馬拉松石油 (MRO) 2015 Q4 法說會逐字稿

Welcome to the Marathon Oil Corporation 2015 fourth-quarter earnings conference call. My name is Katie, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Chris Phillips. Mr. Phillips, please go ahead.

Thank you, Katie. Good morning and welcome to Marathon Oil Corporation's fourth-quarter and full 2015 earnings and 2016 capital program conference call. I am Chris Phillips, Director of Investor Relations. Also joining me on the call this morning are Lee Tillman, President and CEO; J.R. Sult, Executive Vice President and CFO; Mitch Little, Vice President-Conventional; Lance Robertson, Vice President Resource Plays; and Zach Dailey, Director of Investor Relations.

As has become our custom, we released prepared remarks last night in connection with the earnings release. You can find those remarks on the associated slides on our website at www.marathonoil.com.

We will begin this morning with additional prepared remarks discussing our 2016 capital program. We issued a separate press release detailing our 2016 capital program last evening. We posted a second slide presentation earlier today that accompanies this morning's prepared remarks that can also be found on our website.

After our remarks the remainder of the call will be available for Q&A. As a reminder today's call is being recorded.

Slide 2 contains a discussion of forward-looking statements and other information included in this presentation. Our review will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. We have identified, in our latest Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, a number of important factors that could cause future outcomes to differ materially from those set forth in those forward-looking statements.

Please refer to the quarterly investor packet on our website for reconciliations of the non-GAAP financial measures discussed in this presentation to their most recently comparable GAAP financial measures.

With that, I will turn the presentation over to Lee, who will begin on slide 3.

Thanks, Chris. I would like to expand my welcome to those listening. Last night we announced a reduced capital program for 2016 that reflects the current challenging environment and our clear objective of balance sheet protection. Our $1.4 billion program in 2016 is over 50% lower than last year's program and 75% lower than 2014.

As the chart illustrates, we have responded as oil prices have fallen dramatically and are doing the same in 2016 with our capital program calibrated to a view of WTI in the upper $30s and assumes success in our non-core asset sale program. Our business planning and budgeting are not static, but rather decisions are being made in real time, in large part facilitated by the optionality afforded by our short-cycle investments. We have designed our 2016 program to maximize capital allocation to the short-cycle investments in our US resource plays, complete long cycle projects that contribute production and minimize allocation to conventional exploration.

Guided by these principles as the foundation of our plan, production volumes were, by design, an outcome not an objective. And we are forecasting a total Company production decline of 6% to 8% year over year adjusted for divestitures. This program provides us the optionality to further adjust our short-cycle investments if needed based on commodity prices and the outcome of our non-core asset sales.

Last year, we achieved over $300 million of non-core asset sales toward our original goal of at least $500 million. When we set that original target, we were transparent that the non-core assets under consideration far exceeded $500 million. Based on the transactions announced to date, as well as progress on the remaining assets, we've increased our target to a range of $750 million to $1 billion.

This year's capital allocation is designed to position the Company for a sustained period of low commodity prices while maintaining the capability to be flexible in a dynamic environment.

Slide 4 illustrates the allocation of our 2016 program in a bit more detail. As I mentioned, the majority of our 2016 program, about 70%, will be directed to the Eagle Ford, SCOOP/STACK and Bakken. For each of our three core resource plays, we have set specific objectives for our 2016 investment. Namely, maintaining the efficiencies our Eagle Ford team has worked so hard to capture, protecting our leasehold in the STACK while continuing to improve our understanding of the Oklahoma resource basins and focusing on our base business in the Bakken with operated D&C greatly reduced. All of this, of course, while continuing to focus on sustainable cost reduction that will be maintained through the commodity cycle.

Across the remainder of the portfolio, we will be completing several long-cycle projects in 2016, most notably, our operated compression project in EG. This project will extend plateau production from the Alba field by an additional two years and allow us to develop in excess of 130 million net oil equivalent barrels of proven reserves. In addition to the EG compression project, we expect first oil this year from investments in two outside operated projects: Gunflint in the Gulf of Mexico and Atrush in the Kurdistan region of Iraq.

We are forecasting about $40 million of sustaining CapEx toward our non-operated working interest in the oil sands this year. We, along with the operator and other JV partner, are intensely focused on building upon the structural cost improvements and better up-time reliability achieved in 2015.

Finally, we have significantly reduced our conventional exploration CapEx this year to $30 million, down about 90% from last year, following the strategic decision we made last fall to scale back in this space. This year's spend is largely limited to existing commitments in the Gulf of Mexico and Gabon with no new exploration wells planned in 2016.

