August 2, 2017

Marathon Oil Reports Second Quarter 2017 Results

Outstanding Operational Results Drive 7% Sequential Oil Growth; Raising 2017 Production Guidance with Greater Capital Efficiency

HOUSTON, Aug. 02, 2017 (GLOBE NEWSWIRE) -- Marathon Oil Corporation (NYSE:MRO) today reported a second quarter 2017 net loss of $139 million, or $0.16 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. The adjusted net loss was $145 million, or $0.17 per diluted share. Net operating cash flow was $422 million, or $471 million before changes in working capital.

Highlights

  • Total Company production from continuing operations increased 6% sequentially to 349,000 net boed, excluding 11,000 net boed from Libya; oil grew 7% excluding Libya
  • U.S. resource play production grew 6% sequentially, averaging 202,000 net boed
  • Oklahoma Resource Basin production grew 11% sequentially with continued focus on leasehold, delineation and infill spacing; 6 new standard lateral wells from the high-density Hansens STACK pilot delivered average 30-day IPs of 915 boed (55% oil)
  • Eagle Ford production up sequentially with fewer wells to sales due to outstanding new well performance; top 10 wells to sales had 30-day IPs averaging 2,340 boed (69% oil)
  • First two Bakken Hector wells with enhanced completion designs achieved 30-day IPs averaging 2,500 boed (85% oil)
  • Successful first MRO-designed completion in Northern Delaware achieved 30-day IP of 1,500 boed (72% oil), pushing delineation farther west in Eddy County
  • Ended the quarter with $2.6 billion of cash on the balance sheet, up from the previous quarter

"With outstanding operational results across all our assets in the second quarter, we delivered on our commitment to resume sequential growth with total Company production, excluding Libya, and the U.S. resource plays increasing 6 percent," said Marathon Oil President and CEO Lee Tillman. "We also made important progress on several key strategic objectives in the resource plays, while exceeding expectations on efficiency, base performance and new well productivity.

"As a result, we're increasing our full-year total Company oil and BOE production growth guidance of 6 percent at the midpoint, adjusted for divestitures, to 7 percent, as well as increasing our 20 to 25 percent exit rate growth in the U.S. resource plays to 23 to 27 percent growth, all within a 10 percent lower capital budget.

"Our operational momentum has us well positioned to continue our sequential growth in the resource plays into 2018, with an objective to live within cash flows."

U.S. E&P
U.S. E&P production available for sale averaged 222,000 net barrels of oil equivalent per day (boed) for second quarter 2017, up 7 percent compared to 208,000 net boed in the prior quarter and up 9 percent from the year-ago quarter, adjusted for dispositions. Second quarter unit production costs were $5.86 per barrel of oil equivalent (boe).

OKLAHOMA RESOURCE BASINS: The Company's unconventional Oklahoma production increased 11 percent to 49,000 net boed during second quarter 2017, compared to 44,000 net boed in the prior quarter and up more than 80 percent from the year-ago quarter. Marathon Oil's second STACK infill spacing pilot, the Hansens pad located in the normally pressured Meramec black oil window east of the Yost pad, tested a tighter well spacing design. The six new standard lateral wells had 30-day initial production (IP) rates averaging 915 boed (55% oil). The Company also continued delineation and leasehold activity with strong results, including a STACK Meramec extended-lateral well, the Chapman, which achieved a 30-day IP averaging 3,185 boed (52% oil) expanding the volatile oil window farther west in Blaine County.

EAGLE FORD: Marathon Oil's production in the Eagle Ford averaged 100,000 net boed in second quarter 2017, up from 99,000 net boed in the prior quarter. The Company brought 41 gross Company-operated wells to sales in the second quarter, compared to 47 wells to sales in the previous quarter. The top 10 wells to sales had 30-day IP rates averaging 2,340 boed (69% oil). During the quarter, a new Company record was set again for the fastest well drilled in the Eagle Ford at a rate of more than 4,200 feet per day.

