Marathon explains success in shale growth, pleasing investors

By Luke Geiver | August 13, 2019

Marathon Oil is delivering on its plans to grow its North American shale resource production base, generate free cash flow and deliver investors with fiscal value through share buybacks or dividend payments. During the exploration and production company’s second quarter update, Lee Tillman, CEO of Marathon, provided color on Marathon’s year to date.

According to Tillman, Marathon has returned roughly 25 percent of net operating cash flow back to shareholders this year. Since the start of 2018, Marathon has repurchased $950 million of its shares. Recently, the board approved a plan for Marathon to spend roughly $1.5 billion in share buybacks in the future.

Tillman and the Marathon team told investors that share buybacks are currently the preferred mode they will use to provide shareholders with value. They will continue to provide a dividend as well.

For six straight quarters, Marathon has posted positive free cash flow numbers. In Q2 this year, that total was roughly $137 million. Tillman said any higher oil prices will result in greater free cash flow generation, but not an increase in activity. Moody’s and other investment agencies have recently upgraded the rating of Marathon, Tillman also pointed out.

Across its major U.S. shale plays—the Eagle Ford, Bakken, Delaware Basin and SCOOP/STACK—Marathon has found ways to drive down total well costs despite being at various stages of development in each play. In the Bakken and Eagle Ford, Marathon is in full-field development mode. Activity in both plays reveals how the company is working to expand the known (or perceived) core area. Marathon produces 104,000 bopd (85 percent oil) in the Bakken and another 109,000 boepd in the Eagle Ford (56 percent oil). In the STACK/SCOOP, Marathon is in the early development stage, producing roughly 82,000 barrels of oil equivalent per day with strong gas-to-oil ratios. In the Delaware Basin, Marathon is still holding acreage through drilling activities and also delineating the best plan for the future. The company is producing an oil cut of roughly 60 percent.

According to Tillman, Marathon’s Bakken work is gaining a reputation as best-in-basin. “On a 90-day cumulative oil production basis, we now account for 20 of the top 25 wells in the Williston Basin,” he said, noting that the company only accounts for 9 percent of the total well count in the play. Well costs in the Bakken are now roughly $5 million or lower for Marathon.

For the year, Marathon has spent $1.2 billion of its preplanned development budget of $2.4 billion. Tillman said Marathon is right on track to deliver on its preplanned budget total for the year.