Exploration & Production | Quarterly / Earnings Reports | Production | Third Quarter (3Q) Update | Forecast - Production
U.S. Resource Plays Boost Marathon's 3Q Performance
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Marathon Oil Corporation reported third quarter 2014 adjusted income from continuing operations of $388 million, or $0.57 per diluted share, and adjusted net income of $515 million, or $0.76 per diluted share, both excluding the impact of certain items not typically represented in analysts' earnings estimates, and that would otherwise affect comparability of results.
Reported income from continuing operations was $304 million, or $0.45 per diluted share, and reported net income was $431 million, or $0.64 per diluted share.
Key Quarterly Highlights:
Three high-quality U.S. resource plays averaged net production of 192,000 boed, up 43% from the year-ago quarter and 13% higher than the second quarter of 2014. On track for greater than 30% production growth year-over-year as supported by:
- Continued strong pace in the Eagle Ford with a record 87 gross operated wells to sales, up 14% quarter-on-quarter
- Eight gross operated Austin Chalk wells brought to sales during the quarter, all within the previously delineated acreage; 16 additional wells being drilled, completed or awaiting first production
- Nineteen gross operated Bakken wells brought to sales of which eight are piloting enhanced completions with encouraging early results
- Incremental drilling rig added in the Bakken as of late September to provide additional capacity for high-density spacing and enhanced completion pilots
- Six gross operated wells brought to sales in the Oklahoma Resource Basins, of which four were in the SCOOP and two in the Southern Mississippi Trend; best operated well to date with 30-day IP rate of 2,800 boed (55% liquids)
- Executed agreements in late October to add approx. 12,000 net acres to SCOOP position, including prospective acres for the Springer formation
Other Highlights:
- Began drilling the Company-operated Key Largo exploration well in the Gulf of Mexico
- Recorded 96% average operational availability for Company-operated assets
- Closed sale of the Norway business on Oct. 15 for approximately $2.1 billion in proceeds
Lee M. Tillman, Marathon Oil president and CEO, commented: "Marathon Oil's U.S. resource plays delivered strong operational performance in the third quarter, and we remain on track to achieve greater than 30 percent production growth year-over-year in the resource plays. Both our Eagle Ford and Bakken net production delivered double-digit growth compared to the previous quarter. However, lower price realizations offset the impact of higher production volumes in our financial results.
"In October we closed on the sale of our Norway business for proceeds of approximately $2.1 billion. The first priority for the use of proceeds is organic reinvestment in our deep and growing U.S. unconventional portfolio. Already we've added an incremental drilling rig in the Bakken and have plans to add two rigs in the Oklahoma Resource Basins before year end, as previously announced. Importantly, we continue to drive top-quartile drilling performance and enhanced production rates through improved completion designs.
"Additionally, we spud the Key Largo exploration well in September to test an oil-prone inboard Paleogene prospect in the Gulf of Mexico," Tillman added, "and internationally, in the U.K. North Sea we brought two successful South Brae infill wells online with initial production well above pre-drill estimates."
North America E&P
The North America E&P segment reported income of $292 million in third quarter 2014, compared to income of $242 million in third quarter 2013. The increase is primarily due to higher net sales volumes from the U.S. resource plays, partially offset by lower crude oil price realizations and expenses associated with the higher net sales volumes, such as production expenses and depreciation, depletion and amortization (DD&A).
Updates to the company's E&P segments can be accessed below:
Marathon Turns on Taps at 87 Eagle Ford Wells; 13 Day Drill Time
Marathon Betting on Higher Density Wells in the Bakken
Marathon Hits Best SCOOP Well to Date; 2,800 BOE/d
Marathon Spuds First Well of Multi-Year GoM Project
International E&P
The International E&P segment reported income of $106 million in third quarter 2014, compared to segment income of $192 million in third quarter 2013. The decrease is primarily a result of lower net sales volumes in the U.K. and Equatorial Guinea as previously discussed and lower commodity price realizations, partially offset by reduced taxes and other expenses associated with the lower sales volumes.
EQUATORIAL GUINEA: Production available for sale averaged 100,000 net boed in third quarter 2014, compared to 112,000 net boed in third quarter 2013. As previously discussed, volumes were impacted by planned and unplanned offshore maintenance, and lower reliability at the outside-operated methanol facility. An exploration well on the Sodalita West prospect is expected to spud by the end of the year as the first of two offshore exploration wells targeting oil-prone plays.
