Marathon Joins Growing Number Of Shale Producers Slashing Spending

Marathon Oil Corp. on March 10 slashed its capex by about 30% from a year earlier, as the Houston-based company joins a growing number of shale producers pulling back on drilling plans following a slump in oil prices.

“In response to the recent commodity price volatility from simultaneous supply and demand shocks, we’re taking swift and decisive action to defend our cash flow generation, protect our balance sheet, and fund our dividend,” Lee Tillman, Marathon Oil’s chairman, president, and CEO, said in a statement.

Oil plunged about 25% on March 9, but have since rebounded. WTI crude rose $2.73, or 8.8%, to $33.86 by 1:34 p.m. CDT.

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A day earlier, Diamondback Energy Inc. and Parsley Energy Inc. released plans to scale back drilling throughout the year in the Permian Basin, where both companies are focused. Ring Energy Inc. also said it planned to stop drilling in the Northwest Shelf area of the Permian until prices improve.

In North Louisiana, Riviera Resources Inc. said it was delaying plans to start drilling in the Ruston Field in response to the plunge in oil prices. Meanwhile, California Resources Corp. reduced its capital investment “to a level that maintains our operations in a safe and responsible manner,” said the company’s CEO, Todd Stevens.

On March 10, Marathon Oil cut its 2020 capex to $1.9 billion, $500 million lower than its prior forecast.

The company, which has a multibasin portfolio, said it will suspend all drilling in Oklahoma, where operations are centered on the Stack and Scoop shale plays. In the Northern Delaware region on the Permian, plans are to scale back drilling. Meanwhile, the company will optimize its development programs in the Eagle Ford and Bakken shale basins. 

Analysts with Tudor, Pickering, Holt & Co. (TPH) applauded Marathon’s “swift reduction,” but noted more cuts might be needed.

“While it’s good to see management act fast regarding the current environment, our rough take at modeling to strip shows that these cuts will likely need to be followed by another series of reductions at least equal in size in order to minimize outspend as management continues to monitor the situation,” TPH analysts wrote in a March 10 research note.

Click here for historical data on Marathon Oil’s operations across the U.S.

Ovintiv Inc., another shale producer with a multibasin portfolio, also stated plans to reduce near-term capital but didn’t disclose any details. Instead, the Denver-based company, formerly known as Encana, focused on its liquidity and flexibility to adapt to market conditions.

“We will be reducing our near-term capital spending to ensure we maintain free cash neutrality in the current market conditions,” Doug Suttles, Ovintiv CEO, said in a March 9 statement. “When combined with cost savings, we are confident that we can do this while maintaining the scale of our business.”