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Oil Giant Cuts 2020 Budget By 11% As Prices Bite

Marathon Oil has budgeted $2.4 billion for this year in what it called disciplined total capital budget, which was 11 percent lower than what the company spent last year, Marathon said in the report of its fourth-quarter and full-2019 results.

Marathon booked a net profit of $480 million for 2019 and a net loss of $20 million for the fourth quarter, missing analyst estimates, but not unsurprisingly given the oil price environment that has eaten into many of the industry’s profits.

While the company reported improvements in well costs and asset sales as it streamlined its operations so that it could focus on core assets at home and a few international locations, the budget for 2020 suggests that Marathon will continue to be careful with spending. This, in turn, highlights the fact that despite lowering production costs in the shale patch, producers are still vulnerable to low prices.

The company expects its domestic oil production this year to rise by about 6 percent despite the lower spending. It also expects the same rate of growth for 2021, but this would be contingent on price levels for West Texas Intermediate. Last year, for example, the drop in WTI pushed realized oil prices for Marathon by 2.1 percent to an average of $54.83 a barrel, the company also said in its report.

Marathon Oil said it had returned $510 million to shareholders, of which $350 million were share buybacks and $160 million were dividends. The company noted that the capital it returned to shareholders came entirely from organic free cash flow. This sets Marathon apart from some Big Oil majors, which are returning to shareholders more than they are making, a study from the Institute for Energy Economics and Financial Analysis recently suggested.

Marathon, according to its report, seems to be doing better.

"We continue to improve our underlying corporate returns, we've delivered positive organic free cash flow for eight consecutive quarters, and we've returned over 20% of our cash flow from operations back to our shareholders since the beginning of 2018,” President and CEO Lee Tillman said in the Q4/full-2019 news release.

By Irina Slav for Oilprice.com

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