U.K.: Production available for sale averaged 13,000 net boed in third quarter 2014, relatively flat compared to third quarter 2013 despite natural decline within the Brae fields. Brae production was impacted by planned maintenance activities on the outside-operated Forties Pipeline System, which was offset by improved Foinaven reliability. The Company brought two South Brae infill wells online with initial production rates above pre-drill estimates. A third South Brae well and a new West Brae well are planned to come online in first quarter 2015.
KURDISTAN REGION OF IRAQ: Marathon Oil resumed testing of the Jisik-1 exploration well on the Company-operated Harir Block following suspension of certain operations due to security concerns in the region and continues to closely monitor the situation. In the fourth quarter a 2D seismic program will commence and the Mirawa-2 appraisal well is expected to spud. Marathon Oil holds a 45 percent working interest in the Harir Block.
On the outside-operated Sarsang block, the East Swara Tika-1 exploration well continues testing. Discussions are ongoing with the Ministry of Natural Resources to finalize the Swara Tika field development plan. Marathon Oil holds a 20 percent working interest in the Sarsang Block.
On the outside-operated Atrush Block, construction of the phase one production facility continues with first oil expected in 2015. Marathon Oil holds a 15 percent working interest in the Atrush Block.
GABON: In August, the Company signed an exploration and production sharing contract (EPSC) for Gabon offshore Block G13, which was subsequently re-named Tchicuate. Located in the deepwater pre-salt play, the block encompasses 275,000 acres; and, acquisition of 3D seismic is planned to commence in early November. Marathon Oil holds a 100 percent participating interest and operatorship in the block. In the event of development, the Republic of Gabon will assume a 20 percent financed interest in the contract upon commencement of production. The State holds additional rights to participate in the block in the future as a co-investor.
Segment Results
Total segment income from continuing operations was $491 million in third quarter 2014, compared to $540 million in third quarter 2013.
Sales and Production Volumes
Total Company sales volumes from continuing operations (excluding Libya) during third quarter 2014 averaged 411,000 net barrels of oil equivalent per day (boed) compared to 382,000 net boed for third quarter 2013.
The difference between production volumes available for sale and recorded sales for exploration and production (E&P) volumes was primarily due to the timing of international liftings.
Third quarter 2014 production available for sale from continuing operations (excluding Libya) averaged 409,000 net boed, compared to third quarter 2013 average of 365,000 net boed. The increase in the third quarter of 2014 was driven by North America E&P's continued growth in the U.S. resource plays.
International E&P production available for sale (excluding Libya and discontinued operations) for third quarter 2014 was lower compared to third quarter 2013 primarily as a result of temporary production curtailments in Equatorial Guinea due to unplanned maintenance on the main condensate line as well as lower reliability at the outside-operated methanol facility. Planned maintenance activities at the outside-operated Forties Pipeline System also resulted in lower operational availability across the Brae complex in the U.K.
Oil Sands Mining (OSM) production available for sale for third quarter 2014 was up 15 percent primarily the result of improved operational availability at the upgrader and mine and higher beginning bitumen inventories, compared to third quarter 2013.
Production available for sale for the Norway business averaged 56,000 net boed in third quarter 2014 compared to 69,000 net boed in third quarter 2013. The decrease was primarily related to a planned 12-day turnaround at Alvheim, versus a planned 7-day turnaround in the year-ago quarter, as well as natural field decline. As a result of the sale of the Company's Norway business, which closed Oct. 15, Norway is reflected as discontinued operations.
In July, Libya's National Oil Corporation rescinded force majeure associated with third-party labor strikes at the Es Sider terminal. Marathon Oil's first 2014 lifting occurred in August, and was sourced from existing inventory at the terminal. Production from the Waha concessions resumed in August; however, considerable uncertainty remains around future production and sales levels. Marathon Oil has not included production from Libya in forecasts.
For fourth quarter 2014, the Company continues to expect growth in North America E&P production available for sale, driven by continued strong growth from the combined U.S. resource plays. International E&P production available for sale (excluding Libya) is expected to increase in the fourth quarter, reflecting improved reliability and no significant planned maintenance activities. Fourth quarter OSM production is expected to decrease from third quarter volumes due to planned maintenance at the mine.
The Company's full-year guidance has been narrowed to 350,000 to 360,000 net boed for production available for sale from the combined North America E&P and International E&P segments (excluding Libya and discontinued operations). This guidance reflects a greater than 30 percent year-over-year growth rate in the U.S. resource plays. Full-year 2014 production guidance for the OSM segment is 37,000 to 42,000 net barrels per day (bbld) of synthetic crude oil.