As we enter another year with reduced capital investment, we again look to our short-cycle US resource plays to continue providing the operational flexibility to adapt to changing market conditions.

With that, I will turn it over to Lance to review the resource plays in a bit more detail.

Thanks, Lee. I'll continue with a broad overview of the 2016 program for US resource plays on slide 5. Consistent with our focus on prioritizing the balance sheet this year, our allocation to the resource plays is anticipated at $1 billion, down about 50% from 2015.

As Lee said, the short-cycle nature of these assets allows us to be flexible in a volatile commodity market. If needed, we have the option to reduce spending down further with substantially all of our acreage held by production in the Bakken, the Eagle Ford and in the SCOOP Woodford. We also have relatively few leases with continuing drilling obligations and no long term rig commitments in these plays.

Pie charts on the slide depict our operated drilling and completions, our non-operated drilling and completions and other spend across each basin. Through the budget planning process, our intent was to maximize the allocation to drilling and completions opportunities. The non-operated drilling and completions component of the budget is our current best estimate of the spend, based on recent engagement with partners.

In the current commodity environment, we are closely scrutinizing each project proposal for costs and returns. When prudent, we will non-consent discretionary projects that do not deliver adequate returns. Given the continuing decline in industry rig counts across our three basins, the expected bias in the non-operated estimates is lower.

For reference, the other spend category broadly consist of diverse, non-discretionary items for direct support of development activity, such as centralized facilities expansions, data-gathering and other items not directly included in drilling and completions costs but essential parts of an operation.

Turning to the Eagle Ford, we are down to seven rigs and will be scaling down further to five rigs near the end of the first quarter. Additionally, we will be reducing to a single frac crew for much of the year that will match drilling activity. Consistent with our past practices we plan to maintain sufficient inventory to keep the completion crew operationally efficient. This activity level retains our execution capability and core competencies, allowing us to continue co-developing the highest value Austin Chalk, Upper and Lower Eagle Ford horizons across our core acreage position.

A continued focus on enhancing well productivity through stimulation design and technology application has recently yielded encouraging early results in our high-GOR oil areas. As this activity matures we anticipate sharing more details throughout the year.

In the Oklahoma resource basins our capital spend will focus on retaining term leases in the core of the STACK Meramec, as we continue to delineate the rich condensate window and optimize stimulation designs. While maintaining leases will be our primary objective across Oklahoma this year, based on the success of our first operated Springer oil well in the fourth quarter in the SCOOP, we will also continue to progress limited Springer activity to delineate the down dip aerial extent of this play.

In the Bakken, we are focused on the base business where we will complete our ongoing water gathering system later this year to further reduce our largest single expense, water handling. Based on the current commodity price environment, we recently released our last operated rig in the Bakken and plan to have intermittent development activity later in the year, primarily to address continuing drilling obligations. With this reduced level of activity and at recent strip pricing, we anticipate Bakken achieves cash flow neutrality in 2016.

The $75 million earmarked for outside operated activity in Bakken is our current best estimate of AFEs we expect to receive from partners this year, and each will be scrutinized closely given the current low commodity environment. Despite reduced resource play activity we continue to balance our current actions with the need to be responsive when more constructive pricing occurs.

With that, I will turn the call over to Mitch to review capital activities outside the resource plays.

Thank you, Lance. Referring to slide 6, I will provide a brief overview of 2016 activities across our remaining portfolio, where we continue to moderate capital spend while delivering profitable long cycle projects during the year.

Starting with our OSM segment, we have achieved a step-change reduction in sustaining capital levels, and our 2016 CapEx, at about $40 million, is well below historical averages. Along with the operator and other JV partner, our focus remains on maintaining the improved reliability while lowering operating and sustaining capital costs to reposition the business for profitable operation within the current environment.

Despite challenging pricing in the third and fourth quarters last year, OSM was cash flow positive thanks to operating costs that averaged less than $30 per barrel of synthetic crude oil for the two consecutive quarters. With the more consistent operations, our three highest net production quarters in the history of the operation occurred last year, leading to 2015 annual production volumes, net of royalty, at an alltime high while unplanned downtime was at an all-time low. Outside of OSM we expect to complete three long-cycle projects in 2016, bringing incremental cash flow starting in the second half of the year.

Beginning with our operated business in EG, we completed a successful and incident free installation campaign of the combined 10,000 ton jacket and topsides for the Alba B3 compression project in mid-January. The project remains on budget and on schedule.

