Marathon Oil recognizes the concerns about the impact of greenhouse gas (GHG) emissions and other air emissions on global climate and air quality. We also realize that market changes could occur as a result of evolving climate change laws and regulations, as guided by U.S. policy and global agreements such as those adopted by the 2015 United Nations Climate Change Conference.
At the same time, we recognize the need for reliable and affordable energy and petrochemical feedstock to fuel global economic progress, and the important role oil and natural gas are projected to play in meeting long-term global demand. As part of Marathon Oil’s long-standing commitment to sustainability and managing climate-related risks, we work to quantify and mitigate our GHG emissions, use well-established business processes to evaluate climate change risk in our investment decisions, and engage with external stakeholders to understand their perspectives.
Identifying and Managing Climate-Related Risks
Our business strategy, which is overseen by the board of directors, is to be the lowest-cost, highest-margin U.S. resource play focused operator. We use several complementary methods to monitor and mitigate risks to our business strategy posed by commodity price changes resulting from market forces, including global climate change policies.Marathon Oil continuously reviews the impact that future climate change regulation could have on our business decisions. We believe that oil and gas development and production will remain crucial to the world economy, and our business model is focused on continued operation in this space.
Through the Enterprise Risk Management process, overseen by our board of directors, we examine regulatory changes, commodity price fluctuations and other risks that could impact the company beyond the current planning cycle.
Based on our business and risk profile, Marathon Oil allocates 95% of our capital expenditures to short-cycle, high-return unconventional resource plays, typically on a five-year basis. Marathon Oil makes capital investments after examining a variety of data, including commodity price forecasts prepared by IHS and Wood Mackenzie, that consider the impact of supply and demand in global markets, the market penetration of alternative fuels and potential climate policies, among other factors, on global commodity prices. We consider these third-party forecasts, along with company-specific insights and guidance, to prepare the Marathon Oil forecast. Potential investments are stress tested at or below the lower range of available forecasts to ensure they’re robust at lower price levels. Profitability and capital allocation are based on expected prices, and specific financial targets or strategic objectives must be met to sanction a project. Marathon Oil exercises discipline in our capital expenditures and maintains a relentless focus on lowering costs, which further reduces our exposure to price fluctuations.
Marathon Oil is well-positioned to act if a shift in business strategy is warranted to address climate-related risks. We have a long history of strategic adaptation that includes transforming from an integrated oil and gas company to an independent exploration and production company, and shifting our focus from global, conventional production to U.S. unconventional resource plays. We’ve also divested mature, higher-cost and higher-risk operations that no longer compete for capital allocation.
Climate Risk Reporting
In recognition of stakeholder concerns about the financial impacts of climate-related risks, Marathon Oil will publish our climate risk report by year-end 2019. The report will detail our governance, strategy, risk management and metrics around climate risk consistent with the format advocated by the TCFD (Task Force on Climate-related Financial Disclosures) framework.
Marathon Oil remains confident that these business processes – along with our use of technology, GHG and air emissions mitigation strategies, compliance with regulations and laws, and strong financial management practices – will allow us to continue to address climate-related risks, while delivering enduring shareholder value.
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