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Morningstar | Marathon Consistently Outperforming in the Eagle Ford and Bakken Plays. See Updated Analyst Note from 15 Feb 2019

We are ratcheting our fair value estimate to $18 per share after incorporating Marathon's fourth-quarter operating and financial results. This reflects lower-than-expected well costs, particularly in the Bakken, coupled with higher well productivity in several resource plays. We weren't giving enough credit for the firm's very strong track record in the Bakken and Eagle Ford plays. In the former, star wells in the core Myrmidon area regularly start out above 3,000 boe/d, but the average for all 2018 wells is closing in on 2,000 boe/d (aided by positive results in noncore areas, like Ajax). And in the latter, average 90-day initial rates are consistently over 1,000 boe/d despite typically short laterals. That applies even in Atascosa County, where we were expecting a higher drop-off in performance relative to the traditional sweet spot in Karnes.

As a reminder, the 2019 capital budget was set at $2.6 billion, including $2.4 billion of development capital. That reflects a slight increase over the 2018 development budget of $2.3 billion, though total spending will decrease as acreage and exploration spending will be dialed back. The increase is not a major concern, as the firm is comfortably living within cash flows, has a strong balance sheet, and has a lengthy runway of development opportunities across several shale basins that break even well below current commodity prices. The budget is expected to drive divestiture-adjusted year-on-year production growth of about 4% (oil volumes should grow by 10%).