Marathon Oil Announces $2.4 Billion Development Capital Budget for 2019; Reports Fourth Quarter and Full-Year 2018 Results

HOUSTON, Feb. 13, 2019 /PRNewswire/ -- Marathon Oil Corporation (NYSE:MRO) today announced its 2019 capital expenditure budget in addition to its fourth quarter and full-year 2018 financial results. The 2019 plan and 2018 financial and operating results together reflect the Company's ongoing commitment to its core strategy: corporate returns improvement, sustainable free cash flow generation at conservative oil prices, and the return of capital to shareholders.

2019 Capital Budget Highlights

• Total 2019 capital budget of $2.6 billion, down from 2018
• Total capital budget includes approx. $2.4 billion of development capital and approx. $200 million of resource play leasing and exploration (REx) spend
• Organic free cash flow positive above approx. $45/bbl WTI, post-dividend
• Designed to generate meaningful organic free cash flow at $50/bbl WTI, post-dividend
• Cumulative two-year (2019-2020) organic free cash flow of over $750 million at flat $50/bbl WTI and over $2.2 billion at flat $60/bbl WTI
• Continue to prioritize sustainable free cash flow and return of capital to shareholders
• Shareholder return of capital metric incorporated into executive compensation scorecard complementing already well-established corporate cash return on invested capital (CROIC) and cash flow per debt adjusted share (CFPDAS) metrics
• Capital efficient U.S. oil growth of 12% in 2019 with annual gross operated wells to sales flat to 2018
• Total Company oil growth of 10% in 2019
• High value oil growth exceeds BOE growth, an outcome of returns-first capital allocation
• More than 95% of $2.4 billion development capital budget allocated to the four U.S. resource plays with approx. 60% to the Eagle Ford and Bakken and approx. 40% to Oklahoma and the Northern Delaware
• Continues underlying rate of change improvement in key enterprise financial performance metrics of CROIC and CFPDAS
• Development capital includes dedicated funding to organic resource base enhancement initiatives including core extension efforts
• REx spend is expected to decline to a more ratable $200 million, supporting progression of Louisiana Austin Chalk and other emerging opportunities with a focus on full-cycle returns

Full-year 2018 Results
Marathon Oil reported full-year 2018 net income of $1,096 million, or $1.29 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 $601 million, or $0.71 per diluted share. Net operating cash flow was $3,234 million, or $3,211 million before changes in working capital.

Full-year 2018 Highlights

• Delivered on commitment to capital discipline with no change to initial $2.3 billion development capital budget
• Realized 78% annual improvement in CROIC and 65% annual improvement in CFPDAS
• Generated more than $865 million of organic free cash flow, post-dividend
• Prioritized return of capital to shareholders by paying annual dividend of $169 million and executing $700 million of share repurchases, leaving $800 million of remaining repurchase authorization; over 25% of 2018 net operating cash flow returned to shareholders
• Improvement in capital efficiency drove oil production outperformance; total Company oil production growth of 24%, divestiture adjusted, outperformed initial midpoint guidance of 18%; U.S. resource play oil production growth of 32% outperformed initial midpoint guidance of 22.5%
• Maintained focus on resource base enhancement and full-cycle returns by advancing successful core extension tests in Eagle Ford and Bakken and progressing REx program; acquired approx. 260,000 net acres at less than $850 per acre in the emerging Louisiana Austin Chalk play
• Continued portfolio management with successful sale of Libya and receipt of final payment for the sale of oil sands mining business; disposition proceeds more than fully funded REx and all other resource capture activities, including successful participation in the New Mexico Bureau of Land Management (BLM) lease sale
• Drillbit F&D costs of less than $12.50/boe at 125% reserve replacement
• Further strengthened balance sheet and financial flexibility by increasing cash and cash equivalents by $900 million to $1.5 billion at year-end

"2018 was a year of differentiated execution for Marathon Oil," said Chairman, President and CEO Lee Tillman. "While many in our industry talked about capital discipline, we delivered. In 2018, we budgeted conservatively and never wavered, getting more for every dollar of capital we invested. We drove significant improvement to our corporate returns and cash flow per debt adjusted share. Through improving capital efficiency we delivered more oil growth, generated $865 million of organic free cash flow post-dividend, and returned most of that cash back to our shareholders via share repurchases. As we turn to 2019 and beyond, we remain committed to this same framework for success. With the foundation of a peer leading balance sheet and the competitive advantages of our multi-basin portfolio, our 2019 capital program will drive improving corporate returns and generate organic free cash flow above $45 WTI, as we continue to prioritize return of cash to our shareholders."

Fourth Quarter 2018 Results
Marathon Oil reported fourth quarter 2018 net income of $390 million, or $0.47 per diluted share. Adjusted net income was $121 million, or $0.15 per diluted share. Net operating cash flow was $855 million, or $787 million before changes in working capital.

