OREANDA-NEWS. February 17, 2017.  Marathon Oil doubled its 2017 capital expenditure (capex) budget to \\$2.2bn, with 90pc earmarked for its US onshore shale operations as cost cuts make drilling more economic.

The higher spending is expected to boost output by 15-20pc by the fourth quarter from a year earlier. Full-year 2017 growth will average about 5pc, after adjusting for asset sales, because of lower production in the first quarter attributed to severe weather.

Of the total capex, the company's three core areas – the Bakken in North Dakota, the Eagle Ford in Texas and Oklahoma's Scoop and Stack formations – will all get 30pc each, with the remaining going to international operations. Last year, the Eagle Ford got 50pc of \\$1.1bn capex, while Bakken got 10pc and the Scoop and Stack 20pc each. International got 20pc.

The step up in investment will prepare it for a sustained annual 10-12pc output growth, excluding Libya, through 2017 to 2021. Of that, its US resources areexpected to grow at 18-22pc through those years against a previous guidance of 15-22pc. That increase will come with the company staying within cash flow, or pay for capex and dividend from the money it generates, at a Nymex WTI average of \\$55/bl. It also does not have to acquire any assets to meet the target.

"This momentum positions us strongly for 2018 and places us on track for the long term," chief executive Lee Tillman said in an earnings call. "We have the organic opportunity to power that."

Marathon Oil is adding more rigs. In Oklahoma, it plans to raise the total to 10 this year from five in the fourth quarter, to six in the Bakken from one, while the Eagle Ford count will hold unchanged at six, after it added two in the fourth quarter, from four. It will increase to 22 overall in the US from 12.

If oil prices are lower than the company's expectations, it will calibrate operations with Oklahoma getting the first call on capital, Tillman said. But "we still have organic inventory to put additional capital to work if we see more constructive pricing," he said.

It will use any additional cash to repay debt, and will remain on the lookout for opportunity for bolt-on acquisitions to add to its existing core acreage in the US, he said.

"We are confident of our organic inventory, but we are always looking for resource capture opportunities within our three core areas," executive vice president for operations Mitch Little said.

Its long-term debt fell to \\$6.6bn as of the end of 2016 from \\$7.3bn a year earlier.

The independent expects costs to rise as it and other producers step up drilling activity. It has already built in some inflation to its capital program, but it plans to offset most gains through further efficiency improvements. It is also aiming to lock in most rigs at current low rates, Little said. Most costs increase will come from the completion business "but less so in the drilling rig side," he said.

Its international business will provide steady cash flow, with a steady ramp up Libya generating an additional \\$100mn or higher. It has not added Libya into its current cash flow projections. Output resumed in the fourth quarter, to a net of 11,000 b/d at the end of last year.

The independent posted a loss of \\$1.37bn in the fourth quarter, on total revenue of \\$1.39bn, versus a loss of \\$793mn a year earlier on revenue of \\$1.47bn. For the full-year, losses narrowed to \\$2.14bn, on revenue of \\$4.65bn, versus \\$2.2bn, on revenue of \\$5.86bn.