Following hook up and commissioning activities, we expect a midyear startup of the new facility. The installation will add 72,000 horsepower of compression and associated process equipment and utilities, which allow us to significantly extend Alba field life to beyond 2030 with minimal future capital requirements.

In the Gulf of Mexico we expect startup of the outside operated Gunflint two-well subsidy development also by midyear.

Finally in the Kurdistan region of Iraq, developments are progressing within the Atrush and Sarsang outside operated blocks. In the Atrush block, installation of the phase 1, 30,000 barrel per day facility is progressing with first oil expected later this year. Four existing wells will feed the facility and future development decisions will be evaluated following the assessment of well and reservoir performance.

In late 2015 a second well and well site production facility were brought online in the Sarsang block. 2016 activity is focused on bringing additional wells online to utilize existing facility capacity while further expansion will be evaluated in light of the current macro environment.

Across the portfolio, we continue to focus on cost management and delivering high operational availability in an effort to defend margins within the challenging commodity price environment.

With that brief summary I'll pass it back to Lee.

All right. Well, thank you, Mitch. Capital discipline and balance sheet protection have driven the decisions supporting our reduced 2016 capital program, and slide 7 provides our production guidance. As I mentioned earlier we are forecasting total Company production in 2016 to decline 6% to 8% from 2015 adjusted for our divestitures in the Gulf of Mexico and East Texas, North Louisiana.

For the first quarter of 2016 our total E&P guidance includes two extraordinary downtime events. First, we expect downtime in EG of approximately 20,000 net BOE per day associated with the installation of the jacket and topsides for the Alba compression project as well as planned maintenance. Installation was completed in January in the Alba field, and onshore plants returned to full production earlier this month.

Second, in late December, the Brae Alpha installation experienced a process pipe failure, and first quarter total E&P production guidance includes the impact of approximately 7,000 net BOE per day of UK production that remains shut-in while repairs are underway. Resumption of full production is expected in the second quarter.

Wrapping up on slide 8, we anticipate 2016 will require a similar level of flexibility to adapt to the uncertain macro environment as did last year. In 2015 we lowered production in G&A expenses over $435 million. We reduced our work force by over 20%, which will generate about $160 million of annualized net savings, and we decreased our quarterly dividend increasing annual free cash flow by more than $425 million. We became even more efficient operators in each of our basins, decreasing completed well costs everywhere through a combination of commercial savings and execution efficiencies.

2016 will require that same level of focus and discipline, and our $1.4 billion capital program is designed with balance sheet protection as our top priority. The plan continues to direct the lion's share of capital to our short-cycle resource plays, which provide the most flexibility. The remainder of the portfolio includes completing long-cycle projects that contribute production volumes to the Company as well as keeping committed capital obligations to a minimal level.

We will continue lowering our cost structure, enhancing operational productivity and progressing toward our newly revised non-core asset sales target of $750 million to $1 billion. Finally, our $4.2 billion in liquidity at year end, which includes $1.2 billion in cash and an undrawn $3 billion revolving credit facility, positions us well for the reality of sustained low commodity prices.

That concludes our remarks, and I will now hand back to Chris.

Thanks, Lee. Before we open the call for questions, we would like to request that you ask no more than two questions with associated clarifications. You can re-prompt as time permits. With that, Katie, we will open the lines for questions.

(Operator Instructions)

Doug Leggate, Bank of America Merrill Lynch.

Lee, I'm afraid the topic du jour is obviously balance sheet strength, credit metrics, and obviously the credit agencies somewhat onerous price assumption one could argue. What additional steps are you prepared to take to basically get market comfort that your balance sheet is -- can be managed through this down turn, and what are you prepared to allow your credit rating to slide to sub investment grade? I've got a follow up.

Let me take the first part and then maybe let JR jump in a little bit on our view from a credit metrics standpoint and the rating agencies. Our plan, Doug, as we stated in our opening remarks was really designed with a view of a high $30 WTI and assumed success in our non-core asset sales target. But we still have implicit, quite a bit of flexibility within our capital program to really adjust further as we see changes in price, changes in the macro as well as we see the outcome from our non-core asset sales.

I think we demonstrated last year our certain willingness to use every lever available to us to ensure that we do in fact protect the balance sheet. I picked through a few of those in my opening remarks, but the adjustment to the dividend, I think even the reduction in our capital budget last year of about $500 million, the strong steps that we took early in the cycle in both production expenses and G&A cost including basically a 700 reduction in our workforce, all of these I think are demonstrative of the actions that we are prepared to take to ensure that we are putting balance sheet protection first and foremost.

