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Marathon Oil Announces 2018 Development Capital Budget; Reports Fourth Quarter and Full-Year 2017 Results


HOUSTON (GLOBE NEWSWIRE) -- Marathon Oil Corporation (NYSE:MRO) has announced a $2.3 billion  returns-driven development capital budget for 2018, which is self-funding at $50 average WTI, including dividends, and generates meaningful free cash flow at $60 average WTI. More than 90 percent will be directed to the four U.S. resource plays, with corporate cash return on invested capital (CROIC) expected to increase by about 30 percent year over year at $50 average WTI.

Almost 60 percent of the development budget will be allocated to the high-return Eagle Ford and Bakken assets, which have demonstrated step-change performance improvements while operating at scale. 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, while continuing strategic delineation and appraisal.

As a result of this concentrated capital allocation, the U.S. resource plays will increase to about 70 percent of the total Company production mix, driving a natural expansion in margins. Additionally, Marathon Oil expects to deliver a strong annual rate of change on the key corporate performance metrics of CROIC and cash flow per debt adjusted share (CFPDAS), both of which are now integrated into the executive compensation structure.

2018 Production Guidance

For full year 2018, the Company forecasts total production available for sale, excluding Libya , to average 390,000 to 410,000 net barrels of oil equivalent per day (boed), up 12 percent 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 percent at the midpoint on a divestiture-adjusted basis, driven by 20 - 25 percent annual oil growth in the U.S. resource plays.

For first quarter 2018, U.S. production is expected to average 265,000 to 275,000 net boed. International production, excluding Libya , is expected to average 105,000 to 115,000 net boed, which reflects planned turnaround activity in EG.

2017 Review

  • Achieved cash flow neutrality*, including dividends and working capital, with $51 average WTI
  • Total production (excluding Libya ) of 358,000 net boed; up 9% year over year on a divestiture-adjusted basis
  • 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 unit production costs 7% for U.S. E&P and 6% for International E&P (excluding Libya ) compared to the prior year
  • Reduced gross debt by approximately $1.75 billion , lowering annualized interest expense by $115 million
  • Organic reserve replacement of 121%, excluding acquisitions and dispositions, at a drillbit finding and development cost of $12.81 per boe

* Excludes a one-time $108 million U.K. tax payment that is currently under appeal.

"We finished 2017 with another quarter of outstanding operational execution across all four resource plays," said Marathon Oil President and CEO Lee Tillman . "We delivered some of the most productive unconventional wells in our Company's history in our high-return Eagle Ford and Bakken assets, while achieving strong rates from our nine-well STACK infill development and excellent well results across the Northern Delaware . Last year we reached key milestones in our portfolio transformation, further strengthened our balance sheet, drove costs even lower and delivered production near the top of our production guidance, all while maintaining cash flow neutrality. In 2018, we expect to improve corporate-level returns from our disciplined development capital program that's self-funding at $50 and will generate meaningful free cash flow at $60 average WTI, including the dividend."

Marathon Oil reported a fourth quarter 2017 net loss of $28 million , or $0.03 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. 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.

Fourth Quarter 2017 Highlights

  • Total Company production excluding Libya averaged 383,000 net boed, up 4% sequentially on a divestiture-adjusted basis; 33,000 net boed from Libya
  • U.S. resource play production averaged 249,000 net boed, up 10% sequentially
  • Eagle Ford production averaged 105,000 net boed; up 4% sequentially with fewer wells to sales
  • Bakken production increased 17% sequentially to 69,000 net boed; set new Williston Basin 30-day IP oil record at 3,005 bpd
  • Oklahoma production up 10% sequentially to 64,000 net boed; nine-well STACK infill development averaged 30-day IP rates of 1,840 boed (60% oil)
  • Northern Delaware production averaged 11,000 net boed; two-well pad averaged 30-day IP rates of 3,265 boed (62% oil)

U.S. E&P

U.S. E&P production available for sale averaged 262,000 net boed for fourth quarter 2017. On a divestiture-adjusted basis, production was up 8 percent compared to the prior quarter and up 27 percent from the year-ago quarter. Fourth quarter unit production costs were $5.33 per barrel of oil equivalent (boe), down from $5.38 in the previous quarter, and a new record low for the Company since becoming an independent E&P in 2011. Full-year unit production costs averaged $5.57 per boe.

EAGLE FORD: Marathon Oil's production in the Eagle Ford averaged 105,000 net boed in the fourth quarter, up from 101,000 net boed 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 boed (73% oil). The testing of enhanced completion designs in Atascosa County continued to deliver encouraging results. The five-well Guajillo Unit 8 South pad delivered average 30-day IP rates of 1,730 boed (77% oil, 6,300-foot average lateral length) and the three-well Middle McCowen pad, the Company's western-most test of 2017, achieved average 30-day IP rates of 2,080 boed (87% oil, 9,915-foot average lateral length). In Karnes County , average 30-day IP rates from two Austin Chalk wells on the Challenger pad were 2,415 boed (75% oil, 5,350-foot average lateral length).

