in West Myrmidon with average 30-day IP rates of 2,935 BOEPD. The Forsman Middle Bakken well in West Myrmidon set a new Williston Basin 30-day IP oil record with a rate of 3,005 BOPD.
The company’s production in Oklahoma increased 10% to 64,000 net BOEPD during fourth quarter 2017, up from 58,000 net BOEPD in the prior quarter. Marathon Oil brought 26 gross company-operated wells to sales during the quarter.
The company’s Northern Delaware production averaged 11,000 net BOEPD in fourth quarter 2017, up from 9,000 net BOEPD in the prior quarter. Marathon Oil brought 11 gross company-operated wells to sales in Eddy and Lea Counties.
International E&P production available for sale (excluding Libya) averaged 121,000 net BOEPD for fourth quarter 2017.
Reserves
During 2017, Marathon Oil added proved reserves of 193 MMBOE, for a reserve replacement ratio of 140%, excluding dispositions. Virtually all of the additions were in U.S. E&P.
Conference call Q&A excerpts
Q: A couple questions about the Eagle Ford, if I may. Seeing some pretty outstanding results out of not only your Austin Chalk wells, but from others in industry. I was curious, just in terms of that play how much running room you think you actually have there and then maybe if you could further comment on the remaining drilling inventory that you have in the Eagle Ford as a whole, that would be, let’s say, less than $50 breakeven price?
And then finally, if I could, you talked about bolt-on acquisitions. Do you see this is an area where you could potentially be a pretty natural consolidator of properties given that many others in the industry have kind of walked away from the play to a certain extent?
President and CEO Lee Tillman: Yeah, let me take a couple of those and I may pitch the Austin Chalk question over to Mitch to address and talk about the specifics there. But I think in terms of inventory, we have talked in the past about kind of at current run rates in terms of wells to sales. We’ve got about a decade of high quality inventory. Now I know you’re referencing a specific kind of breakeven point, but we think that that inventory as a solid inventory to speak from when we are address the Eagle Ford.
In terms of bolt-on opportunities, in our core plays, we’re always looking for small opportunities that might be accretive to our overall footprint and we certainly evaluate those on an ongoing basis through both the asset team as well as our business development team. So that’s always on the table, I mean a lot of folks have solidified their positions there. We are in a very high-quality area of the Eagle Ford, which makes it a little challenging, because the folks usually around us are also pretty comfortable with their position as well, but we’re always going to keep the aperture open there.
So with that maybe I’ll let Mitch just talk a little bit about the well results and specifically Austin Chalk.
VP of Operations Mitchell Little: To address the Austin Chalk specifically, certainly we are encouraged by our most recent tests there, more so in the northeastern portion of our position within the Eagle Ford.
We will continue to test the Austin Chalk and extend the area of delineation there away from the most recent wells, but our program will largely be focused like it was last year on 40-acre lower Eagle Ford development, extending high intensity completions and engineered flow-backs into Atascosa where we’re seeing significant uplift and the productivity in the well returns from that program, which is really upgrading and has upgraded the overall competitiveness of the Eagle Ford and driving a fair chunk of that year-over-year improvement.
CEO Tillman: As we have stepped more to the west in the Eagle Ford, some of those areas are also much more likely developed than some of our core areas and so there is a considerable amount of running room there to elevate those returns and to kind of our top-tier type of economic return, so tremendous amount of opportunity in the team is generating some really terrific result out to the west.
Q: How many years do you think you can continue to grow and sustain in the Bakken?
CEO Tillman: We haven’t provided a fulsome update on the Bakken inventory and a lot of that has to do with the fact that we’re just in a higher rate of change in the Bakken today, with the success that started in the geologically advantaged Myrmidon area that’s now carried down into at least the higher quality areas of the Hector we’re pushing south, and Hector this year will also do some testing in Ajax.
So given all that rate of change and the fact that we really don’t have a tremendous amount of production history on the newly designed completions in the Hector, we really need to get some time there so that we can do, I would say, a more fulsome job of providing a comprehensive update on the Bakken inventory that reflects what is a tremendous amount of new data and new information.
