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Marathon Oil Cuts Capex by 30% to Weather Falling Oil Prices

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The recent weakness in the commodity prices prompted energy players to rethink their strategies as well as reconsider capex cuts. Notably, after abiding by the capital discipline during the crude downturn (from mid-2014 to 2016), energy companies again resorted to escalate their capital expenditure since 2017. However, a pullback in the commodity price convinced explorers and producers to take a relatively conservative approach to capex programs again this year. Instead of raising their capital outlays, the energy companies are now finding it more prudent to focus on maximizing shareholder value.

West Texas Intermediate started the year with a little above $60 per barrel of oil. However, this rally was pretty short-lived with the commodity price plunging to multi-year lows to settle at $31.13 on Mar 9.

Reacting to this sudden oil price slump, Marathon Oil Corporation (MRO - Free Report) recently chopped its 2020 capital investment by a minimum of $500 million from the earlier provided capex outlook of $2.4 billion to nearly $1.9 billion, indicating a 30% reduction from the reported capex figure of 2019.

Marathon Oil Corporation Price

The measures adopted by Marathon Oil for capex cuts will comprise a suspension of its drilling and completion activity in Oklahoma where the company has been operating three rigs and one hydraulic fracturing crew. Further, this Houston, Texas-based company will carry on with its development programs in the Eagle Ford and Bakken at an optimum level and “meaningfully reduce” its drilling and completion activity in the Northern Delaware where it’s overseeing four rigs and one hydraulic fracturing crew. In addition, it will halt any further Resource Play Exploration (REx) drilling and leasing activity by slashing its budget, which was originally set at $200 million for 2020.

Importantly, the company will continue to keep an eye on the commodity price movement, aligning itself with the capital spending adjustment plans further in response to a volatile price scenario with lowest possible long-term commitments to services and materials. 

Finally, investors should know that Marathon Oil was successful in sustaining a solid financial foundation in 2019 with $3.9 billion of liquidity and no near-term debt maturities. 

Zacks Rank & Key Picks

Marathon Oil has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are Contango Oil & Gas Company , Earthstone Energy, Inc. and Apache Corporation (APA - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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