Quarterly / Earnings Reports | Second Quarter (2Q) Update

Marathon Oil Details Q2 2019 Results

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   |    Wednesday,August 07,2019

Marathon Oil Corp. reported second quarter 2019 net income of $161 million, or $0.20 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 $189 million, or $0.23 per diluted share. Net operating cash flow was $797 million, or $771 million before changes in working capital.

Highlights

• $137 million of organic free cash flow post-dividend, bringing year-to-date organic free cash flow to $217 million
• $250 million of year-to-date share repurchases in addition to $82 million of dividend payments; approximately 25% of year-to-date net operating cash flow returned to shareholders
• Board of Directors approved increase of the share repurchase authorization to $1.5 billion
• Development capital spend of $636 million second quarter and $1.2 billion year-to-date; annual $2.4 billion development capital budget remains unchanged
• U.S. oil production averaged 192,000 net bopd during second quarter, up 17% from year-ago quarter, divestiture-adjusted, and above top end of guidance range
• Total Company oil production averaged 218,000 net bopd during second quarter, up 14% from year-ago quarter, divestiture-adjusted
• Closed on sale of U.K. business July 1, removing $966 million of asset retirement obligations; coupled with second quarter close on sale of remaining block in Kurdistan, these two complete country exits simplify the international portfolio to the free cash flow generating integrated business in Equatorial Guinea
• Strong financial position with investment grade rating at all three primary credit ratings agencies reflecting peer leading leverage metrics and free cash flow breakeven oil price

Chairman, President and CEO Lee Tillman said: "Second quarter featured exceptional operational performance across our advantaged multi-basin portfolio driving compelling bottom-line financial outcomes. Through differentiated execution, we're improving our corporate returns, generating meaningful free cash flow, and returning significant capital back to our shareholders. Already in 2019, we've returned about 25% of our net operating cash flow back to our shareholders. Since the beginning of 2018, we have repurchased $950 million of our own shares, funded entirely by post-dividend organic free cash flow, equating to about a 6% reduction in our share count. The refreshed $1.5 billion share repurchase authorization positions us well to continue executing against our well-defined strategic framework. This is our sixth consecutive quarter of organic free cash flow generation, and our underlying free cash flow momentum only continues to improve. We believe our unwavering commitment to capital discipline and low enterprise breakeven oil price delivers success across a wide range of commodity price environments."

United States (U.S.)

U.S. production averaged 332,000 net barrels of oil equivalent per day (boed) for second quarter 2019, including 192,000 net barrels of oil per day (bopd), both above the top end of the second quarter guidance ranges. Oil production was up 17% from the year-ago quarter on a divestiture-adjusted basis. U.S. unit production costs were $4.89 per barrel of oil equivalent (boe), down 14% from the year-ago quarter, the lowest quarterly average unit production costs since becoming an independent exploration and production company in 2011.

EAGLE FORD: Marathon Oil's Eagle Ford production averaged 109,000 net boed in the second quarter 2019. The Company brought 41 gross Company-operated wells to sales in the quarter. Second quarter activity featured impressive results across the Company's acreage position. In Karnes County, a four-well pad achieved an average 30-day initial production (IP) rate of 3,230 boed (67% oil), establishing a new pad record for the Company in the Eagle Ford. The Company continued to deliver strong results from the expanded core of Atascosa County, where 15 wells achieved an average 30-day IP rate of 1,860 boed (81% oil). As the Company continues its efforts to uplift performance outside of the Karnes and Atascosa core, enhanced completion techniques were successfully applied in Gonzales County, where a six-well pad achieved an average 30-day IP rate of 1,600 boed (70% oil). Despite a majority of wells to sales outside of Karnes County during second quarter, the Eagle Ford asset achieved a quarterly record for average 30 day initial well productivity, while continuing to drive a trend of lower completed well costs per lateral foot.

BAKKEN: Marathon Oil's Bakken production averaged 104,000 net boed in the second quarter 2019. The Company brought 30 gross Company-operated wells to sales, balanced between Myrmidon and Hector. The Company continues to deliver impressive capital efficiency, highlighted by a six-well pad in Myrmidon that delivered an average 30-day IP rate of 3,160 boed (78% oil) at an average completed well cost of $5.3 million. The average completed well cost for all of Marathon Oil's second quarter wells was $5.2 million, down approximately 15% in comparison to the 2018 average.

OKLAHOMA: Marathon Oil's Oklahoma production averaged 82,000 net boed in the second quarter 2019. The Company brought 18 gross Company-operated wells to sales. Marathon Oil continues to deliver strong results from the overpressured STACK, where the eight-well per section Mike Stroud infill achieved an average 30-day IP rate of 2,480 boed (38% oil) with average completed well costs more than 30% below the previously drilled parent well. The Company continues to make significant progress in reducing its cost structure and improving efficiencies. Marathon Oil's two most recent overpressured STACK infills achieved an average completed well cost of $6.3 million normalized to a 10,000 foot lateral.

