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Marathon Oil to spend nearly all of $2.3B budget on US plays

After pivoting to North America in 2017, Marathon Oil Co. will sharpen its focus on oil production close to home as it earmarks almost all of its 2018 capital expenditures for the Bakken and Eagle Ford shales, company officials said Feb. 15.

Marathon topped earnings and production estimates for the fourth quarter of 2017, with the company reporting adjusted net income of $56 million, or 7 cents per share. The S&P Global Market Intelligence consensus estimate was a profit of 2 cents per share. The company reported an 8-cent-per-share loss in the third quarter of 2017.

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During Marathon's earnings call, CEO Lee Tillman called 2017 a "pivotal year" as the company backed away from an international strategy to become a largely domestic producer.

"We achieved … cash flow neutrality while delivering on all our 2017 commitments, including near the top end of our total company production guidance, driven by a strong 31% exit rate from our U.S. resource plays," he said. For 2018, the company will focus on the four plays that provided Marathon its best returns in 2017: the Eagle Ford and Bakken shales, the Delaware Basin, and the STACK play in Oklahoma.

"We'll direct over 90% to the U.S. resource plays and maximize corporate returns by focusing on high-efficiency development in the Bakken and the Eagle Ford while providing flexibility for the northern Delaware and Oklahoma to transition to multi-well pads at the appropriate pace while continuing delineation and appraisal work," Tillman said. Nearly 60% of the company's $2.3 billion capital budget will be spent in the Eagle Ford and Bakken, while another one-third of the budget will be spent in the Delaware Basin and STACK.

"As a result of this concentrated capital allocation, the U.S. resource plays will increase to about 70% of the total company production mix, driving a natural expansion in margins," Tillman said. The CEO said Marathon's capital plan is designed to break even with West Texas Intermediate crude prices averaging $50 per barrel in 2018, with significant profitability at $60/bbl.

"It is certainly refreshing to be having a conversation about free cash flow generation, and we have already established a track record of cash flow neutrality in 2017, so this represents the next natural progression of our business model," Tillman said.