Marathon Oil Sees Strong Bakken, Eagle Ford Output, Reduces Capital Spending Plan Amid Weak Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--Oil and gas giant Marathon Oil Company (NYSE:MRO) (Houston, Texas) lowered expectations for capital spending but remained optimistic about its expected annual growth, with solid performances in the Bakken, Eagle Ford and other plays helping to offset the effects of low commodity prices. Industrial Info is tracking more than $9.3 billion in active projects involving Marathon Oil.

Marathon Oil's full-year estimate for capital expenditures now stands at $3.3 billion, down from the first quarter's estimate of $3.52 billion. In a quarterly earnings presentation, Marathon executives said the company is reducing capital spending to address a "lower for longer" pricing scenario. Capital expenditures in the second quarter were reported to be $678 million, compared with $1.42 billion in the same period last year.

Among the most active spots for Marathon Oil is Angola, where the company is serving as project director on more than $5 billion in offshore projects, including six 2016-2017 drilling programs for TotalFinaElf, the Angolan subsidiary of Total S.A. (NYSE:TOT) (Paris, France). All six programs are in the Gulf of Guinea's Gindungo field, and each has an investment value of $80 million.

Although planned maintenance activities in Equatorial Guinea reduced Marathon's International E&P production, the North American E&P segment reported a 21% increase, with the Eagle Ford Shale leading the way with 135,000 net barrels of oil equivalent per day (boed), a 32% increase, followed by the Bakken Shale (up 22% to 61,000 boed) and the Oklahoma Resource Basins (up 33% to 24,000 boed).

In the second quarter, Marathon Oil reallocated an additional $35 million in capital to the Oklahoma Resource Basins and saw a 40% increase in the average number of feet drilled per day. Costs for well completions declined in all three major North American regions.

"The total company production growth rate for 2015 remains at 5% to 7%, year-over-year," said Lee Tillman, the president and chief executive officer of Marathon, in a quarterly earnings report. "We are narrowing full-year E&P production guidance, which excludes [the Oil Sands Mining segment], to a range of 375,000 to 390,000 barrels of oil equivalent per day, effectively raising the mid-point of production volumes in the process." He later added: "We remain on target to achieve our year-over-year 20% growth rate for our U.S. resources plays."

Revenues Halved as Prices Plummet
Net losses for the quarter were reported to be $386 million, compared with net income of $540 million in second-quarter 2014; revenues stood at $1.53 billion, a 47.94% decrease. Average price realizations for North American natural gas, liquid hydrocarbons, and crude oil and condensates declined by more than half, while prices for natural gas liquids (NGLs) fell almost 60%. Internationally, prices declined more steadily for liquid hydrocarbons and crude oil and condensates, and slightly increased for natural gas and NGLs.

Sales volumes for natural gas, NGLs, liquid hydrocarbons, and crude oil and condensates steadily increased from the Bakken and Eagle Ford shales and the Oklahoma Resource Basins; internationally, sales volumes for all four products declined, with the bulk of the losses attributed to Equatorial Guinea.

Marathon also expects to make at least $500 million from reductions in spending and the selling off of assets it considers unnecessary. During the second quarter, the company reduced North American E&P costs per barrel of oil equivalent (boe) more than 30%, and increased its savings from U.S. unconventional drilling and completions by $50 million.

"Even with reduced activity, we will still deliver our 5% to 7% overall company growth, and 20% resource play growth, year-over-year," Tillman said in the quarterly earnings report. "We expect to maintain E&P production levels stable in the third and fourth quarters that reflect today's level of activity."

Tillman said that Marathon signed agreements to sell its East Texas, North Louisiana, and Wilburton Oklahoma natural gas assets.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.