BAKKEN: In second quarter 2017, Marathon Oil's Bakken production averaged 49,000 net boed, compared to 48,000 net boed in the prior quarter. The Company's first two Hector wells with enhanced completion designs are performing above expectations with 30-day IP rates averaging 2,500 boed (85% oil). Seven Myrmidon wells were brought to sales in July with 24-hour IP rates averaging over 4,000 net boed (78% oil).

NORTHERN DELAWARE: The Company's Northern Delaware production averaged 4,000 net boed in second quarter 2017, reflecting the May 1 closing of BC Operating assets and June 1 closing of Black Mountain assets. During the second quarter, the Company brought online its first well with a Marathon Oil-designed completion. The Cypress 1H well, a Wolfcamp X-Y well in Eddy County, was a western delineation test that achieved a 30-day IP rate averaging 1,500 boed (72% oil) from a 4,600-foot lateral. The Black River well, a Wolfcamp X-Y well with a 9,400-foot lateral, was brought online in early second quarter and has a 90-day IP rate of 1,275 boed (73% oil).

International E&P
International E&P production available for sale (excluding Libya) averaged 127,000 net boed for second quarter 2017, up 4 percent compared to 122,000 net boed in the prior quarter, and up 6 percent over the year-ago quarter. Second quarter 2017 unit production costs (excluding Libya) were $4.03 per boe. Equatorial Guinea production available for sale averaged 107,000 net boed in second quarter 2017 compared to 105,000 net boed in the previous quarter. U.K. production available for sale averaged 18,000 net boed in second quarter 2017, up 20 percent compared to 15,000 net boed in the previous quarter. Marathon Oil had two liftings in Libya, with production available for sale averaging 11,000 net boed in the second quarter.

Guidance
Marathon Oil expects third quarter 2017 U.S. E&P production available for sale to average 230,000 to 240,000 net boed. Third quarter International E&P production available for sale, excluding Libya, is expected to be within a range of 115,000 to 125,000 net boed including scheduled turnarounds in the U.K.

Marathon Oil expects its 2017 capital program to be in a range of $2.1 to $2.2 billion, down from $2.4 billion. The Company raised its full-year 2017 production available for sale forecast from the combined U.S. and International E&P segments, excluding Libya, to a range of 345,000 to 360,000 net boed, an increase to 7 percent at the midpoint on a divestiture-adjusted basis. U.S. resource plays are expected to exit the year with both oil and BOE production 23 to 27 percent higher than fourth quarter 2016, up from the previous estimate of 20 to 25 percent growth.

Corporate
Net cash provided by operating activities from continuing operations was $422 million during second quarter 2017, and net cash provided by continuing operations before changes in working capital was $471 million. Cash additions to property, plant and equipment were $492 million in second quarter 2017. In the second quarter, adjusted net loss and operating cash flow before working capital included expenses of approximately $26 million due to accruals for a legal matter, and sales-and-use tax assessments related to previous tax periods.

Total liquidity as of June 30 was $5.9 billion, which consists of $2.6 billion in cash and cash equivalents and an undrawn revolving credit facility of $3.3 billion. In June, the Company extended the maturity of its undrawn revolving credit facility by one year to 2021, and in July it upsized the credit facility from $3.3 billion to $3.4 billion.

In July the Company priced an offering of $1 billion of 4.4 percent Senior Notes due in 2027. The net proceeds from the offering plus existing cash on hand will be used to redeem Senior Notes due in 2017, 2018 and 2019. The redemption of these notes will be completed on Aug. 14, 2017. The offering and redemption will result in a reduction in total gross debt of approximately $750 million, generate annual cash interest savings of approximately $60 million, and extend the maturity schedule. In July, Marathon Oil also terminated $750 million in interest rate hedges for cash proceeds of $54 million.

