Marathon Oil Corporation has announced its 2019 capital expenditure budget in addition to its fourth quarter and full-year 2018 financial results. The 2019 plan and 2018 financial and operating results together reflect the Company's ongoing commitment to its core strategy: corporate returns improvement, sustainable free cash flow generation at conservative oil prices, and the return of capital to shareholders.

2019 Capital Budget Highlights

Total 2019 capital budget of $2.6 billion, down from 2018

• Total capital budget includes approx. $2.4 billion of development capital and approx. $200 million of resource play leasing and exploration (REx) spend
• Organic free cash flow positive above approx. $45/bbl WTI, post-dividend
• Designed to generate meaningful organic free cash flow at $50/bbl WTI, post-dividend

Cumulative two-year (2019-2020) organic free cash flow of over $750 million at flat $50/bbl WTI and over $2.2 billion at flat $60/bbl WTI

• Continue to prioritize sustainable free cash flow and return of capital to shareholders
• Shareholder return of capital metric incorporated into executive compensation scorecard complementing already well-established corporate cash return on invested capital (CROIC) and cash flow per debt adjusted share (CFPDAS) metrics

Capital efficient U.S. oil growth of 12% in 2019 with annual gross operated wells to sales flat to 2018

• Total Company oil growth of 10% in 2019
• High value oil growth exceeds BOE growth, an outcome of returns-first capital allocation

More than 95% of $2.4 billion development capital budget allocated to the four U.S. resource plays with approx. 60% to the Eagle Ford and Bakken and approx. 40% to Oklahoma and the Northern Delaware

• Continues underlying rate of change improvement in key enterprise financial performance metrics of CROIC and CFPDAS
• Development capital includes dedicated funding to organic resource base enhancement initiatives including core extension efforts

REx spend is expected to decline to a more ratable $200 million, supporting progression of Louisiana Austin Chalk and other emerging opportunities with a focus on full-cycle returns

Full-year 2018 Results

Marathon Oil reported full-year 2018 net income of $1,096 million, or $1.29 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $601 million, or $0.71 per diluted share. Net operating cash flow was $3,234 million, or $3,211 million before changes in working capital.

Full-year 2018 Highlights

• Delivered on commitment to capital discipline with no change to initial $2.3 billion development capital budget
• Realized 78% annual improvement in CROIC and 65% annual improvement in CFPDAS
• Generated more than $865 million of organic free cash flow, post-dividend
• Prioritized return of capital to shareholders by paying annual dividend of $169 million and executing $700 million of share repurchases, leaving $800 million of remaining repurchase authorization; over 25% of 2018 net operating cash flow returned to shareholders
• Improvement in capital efficiency drove oil production outperformance; total Company oil production growth of 24%, divestiture adjusted, outperformed initial midpoint guidance of 18%; U.S. resource play oil production growth of 32% outperformed initial midpoint guidance of 22.5%
• Maintained focus on resource base enhancement and full-cycle returns by advancing successful core extension tests in Eagle Ford and Bakken and progressing REx program; acquired approx. 260,000 net acres at less than $850 per acre in the emerging Louisiana Austin Chalk play
• Continued portfolio management with successful sale of Libya and receipt of final payment for the sale of oil sands mining business; disposition proceeds more than fully funded REx and all other resource capture activities, including successful participation in the New Mexico Bureau of Land Management (BLM) lease sale
• Drillbit F&D costs of less than $12.50/boe at 125% reserve replacement
• Further strengthened balance sheet and financial flexibility by increasing cash and cash equivalents by $900 million to $1.5 billion at year-end

"2018 was a year of differentiated execution for Marathon Oil," said Chairman, President and CEO Lee Tillman. "While many in our industry talked about capital discipline, we delivered. In 2018, we budgeted conservatively and never wavered, getting more for every dollar of capital we invested. We drove significant improvement to our corporate returns and cash flow per debt adjusted share. Through improving capital efficiency we delivered more oil growth, generated $865 million of organic free cash flow post-dividend, and returned most of that cash back to our shareholders via share repurchases. As we turn to 2019 and beyond, we remain committed to this same framework for success. With the foundation of a peer leading balance sheet and the competitive advantages of our multi-basin portfolio, our 2019 capital program will drive improving corporate returns and generate organic free cash flow above $45 WTI, as we continue to prioritize return of cash to our shareholders."

Fourth Quarter 2018 Results

Marathon Oil reported fourth quarter 2018 net income of $390 million, or $0.47 per diluted share. Adjusted net income was $121 million, or $0.15 per diluted share. Net operating cash flow was $855 million, or $787 million before changes in working capital.

