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Marathon Oil, Oxy, Diamondback eye 2021 oil production flat with Q4 exit rate

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Marathon Oil, Oxy, Diamondback eye 2021 oil production flat with Q4 exit rate

Highlights

Marathon sets 2021 capex at $1 billion, lower on year

Oxy increases capex this year to $2.9 billion

Diamondback reduces capex more than 20%

Houston — Marathon Oil, Occidental Petroleum and Diamondback Energy all plan to keep their 2021 oil production flat with Q4 2020, although their plans for capex diverge, the operators said in earnings calls Feb. 23.

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Marathon's 2021 capex will weigh in at $1 billion, about 14% lower year on year; Oxy will raise its capex to $2.9 billion, up about 16% over 2020; and Diamondback expects 2021 spending at $1.35 billion-$1.55 billion, 20% lower than last year.

"Diamondback continues to see no need to grow oil production into this artificially undersupplied market," CEO Travis Stice said, echoing comments by Oxy and Marathon chief executives.

For its part, Marathon produced 172,000 b/d of oil in Q4, and 352,000 boe/d of total oil and gas. Its oil production in Q4 was down 15% from the same period in 2019.

The company expects its spending plan to bring in $1 billion of free cash flow this year.

Its 2021 spending plan is based on $50/b. If commodity prices remain higher, the company plans no deviation from its maintenance capital budget but instead will prioritize corporate returns, free cash flow, and capital discipline, Marathon executives said.

"Clearly ... even though we're seeing consistent drawdowns now and a very nascent recovery in demand, I still believe a disciplined approach is going to win the day," Marathon CEO Lee Tillman said. "We have to continue to drive outsized free cash flow in order to offset the implicit risk and volatility in our sector."

Roughly 90% of 2021 capex is allotted to the Bakken Shale in North Dakota and the Eagle Ford Shale in South Texas, which Marathon characterized as "industry's most capital efficient basins."

The company will run five to six rigs and around two hydraulic fracturing crews to complete wells, Marathon said. It will turn 60 to 80 wells to sales this year, and 100 to 130 wells to sales in the Eagle Ford.

In its Oklahoma oil plays, Marathon will place five drilled but uncompleted wells online in H2 2021. It will also continue to progress the Texas Delaware sub-basin oil play.

Oxy plans based on $40/b WTI

Like Marathon, Oxy CEO Vicki Hollub said her company will not increase capital in support of production growth.

"Our plans are based on a $40 WTI price environment, and we are prepared to flex spending lower, if necessary," Hollub said.

Oxy produced 1.143 million boe/d in Q4 2020, down about 18.5% year on year.

Permian Resources, Oxy's unconventionals segment of the giant West Texas/New Mexico basin, produced 382,000 boe/d in Q4, while all other domestic segments produced 518,000 boe/d, including the company's enhanced oil recovery, or EOR segment, also sited in the Permian Basin. International regions—excluding Colombia, an operation sold in December 2020—contributed 242,000 boe/d.

By contrast, in Q4 2019 Permian Resources produced 476,000 boe/d, while other domestic segments produced a combined 669,000 boe/d, with international output at 315,000 boe/d.

Texas freeze impacts output

Storm-related outages the week of Feb. 14, coupled with a timing lag in adding activity late last year, will reduce first-quarter production "slightly" compared to Q4 2021, CFO Robert Peterson said.

The Q1 impact will be 25,000 boe/d, as freezing temperatures caused well freezes across Texas.

"Though the storm had a meaningful impact on our Permian production, we expect the impact to be temporary as our operations recovered quickly," Peterson said, adding Oxy anticipates full-year 2021 output will be "essentially equivalent" to Q4 production, excluding Colombia.

"We assume EOR was more impacted than Permian Resources," Stephen Richardson, Evercore ISI Group analyst, said in a Feb. 22 investor note.

Diamondback also saw storm impacts, which "we estimate to have knocked out the equivalent of 100% of our production for four to five days," CEO Travis Stice said.

Stice said production has nearly returned to pre-storm levels, and the company expects to make up a majority of the lost production throughout the year, although not in Q1.

Diamondback's Q4 oil production totaled 175,800 b/d, down 3% sequentially and down 10% from a year ago. Total oil and gas production averaged 299,000 boe/d in Q4 2020, essentially flat with the year-ago period.

S&P Global Platts LNG Virtual Conference | March 25, 2021

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