Marathon Oil(US:MRO)2020-08-06 19:31Financial Data and Key Metrics Changes - The company limited its capital expenditures (CapEx) to $137 million in Q2 2020, a significant reduction in response to the downturn in commodity prices [11] - Total oil production was reported at 197,000 barrels per day, despite voluntary curtailments of 11,000 barrels per day [11][12] - U.S. unit production costs decreased to $4.09 per barrel, marking a nearly 20% reduction compared to the 2019 average [12][18] - The full-year 2020 capital spending guidance was reduced from $1.3 billion to $1.2 billion, while the oil production outlook was raised to 190,000 barrels per day [13][14] Business Line Data and Key Metrics Changes - The company focused on capital allocation to the Eagle Ford and Bakken regions, expecting well costs per lateral foot to decrease by more than 20% in the second half of 2020 compared to 2019 [13][14] - The company successfully transitioned back to work in July, running three rigs and two frac crews across the Eagle Ford and Bakken [15] Market Data and Key Metrics Changes - Global oil demand has improved from the lows experienced during the COVID-19 pandemic, although macroeconomic uncertainty remains high [10] - The corporate free cash flow breakeven is projected to be in the low $30 per barrel range for the second half of 2020, indicating strong free cash flow generation potential at current pricing [21] Company Strategy and Development Direction - The company aims to prioritize financial strength, protecting its balance sheet, liquidity, and cash flow generation [20] - A focus on capital efficiency and cost reduction is emphasized, with a target reinvestment rate below 80% of cash flow generation [24] - The company is not pursuing large-scale mergers and acquisitions but remains open to opportunities that meet strict financial criteria [42][45] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by the COVID-19 pandemic but highlighted the company's resilience and commitment to operational excellence [7][8] - The company expects to generate significant free cash flow in 2021, with a benchmark maintenance case breakeven of approximately $35 per barrel [21][22] - Management expressed confidence in the long-term value of its assets, particularly in the context of improving commodity prices [36] Other Important Information - The company has implemented cash cost reduction efforts, expecting to realize $260 million in total cash cost savings for the year [18] - Total liquidity remained substantial at over $3.5 billion at the end of the quarter, maintaining investment-grade ratings from credit agencies [20] Q&A Session Summary Question: Thoughts on free cash flow under a maintenance scenario for 2021 - Management confirmed that estimates for free cash flow are in the right range, with a focus on prioritizing debt reduction and returning capital to shareholders [28][31] Question: Outlook for Equatorial Guinea (EG) in 2021 - Management highlighted the long-life, low decline nature of EG assets and the potential for cash flow stabilization despite commodity price fluctuations [35][36] Question: Clarification on updated 2021 maintenance commentary - The updated breakeven of $35 reflects improved capital efficiency and greater certainty around maintenance scenarios [40] Question: Portfolio approach and potential for adding scale - Management reiterated a focus on balance sheet strength and shareholder returns rather than large-scale acquisitions [41][42] Question: Impact of recent legal decisions on Bakken strategy - Management viewed the recent ruling as a net positive, with resilient economics in the Bakken and limited direct exposure to the pipeline [48][49] Question: Hedging philosophy for 2021 - Management indicated a cautious approach to hedging, preferring to protect upside leverage while being opportunistic in the market [61][64] Question: Clarification on the REx program and reinvestment rates - The REx program is included in the broader capital allocation discussion and will compete within the reinvestment percentage [66][67] Question: CapEx and cash flow expectations for 2021 - Management confirmed that the focus is on generating positive free cash flow while maintaining capital efficiency [76]