NORTHERN DELAWARE: Marathon Oil's Northern Delaware production averaged 28,000 net boed in the second quarter 2019. The Company brought 16 gross Company-operated wells to sales, including a mix of development and delineation wells in both the Malaga and Red Hills areas. Marathon Oil continues to make significant progress in reducing its cost structure and improving margins, with second quarter cash costs down approximately 10% sequentially on a per boe basis, 100% of water on pipe for all second quarter wells to sales, and a rising percentage of total oil production on pipe. Second quarter again featured strong Upper Wolfcamp productivity in Malaga, where 11 development wells achieved an average 30-day IP rate of 1,520 boed (63% oil), or 345 boed per one thousand foot lateral, with completed well costs per lateral foot 5% below the 2018 average.

International

International production averaged 103,000 net boed for second quarter 2019. During the quarter, E.G. production returned to normal levels after successful completion of the planned triennial turnaround during first quarter 2019. Second quarter 2019 International unit production costs averaged $4.72 per boe.

During the second quarter, the Company closed on the sale of its 15% participating interest in the Atrush Block in Kurdistan, marking a complete country exit. Subsequent to quarter end on July 1, the Company closed on the sale of its U.K business, representing the tenth country exit since 2013.

Excluding Kurdistan and U.K operations, second quarter international production averaged 91,000 net boed with unit production costs of $2.21per boe. As of July 1, the Company's international operations are limited to the integrated business in Equatorial Guinea.

Cash Flow, Development Capital and Resource Capture
Net cash provided by operations was $797 million during second quarter 2019, or $771 million before changes in working capital.

Second quarter development capital expenditures were $636 million, with year-to-date development capital of $1.2 billion. The Company's 2019 development capital budget remains unchanged at $2.4 billion.

Outside of the development capital budget, second quarter resource play leasing and exploration (REx) capital expenditures were $37 million, with year-to-date expenditures of $74 million. The Company's 2019 REx capital budget remains unchanged at $200 million.

Organic free cash flow during second quarter totaled $137 million post-dividend, bringing year-to-date organic free cash flow generation to $217 million.

Production Guidance

For third quarter 2019, the Company forecasts total U.S. oil production of 190,000 to 200,000 net bopd. Third quarter 2019 international oil production guidance is 12,000 to 16,000 net bopd, reflecting both the U.K. and Kurdistan asset divestitures. Adjusted full year 2019 production guidance now excludes divested U.K. and Kurdistan volumes for the second half of 2019, but otherwise remains unchanged. There is no change to annual divestiture-adjusted oil production growth guidance of 10% for total Company and 12% for U.S.

Corporate

The Company has executed $250 million of year-to-date share repurchases, returning additional capital to shareholders beyond the $82 million of year-to-date dividend payments. On a year-to-date basis, the Company has returned approximately 25% of net operating cash flow back to shareholders. Since the beginning of 2018, Marathon Oil has repurchased $950 million of its own shares, representing approximately 6% of its outstanding share count, funded entirely by post-dividend organic free cash flow generation of over $1 billion over the same period. The board of directors authorized an increase in the remaining share repurchase authorization to a total of $1.5 billion, representing an increase in authorization of $950 million.

Total liquidity as of June 30 was approximately $4.4 billion, which consisted of $1.0 billion in cash and cash equivalents and an undrawn revolving credit facility of $3.4 billion. End of quarter cash and cash equivalents reflect cash balances classified as held for sale associated with U.K. properties, but do not include the $95 million of sales proceeds received upon July 1 close.

Marathon Oil's credit rating was upgraded to investment grade by Moody's Investor's Service on April 24. The Company's credit rating was also upgraded from BBB- to BBB by S&P on June 19. Marathon Oil is rated investment grade at all three primary credit ratings agencies.

The adjustments to net income for second quarter 2019 totaled $28 million before tax, primarily due to impairments and loss on sale associated with asset dispositions, partially offset by the income impact associated with unrealized gains on derivative instruments.

As of August 5, 2019, the Company's open crude hedge positions for 2019 include an average of 80,000 bopd at a weighted average floor price of $56.75 per bbl and a weighted average ceiling price of $74.19 per bbl, hedged through three-way collars. The Company has also hedged 19,945 bopd of 2020 oil production at a weighted average floor price of $55.00 per bbl.

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, Aug. 7. On Thursday, Aug. 8, at 9:00 a.m. ET, the Company will conduct a question and answer webcast/call, which will include forward-looking information. The live webcast, replay and all related materials will be available at https://www.marathonoil.com/Investors.