Maybe with respect to the credit agencies and the credit metrics perhaps I will just let JR chime in on those.

Doug, as you had indicated clearly we have had actions already taken by two of the three rating agencies to date. At those two that have taken action we remain investment grade. Clearly there is one still remaining outstanding.

You are right in that they have taken an arguably significantly different view with regard to the commodity price Outlook and seem to be fundamentally approaching the industry different than historically, and candidly the outcome is uncertain. But what I would tell you, as Lee indicated, we are going to continue to make the decisions that are in the best interest of all stakeholders to support the balance sheet and the outcome with regard to the agencies will be the outcome.

But we're going to continue to make sure that we have sufficient liquidity and appropriate balance sheet so that we can continue to be successful in terms of developing the resources that we have at this Company.

Doug, you said you have a second question.

Maybe if you don't mind I will just do a clarification on the first one as my second question if that is okay. I'll be more direct about it, obviously you've seen some of your peers issue equity. Is that a risk for Marathon in your view? Is it something you think would be the right move the way your stock is trading, or can you rule it out for investors at this point? And I will leave it there.

I think, as we have said, there is no doubt in the current environment that the balance sheet is our top priority. We have to maintain as much financial and operational flexibility as we can to adjust to these very dynamic market conditions.

We're constantly reassessing in real-time our capital budget, our non-core asset sales, our overall balance sheet strength as well as our liquidity. And I think although our business plan assumes the successful execution of our non-core assets program to really contribute to our goal of free cash flow neutrality, we have to continue to keep all options on the table and available to us that gives us the financial flexibility going forward.

Again you should expect us to continue to consider and access all of the levers available to us going forward.

I appreciate you answering that, Lee. Thanks very much.

Edward Westlake, Credit Suisse.

Just on the divestiture program maybe just give us some idea as to why you think you could be confident to hit the $750 million to $1 billion total program.

Absolutely, good morning. From the first maybe I will just acknowledge that the market no doubt has softened since we have embarked on our non-core asset program. There is no question that the sales market is much more challenging than it was even last year.

But I will go back and say as reminder when we initially set our non-core asset target last year we stated that we had identified a pretty broad pool of non-core assets that were well in excess of that original $500 million. And what I will say is based on our progress to date, the transactions that we have been able to complete and the quality as well as the diversity of the identified non-core assets that we still have in the hopper, we are comfortable increasing that target to that $750 million to $1 billion.

The way I would describe the assets, Ed, that is they are primarily US upstream and midstream. They are both operated and non-operated, but the list is very diverse, and we are very satisfied taking some singles and doubles. Some will be bigger but there are quite a few that will be smaller and thus far the market has shown an ability to digest some of the smaller transactions quite readily. Timing for us, we would expect to progress toward our revised target really through the balance of 2016.

A follow up would be around 2017, getting a little depressing about recession risks. They are clearly rising. We will see if one actually occurs. But you'll end up at say $1.2 billion or maybe whatever the number is at the end of the year depending on the asset sales program and the reduction of capital. But again if you were looking into 2017, it would still feel if there was a recession that you would need to do some shoring up of the balance sheet for that year. So what would be next in terms of the order if we had two years of low prices?

Of course we're trying to manage through 2016 now, but as we have looked ahead to 2017 there is no question, Ed, that the majority of our capital will still be directed to the short cycle investments and as such that still gives us a great deal of flexibility within our capital program and our capital spend.

That activity though is going to largely depend upon where commodity prices are. And just to maybe level set a little bit, at the current contango in the strip that would equate to us to about $500 million of incremental free cash flow in 2017. And then at that point as incremental cash flow might be realized it would be a capital allocation decision based on the highest and best use as to whether that goes to balance sheet strengthening and/or into organic investment.

I don't see those two as necessarily being mutually exclusive. The other thing I would add, too, is that although we do have lots of long cycle projects that Mitch addressed rolling off in 2016, we do have a little bit of an offset in that we do have a remaining deepwater GOM commitment, rig commitment, that will come back to us in 2017, but largely those two somewhat balance off of one another.

Evan Calio, Morgan Stanley.

Just a follow up on credit and balance sheet, the du jour topic, understand your protecting the balance sheet in the moves today but how committed are you to an investment grade rating? And based upon those private conversations, to expect to be able to maintain it, I know you talked about Moody's but from the other two agencies? And then I have a follow up.

Evan we have maintained it at the other two agencies, they just recently published earlier this month so those have come out with investment grade ratings. They were a notch lower than where they were but we have maintained it there. As for the outstanding rating evaluation, honestly, Evan, I don't know what they're going to define as what it means to be an investment grade anymore.

