EOG Resources Inc (EOG), Kodiak Oil & Gas Corp (USA) (KOG): Marathon Oil Corporation (MRO)’s Transition from Base to Growth

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Ever since spinning off its downstream business, Marathon Oil Corporation (NYSE:MRO) has been gradually turning leaner and meaner. A truly global exploration and production company, Houston-based Marathon Oil Corporation (NYSE:MRO)’s international accomplishments are as promising as its North American shale exploits. But more importantly, the company has developed its growth assets, and in the process, moved away from relying heavily on its legacy base assets. It’s time to take a closer look.

Photo credit: Marathon Oil

Solid growth
Thanks to an early mover advantage in the North American shale boom, Marathon Oil Corporation (NYSE:MRO)’s exposure to the Eagle Ford and Bakken shale plays are now turning into solid investments. The company’s Eagle Ford production for the second quarter shot up a whopping 280% to 80,000 barrels of oil equivalent per day, or Boed, compared to last year . With 62% crude oil and 17% natural gas liquids in the production mix, the Eagle Ford should continue to be a part of Marathon’s growth story in North America.

Marathon Oil Corporation (NYSE:MRO)

Currently, Marathon Oil Corporation (NYSE:MRO) is trying to increase the number of wells drilled within a unit area of spacing — a move that should likely pay rich dividends. Another successful player in the Eagle FordEOG Resources Inc (NYSE:EOG), have been attempting a similar feat wherein the company is aiming to drill 16 wells in a 640-acre area, or one well in a 40-acre unit. EOG Resources Inc (NYSE:EOG) estimates this “downspacing” to increase the asset’s net present value by a solid 35%.

Marathon Oil Corporation (NYSE:MRO) is similarly testing out a potential downspacing to 40-acre and 60-acre units. While the results will be out by December 2013 , I’m betting big on a successful transition. According to management, this is going to transform an 840-million-barrel resource into a conservative 1.2 billion barrels in the ground . From an investor perspective, this is nothing less than solid organic growth.

The Bakken picture is as exciting. Currently pushing for a 40,000 Boed in 2013, Marathon is aiming for 10% annual production growth until 2017 . With about 390,000 net acres under its belt, the resources are huge. Average drilling times have also fallen to 15 days from spud-to-total depth. With just five active drilling rigs and one frac crew , Marathon has been the most efficient driller in the Bakken. According to North Dakota Industrial Commission, Marathon Oil Corporation (NYSE:MRO) drilled an average 1,000 feet/day in 2012 — the highest by any Bakken operator . This is where the economics turn out to be hugely beneficial.

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