Marathon Oil Corp. announced Wednesday a $5.267 billion capital, investment and exploration budget for 2011, consistent with prior guidance and a 9 percent increase from 2010 capital spending.
"Having completed a number of major investment projects over the last few years, Marathon's 2011 budget has shifted toward an emphasis on more scalable and lower-risk activities, largely aimed at liquids rich opportunities such as the Bakken, Anadarko Woodford, Eagle Ford and Niobrara resource plays in the U.S.," said Clarence P. Cazalot, Jr., Marathon president and CEO. "Oil projects make up more than 80 percent of our Upstream budget; and importantly, we continue to grow the percentage of Marathon-operated projects within our portfolio with roughly two-thirds of our 2011 spending being directed toward Company-operated activity, affording us greater control of outcomes and flexibility in changing conditions.
"Our total planned capital spending in the Upstream segments is approximately $3.7 billion or 71 percent of total spending for 2011. This Upstream program includes spending of $1.3 billion on base assets ($1 billion on E&P base and $300 million on Oil Sands Mining and Integrated Gas), $1.9 billion on growth assets such as liquids resource plays in the U.S., and $465 million specifically for impact exploration," he said. "Our base and growth assets provide a solid platform for profitable returns, and our impact exploration prospects in the Gulf of Mexico, Indonesia, the Iraqi Kurdistan Region and Poland provide further upside potential.
"We estimate Downstream capital spending will be $1.2 billion in 2011, with the major component being the Detroit Heavy Oil Upgrading Project which is expected to progress significantly during the year," Cazalot said.
Exploration and Production
Marathon's 2011 worldwide Exploration and Production (E&P) budget of approximately $3.4 billion reflects an increase of 29 percent over 2010 capital spending. Marathon's E&P strategy is based on three key elements: a solid portfolio of base assets, growth assets and impact exploration.
Base Assets: The Company plans to spend approximately $1 billion on its base E&P assets to provide stable production, income and free cash flow. These assets include production operations in the Gulf of Mexico, Norway, U.S. conventional oil plays, Equatorial Guinea and elsewhere. With a continued emphasis on high operational reliability, Marathon will implement a disciplined investment plan and competitive cost structure for its base assets. The increase in spending for base E&P assets, compared to 2010, is primarily due to additional activity on conventional oil assets in Norway and the U.S.
Growth Assets: Approximately $1.9 billion of the capital spending budget is allocated to E&P growth projects. Of that, nearly $1 billion is concentrated on three key North America liquids-rich resource plays: North Dakota's Bakken play, the Eagle Ford Shale play in Texas, and the Anadarko Woodford Shale play in Oklahoma. In the Bakken Marathon plans to drill 70 - 75 operated wells and 50 - 70 outside operated wells. In the Anadarko Woodford, 20 - 25 operated wells and 25 - 50 outside-operated wells are planned. Other growth assets are offshore Angola, where advancement of the deepwater PSVM development for Block 31 is under way, and Alberta, Canada, where the Company is progressing in situ activity.
Impact Exploration: Marathon plans to spend $465 million selectively investing in a controlled high-impact exploration program. Activity will include conducting seismic surveys and drilling 10 - 15 high-potential prospects this year across the deepwater Gulf of Mexico, Indonesia, the Iraqi Kurdistan Region and Poland.
Marathon estimates 2011 production available for sale will be between 380,000 and 400,000 barrels of oil equivalent per day, excluding the effect of any future acquisitions, dispositions or exploration success, essentially flat with 2010 volumes. Increases in the Company's U.S. unconventional production is expected to largely offset natural declines elsewhere, largely in North Sea assets.
Oil Sands Mining
Marathon has budgeted approximately $300 million for its Oil Sands Mining (OSM) segment - less than half of 2010 OSM spending. The decrease is due primarily to the completion of the construction of the Athabasca Oil Sands Project (AOSP) Expansion 1, while the ramp up to full capacity is ongoing in the first quarter of 2011. Marathon holds a 20 percent interest in the AOSP, a long-life project with a stable production profile and substantial production capacity upside through both debottlenecking activities and longer term future expansions.
Net synthetic crude production for 2011 is expected to be between 36,000 and 45,000 barrels per day.
Refining, Marketing and Transportation
The 2011 budget for the Refining, Marketing and Transportation (RM&T) segment will increase slightly to about $1.2 billion, from just under $1.1 billion in 2010. The 2011 Downstream budget is allocated as follows: approximately $600 million for continuation of the Detroit Heavy Oil Upgrading Project, which is targeted for start-up in the second half of 2012; approximately $100 million to address the Mobile Source Air Toxics II regulations that went into effect starting Jan. 1, 2011; and approximately $500 million for the remainder of the Company's RM&T operations.
The corporate budget is expected to total approximately $300 million, of which $234 million represents capitalized interest on assets under construction.