Marathon Oil lowers 2015 capex as costs fall

OREANDA-NEWS. Marathon Oil made a further reduction to its capital expenditure (capex) guidance for the year as it pockets the savings from a 28pc year-to-year drop in production costs.

The company has captured savings on drilling and completion costs of \\$250mn so far this year and it expects more through the rest of the year. Production costs per barrel of oil equivalent (boe) fell by 17pc from the fourth quarter and 28pc from a year earlier. Lowering headcount led a net annualized savings of about \\$100mn. Non-core asset sales generated another \\$500mn.

"There is no one magic bullet," chief executive Lee Tillman said in their earnings call. "But rather there's a diverse range of drivers within these savings."

Most independent producers such as Continental Resources and ConocoPhillips have made more-than-expected savings in drilling costs as service providers and suppliers lower the rates for rigs and chemicals. That is prompting some including Occidental to plan a ramp up in output, while others like EOG and Anadarko are waiting out to see a more sustained recovery in prices.

Marathon stuck with its output growth guidance of 5-7pc for the company, excluding Libya, and 20pc for the US. Total output excluding Libya averaged 452,000 boe/d for first quarter compared with 371,000 boe/d a year earlier, after factoring in discontinued operations, gaining by 22pc. The rise was driven by a 49pc growth in the US onshore operations, to 283,000 boe/d.

It lowered its 2015 capex to \\$3.3bn from its previous guidance of \\$3.5bn given in February. That was a further cut from the \\$4.5bn figure given in December. It had also announced laying off 350-400 workers in February. First-quarter capex was \\$1.1bn, versus \\$1.7bn in the fourth and \\$1.15bn a year earlier.

The company's overall second-quarter output is expected to fall due to reduced activities in the US and maintenance turnarounds in the Equatorial Guinea. US output will range between 270,000 and 280,000 boe/d, non-US output at 100,000-110,000 boe/d versus 119,000 boe/d and oil sands mining at 28,000-33,000 boe/d from 50,000 boe/d. But, strong numbers in the first three months and a recovery in the second half will help ensure full-year numbers are within the guidance of 370,000-390,000 boe/d, excluding Libya.

It earned an average of \\$41.75/bl for US crude and condensate versus \\$92.48/bl a year earlier, \\$14.43/bl from natural gas liquids (NGLs) from \\$43.11/bl a year earlier and \\$3.01/mcf on natural gas versus \\$5.28/mcf. Outside the US, it earned \\$48.87/bl for crude and condensate versus \\$97.73/bl, \\$3.46/bl on NGL versus \\$4.52/bl and \\$0.78/mcf and \\$0.98/mcf on natural gas.

The company has hedged 35,000 b/d of oil for the rest of the year at an average of \\$70.34/bl. For 2016, it has hedged 10,000 b/d of oil at \\$71.81/bl.

The company posted a net loss of \\$276mn in the first quarter compared with an income of \\$926mn a year earlier.