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Marathon Cuts U.S. Well Costs, Hits Record Production in 1Q

Share Print Bookmark    |    Thursday,May 07,2015

Marathon Oil Corporation reported a first quarter 2015 adjusted net loss of $253 million, or $0.37 per diluted share, excluding the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results.

The reported net loss was $276 million, or $0.41 per diluted share.

For a more detailed look at Marathon's 1Q North America operations, click here.

Corporate Highlights:

• Drilling efficiency, additional service cost reductions and capital reallocation enhancing returns
  ◦ High-specification rigs in Eagle Ford delivering pacesetter spud-to-total depth results of under seven days
  ◦ Increased year-to-date captured savings from U.S. unconventional drilling and completions service costs to $250 million, or 17 percent, with more expected
  ◦ Reallocating more than $25 million of capital to Oklahoma Resource Basins
• Rigorous cost control focus
  ◦ Reduced North America E&P production costs per barrel of oil equivalent (boe) 17% from fourth quarter 2014, and 28% below the year-ago quarter
  ◦ First quarter workforce reductions expected to generate annualized net savings of approximately $100 million
• Strong first quarter execution across all segments
  ◦ U.S. resource play net production up 11% over previous quarter and 49% over year-ago quarter; total E&P net production (excluding Libya) up 4% and 20%, respectively, over the same periods
  ◦ Brought online first "stack-and-frac" pilot and five Upper Eagle Ford wells
  ◦ Participated in five high-density spacing pilots in the SCOOP; three in Woodford and two in Springer
  ◦ Bakken enhanced completion pilots concluded and results integrated into development plans; initial results of first downspacing pilot encouraging
  ◦ Recorded 98% average operational availability for Company-operated assets
• Continued capital discipline and portfolio management
  ◦ Further reduction in 2015 capital, investment and exploration budget from $3.5 billion to $3.3 billion; no change to full-year E&P production guidance
  ◦ Non-core asset sales targeted to generate at least $500 million
  ◦ $3.6 billion liquidity at end of first quarter; $1.1 billion in cash

Marathon Oil President and CEO Lee M. Tillman, commented: "Marathon Oil delivered outstanding operational execution in the first quarter resulting in strong production from our U.S. resource plays. Income and cash flows were impacted by lower oil price realizations, which were down nearly 40 percent compared to fourth quarter 2014.

"Our first quarter capital program was on target at $1.1 billion as we transitioned to a lower level of activity. With our continued focus on maintaining financial flexibility, we further optimized our capital budget to $3.3 billion, while reiterating full-year E&P production guidance. Our projected year-over-year production growth rates of 5 to 7 percent for the total Company, excluding Libya, and 20 percent for the U.S. resource plays remain unchanged. Additionally, we're targeting select non-core asset sales expecting to generate at least $500 million as we continue ongoing portfolio management.

"We're maintaining momentum through this cycle by focusing on productivity improvements and co-development activities in the Eagle Ford, leveraging outside-operated opportunities in the Oklahoma Resource Basins, and enhanced completion design and downspacing pilots in the Bakken," Tillman continued. "With increased capital efficiencies, continued improvements in well productivity and our focus on cost and expense management, Marathon Oil is well positioned to increase activity as commodity prices and cash flows improve."

Sales and Production Volumes

Total Company sales volumes from continuing operations (excluding Libya) averaged 459,000 net barrels of oil equivalent per day (boed) during first quarter 2015, compared to 386,000 net boed for first quarter 2014.

Total Company production available for sale from continuing operations (excluding Libya) averaged 452,000 net boed for first quarter 2015 compared to 371,000 net boed for first quarter 2014, a 22 percent increase. The increase was driven by continued growth in the U.S. resource plays, up 49 percent compared to the year-ago quarter.

International E&P production available for sale from continuing operations (excluding Libya) for first quarter 2015 was lower compared to first quarter 2014, reflecting field decline and a planned turnaround at the AMPCO methanol facility.

Oil Sands Mining (OSM) production available for sale for first quarter 2015 was up 35 percent, primarily a result of higher reliability, compared to first quarter 2014 when nine days of planned mine maintenance occurred.

In Libya, Marathon Oil had no liftings in first quarter 2015. In December 2014, Libya's National Oil Corporation declared force majeure at the Es Sider terminal, as disruptions from civil unrest continue. Considerable uncertainty remains around future timing of production and sales levels, and Marathon Oil continues to exclude production from Libya in its production forecasts.

