Marathon Oil aims to cut well costs by 20% from 2019 as it focuses on Bakken, Eagle Ford

Washington — Marathon Oil expects its oil production to bottom out in the third quarter before recovering later in the year as it focuses on the Eagle Ford and Bakken Shale plays and continues to trim well completion costs, CEO Lee Tillman said Aug. 6.

Tillman said second-quarter drilling costs per lateral foot were 10% lower than the 2019 average, and the driller aims to shrink that to at least 20% below 2019 levels in the second half of the year.

"These reductions are due to a combination of specific well-design improvements, execution efficiency, supply-chain optimization and commercial leverage," Tillman said during a Q2 earnings call. "We expect the majority of these gains to prove durable through the cycle."

The driller has cut capital expenditure by an additional $100 million to $1.2 billion, which is down 50% overall from the start of the year.

Marathon now expects 2020 output to average 190,000 b/d, down from 217,000 b/d predicted in February before the coronavirus pandemic shocked oil markets. The company did not issue 2020 production guidance in its previous earnings report.

It paused operations in the Permian's Delaware Basin and in Oklahoma in Q2 to focus on the Eagle Ford and Bakken. It currently has three rigs and two frack crews in those basins, Tillman said.

Marathon's US production averaged 307,000 b/d of oil equivalent in Q2, down 33,000 boe/d from the previous quarter, with Q2 oil output averaging 182,000 b/d, down 25,000 b/d from Q1.

That included 11,000 b/d of voluntary shut-ins in Q2.

Marathon expects to enter 2021 with a backlog of drilled-but-uncompleted wells.

DAPL impact

Asked about the Aug. 5 ruling by an appeals court that the Dakota Access Pipeline can continue to operate, Tillman said the decision sends a positive signal for the entire Bakken. Marathon ships about 10,000 b/d on the system, making the direct impact of a shutdown relatively limited.

"But clearly the impact across the basin and our basin differential -- when you take that level of capacity out of the system -- would have forced everyone to be looking for alternatives, including rail," he said, adding this would likely make marginal barrels out of the Bakken uncompetitive.

Tillman said he hoped the system would be allowed to keep operating during the court case.

"We would see it as a very dangerous precedent to have an operating pipeline with this type of track record taken out of service by legal action, particularly after going through the permitting process," he said. "We're encouraged by the ruling, we're watching it closely. [But] today it has really no impact on our investment direction in the Bakken."