Marathon Unveils $2.2 Billion 2017 Capital Program

Marathon Unveils $2.2 Billion 2017 Capital Program

On February 15, 2017, Marathon Oil Corporation (NYSE: MRO) announced results from Q4 and FY 2016 and unveiled a 2017 capital program of $2.2 billion, with over 90 percent allocated to its high-return U.S. resource plays.

Oklahoma Led Production in the Fourth Quarter

On the operations side, Marathon’s production averaged 341,000 BOED in Q4 2016, with assets in the Oklahoma Resource Basins reporting a production increase of 60% over Q4 2015. E&P production costs for North America were down more than 30% from Q4 2015.

MRO Cost ReductionSource: Marathon Oil Investor Presentation

On the activity side, Marathon increased its resource play rig count from 8 to 12 and reached total depth on its first company-operated Meramec spacing pilot. Despite increased completion intensity in Eagle Ford, the company reported record-low well costs in the region.

In the Oklahoma Resource Basins, Marathon brought online seven gross company-operated STACK wells in Kingfisher and Canadian Counties, and one SCOOP Woodford well. The company’s first operated STACK infill spacing test, the Yost pilot, was drilled in Q4; those wells are expected to come to sales in first quarter 2017. Marathon exited 2016 running five rigs in the region.

The following chart tracks Marathon’s production volume and number of co-op wells to sales in the Oklahoma Resource Basins from Q4 2015 to Q4 2016:

OK Production VolumesSource: Marathon Oil Investor Presentation

In Eagle Ford, Marathon brought 52 gross company-operated wells to sales, with an average completed well cost of $3.9 million, down 20 percent from Q4 2015. The company achieved record-low completed well costs despite increasing proppant loading per lateral foot up more than 70 percent compared to Q4 2015. Wells were drilled at an average of 2,500 feet per day, up from 2,175 in Q4 2015. The company ended the year with six drilling rigs in the area.

The chart below shows Marathon’s drilling cost per foot and drilling feet per day in Eagle Ford by quarter (Q4 2015 to Q4 2016).

MRO EF Drilling PerformanceSource: Marathon Oil Investor Presentation

In the Bakken, Marathon’s Maggie pad in Mountrail County, brought online in Q3, continues to lead the basin in 90-day production rates. Since December the company has mobilized four rigs to Mountrail and McKenzie Counties to support its development program.

Marathon is expanding on its 2016 Mountrail wells with enhanced completion designs that utilize 6–15 MMLBS of proppant with 45–50 stages. In Dunn County, the company is using slickwater with plug and perf technology and reports a >100% increase in proppant use as well as a >60% increase in stage count.

See the following chart for Marathon’s production volume and number of co-op wells to sales in the Bakken from Q4 2015 to Q4 2016:

Bakken Wells to SaleSource: Marathon Oil Investor Presentation

2016 Capex Comes in $300 Million Below Budget

The company’s 2016 capital program came in at $1.1 billion, $300 million below its original budget.

Marathon ended the year with 12 rigs operating in its U.S. resource plays. The company reported strong operational results across all three plays, highlighted by year-over-year production growth in the Oklahoma Resource Basins of 40% and basin-leading wells in the Bakken.

For FY 2016 Marathon reported reserve replacement of 112%, excluding dispositions, at approximately $13 per BOE finding and development cost.

High-Return U.S. Resource Plays Claim 90% of Planned Capex

More than 90% of Marathon’s 2017 $2.2 billion capex will be allocated to its high-return U.S. resource plays. The company anticipates a U.S. resource play growth of 15-20% (oil and BOE) from Q4 2016 to Q4 2017.

The following chart shows Marathon’s planned capex allocation among STACK/SCOOP, Eagle Ford, Bakken, and other areas for 2017:

MRO 2017 CAPEXSource: Marathon Oil Investor Presentation

In the Oklahoma Resource Basins, Marathon will focus on STACK leasehold retention, STACK delineation, and infill pilots in preparation for 2018 full field development. The company plans to increase its Oklahoma rig count to average approximately 10, while bringing 90–100 gross company-operated wells to sales.

In Eagle Ford, Marathon expects to maintain its six-rig drilling program and bring 155–170 gross company-operated wells to sales. The company plans to continue optimizing completion techniques with increased proppant and fluid loading and average lateral lengths.

In the Bakken, Marathon plans to focus on its highest-return areas, Mountrail and McKenzie Counties, where it completed several wells in 2016. The company will continue to focus on optimizing base production while bringing 70–75 gross company-operated wells to sales. Marathon expects to average approximately six drilling rigs in the Bakken in 2017.

Looking Ahead to Growth

Marathon reported solid results from its three key plays — Oklahoma Resource Basins, Eagle Ford, and Bakken — in Q4 2016 and looks to build upon that growth as it looks to the year ahead. Key focus points in 2017 will include assigning top priority to leasehold, delineation, and downspacing in Oklahoma and accelerating near-term growth in resource plays.

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