Annual Report and Proxy
Dear Fellow Stockholders,
Reflecting on 2016, Marathon Oil continued to exercise flexibility and discipline during an extremely volatile year that saw WTI average below $44 with lows of $26 in the first quarter. Through this period we successfully strengthened our balance sheet, reduced capital spending, lowered production and G&A costs, enhanced productivity, and progressed non-core asset sales.
Not only did we accomplish our objective of living within our means inclusive of asset sales, we delivered E&P production above the midpoint of our guidance while spending significantly less than our original capital budget. We further simplified our portfolio through the successful execution of $1.3 billion in non-core asset sales, and opportunistically acquired a high quality position in Oklahoma’s STACK play.
Operationally, we grew production in the Oklahoma Resource Basins by 40 percent year-over-year, as we increased activity there. Our Oklahoma team focused on protecting our valuable acreage through leasehold drilling, delineation activity, and improving well performance through enhanced completion designs. In the Eagle Ford we continued driving efficiencies and achieved record low completed well costs while maintaining operations at scale. Additionally, our Bakken team brought some of the best middle Bakken and Three Forks wells to sales in the entire basin over the last three years, while also doing a remarkable job of maintaining base production levels with relatively few completions. Internationally, we brought online the Alba B3 Compression project in E.G. on time and on budget with first gas in the third quarter, extending plateau production and field life. Our unit costs for both North America and International were below the low end of their respective guidance ranges.
In 2017, we expect a return to sequential growth in the resource plays as we position the Company to achieve peer leading long-term production growth rates for both oil and BOE. Our view is that, while the near-term macro environment could remain volatile, improving global fundamentals will support higher prices over time. Our strategic intent remains squarely focused on our lower cost, higher margin U.S. resource plays, and in 2017 we expect more than 90 percent of our capital program to be allocated to these opportunities.
Our strong balance sheet has allowed us to participate in high quality resource capture opportunities, including last year’s STACK acquisition and this year’s entry into the Permian basin’s Northern Delaware play, which will be our fourth major resource play. The Northern Delaware is one of the fastest growing, highest-return investment opportunities among all U.S. unconventional resource plays with unparalleled vertical resource density, and it will immediately compete for capital allocation at the top of Marathon Oil’s organic portfolio. Concurrent with our Permian entry announcement in March, we also announced the divestiture of our Canadian oil sands mining business at an attractive value to further simplify and concentrate our portfolio. All of these actions serve to further align our portfolio to our strategic intent.
Over the last five years, we’ve made considerable progress on our path as an independent E&P with a substantial shift to the lower cost, higher margin opportunities in the U.S. resource plays. Our recently announced transactions, combined with what we achieved in 2016, represent additional significant steps in our journey. Yet through this transformative period, we remain steadfast in our commitment to be safe, responsible and ethical. Most importantly, we thank our dedicated and talented employees who work hard in every corner of this Company to execute on our strategy and deliver results. With a strong balance sheet, relentless focus on cost and efficiency, competitive portfolio, and ability to grow our business profitably, our future has never been brighter. 2017 is poised to be a remarkable year for Marathon Oil.
Lee M. Tillman
President and Chief Executive Officer
Dennis H. Reilley
Chairman of the Board of Directors
This letter to stockholders contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These are statements, other than statements of historical fact, that give current expectations or forecasts of future events, including without limitation: the Company’s operational, financial and growth strategies; the Company’s ability to successfully effect those strategies and the expected timing and results thereof; the Company’s 2017 capital program and the planned allocation thereof; expectations regarding future economic and market conditions and their effects on the Company; the Company’s ability and strategies to manage through the lower commodity price cycle; the Company’s financial and operational outlook, and ability to fulfill that outlook; the Company’s financial position, balance sheet, liquidity and capital resources, and the benefits thereof; resource and asset potential; growth expectations; and future production and sales expectations, and the drivers thereof. While the Company believes that its assumptions concerning future events are reasonable, we can give no assurance that these expectations will prove to be correct. A number of factors could cause results to differ materially from those indicated by such forward-looking statements including, but not limited to: conditions in the oil and gas industry, including supply/demand levels for crude oil and condensate, NGLs, natural gas and synthetic crude oil and the resulting impact on price; changes in expected reserve or production levels; changes in political or economic conditions in the jurisdictions in which we operate, including changes in foreign currency exchange rates, interest rates, inflation rates, and global and domestic market conditions; risks relating to our hedging activities; capital available for exploration and development; drilling and operating risks; well production timing; availability of drilling rigs, materials and labor, including the costs associated therewith; difficulty in obtaining necessary approvals and permits; non-performance by third parties of their contractual obligations; unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto; cyber-attacks; changes in safety, health, environmental, tax and other regulations; other geological, operating and economic considerations; and the risk factors, forward-looking statements and challenges and uncertainties described in the Company’s 2016 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases available at www.marathonoil.com. Except as required by law, the Company assumes no duty to revise or update any forward-looking statements whether as a result of new information, future events or otherwise.