I remember what it used to be throughout most of my career, and based on my historical understanding I would say we still meet the metrics that they used to lay out there, but honestly those are changing. I don't want to predict what they will ultimately do, but at the end of the day, I am still investment grade. I'm still going to be part of the IG indices from a bond trading standpoint. There really isn't any significant impact on us if that one rating agency were to not rate us investment grade. Clearly there is going to be a cost issue and in periods that are highly volatile and access issue, but all of that is completely manageable.

How do you weigh that? How do weight the impact of an even deeper CapEx cut or dilutive equity raise against a loss of that status? It seems to be a primary debate amongst many of your peers.

Again, I don't think that ultimately you can necessarily solve for just one equation here. I have got to make decisions in the best interest of all of the stakeholders, and we're going to continue to do that. But as I have said before the way we have got the capital structure set up, the depth of our liquidity that exists, I am very comfortable that whether we ultimately have an investment grade rating from the remaining agency or not is not going to impact our ability to remain strong during this commodity price cycle.

Brian Singer, Goldman Sachs.

Just to stay on the usual suspect topic here, I think what we are probably trying to get at here is how do you define success from a balance sheet perspective? What are you trying -- where are you trying to take the Company here? What is the key metric you are trying to use that is driving your decision? It sounds like it is not necessarily but hopefully investment grade. Is it leverage? Is it liquidity for a couple of years at $30 oil? Can you talk to how you would define success from a balance sheet perspective?

Brian, honestly the way we're thinking about it is really just a focus on managing the balance sheet throughout the full cycle. Historically I have always tried to focus on liquidity when you are at the bottom of the cycle. And again historically that was the way it was measured is whether or not you had enough liquidity to get you through the bottom of the cycle. As Lee indicated in his remarks, our goal here in 2016 is free cash flow neutrality, so to be able to manage the outspend with the success in the non-core asset sale program and not add debt to the balance sheet.

As I indicated we're going to maintain ample liquidity to support the business. And in addition I want to make sure in not only liquidity but the cash component of that liquidity to maintain the option associated with just delivering the balance sheet in late 2017 when we have a relatively modest amount of debt that becomes due, about $700 million.

So clearly, I think we have said multiple times the non-core asset sale program and the flexibility of the capital program are really going to be the key levers in that. But the one thing I do want to go to on this issue of leverage metrics and really highlight what Lee said before, just the embedded oil price leverage and the impact to cash flows, and candidly leverage metrics is significant.

And Lee just said if just assuming the forward contango that exists today, so whatever that is from a crude standpoint-- probably about $7 sometime around there is about $500 million of free cash flow and a significant step change in what your leverage would be on a net debt to EBITDA standpoint. To me we're focused on managing through the cycle, and again as I indicated to Evan, really trying to make decisions that are in the best interest of the business.

That's great. My follow-up is perhaps a surprise operational resource question, you acquired some additional acreage in SCOOP and STACK here over the last year, and I wonder if you could tell us a little more: (A) what does that make our position more contiguous, and: then how you would think about and at what price you would allocate more capital and where you would go first within your key onshore shale plays.

Sure, Brian. This is Lance. I think you should think about those acres is that we are constantly looking, particularly in Oklahoma which is early cycle in the play relative to the others, to both as you just describe core up that position and just secure additional resources. We were very successful over the last year primarily organically through small local option processes in the BIA and the CLO and other organization as well as doing small leasing opportunities with peers and accumulated 14,000 acres in Oklahoma.

The overwhelming majority of that is in the STACK play focused in the core primarily Blaine County. What we found over the balance of that year is that the core of the Meramec has shifted in a western direction which is where most of that acreage was acquired, and we managed to secure all of that for about $3000 an acre which is very competitive. Referencing where we were going in terms of activity and allocating the capital, I think we are always going to take that broadly within our overall capital allocation process.

We certainly want to be able to continue to delineate Oklahoma because we have more to learn there perhaps there than other basins. I think we're going to have to wait to see how the commodity market really evolves before we can make those capital allocations beyond 2016.

Harry Mateer, Barclays.

Back to the topic du jour on the balance sheet, but a bit of a different approach. To the extent you raise additional capital from non-core asset sales or other means, how do you think about deploying that? Is it more about maximize liquidity now, or when you look at where your bonds are trading you have got some bonds particularly out the curve trading at a pretty chunky discount to par, so do you think there are some opportunities to maybe reduce debt that way and take advantage of the discount currently on the market?

