Marathon Oil Corporation (MRO)
Q4 2012 Earnings Call
February 6, 2013 2:00 PM ET
Howard Thill – VP, IR and Public Affairs
Clarence Cazalot – Chairman, President and CEO
Janet Clark – EVP and CFO
Doug Leggate – Bank of America
Paul Sankey – Deutsche Bank
Evan Calio – Morgan Stanley
Arjun Murti – Goldman Sachs
Guy Baber – Simmons & Company
Blake Fernandez – Howard Weil
Scott Willis – Credit Suisse
Paul Cheng – Barclays
Faisel Khan – Citigroup
Kate Minyard – JP Morgan
John Malone – Global Hunter Securities
Amir Arif – Stifel Nicolaus
Eliot Javanmardi – Capital One
Pavel Molchanov – Raymond James
John Herrlin – Societe Generale
Previous Statements by MRO
» Marathon Oil Management Discusses Q3 2012 Results - Earnings Call Transcript
» Marathon Oil Management Discusses Q2 2012 Results - Earnings Call Transcript
» Marathon Oil Management Discusses Q1 2012 Results - Earnings Call Transcript
» Marathon Oil Management Discusses Q4 2011 Results - Earnings Call Transcript
Slide two contains a discussion of forward-looking statements and other information included in this presentation. Our remarks and answers to questions today will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
In accordance with Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in its Annual Report on Form 10-K for the year ended December 31, 2011 and subsequent forms 10-Q and 8-K cautionary language identifying important factors, but not necessarily all factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
Please note in the appendix to this presentation, there is a reconciliation of quarterly net income to adjusted net income for 2011 and 2012 first quarter and full year 2013 operating estimates and other data that you may find useful.
We’ll now move to slide three, and I’ll turn the call over to Clarence Cazalot to review 2012 operational results.
Thank you, Howard and good afternoon. 2012 was a very successful year for Marathon, characterized by strong operating results that met and in several cases exceeded our targets. As shown on slide three since the beginning of 2010, our quarterly E&T production available for sale has grown approximately 32%. This growth excludes Libya because of the civil unrest there in 2011. You’ll specially note the growth over the past two quarters which was driven by our lower 48 onshore production.
Slide four demonstrates the more than doubling of our lower 48 onshore production from the third quarter 2011 to the fourth quarter of 2012. The 2012 third to fourth quarter growth alone was 17%. Importantly, liquids volumes increased from 55% to 70% of total volumes from the third quarter of 2011 to the fourth quarter of 2012 with a preference to oil and condensate. We estimate reaching between 165,000 and 175,000 barrels of oil equivalent per day in the first quarter 2013 and we’ve again set a forward target with fourth quarter production expected to be between a 185,000 and 205,000 barrels of oil equivalent per day.
Slide five shows that our liquid hydrocarbon sales volumes for E&P and oil sands mining excluding Libya increased 6% from 297,000 barrels per day in the third quarter to 313,000 barrels per day in the fourth quarter. Again, this increase was driven by the U.S. resource plays, particularly the Eagle Ford as well as higher sales volumes in the UK offset by lower EG volumes. You will note that U.S. sales volumes have increased from 37% of the total in the third quarter of 2012 to 42% in the fourth quarter of 2012.
Slide six shows the same comparison for actual fourth quarter 2012 to estimated first quarter 2013 sales volumes and the U.S. sales volumes are expected to continue to grow as a percentage of the total. You’ll also note that we expect to take our first listings from Angola in the first quarter.
Slide seven shows our international E&P cost structure per BOE by category over the past eight quarters. Our operated international production in Norway, Equatorial Guinea and the UK have maintained excellent reliability and this effort is not only reflected in our production levels, but also in maintaining our cost structure over the last two quarters.
Slide eight, which excludes Libya, shows that as we enter 2013, we anticipate increases to the international cost structure. This is a combination of the projected decline in our Norway production as I just mentioned the start of production from the non-operated Angola block 31 PSVM development.
While we’re seeing some increase here, I would point out that our overall international cost per BOE are still quite low.
As shown on slide nine, total U.S. E&P cost per BOE increased quarter-over-quarter primarily because of higher DD&A rates in the growing Eagle Ford and higher exploration expenses in the Gulf of Mexico.
Slide 10 compares the actual 2012 and estimated 2013 operating cost per BOE per U.S. E&P in the Eagle Ford. Importantly, you will note that our cash cost field level controllable and other are decreasing on a BOE basis reflecting our growing domestic production.
However, U.S. TD&A levels are increasing on a per BOE basis, largely as a result of a higher DD&A rate for Eagle Ford barrels, which are increasing from about 18% of our U.S. production in 2012 to about 40% in 2013.
In the Eagle Ford, as in most developing growth place, DD&A rates in the early years were higher, because initial reserve bookings do not reflect full life EURs and these rates come down as performance justifies additional reserve bookings.
Moving to slide 11, I’ll take just a moment to comment on our execution in our three key resource place. Beginning with Eagle Ford where we have 230,000 net acres in the core part of that play. As you know, we exited 2012 with over 65,000 net BOE per day, which is in line with what we had committed and we’ve averaged 70,000 BOE per day in January.
We’ve increased our 2013 target from 70,000 net BOE per day to 85,000 net BOE per day. We’re currently running 18 rigs and five frac crews in the Eagle Ford, and we continue to improve our spud-to-spud times an averaged 19 days in January.