Marathon Oil Corporation has announced its 2020 capital expenditure budget in addition to its fourth quarter and full year 2019 financial results. 

2020 Capital Budget Highlights

• Disciplined total capital budget of $2.4 billion, down 11% from 2019; includes development capital budget of $2.2 billion, down 9% from 2019, and Resource Play Exploration (REx) capital of $200 million
• Underlying corporate returns improvement to continue outpacing production growth rates
• Forecasting sustainable organic free cash flow, post-dividend, at wide range of commodity prices with organic cash flow breakeven below $50/bbl WTI
  • Cumulative two-year, post-dividend organic free cash flow of $600 million at flat $50/bbl WTI
  • Cumulative two-year, post-dividend organic free cash flow of $2.1 billion at flat $60/bbl WTI
• Continue to prioritize return of capital to shareholders with a competitive dividend and $1.4 billion of share repurchase authorization outstanding
  • Returned $1.4 billion of capital back to shareholders through dividends and share repurchases since beginning of 2018, representing 23% of operating cash flow; funded entirely by organic free cash flow generation
• 2020 annual U.S. oil production growth of 6% at the midpoint of guidance; comparable growth expected in 2021 on comparable development capital
• Resource Play Exploration (REx) capital spend of $200 million in 2020 primarily supports exploration and appraisal drilling in the Texas Delaware oil play and Louisiana Austin Chalk

Full Year and Fourth Quarter 2019 Results
Marathon Oil reported full year 2019 net income of $480 million, or $0.59 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. Adjusted net income was $611 million, or $0.75 per diluted share. Net operating cash flow was $2,749 million, or $2,885 million before changes in working capital.

Marathon Oil reported fourth quarter 2019 net loss of $20 million, or $(0.03) 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. Adjusted net income was $55 million, or $0.07 per diluted share. Net operating cash flow was $700 million, or $685 million before changes in working capital.

2019 Highlights

• Greater than 50% improvement in CROIC from 2017 on a price normalized basis
• Generated $410 million of organic free cash flow post-dividend in 2019; generated $110 million of organic free cash flow during fourth quarter
• Returned $510 million of capital back to shareholders during 2019, including execution of $350 million of share repurchases and $160 million of dividends; return of capital funded entirely by organic free cash flow generation
• Delivered annual, divestiture-adjusted U.S. oil production growth of 13% on unchanged $2.4 billion development capital budget; fourth quarter U.S. oil production averaged 196,000 net bopd, up 9% from prior year
• Achieved approximately 10% annual reduction in average completed well cost per lateral foot and approximately 15% annual reduction in U.S. unit production expense during 2019
• Simplified International portfolio to free cash flow generating integrated business in Equatorial Guinea; divested U.K. and Kurdistan eliminating over $970 million of asset retirement obligations
• Enhanced resource base with addition of over 1,000 gross operated locations through success across all elements of returns focused resource capture framework; highlighted by organic enhancement in the Eagle Ford and Bakken, REx success in new Texas Delaware oil play, and accretive Eagle Ford bolt-on that closed in 2019
• Investment grade credit rating at all primary rating agencies with conservative leverage metrics and low cash flow breakeven oil price
• Subsequent to quarter end, opportunistically added to hedges that now cover approximately 40% of 2020 annual U.S. crude oil production guidance at weighted average floor price of $55.00/bbl and weighted average ceiling price of $65.25/bbl

"2019 was another year of differentiated execution for Marathon Oil as we comprehensively delivered on our framework for success for the second year in a row," said Chairman, President and CEO Lee Tillman. "We continue to improve our underlying corporate returns, we've delivered positive organic free cash flow for eight consecutive quarters, and we've returned over 20% of our cash flow from operations back to our shareholders since the beginning of 2018. We improved our capital efficiency in 2019 through meaningful reductions in both completed well cost and unit production expense, and further optimized and simplified our portfolio. We also enhanced our resource base through success across all elements of our comprehensive resource capture framework, adding over three years of inventory through organic enhancement, Resource Play Exploration, and bolt-on acquisitions and trades. Looking ahead to 2020 and beyond, our focus on differentiated execution will remain unchanged. We'll continue to be guided by our unwavering commitment to capital discipline and sustainability. This focus, along with our low organic free cash flow breakeven of $47/bbl in 2020, and even lower in 2021, will position Marathon Oil for success across a wide range of commodity price environments."

United States (U.S.)

U.S. production averaged 328,000 net barrels of oil equivalent per day (boed) for fourth quarter 2019, including 196,000 net barrels of oil per day (bopd). Oil production was up 9% from the year-ago quarter on a divestiture-adjusted basis. U.S. unit production costs were $5.13 per barrel of oil equivalent (boe) for fourth quarter with full year unit production costs under $5.00 per boe and down approximately 15% compared to the prior year.

EAGLE FORD: Marathon Oil's Eagle Ford production averaged 105,000 net boed for fourth quarter 2019. Oil production averaged 67,000 net bopd, as oil mix rose to 63% from 57% during the year-ago quarter. The Company brought 29 gross Company-operated wells to sales across Karnes, Atascosa and Gonzales counties with strong initial production rates. The third and fourth quarters of 2019 represented the two strongest quarters in the history of the asset on a 30-day initial production (IP) basis for oil.  Completed well cost during fourth quarter averaged $5.1 million at an average lateral length of 6,400 feet. Fourth quarter average completed well cost per lateral foot was down 8% from the 2018 average.

