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Marathon Oil Trims Capex Further, Updates Drilling Activity

Shares of Marathon Oil Corporation MRO surged 7.34% in yesterday’s trading following the announcement of its capital budget cut.The company recently decided to lower its 2020 capital expenditure again within a month for preserving liquidity amid the twin shocks of coronavirus-forced demand contraction and the oil price war between Russia and Saudi Arabia. Reduction in demand at a time of surplus supply caused a dramatic decline in crude oil prices, which have fallen 58.9% year to date.

At present, there are hardly any indications about an upward revision in oil consumption. Further, with governments worldwide imposing a complete lockdown to break the chain of the coronavirus spread, demand will persistently be weak.

Capital Budget Cut

The company is planning to curb capital spending by trimming an additional $600 million from the past guided range issued last month to $1.3 billion. It further implies a reduction of $1.1 billion from the original guidance of $2.4 billion. This updated capital budget implies only 50% of the company’s capital spending in 2019. With commodity prices now trending in the bearish territory as the coronavirus pandemic has been hurting global energy demand, the outlook for exploration and production business seems gloomy. Marathon Oil is hugely affected by the crude oil price crash. The stock has slumped 70.9% year to date.

 

Drilling Activity Update

This Houston, Texas-based E&P player plans to halt any further drilling activity in Northern Delaware with only a restricted number of wells to sales projected through the remainder of the year.

The revised restructuring plan comprises implementation of second-quarter frac holidays in the Bakken and Eagle Ford before transitioning to a lower and more consistent drilling and completion program over the second half of 2020 in both Basins.

Capital Budget Reduction Issued Last Month

In March, Marathon Oil chopped its 2020 capital investment by at least $500 million to $1.9 billion from the earlier provided capex outlook of $2.4 billion, indicating a 30% decrease from the reported capex figure of 2019.

The measures adopted by Marathon Oil for capex cuts will comprise a suspension of its drilling and completion activity in Oklahoma where the company has been operating three rigs and one hydraulic fracturing crew. Further, this leading energy player will carry on with its development projects in the Eagle Ford and Bakken at an optimum level. In addition, it will stop any Resource Play Exploration (REx) drilling and leasing activity by slashing its budget, which was originally estimated at $200 million for 2020.

Notably, this Zacks Rank #3 (Hold) Marathon Oil is not the only exploration and production entity that will slash its capital spending twice in recent times. Murphy Oil MUR, Ovintiv Inc. OVV and Devon Energy DVN too streamlined their expenditure plan twice in a month to sustain liquidity. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Marathon Oil Corporation (MRO) : Free Stock Analysis Report
 
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