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US upstream independents appear sanguine even amid low $40s/b oil prices

Houston — Executives with three US-based independent upstream companies appeared unruffled Thursday by oil prices that were down 20% over the last month, as they outlined ongoing efforts to wrest more output from wells and pick any remaining meat from the already-dry bones of their cost structures.

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Officials with Marathon Oil, Continental Resources and Apache Corp all showed a relatively sanguine face in separate quarterly conference calls, touting continued well output improvements and looking ahead to 2017, when widely anticipated higher oil prices are expected to spur more drilling activity.

Oil prices in recent weeks dropped to the low $40/s after spending more than two months at or near $50/b. On Thursday, NYMEX front-month crude futures settled up $1.10 at $41.93/b.

After taking a sledgehammer to costs and improving well yields during the downturn which has dragged on for 20 months, Marathon now expects its 2016 capital budget to come in at $1.3 billion -- $100 million lower than previously projected, company CEO Lee Tillman said.

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Should oil prices rise further, "we have the potential for even higher growth," he said.

The company slightly lowered production guidance for 2016 after selling more than $1 billion of assets year to date. Its new 2016 output range is 330,000-345,000 b/d of oil equivalent, down from a midpoint of 345,000 boe/d.

Marathon's net sales volumes in the second quarter averaged 393,000 boe/d, flat sequentially and down 4% from the same period in 2015. That included 266,000 b/d of liquids, down 4% sequentially and down 6% from the same 2015 quarter.

The company will also add a fourth rig in its key Oklahoma STACK play by the end of next month, positioning it for a potentially upturning industry in 2017.

Tillman said Marathon has talked about a $1.4 billion capital program in 2017 for its three US unconventional resource plays alone -- the Bakken and Eagle Ford Shales and its assortment of Oklahoma resource plays, including STACK.

By contrast, Marathon spent about $470 million on those plays, or 78% of the $600 million in total company expenditures during first-half 2016.

CONTINENTAL RAISES OUTPUT GUIDANCE

Continental Resources has increased its 2016 production guidance by 5,000 boe/d to 210,000-220,000 boe/d, boosted by strong well results in the first half, especially from the STACK, its officials said.

The company expects to exit the year with production between 195,000-205,000 boe/d.

Continental, which operates chiefly in the Bakken Shale and also the STACK and SCOOP Oklahoma plays, produced a total 219,300 boe/d in Q2, down 5% sequentially and down 3% year on year. Crude oil output of 133,044 b/d in Q2 was down 9% from three months earlier and down 11% from the same 2015 quarter.

Barrels of oil found per dollar spent have more than doubled, while production expense per boe and general and administrative expenses per boe have dropped by a total 36% in the last two years, Jack Stark, Continental's president and chief operating officer, said.

"We believe the majority of these capital efficiencies are structural and sustainable," Stark said.

The company will keep to its 2016 capital spending plan of $920 million.

Cowen and Company analyst Charles Robertson on Wednesday said Continental has asserted it is cash-flow neutral at a WTI price of $37/b.

Continental now expects to have a slightly lower inventory of drilled but uncompleted wells, or DUCs, by year-end -- 190, five less than three months ago. These are wells the company "banked" in anticipation of a future higher oil priced market.

The company's estimated cost to complete its DUCs is $3 million-$3.5 million, officials said.

"We're pinching back our production a bit to preserve it for a higher commodity price," Continental Chief Financial Officer John Hart said.

At $60/b, "we'd certainly start working off DUCs in the Bakken and bringing on incremental production and growth just from that," Hart said. "We're starting to move into a price environment where you'd consider [it]."

APACHE BASES CAPEX ON $35/b

Meanwhile, Apache, which based its 2016 capital budget of $1.4 billion-$1.8 billion on a $35/b oil price, said it has slightly kicked up activity. It recently added a rig in the Midland Basin of West Texas, will maintain operations on two North Sea platform rigs and is accelerating strategic testing initiatives which were not immediately outlined.

As a result, the company expects to spend at the high end of its capex range -- a level that has come down 85% since 2014, Apache CEO John Christmann said.

The company, which will continue budgeting conservatively, "feel[s] pretty good about even a $45 [price] deck," Christmann said. "If we'd budgeted that and added another $900 million of capex to North America this year, we'd have kept [that] production flat and lived within our means."

Apache's global pro forma production totaled 461,000 boe/d, made up of 282,000 boe/d in the North American onshore and 179,000 boe/d for international and offshore.

Total pro forma production volumes were down 4% sequentially and down 6% from the same year-ago quarter.

North American onshore production declined about 16,000 boe/d from Q1, but those declines were expected since the company placed just 20 new gross operated wells online in Q2, Christmann said.

Less than 5,600 boe/d of the decline came from the Permian where Apache has its highest North American margins -- about $17/boe in Q2, more than double those in its other North American operations.

The Permian accounted for 165,000 boe/d of Apache's Q2 production, or nearly 60% of its total North American onshore production, Christmann said.

--Starr Spencer, starr.spencer@spglobal.com
--Edited by Lisa Miller, lisa.miller@spglobal.com