Marathon Oil Corp. suspended its dividend and share buyback programs and is "hitting the pause button" on its operations in the Delaware Basin and Oklahoma in favor of the Eagle Ford and Bakken shales as part of its significantly reduced 2020 capital plan, CEO Lee Tillman said May 7.
Speaking during the company's first-quarter earnings call, Tillman said the oil and gas industry was in "uncharted waters" due to the collapse of demand and massive oversupply. As a result, the company was taking steps to protect its balance sheet, liquidity and cash flow generation, the CEO said.
"We made the difficult decision to temporarily suspend both our quarterly dividend and our share repurchase program. This decision was not an easy one and reflects the dramatic commodity price weakness and the significant uncertainty surrounding both the macroeconomic and oil supply and demand outlook," Tillman said. "We have always stated that shareholder return must be supported by sustainable free cash flow from the business."
Marathon had already cut its 2020 budget from $2.4 billion to $1.3 billion, a number Tillman said may be higher than what the company actually spends.
"With our revised budget, we are exercising discipline, protecting our returns and preserving value through the cycle," the executive said. "This is highlighted by essentially a pause in completion activity and minimal drilling during the second quarter, the period in which we expect the maximum pain for global oil supply demand fundamentals."
Marathon will focus on its most capital-efficient opportunities as it reduces activity to three rigs and two frack crews in the Eagle Ford and Bakken in the third quarter, Tillman said. Those two plays will receive about 95% of the company's capital in the second half, leaving the Delaware Basin and Oklahoma sidelined.
"We will exit 2020 with increasing momentum from a core of capital-efficient, high-margin production in the Eagle Ford and Bakken that will provide us with a strong foundation for success as we enter 2021. And while we are hitting the pause button on capital investment in the Northern Delaware, Oklahoma and our Resource Play exploration program, those opportunities aren't going anywhere," Tillman said.
Marathon's CEO said he believes that the market for oil will start to regain its footing in the second half, and when it does, the company will put shareholder returns at the forefront of its operational strategy.
"Returning capital to our shareholders remains a core strategic objective for our company. But amid current macro uncertainty, we are first prioritizing our financial strength and liquidity. We have characterized our suspension as temporary, and we plan to resume returning capital to our shareholders upon improved visibility into normalizing macroeconomic conditions and, ultimately, upon line of sight to sustainable free cash flow generation," Tillman said.
For the first quarter, Marathon Oil reported an adjusted net loss of $125 million, or 16 cents per share, down from an adjusted net income of $256 million, or 31 cents per share, in the first quarter of 2019. The loss was a penny below the S&P Global Market Intelligence normalized consensus earnings estimate for the quarter, which called for a loss of 15 cents per share.