Yes, Harry, this is JR. I would approach that the same way Lance was talking about whether we would allocate capital to Oklahoma to buy acreage. It really is each one of these investment opportunities are measured against themselves whether it's drillbit capital, whether it is acquiring additional acres in Oklahoma or whether it is even considering buying back some debt at a discount. So we are going to measure all of those capital allocation decisions and determine which ones make the best sense for the enterprise.

Clearly you've got to do that thoughtfully. That's a great example in response to some of the earlier questions where that might be in the best interest of the Company. Rating agencies may view that transaction differently in terms of the way an investment grade company should manage their business with the fundamental premise is that your debt holders be paid off at par. Again we're going to make those decisions that are in the best interest to all stakeholders, and it would be something that we would consider.

My follow-up is the 2017 maturity. It is later in 2017 so you've got some time, but as you think about managing the business through the cycle, is your goal to be in the position we can pay that down, or is it something more where you would like to be in a position to be able to refinance that?

As I indicated you probably missed it earlier I want to be in the position to have the flexibility and the optionality to pay that down, pay it off in other words. Clearly I have got the liquidity to where I could bridge it on my facility, but I really want to be in a position if the market is what it is today, if the forward curve merely slides into 2017, to be able to pay that off.

David Heikkinen, Heikkinen Energy.

Just thinking about the Eagle Ford program, you basically have been running flat net wells for the last couple quarters, can you talk about the pacing of net wells in 2016 as you drop to five rigs, and particularly given the shape of the commodity curve? Do you go slower earlier and then pick up or how do think through that basin and really to the other basins as well?

Sure, David. This is Lance. I think perhaps as we have articulated in the capital deck and the remarks this morning that we prepared that we're already moving into the activity reductions in Eagle Ford. We actually released our first rig recently this month. Down at the end of this quarter we will be down to five rigs, and then we're going to stay at that flat activity level moving forward.

I think there is a desire as we have looked at the balance sheet, prioritization overall we want to take those decisions early in the year and we have. So you'll see us go down to that level and maintain that activity level moving forward in it. From quarter to quarter you'll see the net sales to wells moderate up or down a little bit as we have diverse working interest across it, but what it will be relatively level from that point forward.

Similarly we're going to continue to run effectively the two rigs we have all in 2015 through Oklahoma to manage lease obligations and continue to delineate and learn in the Springer the things we need to. And then to reiterate I think what I mentioned earlier is that we have actually released our Bakken activity, challenged by returns currently at that price, and so we are going to have limited activity for the rest of the year in the Bakken.

So first quarter will have more wells and then divide the rest of the wells through the remainder of the year pretty evenly in the Eagle Ford and keep things kind of flat. There is no staging or duck games going on I guess is what I'm getting at?

That is a great clarification David. We have said all along that we're not really building a drilled but uncompleted inventory. We're going to continue to manage our inventory of wells to efficiently manage our completion operations without really materially building or depleting that inventory.

That's helpful. I know you don't want to get into details of volumes on the assets that you are selling, but the numbers are getting big with $1 billion. Can you goalpost us on US upstream and midstream, a split of how much would be midstream, how much could be upstream and an idea of rough volumes. Anything could be helpful.

David, this is Lee. As I stated, and so you noted, this is primarily US assets that are both upstream and midstream, but if you look at the characteristics of what we have already moved out of the portfolio, you can get a sense for just the diversity and even some of the scale of some of those actions that might occur in going forward. For instance the east Texas, north Louisiana deal was on the order of 4,000 oil equivalent barrels per day, the GOM assets were on the order of about 10,000-ish barrels per day. So those are kind of the ballparks now.

Those are some of the small to midsize assets we might talk about now. There could be some larger more material assets that do ultimately come into play, and of course the midstream assets, the advantage there is there really is no volumetric impact per se, but you have to of course be absolutely concerned about making sure you have the right operational transition there to ensure security of your barrels. I don't know, hopefully that helped a little bit.

Roger Read, Wells Fargo.

I guess to follow up a little bit with Dave's question on the potential sales that we should think about for volumes, is it just that wide-open based on price, or do you at least have a high to low range of full year potential impact of what is potentially being marketed out there, you have a data room open that sort of thing?

Yes. Without getting too much into the specifics, Roger, we certainly have a good idea of the pool of assets that we are prepared to put in the market. The uncertainty is of just how -- which of those assets may in fact be trans-actable. Each of those has a finite, I would say, probability of occurrence and it really comes down to connecting the assets to the correct buyers.