The Company's webcast commentary and associated slides related to Marathon Oil's financial and operational review, as well as the Quarterly Investor Packet, will be posted to the Company's website at http://ir.marathonoil.com as soon as practicable following this release today, Aug. 2. The Company will conduct a question and answer webcast/call on Thursday, Aug. 3, at 10:00 a.m. ET. The associated commentary and answers to questions will include forward-looking information. To listen to the live webcast, visit the Marathon Oil website at http://www.marathonoil.com. The audio replay of the webcast will be posted by Aug. 4.

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) and net cash provided by operations before changes in working capital, to 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 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) as another way to meaningfully represent our 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. See the tables below for reconciliations between each non-GAAP financial measure and its most directly comparable GAAP financial measure. 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 future performance, business strategy, asset quality, drilling plans, production guidance, capital plans, use of proceeds from the Company's debt offering, 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; the inability for any party to satisfy closing conditions with respect to the disposition; 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 2016 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.

 
Consolidated Statements of Income (Unaudited)Three Months Ended
 June 30Mar. 31June 30
(In millions, except per share data)201720172016
Revenues and other income:   
Sales and other operating revenues, including related party$958 $954 $685 
Marketing revenues35 34 76 
Income from equity method investments51 69 37 
Net gain (loss) on disposal of assets6 1 294 
Other income9 14 11 
Total revenues and other income1,059 1,072 1,103 
Costs and expenses:   
Production176 151 185 
Marketing, including purchases from related parties38 34 75 
Other operating111 89 87 
Exploration30 28 182 
Depreciation, depletion and amortization592 556 512 
Impairments 4  
Taxes other than income45 39 35 
General and administrative93 109 131 
Total costs and expenses1,085 1,010 1,207 
Income (loss) from operations(26)62 (104)
Net interest and other(86)(78)(88)
Income (loss) from continuing operations before income taxes(112)(16)(192)
Provision (Benefit) for income taxes41 34 (54)
Income (loss) from continuing operations(153)(50)(138)
Discontinued operations (a)14 (4,907)(32)
Net income (loss)$(139)$(4,957)$(170)
Adjustments for special items from continuing operations (pre-tax):   
Net (gain) loss on dispositions(6) (296)
Unproved property impairments  118 
Pension settlement3 14 31 
Unrealized (gain) loss on derivative instruments(43)(77)91 
Other(3)1 15 
Provision (benefit) for income taxes related to special items from continuing operations  15 
Adjustments for special items from continuing operations:$(49)$(62)$(26)
Adjusted net income (loss) from continuing operations (b)$(202)$(112)$(164)
Adjustments for special items from discontinued operations (pre-tax):   
Canadian oil sands business impairment (a) 6,636  
Net (gain) loss on disposition (a)43   
Provision (benefit) for income taxes related to special items from discontinued operations (a) (1,674) 
Adjusted net income (loss) (b)$(145)$(57)$(196)
Per diluted share:   
Income (loss) from continuing operations$(0.18)$(0.06)$(0.16)
Net Income (loss)$(0.16)$(5.84)$(0.20)
Adjusted net income (loss) from continuing operations (b)$(0.24)$(0.13)$(0.19)
Adjusted net income (loss) (b)$(0.17)$(0.07)$(0.23)
Weighted average diluted shares850 849 848 
(a) The Company closed on its sale of the Canadian oil sands business in the second quarter of 2017.  The Canadian oil sands business is reflected as discontinued operations in all periods presented. The discontinued operations presentation has not yet been audited; therefore, reported values are preliminary.
(b) Non-GAAP financial measure. See "Non-GAAP Measures" above for further discussion.