The Company further reduced its 2015 capital, investment and exploration budget to $3.3 billion, with no change to full-year E&P production guidance of 370,000-390,000 net boed (excluding Libya).

The Company's second quarter 2015 production guidance, as shown in the table above, is reflective of planned turnarounds in Equatorial Guinea and reduced drilling activity in the U.S. resource plays. Lower production available for sale is anticipated for the Oil Sands Mining Segment due to planned turnarounds.

Segment Results

Total segment loss from continuing operations was $157 million in first quarter 2015, compared to segment income of $527 million in first quarter 2014.

North America E&P

The North America E&P segment reported a loss of $161 million in first quarter 2015 compared to income of $242 million in first quarter 2014. The decrease was primarily due to lower liquid hydrocarbon price realizations and higher depreciation, depletion and amortization, partially offset by higher net sales volumes from the U.S. resource plays. Production costs per boe of $7.94 decreased 17 percent from the previous quarter, and were down 28 percent from the year-ago period, driven by a focus on cost reductions and leveraging efficiencies across the production operations.

Capital allocated to the Company's three key U.S. resource plays for 2015 has been reduced to $2.2 billion, from $2.4 billion.

• Eagle Ford capital reduced to $1.3 billion, reflecting a reduction to seven rigs by the end of the second quarter. For the full year, the Company revised the number of gross operated wells to be drilled to 196-206.
• Bakken capital reduced to $645 million, reflecting a reduction to one rig by the end of the second quarter. The lower spend will fund the remaining downspacing pilots. The Company revised the number of gross operated wells to be drilled in 2015 to 26-36.
• Oklahoma Resource Basins capital increased to $253 million as a result of an increase in high-value outside-operated activity. The Company will maintain its program of two operated rigs, and plans to participate in approximately 50 outside-operated well spuds in 2015, nearly double the previously announced program. The number of gross operated wells to be drilled in 2015 remains unchanged.

A summary of Marathon Oil's U.S. resource play operated drilling activity is shown in the table below:

For a more detailed look at Marathon's 1Q North America operations, click here.

International E&P

International E&P segment income was $23 million in first quarter 2015, compared to segment income of $221 million in first quarter 2014. The decrease is primarily due to lower liquid hydrocarbon price realizations, lower net sales volumes, reduced income from equity investments in Equatorial Guinea, and higher exploration expenses, partially offset by lower production expenses.

EQUATORIAL GUINEA: Production available for sale averaged 99,000 net boed in first quarter 2015, compared to 105,000 net boed in the year-ago quarter and 106,000 net boed in the previous quarter. Lower production quarter-over-quarter was primarily related to field decline and a planned turnaround completed in first quarter 2015 at the AMPCO methanol facility.

Drilling and evaluation of the offshore Rodo-1 exploration well was completed in first quarter 2015. The well has been temporarily abandoned while further studies progress to evaluate commerciality of the light oil discovery. In April, drilling commenced on the Alba C21 development well.

U.K.: Production available for sale averaged 20,000 net boed in first quarter 2015, compared to 16,000 net boed in first quarter 2014, and flat compared to the previous quarter. Field decline was offset by the addition of South Brae infill wells brought online in late 2014 and first quarter 2015, as well as the first of two subsea development wells at West Brae brought online in first quarter 2015. Drilling has been completed on a second West Brae well, which is expected online in the second quarter.

KURDISTAN REGION OF IRAQ: On the Company-operated Harir Block, the Mirawa-2 appraisal well was spud in December. Testing is in progress and is expected to be completed in the second quarter.

Oil Sands Mining

The OSM segment reported a loss of $19 million for first quarter 2015, compared to income of $64 million in first quarter 2014. The decrease was primarily a result of lower commodity price realizations partially offset by higher net sales volumes and reduced production expenses. Higher production, up 35 percent compared to the year-ago quarter, was primarily due to improved reliability. Operating expense per synthetic barrel (before royalties) in OSM was approximately $35 per boe excluding blendstocks. The Quest carbon capture sequestration project reached mechanical completion in February and is on schedule for fourth quarter 2015 start-up. A 55-day planned turnaround at the base upgrader began in April, coupled with a planned turnaround at the Muskeg River Mine followed by an extended pitstop at the Jackpine Mine.