Marathon Oil Reports Second Quarter 2020 Results

HOUSTON, Aug. 5, 2020 /PRNewswire/ — Marathon Oil Corporation (NYSE:MRO) today reported a second quarter 2020 net loss of $750 million,…

HOUSTON, Aug. 5, 2020 /PRNewswire/ — Marathon Oil Corporation (NYSE:MRO) today reported a second quarter 2020 net loss of $750 million, or $0.95 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 $477 million, or $0.60 per diluted share. Net operating cash flow was $9 million, or $86 million before changes in working capital.

Highlights

  • Second quarter capital expenditures of $137 million on successful and efficient pause in drilling and completion activity; reducing full year capital expenditure guidance to $1.2 billion on strong execution and capital efficiency
  • Second quarter total Company oil production of 197,000 net bopd, inclusive of approximately 11,000 net bopd of curtailments
  • Raising full year 2020 total Company oil production outlook to 190,000 net bopd at the midpoint of guidance, inclusive of year-to-date curtailments; prior guidance excluded production curtailments
  • Second quarter U.S. unit production cost of $4.09 per boe; lowest level since becoming an independent exploration and production company
  • $3.0 billion undrawn revolving credit facility and $522 million of cash and cash equivalents at end of second quarter; July 3rd pro-forma cash balance of $611 million with receipt of Alternative Minimum Tax refund
  • Positioned for free cash flow generation at commodity prices well below current forward curve with second half 2020 free cash flow breakeven in low $30/bbl WTI range

“Amid tremendous commodity volatility, our ongoing response to the COVID-19 global pandemic, and a challenging year for our industry, we have remained focused on the factors we can control: how we allocate capital, how we manage our cost structure, and how we execute,” said Chairman, President, and CEO Lee Tillman. “Second quarter results are a testament to that focus, highlighted by safety and operational excellence, lower than expected capital spending and cash costs, and capital efficiency outperformance. On the back of this strong execution, we are both lowering capital spending guidance and raising oil production guidance for the full year.”

“We believe the Company is successfully positioned to generate free cash flow at commodity prices well below the current forward curve, while protecting operational momentum into 2021,” Tillman continued. “Though premature to provide a specific business plan, our differentiated capital efficiency is illustrated by a 2021 benchmark maintenance scenario that we believe could deliver total Company oil production in-line with 4Q20 at a free cash flow breakeven of approximately $35/bbl.”

United States (U.S.)

U.S. production averaged 307,000 net barrels of oil equivalent per day (boed) for second quarter 2020. Oil production averaged 182,000 net barrels of oil per day (bopd) inclusive of approximately 11,000 net bopd of curtailments. U.S. unit production costs were $4.09 per boe, a decline of approximately 20% in comparison to the 2019 average and the lowest quarterly average since Marathon Oil became an independent exploration and production company.

In the Eagle Ford, Marathon Oil’s second quarter 2020 production averaged 108,000 net boed. Oil production averaged 66,000 net bopd on 20 gross Company-operated wells to sales. In the Bakken, production averaged 103,000 net boed in the second quarter 2020, including oil production of 80,000 net bopd. Marathon Oil brought 8 gross Company-operated wells to sales during second quarter in the Bakken. Marathon Oil’s Oklahoma production averaged 60,000 net boed in the second quarter 2020, including oil production of 15,000 net bopd. The Company did not bring any gross Company-operated wells to sales during second quarter in Oklahoma. Marathon Oil’s Northern Delaware production averaged 30,000 net boed in the second quarter 2020. Oil production averaged 16,000 net bopd on 6 gross Company-operated wells to sales.

In total, Marathon Oil brought 34 gross Company-operated wells to sales during second quarter, with 32 of those wells coming online in April. Following the pause in drilling and completion activity during second quarter, the Company has resumed activity in both the Eagle Ford and Bakken, currently running 3 rigs and 2 frac crews across the two plays. Consistent with previous disclosure, gross Company-operated wells to sales over the second half of 2020 will be weighted to the fourth quarter.