And because of the diversity of these assets, they do appeal to a very I would say broad and diverse range of buyers potentially as well. So we do -- that is one of the reasons why we bracketed the range the way we did, is a little bit of the reflection of some of that uncertainty, and it's uncertainty not only in which transactions will move forward but also the ultimate valuations that we're able to secure in those transactions as well.

It just sounds like from a buyers perspective, they are more interested in buying assets that generate cash flow so just trying to get a feel for --

Absolutely.

Where the volumes might go along.

Roger this is JR. I think the question is fair. I think what Lee is trying to convey is we have got a lot of optionality here, and we are still talking about a range, even the revised range, that candidly is not reflective yet of the full potential of what we are looking at. So we have got the ability to plug-and-play assets here, and because there is a midstream element to this, it is hard for us to be able to say exactly whether this asset ultimately goes or that asset goes.

So we still are very confident and comfortable with the $750 million to $1 billion, but it candidly is going to be very asset specific in terms of which ones we use to achieve that objective.

That's helpful, thanks. And then probably more of a question for Lance, but decline rates in the Eagle Ford with such a ramp down of drilling and well completions relative to the pace we were on and understand -- I recognize you would have studied it quite a bit as you lay out the 6% to 8% decline for the year, but can you give us an idea of some of the confidence you have, as some of the wells get older and fewer new wells coming in to sort of lay out the overall view here on the production side for 2016?

Sure, Roger. And as you describe, we've looked at a number of scenarios across the resource plays for activity in that, and they all have their own implicit declines depending on the new wells coming to sales. I think individually in each of the basins we have a lot of confidence in understanding of the decline profiles of the areas so it just becomes a matter of what is the capital we're going to allocate to it and then the production is the outcome from it in this case.

I think it is pretty clear that we have taken activity down both in 2015 and 2016. There have to be declines in there. I think importantly, in the Eagle Ford for example from Q3 to Q4, we held flat with effectively flat wells to sales which indicates all the horizons we have been developing there are producing well and meeting our expectations. You should think of the resource plays from annual 2015 to annual 2016 we're going to have an overall decline in the low teens.

John Herrlin, Societe Generale.

Regarding the Springer well, were you surprised at that degree of liquids cut?

John, think the Springer is pretty early in the SCOOP area, and what we found were two different distinct areas where it has been tested today sort of a northern core and a southern core. The well -- the Newby well we drilled and brought online last quarter was in the southern core area where there's probably the most data. We expected that to be oil biased in that area. I think we had a lot of confidence going in. The results so far have borne that out.

The performance from that well has been very strong to begin with, and it actually is similar to the underlying Woodford, elevated reservoir pressure, the cumulative 30, 60-day production tend to be relatively flat. That same production behavior has been borne out of the Springer thus far, so it is actually very consistent with our expectation. That is why we are excited about it. What we also see is the opportunity to delineate this play down dip from the core oil area that we explored and others have looked at today to a rich condensate window perhaps. You will see us continue to test that in a limited way, the Springer across 2016.

Next one for me, JR, you mentioned liquidity and not being like the past. If you look at your overall liquidity relative to your market value, in the past when commodity prices were down, you would have a much lower percentage of overall liquidity relative to market cap. But it seems like a lot of companies are getting penalized today for straight question perhaps on strategy or leverage or whatever. Do you ever recall a time when there was this much relative liquidity to market cap, equity cap?

That is a great point, John. Honestly there has been a shift, and it happened even toward the latter part of last year to where I think there was a point in which liquidity was being rewarded in terms of equity valuations. But then it quickly shifted to almost a singular focus on leverage without regard to liquidity. I don't recall that, and you have got a long history as well, John, in terms of that being the market behavior historically.

Candidly, I am very thankful for the early moves that we did with regard to shoring up that liquidity, the early moves we did with regard to extending debt maturities and feel like we are well situated for both 2016 and 2017 on the liquidity front. But it is interesting that the anomalies that we are seeing or the nuances as compared to previous market corrections.

Pavel Molchanov, Raymond James.

Just one for me. You mentioned that the current year CapEx is predicated on high $30s average. If perchance we were to see a recovery let's say into the $50s towards the middle of the year would you be inclined to upsize your activity level in the second half and in particular would you return to drilling in the Bakken?

I think as we saw that kind of recovery and we are convinced of the stability of it I think it goes back to a point JR made earlier, it is going to be capital allocation decision around do we feel that there is still balance sheet repair that needs to be done at that stage, and that would not be mutually exclusive to putting capital back to work into the short cycle investments in the resource plays.

