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What Are Marathon Oil’s Key Operational Strategies?

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Marathon Oil’s key operational strategies

In its 3Q16 earnings call, Marathon Oil (MRO) outlined its “playbook for success,” which includes its key strategies:

  • “strengthened balance sheet
  • relentless focus on costs
  • simplifying and concentrating portfolio
  • profitable growth within cash flows”

Out of these strategies, Marathon Oil noted that its “strengthened balance sheet” is related to debt management, whereas the other three strategies are related to the company’s operations. In this part, we’ll look at these three key operational strategies.

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How much cost reduction did MRO achieve?

During the low energy price environment of the last two years, Marathon Oil has focused on reducing its cost structure, in order to put downward pressure on production costs, G&A (general and administrative) costs, and capital costs across all parts of its business.

In the last year, Marathon Oil has decreased its production and operating expenses ~31% from $285 million in 3Q15 to $198 million in 3Q16. Operating expenses cover transportation, G&A, and other operating expenses. We’ll study Marathon Oil’s production costs in Parts 11 and 12 of this series.

Portfolio: Simplification and concentration

Since August 2015, Marathon Oil has announced or closed non-core asset sales of more than $1.5 billion, surpassing its own targeted range of $750 million–$1 billion. Ongoing portfolio management drives the simplification and concentration of its portfolio to lower-risk, higher-return US resource plays while supporting its 2016 objective of balance sheet protection.

In its most recent divestiture on October 3, 2016, Marathon Oil announced the sale of certain non-operated CO2 and waterflood assets in West Texas and New Mexico for $235 million, excluding closing adjustments. These properties produced ~4 Mboepd (thousand barrels of oil equivalent per day) in 1H16. The effective date of the transaction is September 1, 2016, and closing is expected by the end of 2016.

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Growth guidance

Marathon Oil (MRO) is still in the planning phase for its growth strategy for the next five years. However, MRO’s preliminary five-year view for resource play production supports a compound annual growth rate (or CAGR) of 15%–20% within cash flows at a flat $55 per barrel of WTI.

Other upstream players

In order to deal with lower energy prices and to raise cash, other upstream players from the S&P 500 (SPY)—including Murphy Oil (MUR), Consol Energy (CNX), Devon Energy (DVN), Chesapeake Energy (CHK), and Anadarko Petroleum (APC)—have also recently completed divestitures.

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