Marathon Oil has completed its 2020 Resource Play Exploration (REx) drilling program, which was primarily focused on continued delineation of the Company’s contiguous 60,000 net acreage position in the Texas Delaware Oil Play. In the Texas Delaware, the Company has now successfully brought online four Woodford wells and two Meramec wells since entering the play. These wells have confirmed reservoir productivity and gas/oil ratio expectations while exhibiting high oil cut, shallow decline profiles, and low water/oil ratios.

International

Equatorial Guinea production averaged 83,000 net boed for second quarter 2020, including 15,000 net bopd of oil. Unit production costs averaged $1.88 per boe.

Guidance

Due to strong execution and capital efficiency improvement, Marathon Oil has reduced its full year 2020 capital spending guidance to $1.2 billion and raised its full year 2020 oil production guidance. The midpoint of revised, full year 2020 total Company oil production guidance is now 190,000 net bopd, inclusive of year-to-date curtailments. As a reminder, previously provided production guidance was on an underlying basis and excluded the impact from production curtailments. Revised full year guidance accounts for a sequential reduction in expected third quarter Equatorial Guinea production due to the impact of higher forward prices on net interest under the production sharing contract (PSC) and natural decline.

Corporate

Net cash provided by operations was $9 million during second quarter 2020, or $86 million before changes in working capital. Second quarter capital expenditures totaled $137 million.

Total liquidity as of June 30 was approximately $3.5 billion, which consisted of an undrawn revolving credit facility of $3.0 billion and $522 million in cash and cash equivalents. June 30 cash balance was reduced by a $261 million change in working capital associated with operating and investing activities. Second quarter working capital effects were primarily driven by the substantial drop in activity levels and should normalize over the second half of the year. Shortly after quarter end, Marathon Oil received an Alternative Minimum Tax (AMT) refund, adjusting for which resulted in a July 3rd pro-forma cash balance of $611 million.

The adjustments to net loss for second quarter 2020 totaled $273 million before tax, primarily due to the income impact associated with an equity method investment impairment, unrealized losses on derivative instruments, and non-recurring costs associated with organizational restructuring.

A slide deck and Quarterly Investor Packet will be posted to the Company’s website following this release today, August 5. On Thursday, August 6, 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://ir.marathonoil.com/.

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 operations before changes in working capital and pro-forma cash balance.

Adjusted net income (loss) is defined as net income (loss) adjusted for gain/loss on dispositions, impairments of proved property, goodwill, and equity method investments, unrealized derivative gain/loss on commodity instruments, effects of pension settlement losses and curtailments and other items that could be considered “non-operating” or “non-core” in nature. Management believes adjusted net income (loss) and adjusted net income (loss) per share are useful to investors as additional tools to meaningfully represent the Company’s operating performance and to compare Marathon to certain competitors.

Management believes net cash provided by operations before changes in working capital is useful to investors to demonstrate the Company’s ability to generate cash quarterly or year-to-date by eliminating differences caused by the timing of certain working capital items.

Pro-forma cash balance is defined as cash and cash equivalents plus adjustments for the Alternative Minimum Tax refund we recently received.  Management believes adjusting for this item provides a clearer picture of our liquidity.  

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 in isolation or as an alternative to 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 https://ir.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 future capital budgets and allocations (including development capital budget and resource play leasing and exploration spend), future performance, corporate-level cash returns on invested capital, business strategy, asset quality, drilling plans, production guidance, cash margins, 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,” “future,” “guidance,” “intend,” “may,” “outlook,” “plan,” “positioned,” “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 for crude oil and condensate, NGLs and natural gas and the resulting impact on price; changes in expected reserve or production levels; changes in political or economic conditions in the U.S. and Equatorial Guinea, including changes in foreign currency exchange rates, interest rates, inflation rates; actions taken by the members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia affecting the production and pricing of crude oil; and other global and domestic political, economic or diplomatic developments; capital available for exploration and development; risks related to the Company’s hedging activities; voluntary or involuntary curtailments, delays or cancellations of certain drilling activities; well production timing; liability resulting from litigation; drilling and operating risks; lack of, or disruption in, access to storage capacity, pipelines or other transportation methods; availability of drilling rigs, materials and labor, including the costs associated therewith; difficulty in obtaining necessary approvals and permits; non-performance by third parties of contractual obligations; unforeseen hazards such as weather conditions, a health pandemic (including COVID-19), acts of war or terrorist acts and the government or military response thereto; cyber-attacks; changes in safety, health, environmental, tax and other regulations, requirements or initiatives, including initiatives addressing the impact of global climate change, air emissions, or water management; other geological, operating and economic considerations; and the risk factors, forward-looking statements and challenges and uncertainties described in the Company’s 2019 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases, available at https://ir.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:

Stephanie Gentry: 713-296-3307

Investor Relations Contacts:

Guy Baber: 713-296-1892

John Reid: 713-296-4380

Consolidated Statements of Income (Unaudited)

Three Months Ended


June 30

Mar. 31

June 30

(In millions, except per share data)

2020

2020

2019

Revenues and other income:




Revenues from contracts with customers

$

490


$

1,024


$

1,381


Net gain (loss) on commodity derivatives

(70)


202


16


Income (loss) from equity method investments

(152)


(12)


31


Net gain (loss) on disposal of assets

(2)


9


(8)


Other income

6


7


13


Total revenues and other income

272


1,230


1,433


Costs and expenses:




Production

129


160


193


Shipping, handling and other operating

105


144


170


Exploration

26


28


26


Depreciation, depletion and amortization

597


644


605


Impairments


97


18


Taxes other than income

30


66


79


General and administrative

88


76


87


Total costs and expenses

975


1,215


1,178


Income (loss) from operations

(703)


15


255


Net interest and other

(69)


(64)


(64)


Other net periodic benefit credit

7



2


Income (loss) before income taxes

(765)


(49)


193


Provision (benefit) for income taxes

(15)


(3)


32


Net income (loss)

$

(750)


$

(46)


$

161






Adjusted Net Income (Loss)




Net income (loss)

$

(750)


$

(46)


$

161


Adjustments for special items (pre-tax):




Net (gain) loss on disposal of assets

2


(9)


8


Proved property impairments


2


18


Goodwill impairment


95



Pension settlement

14


2


2


Pension curtailment

(17)




Unrealized (gain) loss on derivative instruments

96


(171)


(11)


Reduction in workforce

13




Impairment of equity method investment

152




Other

13


2


11


Adjustments for special items

273


(79)


28


Adjusted net income (loss) (a)

$

(477)


$

(125)


$

189


Per diluted share:




Net income (loss)

$

(0.95)


$

(0.06)


$

0.20


Adjusted net income (loss) (a)

$

(0.60)


$

(0.16)


$

0.23


Weighted average diluted shares

790


794


814




(a)

Non-GAAP financial measure. See “Non-GAAP Measures” above for further discussion.

 

Supplemental Statistics (Unaudited)

Three Months Ended


June 30

Mar. 31

June 30

(In millions)

2020

2020

2019

Segment income (loss)




United States

$

(365)


$

(20)


$

215


International

(6)


(1)


96


Not allocated to segments

(379)


(25)


(150)


Net income (loss)

$

(750)


$

(46)


$

161


Cash flows




Net cash provided by operating activities

$

9


$

701


$

797


Minus: changes in working capital

(77)


151


26


Net cash provided by operations before changes in working capital (a)

$

86


$

550


$

771






Cash additions to property, plant and equipment

$

(326)


$

(620)


$

(647)



(a)

Non-GAAP financial measure. See “Non-GAAP Measures” above for further discussion.




Supplemental Statistics (Unaudited)

Three Months Ended

Year Ended


June 30

Mar. 31

June 30

Dec. 31

Net Production

2020

2020

2019

2019

Equivalent Production (mboed)





United States

307


340


332


324


International

83


82


103


92


Total net production

390


422


435


416


Less: Divestitures (a)



14


8


Total divestiture-adjusted net production

390


422


421


408


Oil Production (mbbld)





United States

182


207


192


191


International

15


14


26


21


Total net production

197


221


218


212


Less: Divestitures (b)



10


6


Total divestiture-adjusted net production

197


221


208


206




(a)

Divestitures include volumes associated with the following: (i) 2 mboed and 1 mboed for the second quarter 2019 and the year 2019 related to the sale of certain United States non-core conventional assets which closed in first quarter 2019 (ii) 10 mboed and 6 mboed for the second quarter 2019 and the year 2019 related to the sale of our U.K. business which closed in third quarter 2019 and (iii) 2 mboed and 1 mboed for the second quarter 2019 and the year 2019 related to the sale of our non-operated interest in the Atrush block in Kurdistan which closed in second quarter 2019.