When we think about capital allocation organically, certainly our ability to maintain the scale efficiencies in the Eagle Ford and the strong economics there would make it a viable candidate for the incremental capital. But strategically because of its role in our future growth, driving more capital as well into Oklahoma would be one of our preferred pathways also. From an execution capacity and a competency standpoint, we feel that we are more than prepared to take that step in the event that incremental cash flow comes available for investment.

Pavel, I think you raised a great point, and that is because you picked $50 as your hypothetical example. The Bakken at $50 is dramatically different than the Bakken today, and the leverage to crude oil changes dramatically. So even beginning at that level all of a sudden the capital allocation decisions for us with whatever limited additional capital we chose to go to a drillbit versus the balance sheet becomes much tougher at that point in time and a high class problem to deal with. But you are exactly right to highlight that leverage to commodity prices in the Bakken.

I would also add as well that some of the success that Lance and his team have had in West Myrmidon near the Nesson anticline has been pretty dramatic. And I think as we saw a recovery in pricing I believe those opportunities would certainly come back into play.

Paul Sankey, Wolfe Research.

I understand that these are tough times, and you're very much circling the wagons, but could you outline the bull case, the equity bull case for Marathon in competitive terms and maybe suggest to me how I should pitch the stock?

Absolutely, Paul. I think when you consider more constructive pricing, our leveraging up to crude oil which of course has been a bit painful on the way down that is going to feel a little bit different as we start seeing that more constructive pricing. And then I think it's the strength of our organic inventory across the three core basins which now account for $3.6 billion of 2P resource that is really the investment case.

The -- not only the scale, the economies of scale that we have in development mode in the Eagle Ford but certainly the potential for growth both midterm and long-term in Oklahoma as well as a very solid oil position in Bakken and I think a proven execution model where we have been able to not only drive capital efficiencies but also operating efficiencies and all of that being supported I think by still some very good conventional assets as well including -- Equatorial Guinea which we just chatted about the project there, the compression project.

That's good. I guess primarily you're saying that you are dependent on pricing but you would highlight a better organic inventory was the second point?

Yes, I would say that it is a strong high quality inventory, very resilient, very oil weighted. It is also one that we think is in three of the highest quality plays here in the US and all of those also at scale.

Thank you. I appreciate the answer. Is there any potential for mergers or acquisitions as an alternate way to change the investment case?

Certainly that question is always out there. I think in the current environment you haven't seen even a lot of small even asset level activity I think largely speaking because of the volatility and the dislocation between the bid ask spread has not facilitated that.

Certainly where the market sits today, consolidation and the synergies that can be generated from that are very material relative to market caps as they stand today, so that case even beyond let's say an improvement of overall portfolio and possibly even balance sheet upside, I think there is probably a case out there for some pair ups that might be based on the synergy benefits alone.

Arun Jayaram, JPMorgan.

I was wondering if you could help us think about the shape of the US production profile. You guys talked about a 6% to 8% percent decline on an adjusted basis. I think you are spending about $1 billion on the US unconventionals. I was wondering if you can maybe help us think about how a Q4 to Q4 exit rate in the US could look like at that level setting?

You accurately depicted it. I think when you think about the profile coming into the year we have got an average to average that has got a mid point of that 6% to 8% or about a 7% decline. When you think of total Company exit to exit, you should probably think of it being toward the upper end of that decline range if that helps calibrate. So there is in fact a profile to the year as you do experience decline through the year as you head toward the exit rate.

I guess just to clarify, is it more focused on the US versus international producing assets?

I think as Lance alluded to our resource play annual average declines year on year 2015 to 2016 are in the low teens. You would expect the exit to exit for the resource plays to probably be in the mid-teens.

Mid-teens, that's helpful. Just a final question here regarding the asset sales process, under our model we peg about $500 million-$600 million of outspend in 2016 at the strip. You obviously have the asset sales underway. Let's just say that you partially cover that outspend with asset sales, what would be other additional leverage you'd think of pulling would it be to reduce CapEx, or would you consider equity under that kind of circumstance?

I think for that level of outspend which to me is getting in a much more manageable ZIP Code, I think we would look again at those core levers that we can control, and they would be the capital program, continue I would say capital efficiency as well as operating efficiency. Those would be the levers I think we would go to for that level of outspend and not to mention the fact again that we do have again ample liquidity to support that.

This concludes the question and answer session. At this time I will turn the call back to Mr. Phillips for closing remarks.

I would like to thank everyone again for their participation this morning. Please contact Zach Dailey or myself if you have any follow up questions. Katie, thank you. This concludes today's conference call, and you may now disconnect.