BAKKEN: Marathon Oil's Bakken production averaged 108,000 net boed in the fourth quarter 2019. Oil production averaged 86,000 net bopd. The Company brought 16 gross Company-operated wells to sales across the Myrmidon and Hector areas. The asset established new quarterly records for both drilling feet per day and completion stages per day during fourth quarter. The Company continues to deliver impressive capital efficiency and accretive financial returns, highlighted by a recent four-well pad in Myrmidon that achieved an average 30-day IP rate of 3,160 BOED (79% oil) at an average completed well cost of $4.3 million. The 16 gross Company-operated wells to sales during fourth quarter had an average completed well cost below $5 million, down 17% from the 2018 average.

OKLAHOMA: Marathon Oil's Oklahoma production averaged 82,000 net boed in the fourth quarter 2019. Oil production averaged 24,000 net bopd, with oil mix rising to 29% from 24% during the year-ago quarter. The Company brought 14 gross Company-operated wells to sales, including nine wells targeting the Springer formation in the SCOOP. The nine Springer wells are demonstrating basin-leading productivity, with an average 30-day IP rate of 2,100 boed (79% oil). With a more concentrated program and strong production and cost performance, the Oklahoma asset successfully transitioned to positive free cash flow generation during fourth quarter.

NORTHERN DELAWARE: Marathon Oil's Northern Delaware production averaged 28,000 net boed in the fourth quarter 2019. Oil production averaged 17,000 net bopd.  The Company brought 13 gross Company-operated wells to sales, with a focus on the delineation of its Red Hills acreage. Since the transition to Red Hills delineation during fourth quarter, the Company has brought online nine Upper Wolfcamp wells with an average 30-day IP rate of 1,500 boed (74% oil) and four Bone Spring wells with an average 30-day IP rate of 2,270 boed (76% oil). The Company continues to advance learnings, reduce its cost structure, and improve margins, exiting the year with approximately 90% of water and oil on pipe.

Resource Capture

Fourth quarter REx capital expenditures totaled $168 million. Expenditures included two bolt-on acquisitions totaling $106 million that cored up the Company's 60,000 net acres of contiguous leasehold in the Texas Delaware prospective for stacked Woodford and Meramec oil targets. The Company's position in this new play was captured at an entry cost of less than $2,400 per acre. Full year 2019 REx capital expenditures totaled $277 million, consistent with prior guidance.

The Company's 2020 REx capital expenditure budget of $200 million reflects a transition from acreage capture to exploration and appraisal drilling in two potential oil plays of scale. In the Texas Delaware, the Company's third Woodford exploration well is on flowback, with early rates consistent with expectations. The Company has now brought online three Woodford exploration wells with average oil mix of 60%. In the Western Fairway of the Louisiana Austin Chalk, the Company's first exploration well is on flowback and cleaning up with recent oil rates at 1,200 bopd (2,650 boed). The Company recently spud its second Louisiana Austin Chalk exploration well.

Outside of the REx program, in the fourth quarter Marathon Oil completed a bolt-on acquisition for approximately 18,000 contiguous and largely undeveloped net acres adjacent to the Company's existing northeast Eagle Ford leasehold. The $191 million bolt-on acquisition included production of approximately 7,000 net boed (approx. 30% oil), associated midstream infrastructure, and cores up a 70-well, long lateral development with potential upside. The transaction had an effective date of Nov. 1, 2019, and closed on Dec. 31, 2019.

International

Equatorial Guinea production averaged 85,000 net boed for fourth quarter 2019, including 15,000 net bopd of oil. Unit production costs averaged $1.82 per boe.

Cash Flow and Development Capital

Net cash provided by operations was $700 million during fourth quarter 2019, or $685 million before changes in working capital.

Fourth quarter development capital expenditures were $556 million, bringing full year development capital to $2.4 billion, consistent with the original 2019 budget.

Organic free cash flow during fourth quarter totaled $111 million post-dividend, bringing full year organic free cash flow generation to $409 million.

Production Guidance

For full year 2020, the Company forecasts total U.S. oil production growth of 6% at the midpoint of guidance. Although oil production will not be meaningfully affected, full year 2020 International gas production will be impacted by scheduled maintenance activity in Equatorial Guinea during fourth quarter. Full year total Company oil growth is expected to outpace boe production growth, consistent with a focus on corporate returns.

First quarter 2020 U.S. oil production guidance is 192,000 to 202,000 net bopd. First quarter 2020 International oil production guidance is 12,000 to 16,000 net bopd.

Corporate

The Company executed $350 million of share repurchases during 2019, returning additional capital to shareholders beyond the $162 million of 2019 dividend payments. Since the beginning of 2018, Marathon Oil has repurchased $1.05 billion of its own shares, representing approximately 7% of its outstanding share count, funded entirely by post-dividend organic free cash flow.

Total liquidity as of Dec. 31 was approximately $3.9 billion, which consisted of $0.9 billion in cash and cash equivalents and an undrawn revolving credit facility of $3.0 billion.

The adjustments to net income for fourth quarter 2019 totaled $75 million before tax, primarily due to the income impact associated with unrealized losses on derivative instruments. Adjusted net income in the quarter was negatively impacted primarily by one-off and timing impacts totaling approximately $37 million.

As of Feb. 10, 2020, the Company's open crude hedge positions for 2020 include an average of 80,000 bopd at a weighted average floor price of $55.00/bbl and a weighted average ceiling price of $65.25/bbl, hedged through three-way collars.