(b)

Divestitures include volumes associated with the following: (i) 8 mbbld and 5 mbbld for the second quarter 2019 and the year 2019 related to the sale of our U.K. business which closed in third quarter 2019 and (iii) 2 mbbld and 1 mbbld for the second quarter 2019 and the year 2019 related to the sale of our non-operated interest in the Atrush block in Kurdistan which closed in second quarter 2019.

 

Supplemental Statistics (Unaudited)

Three Months Ended


June 30

Mar. 31

June 30


2020

2020

2019

United States – net sales volumes




Crude oil and condensate (mbbld)

183


205


190


Eagle Ford

66


72


61


Bakken

81


88


88


Oklahoma

16


20


21


Northern Delaware

16


17


15


Other United States (a)

4


8


5


Natural gas liquids (mbbld)

56


57


64


Eagle Ford

20


19


25


Bakken

12


12


8


Oklahoma

16


20


24


Northern Delaware

7


5


6


Other United States (a)

1


1


1


Natural gas (mmcfd)

413


454


459


Eagle Ford

133


138


139


Bakken

60


58


42


Oklahoma

167


197


223


Northern Delaware

44


44


36


Other United States (a)

9


17


19


Total United States (mboed)

308


338


330


International – net sales volumes




Crude oil and condensate (mbbld)

16


13


30


Equatorial Guinea

16


13


20


United Kingdom (b)



8


Other International (c)



2


Natural gas liquids (mbbld)

9


9


10


Equatorial Guinea

9


9


10


Natural gas (mmcfd)

354


352


403


Equatorial Guinea

354


352


392


United Kingdom (b)(d)



11


Total International (mboed)

84


81


107


Total Company – net sales volumes (mboed)

392


419


437


Net sales volumes of equity method investees




LNG (mtd)

4,635


5,064


5,321


Methanol (mtd)

738


1,185


1,134


Condensate and LPG (boed)

10,896


10,638


11,080




(a)

Includes sales volumes from the sale of certain non-core proved properties in our United States segment.

(b)

The Company closed on the sale of its U.K. business on July 1, 2019.

(c) 

Other International includes volumes for the Atrush block in Kurdistan, which was sold in the second quarter of 2019.

(d)

Includes natural gas acquired for injection and subsequent resale.

 

Supplemental Statistics (Unaudited)

Three Months Ended


June 30

Mar. 31

June 30


2020

2020

2019

United States – average price realizations (a)




Crude oil and condensate ($ per bbl) (b)

$

21.65


$

44.23


$

59.18


Eagle Ford

23.53


46.82


63.10


Bakken

20.03


41.14


56.84


Oklahoma

22.09


44.87


58.66


Northern Delaware

22.36


46.78


55.33


Other United States (c)

18.31


47.82


66.21


Natural gas liquids ($ per bbl)

$

7.09


$

9.97


$

14.60


Eagle Ford

8.70


9.50


13.19


Bakken

2.56


8.43


18.68


Oklahoma

8.67


11.69


14.39


Northern Delaware

6.24


8.14


15.02


Other United States (c)

9.68


11.74


17.25


Natural gas ($ per mcf)

$

1.44


$

1.60


$

1.89


Eagle Ford

1.69


1.84


2.51


Bakken

0.93


1.54


1.70


Oklahoma

1.59


1.60


1.78


Northern Delaware

0.88


0.80


0.18


Other United States (c)

1.25


1.94


2.26


International – average price realizations




Crude oil and condensate ($ per bbl)

$

13.79


$

36.88


$

58.21


Equatorial Guinea

13.79


36.88


54.38


United Kingdom (d)



68.40


Other International (e)



55.83


Natural gas liquids ($ per bbl)

$

1.00


$

1.00


$

1.67


Equatorial Guinea (f)

1.00


1.00


1.00


United Kingdom (d)



37.63


Natural gas ($ per mcf)

$

0.24


$

0.24


$

0.35


Equatorial Guinea (f)

0.24


0.24


0.24


United Kingdom (d)



4.25


Benchmark




WTI crude oil (per bbl)

$

28.00


$

45.78


$

59.91


Brent (Europe) crude oil (per bbl) (g)

$

29.34


$

50.44


$

68.92


Mont Belvieu NGLs (per bbl) (h)

$

12.25


$

13.27


$

19.20


Henry Hub natural gas (per mmbtu) (i)

$

1.72


$

1.95


$

2.64




(a)

Excludes gains or losses on commodity derivative instruments.

