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Morningstar | Marathon Has a Footprint in the Top 4 Oil-Weighted Shale Plays in the U.S.

Marathon Oil was forced to slow its activity during the downturn in global crude prices but it continued to invest in U.S. shale, which offers more compelling development economics than the conventional projects the company historically focused on. Since August 2015, management has comprehensively reshuffled the portfolio by adding unconventional acreage and selling a host of lower-margin assets that were unlikely to attract capital. Going forward, the firm's growth will be driven by four high-margin shale plays (the Permian, Bakken, Eagle Ford, and Oklahoma resource plays).Marathon's Permian assets are the most recent addition to its portfolio. The firm has accumulated 91,000 net acres in the northern portion of the Delaware Basin, in what we think is the most lucrative part of the lowest-cost U.S. shale basin. It's a fairly fragmented position, limiting the scope for long-lateral development (management is attempting to address this with acreage trades, bolt-on acquisitions, and acreage swaps). Well results thus far have been impressive, and consistent with a West Texas Intermediate break-even level under $35 per barrel.In other plays, the firm has been focusing on "sweet spots" that offer similarly strong economics. For instance, the Myrmidon area in North Dakota contains some of the best Bakken wells ever drilled. But that accounts for only a third of Marathon's position there, and the rest isn't expected to perform at the same level. Well performance varies in the Eagle Ford, too--the company is concentrating on Karnes County currently, but flow rates are typically slightly lower in Atascosa, where much of its acreage is. And in Oklahoma, the overpressured window that drives stellar results in the emerging STACK play encompasses only a portion of Marathon's footprint, resulting in lower productivity (and thus, higher break-evens) in the northeast. Overall, the long-term success of the company will depend on how effectively it can cut costs and bolster productivity in the less attractive portions of its portfolio. We are cautiously optimistic, based on the strength of the wells it has drilled so far in so-called "noncore" areas like the ones outlined above.