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January 20, 2021

Marathon Oil recovered from the huge loss in Q2 2020, but its future cash flow will rely heavily on WTI prices in 2021 with breakeven at $35 per bbl

By GlobalData Energy

Marathon Oil posted a net loss of $317m in Q3 2020, recovered by 50% compared to Q2 2020 mainly due to recovery in oil demand in the US, along with improved commodity prices. The company’s average realised price for US crude oil and condensate increased from $21.65 per barrel (bbl) in Q2 2020 to $37.78 per bbl in Q3 2020, although still a decline from $55.09 a year prior. Marathon Oil continues to successfully drive down drilling and completions cost, as well as production cost. The company had a Q3 production cost of $4.32 per boe, which was a 13% reduction from 2019 and 5% lower than 2020 guidance, as well as lowered drilling and completions cost by 25% compared with 2019.

Fig 1 – Marathon Oil Quarterly Total Production Rate in 2020 with Reference to Prior Years

Fig 2 – Marathon Oil Free Cash Flow vs WTI Prices

Marathon Oil reported a free cash flow of $180m for the third quarter of 2020, after a negative free cash flow of $317m in Q2. The change in cash flow is directly linked to the 47% increase in WTI price. In Q2, WTI averaged $27.80 per barrel and $40.89 for Q3. Marathon Oil ended Q3 with $1.1bn cash balance and $3bn in its undrawn credit facility. During Q3, the company reduced gross debt by $100m and reinstated a $0.03 quarterly dividend that was suspended early this year. With a strong liquidity profile and low breakeven oil price, Marathon Oil has elected for a minimum hedging programme for 2021. It will enable them to increase potential gains if commodity prices were to recover from the current levels.

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