(b)

Inclusion of realized gains (losses) on crude oil derivative instruments would have increased average price realizations by $1.59, $1.47, and $0.32, for the second quarter 2020, the first quarter 2020, and the second quarter 2019.

(c) 

Includes sales volumes from the sale of certain non-core proved properties in our United States segment.

(d)

The Company closed on the sale of its U.K. business on July 1, 2019.

(e)

Other International includes volumes for the Atrush block in Kurdistan, which was sold in the second quarter of 2019.

(f) 

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 segment.

(g)

Average of monthly prices obtained from Energy Information Administration website.

(h) 

Bloomberg Finance LLP: Y-grade Mix NGL of 55% ethane, 25% propane, 5% butane, 8% isobutane and 7% natural gasoline.

(i)

Settlement date average per mmbtu.

 

Full Year 2020

Production

Guidance

Oil Production (mbbld)


Equivalent Production (mboed)

Full Year

2020

Q2

2020

Q1

2020

Full

Year

2019


Full Year

2020

Q2

2020

Q1

2020

Full

Year

2019


Low

High

Divestiture-Adjusted


Low

High

Divestiture-Adjusted

Net production












United States

173

179

182

207

191


295

305

307

340

323

International

13

15

15

14

15


75

79

83

82

85

Total net production

186

194

197

221

206


370

384

390

422

408

The following table sets forth outstanding derivative contracts as of August 5, 2020, and the weighted average prices for those contracts:



2020



2021


Crude Oil


Third Quarter


Fourth Quarter



Full Year


NYMEX WTI Three-Way Collars









Volume (Bbls/day)


80,000



80,000






Weighted average price per Bbl:









Ceiling


$

64.40



$

64.40




$



Floor


$

55.00



$

55.00




$



Sold put


$

48.00



$

48.00




$



NYMEX WTI Two-Way Collars









Volume (Bbls/day)


36,739



10,000




10,000



Weighted average price per Bbl:









Ceiling


$

41.14



$

48.65




$

52.37



Floor


$

31.47



$

37.00




$

35.00



Fixed Price WTI Swaps









Volume (Bbls/day)


10,000








Weighted average price per Bbl


$

32.77



$




$



Basis Swaps – Argus WTI Midland (a)









Volume (Bbls/day)


15,000



15,000






Weighted average price per Bbl


$

(0.94)



$

(0.94)




$



Basis Swaps – NYMEX WTI / ICE Brent (b)









Volume (Bbls/day)


5,000



5,000




808



Weighted average price per Bbl


$

(7.24)



$

(7.24)




$

(7.24)



NYMEX Roll Basis Swaps









Volume (Bbls/day)


60,000



30,000






Weighted average price per Bbl


$

(1.58)



$

(0.81)




$



Natural Gas









Two-Way Collars









Volume (MMBtu/day)


66,304



150,000




112,329



Weighted average price per MMBtu:









Ceiling


$

2.49



$

2.62




$

3.00



Floor


$

2.00



$

2.13




$

2.42



Basis Swaps – WAHA / HH (c)









Volume (MMBtu/day)


10,000



10,000






Weighted average price per MMBtu


$

(0.37)



$

(0.37)




$



NGL









Fixed Price Ethane Swaps









Volume (Bbls/day)


7,304



10,000






Weighted average price per Bbl


$

8.78



$

8.78




$





(a)

The basis differential price is indexed against Argus WTI Midland.

(b)

The basis differential price is indexed against Intercontinental Exchange (“ICE”) Brent and NYMEX WTI.

(c)

The basis differential price is indexed against Waha and NYMEX Henry Hub.

 

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SOURCE Marathon Oil Corporation