Marathon Oil Corp. CEO Clarence Cazalot said the company's purchase of 141,000 net acres in the Eagle Ford Shale from Hilcorp Resources Holdings LP for $3.5 billion was exceeding expectations, with production totaling nearly 1,000 boe/d on Tuesday, Marathon's first official day as operator (see Shale Daily, June 2).
During a conference call with financial analysts on Tuesday to discuss the Houston-based company's 3Q2011 results, Cazalot said the company was close to acquiring additional acreage in the Eagle Ford that would increase its position to more than 300,000 net acres by the end of 2011, with an exit rate of about 18,000 boe/d.
"Combined with our substantial positions in the Bakken and Anadarko Woodford, along with the emerging Niobrara Shale play, these [Eagle Ford] assets will provide the greatest amount of the company's production growth, enabling us to deliver 5-7% compound average production growth -- 80% of which is estimated to be liquids -- from 2010 to 2016," Cazalot said.
The acreage Marathon purchased from Hilcorp -- encompassing 217,000 gross acres -- is primarily in Atascosa, Karnes, Gonzales and DeWitt counties in Texas.
Cazalot added the company projects 2012 total production would be 5% higher from 2011, excluding any potential production from Libya. He also said the company predicts U.S. production in the Lower 48, excluding the Gulf of Mexico, would rise from an average 75,000 boe/d in 3Q2011 to between 120,000 and 130,000 boe/d in 4Q2012, a 60% to 73% increase.
"Clearly, it's the Eagle Ford and the Bakken, and perhaps the Woodford, that are the primary drivers of that growth year-on-year, '11 to '12," Cazalot said.
Marathon reported net income of $405 million (57 cent/share) for 3Q2011, a 42% decline from the same quarter last year, when the company posted net income of $696 million (98 cents/share). The company attributed most of a higher tax rate during 3Q2011 to foreign tax credits it did not expect to utilize in the future, resulting in a noncash charge of $227 million.
The company also said it had repurchased about 12 million shares of common stock for $300 million. Cazalot said the buyback was a strategic move to take advantage of a $25/share price. "We felt it was a prudent move to be in the market, repurchasing those shares," Cazalot said. "We have said all along that share buybacks are an element of our cash flow priorities. But as we've said consistently, our number one priority is reinvesting back in the business. And I think you've certainly seen that here in this quarter."
Marathon reported U.S. exploration and production (E&P) income of $81 million during 3Q2011, down from $99 million during 3Q2010, an 18% decrease. The company said E&P fell because of higher exploration expenses associated with seismic activity and the write-off of two wells in south Texas.
Sales figures showed Marathon sold 296 MMcf/d of natural gas and 69,000 b/d of natural gas liquids (NGLs), both from U.S. sources, during 3Q2011. Those sales figures were both lower than last year's third quarter, when 363 MMcf/d of natural gas and 80,000 b/d of NGLs were sold.
The company completed its spin off of Marathon Petroleum Corp. (MPC) -- its former refining, marketing and transportation business -- on June 30. MPC is based in Findlay, OH.