BAKKEN: In fourth quarter 2017, Marathon Oil's Bakken production averaged 69,000 net boed, up 17 percent compared to 59,000 net boed in the prior quarter. The Company 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 boed. The Forsman Middle Bakken well in West Myrmidon set a new Williston Basin 30-day IP oil record with a rate of 3,005 barrels per day. The testing of enhanced completion designs continued to deliver encouraging results, with the three-well Chapman pad on the eastern side of Hector achieving average 30-day IP rates of 1,810 boed (85% oil).

OKLAHOMA: The Company's production in Oklahoma increased 10 percent to 64,000 net boed during fourth quarter 2017, up from 58,000 net boed in the prior quarter. The Company brought 26 gross Company-operated wells to sales during the quarter predominately focused in the STACK on Meramec infill wells and leasehold activity. The Company's first STACK volatile oil infill development, the Tan, in southwest Kingfisher County averaged 30-day IP rates of 1,840 boed (60% oil). The nine new infills were comprised of eight XL wells (10,400-foot average lateral length) and one SL well (5,400-foot lateral length). The Eve, the Company's third and farthest east infill spacing pilot in Kingfisher County's black oil window, averaged 30-day IP rates from the five new wells of 715 boed (65% oil, 5,000-foot average lateral length).

NORTHERN DELAWARE : The Company's Northern Delaware production averaged 11,000 net boed in fourth quarter 2017, up from 9,000 net boed in the prior quarter. The Company brought 11 gross Company-operated wells to sales in Eddy and Lea Counties, which had 30-day IP rates that averaged 1,835 boed (66% oil). A two-well pad achieved average 30-day IP rates of 3,265 boed (62% oil) and a nearby third well averaged a 30-day rate of 2,910 boed (63% oil).

International E&P

International E&P production available for sale (excluding Libya ) averaged 121,000 net boed for fourth quarter 2017. This compares to 126,000 net boed in the prior quarter, and 129,000 net boed in the year-ago quarter. The decrease was due to the temporary shut-down of the outside-operated Forties Pipeline System and planned turn-around activity in the U.K , as well as natural field declines. Libya production available for sale averaged 33,000 net boed in the fourth quarter. Fourth quarter 2017 International E&P unit production costs (excluding Libya ) averaged $3.85 per boe. Full-year 2017 unit production costs (excluding Libya ) were $4.13 per boe, below the low end of guidance of $4.50 to $5.50 per boe.

Corporate and Special Items

Net cash provided by continuing operations was $501 million during fourth quarter 2017, or $637 million before changes in working capital and the one-time U.K. tax payment under appeal. Fourth quarter 2017 cash additions to property, plant and equipment (PP&E) were $669 million , up sequentially due to the timing of invoice payments and resource play exploration leasing.

As previously disclosed, Marathon Oil received an adverse ruling from the U.K. first-tier tax tribunal during fourth quarter 2017 related to the timing of deductibility for certain Brae area decommissioning costs. While the Company is appealing the ruling, the Company was required to pay the disputed tax amount of $108 million in order to pursue the appeal.

Total liquidity as of Dec. 31 was approximately $4 billion , which consisted of $560 million in cash and cash equivalents and an undrawn revolving credit facility of $3.4 billion . Remaining proceeds of $750 million from the sale of the Company's Canadian subsidiary are scheduled to be received in March.

The adjustments to net income from continuing operations for fourth quarter 2017 totaled $96 million before tax, and include an unrealized loss of $145 million on commodity derivatives and $24 million proved property impairment, partially offset by a $32 million gain from dispositions.

Reserves

During 2017, Marathon Oil added proved reserves of 193 million boe for a reserve replacement ratio of 140 percent excluding dispositions. Virtually all of the additions were in U.S. E&P. The Company's organic reserve replacement ratio, excluding acquisitions and dispositions, was 121 percent at a drillbit finding and development (F&D) cost of $12.81 . Net proved reserves were approximately 1.45 billion boe at year-end 2017, down from year-end 2016 primarily due to the sale of the Canadian Oil Sands business.

A slide deck and Quarterly Investor Packet will be posted to the Company's website at https://www.marathonoil.com/Investors following this release today, Feb. 14 . The Company will conduct a question and answer webcast/call on Thursday, Feb. 15 , at 9:00 a.m. ET . The commentary and answers to questions will include forward-looking information. To listen to the live webcast, visit the Marathon Oil website at https://www.marathonoil.com. The audio replay of the webcast will be posted by Feb. 16 .


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https://marathonoil.com/Investors/

Marathon OilNYSEBudgetResultsEarningsMarathon Oil CorporationProduction GuidanceUnited StatesUSe&pReserves

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