Fourth Quarter 2018 Highlights

• Generated more than $255 million of organic free cash flow, post-dividend
• Development capital spend at $503 million, down 10% sequentially
• Total Company production averaged 411,000 net boed; total oil production averaged 206,000 net bopd, up 17% from the year-ago quarter, divestiture adjusted
• U.S. resource play production averaged 295,000 net boed; oil production averaged 174,000 net bopd, up 22% from the year-ago quarter
• Eagle Ford production averaged 107,000 net boed; 38 wells achieved an average 30-day IP rate of 1,810 boed (72% oil)
• Bakken production averaged 94,000 net boed; core extension test in Ajax area of Dunn County meaningfully exceeded expectations with four-well pad achieving an average 30-day IP rate of 2,370 boed (81% oil) at an average completed well cost of approx. $5 million
• Oklahoma production averaged 67,000 net boed; transition to multi-well pads continued with another successful SCOOP Woodford infill development that also included a positive Springer delineation test
• Northern Delaware production increased to 26,000 net boed; 12 gross Company-operated wells to sales with an average 30-day IP rate of 1,935 boed (49% oil)

U.S.
U.S. production averaged 306,000 net barrels of oil equivalent per day (boed) for fourth quarter 2018, including oil production of 180,000 net barrels of oil per day (bopd). Oil production was up 4 percent compared to the prior quarter and up 22 percent from the year-ago quarter on a divestiture-adjusted basis. Fourth quarter production from the U.S. resource plays was 295,000 net boed, including oil production of 174,000 net bopd. Fourth quarter U.S. unit production costs were $5.31 per barrel of oil equivalent (boe), a sequential reduction of 14 percent.

EAGLE FORD: Marathon Oil's Eagle Ford production averaged 107,000 net boed in the fourth quarter, up 2 percent from the year-ago quarter. The Company brought 38 gross Company-operated wells to sales in the quarter with an average 30-day initial production (IP) rate of 1,810 boed (72% oil).

BAKKEN: In fourth quarter 2018, Marathon Oil's Bakken production averaged 94,000 net boed, up 37 percent from the year-ago quarter. Oil production was up over 40 percent from the year-ago quarter. The Company brought 27 gross Company-operated wells to sales with an average 30-day IP rate of 3,335 boed (76% oil), with activity primarily concentrated in Myrmidon. The Company also conducted a successful core extension test in the Ajax area of Dunn County, as the four-well Gloria pad achieved an average 30-day IP rate of 2,370 boed (81% oil) at an average completed well cost of approx. $5 million.

OKLAHOMA: Marathon Oil's Oklahoma production averaged 67,000 net boed during fourth quarter 2018, up 4 percent from the year-ago quarter, with only 12 gross Company-operated wells brought to sales. In the SCOOP Woodford, seven infill wells on the 3R pad (eight wells per section spacing) achieved an average 30-day IP rate of 2,600 boed (69% liquids). On the same pad, Marathon Oil also brought online a Springer delineation well that achieved a 30-day IP rate of 1,825 boed (81% oil).

NORTHERN DELAWARE: Marathon Oil's Northern Delaware production increased to an average of 26,000 net boed in fourth quarter 2018, up 138 percent from the year-ago quarter. The Company brought 12 gross Company-operated wells to sales in the Malaga and Red Hills areas with an average 30-day IP rate of 1,935 boed (49% oil), or 360 boed per 1,000 foot lateral. Fourth quarter activity was primarily focused on delineating the Company's acreage position, including Lower Wolfcamp spacing tests in Malaga. During the fourth quarter, the Company executed a comprehensive water management agreement covering the entire Red Hills prospect area, complementing a previously announced agreement in Eddy County.

RESOURCE CAPTURE: Outside of the development capital program, fourth quarter REx capital spending totaled $75 million, consistent with guidance, and bringing full-year 2018 REx spending to $369 million. In addition to REx, full-year 2018 resource capture also included the previously announced $105 million bolt-on acquisition in New Mexico through the BLM lease sale. Total 2018 resource capture spend of $474 million was more than fully funded through divestiture proceeds received in first quarter 2018.

International
International production averaged 105,000 net boed for fourth quarter 2018, down 13 percent compared to the year-ago quarter on a divestiture-adjusted basis. The decrease reflects unscheduled downtime at the non-operated Foinaven complex as well as natural decline and planned maintenance activities in E.G. Fourth quarter 2018 International unit production costs averaged $5.40 per boe.

Production Guidance
For full year 2019, the Company forecasts total oil production growth of 10 percent, with U.S. oil growth of 12 percent, both at the midpoint of guidance and on a divestiture adjusted basis. Oil growth is expected to outpace boe production growth, consistent with a focus on corporate returns. For first quarter 2019, the Company forecasts total oil production of 195 - 215 bopd, with U.S. oil production of 175 - 185 bopd. The first quarter 2019 U.S. production guidance range accounts for extreme weather conditions experienced early in the quarter. The first quarter 2019 International production guidance range reflects a planned triennial shutdown in E.G. to conduct turnaround activity, consistent with prior disclosure. For more specific detail regarding 2019 production guidance, please refer to the guidance tables included within this release.

