HOUSTON—Like other oil companies operating in an evolving energy sector, Marathon Oil Corp. remains focused on capital discipline as it optimizes development and takes advantage of the optionality that comes with being a multi-basin operator.

Navigating headwinds—whether they are takeaway capacity challenges in the Permian Basin, volatile oil prices or regulatory uncertainty—and having the ability to pivot has become a necessity for oil and gas players in the U.S. shale plays.

“Almost all of our growth is focused on onshore growth from the U.S. and we’ve got material positions in the four best liquids plays,” Todd Abbott, vice president of resource plays for Marathon Oil, told attendees of the latest KCA Houston Energy Breakfast.

If challenges arise in one basin, Abbott said using tightness in takeaway capacity in the Permian in 2018 as an example, the company is able to divert capital to other assets. In this instance, Marathon dropped a rig in the Permian to slow down growth until the headwinds cleared.

“That optionality, we think, is a huge advantage for us,” Abbott said, later pointing out how assets such as those in the Eagle Ford feed cash flow to other growth assets. “You have this kind of synergy...where you bring assets in different life cycles that foster the growth of the next one,” he said, noting there are others to come behind the company’s existing assets in the Bakken, Eagle Ford, Oklahoma’s Scoop/Stack and the Permian Basin’s Northern Delaware.

The Houston-headquartered company is divesting its U.K. North Sea assets. The sale is expected to be the last piece of its portfolio transformation as the company carries out a $2.6 billion capital program. That’s down from about $2.4 billion last year when the company resisted the temptation to increase spending as commodity prices improved, instead directing incremental free cash flow to shareholders and to capture resources, according to Abbott.

Marathon’s Eagle Ford team grew production by 7% in 2018, although it was asked to hold production flat, thanks in part to improved completion designs and spacing. “This team actually went out [last year] in some of the marginal areas of their acreage position and were able to add almost 500 economic locations,” Abbott said speaking about the company’s relentless drive for continuous improvement.

Although the Eagle Ford is seen as a mature basin, Abbott said that “doesn’t mean we’re done exploring. … We get smarter every year.”

The continuous volatile nature of the oil business and the drive for efficiency has also led to changes on the oilfield services side.

Trent Lee, managing director for Schlumberger’s Gulf Coast region, spoke about how the company has evolved as the market has been more stable following the downturn. Schlumberger is now selling and renting equipment to companies once considered competitors, he said.

“It’s a win for them and it’s a win for us,” Lee said, adding Schlumberger has also joined an online service to sell products.

Meanwhile, the digital revolution continues with machine learning and predictive analytics. From a center in Dallas, the oilfield service company sends out warnings that flag certain equipment nearing failure. “It’s changing the way we’re doing things in the oil field,” Lee said, adding the company has also partnered in new ways.

Schlumberger teamed up with Occidental Petroleum Corp. for Aventine, a logistics and maintenance hub that is expected to save the operator about $500,000 per well.

Efficiencies gained in recent years are helping buffer the industry from oil price volatility, he said. “As prices drop we are buffered more by our efficiencies. We’re buffered by better drilling practices. We’re buffered by better completion practices that give us better production,” Lee said of the industry.

This all comes as the U.S. remains on track to grow oil production.

Ramanan Krishnamoorti, chief energy officer for the University of Houston, pointed out that production in the Permian alone has swelled to about 3.5 million barrels per day (MMbbl/d), compared to about 1 MMbbl/d in 2010. Permian production is projected to climb to about 7.5 MMbbl/d by 2023.

But there are some risks associated with the growth not just from the Permian, but the 1.1 million barrels per day in additional production expected this year across the U.S.

There are concerns about the rate of demand growth; risks surrounding production from Iran and Venezuela; how long OPEC will “sit on the sidelines;” and when the next recession could hit, according to Reagan (RT) Dukes, research director for Wood Mackenzie.

“The U.S. has been very disruptive from an oil production standpoint,” Dukes said. “I think we’re still trying to quantify what that means.”

Although U.S. production is expected to grow, with oil majors Chevron Corp. and Exxon Mobil Corp. planning to ramp up Permian production, shale plays across the nation have run into problems, he said. These have included gas-oil ratios, reservoir pressure and parent-child well interference in the Permian; infrastructure in the Bakken; regulatory issues in the Marcellus; downspacing in the Eagle Ford and gas prices in the Haynesville—to name a few.

Another challenge, as noted by Krishnamoorti, is getting all of the light sweet crude out of the U.S., considering port capacity has not kept up the pace.

Still, opportunities are abundant. Dukes highlighted growth potential in places such as Louisiana’s Austin Chalk, Wyoming’s Powder River Basin and second-tier areas in the Permian Basin.

“We don’t see another Permian, but we could see 10 different opportunities that could add up to 1 million barrels per day,” Dukes said. “So, outperformance maybe isn’t done.”

Additional business opportunity could lie in a different area altogether—carbon capture, utilization and sequestration (CCUS), according to Krishnamoorti. There has not been much progress in CCUS in the last 30 years; however, that could change as focus shifts to the utilization side, he said. CO₂, which is already used for EOR, could also be converted to fuel or plastic.

Velda Addison can be reached at vaddison@hartenergy.com.

Onshore