Fourth Quarter 2018 Highlights

• Generated more than $255 million of organic free cash flow, post-dividend
• Development capital spend at $503 million, down 10% sequentially
• Total Company production averaged 411,000 net boed; total oil production averaged 206,000 net bopd, up 17% from the year-ago quarter, divestiture adjusted
• U.S. resource play production averaged 295,000 net boed; oil production averaged 174,000 net bopd, up 22% from the year-ago quarter
• Eagle Ford production averaged 107,000 net boed; 38 wells achieved an average 30-day IP rate of 1,810 boed (72% oil)
• Bakken production averaged 94,000 net boed; core extension test in Ajax area of Dunn County meaningfully exceeded expectations with four-well pad achieving an average 30-day IP rate of 2,370 boed (81% oil) at an average completed well cost of approx. $5 million
• Oklahoma production averaged 67,000 net boed; transition to multi-well pads continued with another successful SCOOP Woodford infill development that also included a positive Springer delineation test
• Northern Delaware production increased to 26,000 net boed; 12 gross Company-operated wells to sales with an average 30-day IP rate of 1,935 boed (49% oil)

U.S.

U.S. production averaged 306,000 net barrels of oil equivalent per day (boed) for fourth quarter 2018, including oil production of 180,000 net barrels of oil per day (bopd). Oil production was up 4 percent compared to the prior quarter and up 22 percent from the year-ago quarter on a divestiture-adjusted basis. Fourth quarter production from the U.S. resource plays was 295,000 net boed, including oil production of 174,000 net bopd. Fourth quarter U.S. unit production costs were $5.31 per barrel of oil equivalent (boe), a sequential reduction of 14 percent.

EAGLE FORD: Marathon Oil's Eagle Ford production averaged 107,000 net boed in the fourth quarter, up 2 percent from the year-ago quarter. The Company brought 38 gross Company-operated wells to sales in the quarter with an average 30-day initial production (IP) rate of 1,810 boed (72% oil).

BAKKEN: In fourth quarter 2018, Marathon Oil's Bakken production averaged 94,000 net boed, up 37 percent from the year-ago quarter. Oil production was up over 40 percent from the year-ago quarter. The Company brought 27 gross Company-operated wells to sales with an average 30-day IP rate of 3,335 boed (76% oil), with activity primarily concentrated in Myrmidon. The Company also conducted a successful core extension test in the Ajax area of Dunn County, as the four-well Gloria pad achieved an average 30-day IP rate of 2,370 boed (81% oil) at an average completed well cost of approx. $5 million.

OKLAHOMA: Marathon Oil's Oklahoma production averaged 67,000 net boed during fourth quarter 2018, up 4 percent from the year-ago quarter, with only 12 gross Company-operated wells brought to sales. In the SCOOP Woodford, seven infill wells on the 3R pad (eight wells per section spacing) achieved an average 30-day IP rate of 2,600 boed (69% liquids). On the same pad, Marathon Oil also brought online a Springer delineation well that achieved a 30-day IP rate of 1,825 boed (81% oil).

NORTHERN DELAWARE: Marathon Oil's Northern Delaware production increased to an average of 26,000 net boed in fourth quarter 2018, up 138 percent from the year-ago quarter. The Company brought 12 gross Company-operated wells to sales in the Malaga and Red Hills areas with an average 30-day IP rate of 1,935 boed (49% oil), or 360 boed per 1,000 foot lateral. Fourth quarter activity was primarily focused on delineating the Company's acreage position, including Lower Wolfcamp spacing tests in Malaga. During the fourth quarter, the Company executed a comprehensive water management agreement covering the entire Red Hills prospect area, complementing a previously announced agreement in Eddy County.

RESOURCE CAPTURE: Outside of the development capital program, fourth quarter REx capital spending totaled $75 million, consistent with guidance, and bringing full-year 2018 REx spending to $369 million. In addition to REx, full-year 2018 resource capture also included the previously announced $105 million bolt-on acquisition in New Mexico through the BLM lease sale. Total 2018 resource capture spend of $474 million was more than fully funded through divestiture proceeds received in first quarter 2018.

International

International production averaged 105,000 net boed for fourth quarter 2018, down 13 percent compared to the year-ago quarter on a divestiture-adjusted basis. The decrease reflects unscheduled downtime at the non-operated Foinaven complex as well as natural decline and planned maintenance activities in E.G. Fourth quarter 2018 International unit production costs averaged $5.40 per boe.

Production Guidance

For full year 2019, the Company forecasts total oil production growth of 10 percent, with U.S. oil growth of 12 percent, both at the midpoint of guidance and on a divestiture adjusted basis. Oil growth is expected to outpace boe production growth, consistent with a focus on corporate returns. For first quarter 2019, the Company forecasts total oil production of 195 - 215 bopd, with U.S. oil production of 175 - 185 bopd. The first quarter 2019 U.S. production guidance range accounts for extreme weather conditions experienced early in the quarter. The first quarter 2019 International production guidance range reflects a planned triennial shutdown in E.G. to conduct turnaround activity, consistent with prior disclosure.

Reserves

During 2018, Marathon Oil added proved reserves of 186 million boe for a reserve replacement ratio of 125 percent excluding dispositions, at a drillbit finding and development (F&D) cost of $12.41. Virtually all of the additions were in the U.S. Net proved reserves were approximately 1.28 billion boe at year-end 2018, down from year-end 2017 primarily due to the disposition of Libya.

Link to Marathon Oil US onshore country profile