Marathon Oil Corporation (NYSE:MRO) held its annual analyst meeting last week, and outlined its upstream strategy that the company will pursue over the next few years as it copes with a difficult macroeconomic outlook.
Marathon Oil will spend $3.5 billion on upstream capital expenditures in 2010. This will be split among its unconventional and conventional properties, the deepwater, and the oil sands. The company believes that it will be able to achieve a 4% compound annual growth rate of production from 2008 to 2011.
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Deepwater
Thirty-five percent of these capital expenditures are targeting Marathon's extensive portfolio of deepwater projects. The company has been working on the Droshky prospect located on the Green Canyon Block 244 in the Gulf of Mexico. The company expects first production to come on line in 2010, with peak production of 51,000 barrels oil equivalent (BOE) per day. Marathon Oil has a 100% working interest in this project.
Marathon Oil is also active in the Lower Tertiary formation in the Gulf of Mexico, and participated in the Stones and Shenandoah prospects well located on the Walker Ridge blocks. These two are at the early stage of development but will help with production growth at the end of the decade. Marathon Oil has a 10% working interest in Shenandoah, with Anadarko Petroleum (NYSE:APC) as the operator owning 30%, and ConocoPhillips (NYSE:COP) with a 40% stake in this discovery.
Oil Sands
Another 19% of capital exploration dollars next year are going into the oil sands of Canada. Marathon Oil owns 20% of the Athabasca Oil Sands Project located in Alberta, Canada. This project is a joint venture with Royal Dutch Shell (NYSE:RDS.B), which owns 60%, and Chevron (NYSE:CVX), which owns 20%. Marathon Oil and its partners are currently in the midst of an expansion here, and estimates that when the expansion is complete in 2011, Marathon's share of the production will be 50,000 barrels per day from this project.
Unconventional Oil and Natural Gas
Marathon Oil is also moving forward to develop its assets in the domestic shale plays that the smaller independent exploration and production companies have moved so quickly to exploit. In the Bakken Shale in North Dakota and Montana, Marathon Oil has 336,000 net acres under lease and is currently producing 10,000 BOE per day out of the area, and is operating four rigs there. The company expects production to peak at 15,000 in 2013.
Marathon Oil also has a more prospective position in the Haynesville and Marcellus Shale. In the Haynesville Shale, Marathon Oil has 25,000 net acres under lease but has barely started developing its acreage. The company is drilling only two wells in 2009, and three to four in 2010.
Marathon Oil has 70,000 net acres in the Marcellus Shale, but is also developing the play slowly as it acquires the technical knowledge to develop it correctly. The company drilled four wells in 2009, and plans eight to 12 in 2010.
Bottom Line
Marathon Oil is moving deliberately to develop its diversified upstream position as it reallocates capital to areas that are economical under the oil prices that are still half of what they were at the peak. (To learn more, see our Oil And Gas Industry Primer.)
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