Marathon Oil Corp. will be able to increase its 2020 production while further reducing its budget, Chairman, President and CEO Lee Tillman said during the company's second-quarter earnings call Aug. 6.
Tillman said the situation facing the industry has improved over the past several months, but many difficulties remain as global demand has not fully recovered.
"Commodity prices are clearly in a better place today than they were at the time of our last earnings call. In all honesty, that is not a very high bar," he said. "But the recent stability in energy markets is a welcome respite from the extreme volatility we had experienced in the second quarter."
Tillman said that the exploration and production industry must remain disciplined in its approach and that growth is not a requirement in the current environment, noting that "the world simply does not need more of our product." Instead, he said, Marathon intends to work on improving its balance sheet and increasing its free cash flow while limiting expenditures.
"It is all too easy to become distracted by external forces, but we can't control the macro. We can control how we allocate capital, how we manage our cost structure and how we execute," he said.
To that end, Marathon has reduced its budget ceiling for 2020 from $1.3 billion to $1.2 billion. Tillman also repeated a statement he made in the company's first-quarter earnings call that the company had "hit the pause button" on its operations in Oklahoma and the Delaware Basin in favor of directing most of its capital to the Bakken and Eagle Ford shales.
In spite of the decrease in the capital budget, Tillman said Marathon would raise its full-year oil production outlook to a midpoint of 190,000 barrels per day. The CEO praised the company's "tremendous innovation and execution" for pushing down well costs and doing more with less.
"Second-half 2020 well costs per lateral foot are expected to be down by more than 20% in comparison to 2019, the results of concentrated capital allocation to the Eagle Ford and Bakken and targeted efforts to continue reducing our costs," he said. "These reductions are due to a combination of specific well design improvements, execution efficiency, supply chain optimization and commercial leverage. We expect the majority of these gains to prove durable through the cycle."
In spite of Tillman's positive commentary, the second quarter was as unkind to Marathon as it was to nearly all oil and gas producers. The company reported an adjusted net loss of $477 million, or 60 cents per share, for the second quarter, down from adjusted net income of $189 million, or 23 cents per share, for the second quarter of 2019. The S&P Capital IQ normalized consensus earnings estimate for the quarter was a loss of 64 cents per share.