Supplemental Statistics (Unaudited)Three Months Ended
 June 30Mar. 31June 30
(in millions)201720172016
Segment income (loss)   
United States E&P$(107)$(79)$(70)
International E&P59 93 55 
Segment income (loss)(48)14 (15)
Not allocated to segments(105)(64)(123)
Loss from continuing operations(153)(50)(138)
Discontinued operations (a)14 (4,907)(32)
Net income (loss)$(139)$(4,957)$(170)
Exploration expenses   
United States E&P$30 $26 $37 
International E&P 2 4 
Segment exploration expenses30 28 41 
Not allocated to segments  141 
Total$30 $28 $182 
Cash flows   
Net cash provided by operating activities from continuing operations$422 $501 $198 
Minus: changes in working capital(49)(12)(93)
Total net cash provided from continuing operations before changes in working capital (b)$471 $513 $291 
Net cash provided by operating activities from discontinued operations (a)46 95 (16)
    
Cash additions to property, plant and equipment$(492)$(283)$(287)
          
(a) The Company closed on its sale of the Canadian oil sands business in the second quarter of 2017. The Canadian oil sands business is reflected as discontinued operations in all periods presented. The discontinued operations presentation has not yet been audited; therefore, reported values are preliminary.
(b) Non-GAAP financial measure. See "Non-GAAP Measures" above for further discussion.


 Three Months EndedGuidance(a)
 June 30Mar. 31June 30Q3Full Year
(mboed)20172017201620172017
Net production available for sale     
United States E&P (a)222208224230-240 
International E&P excluding Libya (b)127122120115-125 
Total continuing operations, excluding Libya (b)349330344 345-360
Libya118  
Total continuing operations
360338344  
      
(a) The Company closed on asset sales of certain fields within New Mexico and West Texas in July, August, and October 2016, and certain Wyoming assets closed in June and November 2016.
(b) Libya is excluded because of the timing of future production and sales levels.


 Three Months Ended
 June 30Mar. 31June 30
(mboed)201720172016
Net production available for sale   
United States E&P222208224 
Less: Divestitures (a)(21)
Divestiture-adjusted United States E&P222208203 
Divestiture-adjusted total continuing operations360338323 
Discontinued operations (b)294540 
     
(a) Divestitures include the sale of certain New Mexico and West Texas assets in July, August, and October 2016, and Wyoming assets closed in June and November 2016. These production volumes have been removed from all periods shown in arriving at divestiture-adjusted United States E&P net production available for sale.
(b) The Company closed on its sale of the Canadian oil sands business on May 31, 2017. The Canadian oil sands business is reflected as discontinued operations in all periods presented. The discontinued operations presentation has not yet been audited; therefore, reported values are preliminary.


Supplemental Statistics (Unaudited)Three Months Ended
 June 30Mar. 31June 30
 201720172016
United States E&P - net sales volumes   
Liquid hydrocarbons (mbbld)165158173
Oklahoma resource basins262514
Eagle Ford797984
Bakken454449
Northern Delaware3
Other United States (a)121026
Crude oil and condensate (mbbld)125118135
Oklahoma resource basins14126
Eagle Ford595961
Bakken393944
Northern Delaware2
Other United States (a)11824
Natural gas liquids (mbbld)404038
Oklahoma resource basins12138
Eagle Ford202023
Bakken655
Northern Delaware1
Other United States (a)122
Natural gas (mmcfd)341304310
Oklahoma resource basins13811582
Eagle Ford127122150
Bakken252124
Northern Delaware7
Other United States (a)444654
Total United States E&P (mboed)222208224
International E&P - net sales volumes   
Liquid hydrocarbons (mbbld)555044
Equatorial Guinea302930
Libya1112
United Kingdom13714
Other International12
Crude oil and condensate (mbbld)433733
Equatorial Guinea181819
Libya1112
United Kingdom13614
Other International11
Natural gas liquids (mbbld)121311
Equatorial Guinea121211
United Kingdom1
Natural gas (mmcfd)478461457
Equatorial Guinea452438430
United Kingdom (b)262327
Total International E&P (mboed)135126120
Total Company continuing operations - net sales volumes (mboed)357334344
Net sales volumes of equity method investees   
LNG (mtd)6,2436,1475,797
Methanol (mtd)1,1821,3071,303
Condensate and LPG (boed)11,60814,54611,306
    
(a) Includes Wyoming, New Mexico, and other conventional onshore U.S. production. The sale of certain Wyoming assets closed in June 2016 and November 2016, New Mexico and West Texas in July, August, and October 2016.
(b) Includes natural gas acquired for injection and subsequent resale.