Corporate
The Company has executed $700 million of share repurchases, returning additional capital to shareholders beyond the $169 million annual dividend. Share repurchases were more than fully funded by organic free cash flow of over $865 million post-dividend.

Total liquidity as of Dec. 31 was approximately $4.9 billion, which consisted of $1.5 billion in cash and cash equivalents and an undrawn revolving credit facility of $3.4 billion which was extended by one year to 2022.

The adjustments to net income for fourth quarter 2018 totaled $256 million before tax, primarily due to the income impact associated with unrealized gains on derivative instruments, partially offset by a write off related to historical International exploration expenses and associated well costs.

For 2019, the Company's open crude hedge positions (as of Feb 12) include an average of 60,000 bopd at a weighted average floor price of $56.67 and a weighted average ceiling price of $73.18, hedged through three-way collars.

Reserves
During 2018, Marathon Oil added proved reserves of 186 million boe for a reserve replacement ratio of 125 percent excluding dispositions, at a drillbit finding and development (F&D) cost of $12.41. Virtually all of the additions were in the U.S. Net proved reserves were approximately 1.28 billion boe at year-end 2018, down from year-end 2017 primarily due to the disposition of Libya.

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, Feb. 13. On Thursday, Feb. 14, 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.

Definitions
CROIC - Cash return on invested capital; calculated by taking cash flow (operating cash flow before working capital + net interest after tax) divided by (average stockholder's equity + average net debt).
Free cash flow - Operating cash flow, less capital expenditure, less dividends, plus other.
Organic free cash flow - Operating cash flow before working capital (excluding exploration costs other than well costs), less development capital expenditures, less dividends, plus other.

Non-GAAP Measures
In analyzing and planning for its business, Marathon Oil supplements its use of GAAP financial measures with non-GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) per share, net cash provided by continuing operations before changes in working capital, and organic free cash flow because the Company believes this information is useful to investors to help evaluate the Company's financial performance between periods and to compare the Company's performance to certain competitors. Management also uses net cash provided by continuing operations before changes in working capital to demonstrate the Company's ability to internally fund capital expenditures, pay dividends and service debt. The Company considers adjusted net income (loss), adjusted income (loss) from continuing operations, adjusted net income (loss) per share and adjusted income (loss) from continuing operations per share as another way to meaningfully represent the Company's operational performance for the period presented; consequently, it excludes the impact of mark-to-market accounting, impairment charges, dispositions, pension settlements, and other items that could be considered "non-operating" or "non-core" in nature. These non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with GAAP results may provide a more complete understanding of factors and trends affecting the business and are a useful tool to help management and investors make informed decisions about Marathon Oil's financial and operating performance. These measures should not be considered substitutes for their most directly comparable GAAP financial measures. A reconciliation to their most directly comparable GAAP financial measures can be found in our investor package on our website at www.marathonoil.com and in the tables below. Marathon Oil strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

Forward-looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, including without limitation statements regarding the Company's 2019 capital budget and allocations (including development capital budget and resource play leasing and exploration spend),  future performance, organic free cash flow, free cash flow, corporate-level cash returns on invested capital, business strategy, asset quality, drilling plans, production guidance, cash margins, rates of change for CROIC and CFPDAS, asset sales and acquisitions, leasing and exploration activities, production, oil growth and other plans and objectives for future operations, are forward-looking statements. Words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "guidance," "intend," "may," "plan," "project," "seek," "should," "target," "will," "would," or similar words may be used to identify forward-looking statements; however, the absence of these words does not mean that the statements are not forward-looking. While the Company believes its assumptions concerning future events are reasonable, a number of factors could cause actual results to differ materially from those projected, including, but not limited to: conditions in the oil and gas industry, including supply/demand levels and the resulting impact on price; changes in expected reserve or production levels; changes in political or economic conditions in the jurisdictions in which the Company operates; risks related to the Company's hedging activities; capital available for exploration and development; drilling and operating risks; well production timing; availability of drilling rigs, materials and labor, including associated costs; difficulty in obtaining necessary approvals and permits; non-performance by third parties of contractual obligations; unforeseen hazards such as weather conditions, acts of war or terrorist acts and the government or military response thereto; cyber-attacks; changes in safety, health, environmental, tax and other regulations; other geological, operating and economic considerations; and the risk factors, forward-looking statements and challenges and uncertainties described in the Company's 2017 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases, available at www.marathonoil.com. Except as required by law, the Company undertakes no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Media Relations Contact:
Lee Warren: 713-296-4103

Investor Relations Contacts:
Guy Baber: 713-296-1892
John Reid: 713-296-4380
 

The following tables set forth outstanding derivative contracts as of February 12, 2019 and the weighted average prices for those contracts:

SOURCE Marathon Oil Corporation