Supplemental Statistics (Unaudited)Three Months Ended
 June 30Mar. 31June 30
 201720172016
United States E&P - average price realizations (a)   
Liquid hydrocarbons ($ per bbl)$39.00$41.13$35.07
Oklahoma resource basins33.7835.4725.57
Eagle Ford38.3540.4934.31
Bakken42.2244.7938.38
Northern Delaware37.58
Other United States (b)42.7243.8136.27
Crude oil and condensate ($ per bbl) (c)$45.81$48.46$40.77
Oklahoma resource basins45.4249.0741.55
Eagle Ford45.7548.1841.21
Bakken46.2048.7542.00
Northern Delaware43.38
Other United States (b)45.7148.2437.27
Natural gas liquids ($ per bbl)$17.61$19.33$14.84
Oklahoma resource basins19.6322.5914.88
Eagle Ford16.6318.1215.68
Bakken15.1615.357.73
Northern Delaware17.54
Other United States (b)23.7821.5223.64
Natural gas ($ per mcf) (d)$3.05$3.02$1.96
Oklahoma resource basins3.073.161.92
Eagle Ford3.062.852.02
Bakken3.143.271.77
Northern Delaware2.72
Other United States (b)2.923.031.95
International E&P - average price realizations   
Liquid hydrocarbons ($ per bbl)$37.11$38.64$32.11
Equatorial Guinea24.3026.5227.28
Libya50.9458.36
United Kingdom53.6653.9842.32
Other International40.6444.70
Crude oil and condensate ($ per bbl)$47.04$50.41$42.21
Equatorial Guinea39.7343.2741.46
Libya50.9458.36
United Kingdom54.1556.5143.25
Other International40.6444.70
Natural gas liquids ($ per bbl)$1.77$3.86$2.65
Equatorial Guinea (e)1.001.001.00
United Kingdom32.3338.9925.99
Natural gas ($ per mcf)$0.57$0.55$0.53
Equatorial Guinea (e)0.240.240.24
United Kingdom6.276.335.06
Benchmark   
WTI crude oil (per bbl)$48.15$51.78$45.64
Brent (Europe) crude oil (per bbl)(f)$49.67$53.68$45.52
Henry Hub natural gas (per mmbtu)(g)$3.18$3.32$1.95
       
(a) Excludes gains or losses on derivative instruments.
(b) Includes Wyoming, New Mexico, and other conventional onshore U.S. production. The sale of certain Wyoming assets closed in June 2016 and November 2016, New Mexico and West Texas in July, August, and October 2016.
(c) Inclusion of realized gains on crude oil derivative instruments would have increased liquid hydrocarbons average price realizations by $1.07, $0.34, and $0.12, for the second and first quarter of 2017, and second quarter of 2016, respectively. 
(d) Inclusion of realized gains (losses) on natural gas derivative instruments would have a minimal impact on average price realizations for the periods presented.
(e) Represents fixed prices under long-term contracts with Alba Plant LLC, Atlantic Methanol Production Company LLC and/or Equatorial Guinea LNG Holdings Limited, which are equity method investees. The Alba Plant LLC processes the NGLs and then sells secondary condensate, propane, and butane at market prices. Marathon Oil includes its share of income from each of these equity method investees in the International E&P segment.
(f) Average of monthly prices obtained from Energy Information Administration ("EIA") website.
(g) Settlement date average per mmbtu.


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

Investor Relations Contact:
Zach Dailey: 713-296-4140


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