Chris Phillips - Director, IR Lee Tillman - President and CEO Lance Robertson - VP, North America Production Operations J. R. Sult - EVP and CFO T. Mitch Little - VP, International and Offshore Production Operations.

Ed Westlake - Credit Suisse Paul Sankey - Wolfe Research Doug Leggate - Bank of America-Merrill Lynch Ryan Todd - Deutsche Bank Jeoffrey Lambujon - Tudor, Pickering & Holt Guy Baber - Simmons & Company John Herrlin - Societe Generale David Heikkinen - Heikkinen Energy Roger Read - Wells Fargo Pavel Molchanov - Raymond James Scott Hanold - RBC Capital Markets Jeffrey Campbell - Tuohy Brothers Investment Mike Kelly - Global Hunter Securities.

Welcome to the Marathon Oil Corporation 2014 Third Quarter Earnings Conference Call. My name is Christine and I will be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr.

Chris Phillips. You may begin..

Good morning and welcome to Marathon Oil Corporation's third quarter 2014 earnings call. I'm Chris Phillips, Director of Investor Relations. Also on the call this morning are Lee Tillman, CEO and President; J. R.

Sult, Executive Vice President and CFO; Mitch Little, Vice President, International and Offshore Exploration and Production Operations and Lance Robertson, Vice President, North America Product Operations. As has become our custom, we released prepared remarks last night in conjunction with the earnings release.

You can find those remarks and the associated slides at marathonoil.com. As a reminder, today's call is being recorded, and our comments and answers to questions will contain forward-looking information subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

I refer you back to the aforementioned slides where you can find our full Safe Harbor statement. With that, I will turn the call over to Lee..

Well, let me add my good morning. I want to open with a few comments on our outstanding operational performance focusing on those execution elements that are within the control of our excellent asset teams. First and foremost, our three high quality U.S.

resource plays continue to deliver on our growth objectives with over 40% year-on-year growth and double-digit growth quarter-over-quarter. The Eagle Ford had a record quarter with 87 gross operated wells to sales, including eight Austin Chalk wells.

We brought 19 gross operated wells to sales in the Bakken with eight of those piloting enhanced completion designs with encouraging early results. We also spud three high-density Bakken pilots with 12 wells per drilling unit and brought 13 additional recompletions to sales.

Per our plan we have added an incremental rig in the Bakken to provide additional capacity for our high-density spacing and completion pilots and we are on track to add two incremental rigs in the Oklahoma Resource Basins before year-end to continue SCOOP development, STACK delineation and new horizon testing in the Springer, Caney and Granite Wash.

We also grew our Oklahoma Resource Basin position by executing agreements for approximately 12,000 net acres in the SCOOP, including acres perspective in the emerging Springer formation.

Internationally, we closed our Norway transaction for approximately $2.1 billion in proceeds and had excellent early results from our UK Brae platform drilling program, with both wells exceeding free drill expectations.

In exploration, we spud our Key Largo inboard Paleogene prospect, our first well in a multi-year GoM exploration program and expect to spud our first well in the EG exploration program before year-end. Additionally, we successfully negotiated and executed our exploration and production sharing contract for Gabon Block G13 now named Tchicuate.

An acquisition of 3D seismic is planned to begin in early November over this promising block. Looking ahead to the fourth quarter, we expect growth in North America E&P production available for sale and remain on track to deliver over 30% year-on-year growth from the U.S. resource plays.

International E&P production available for sale, excluding Libya is expected to increase in the fourth quarter, reflecting improved reliability and no significant planned maintenance activities. Fourth quarter oil sands mining production is expected to decrease from third quarter volumes due to planned maintenance at the mine.

Our full year volumes guidance has been narrowed to 350,000 to 360,000 net oil equivalent barrels per day for production available for sale from the combined North America E&P and international E&P segments excluding Libya and discontinued operations.

The recent correction in commodity prices has rightly captured the attention of investors and operators alike. Marathon Oil through the strength of our balance sheet, which has recently benefitted from the receipt of proceeds from the sale of our Norway business is well positioned for a lower product price market.

Although we have yet to finalize our 2015 capital program, at the macro level we are incorporating the latest commodity price volatility into our business planning but remain confident in our forward growth plans with strong cash flows and the proceeds from our completed asset sales to support the continued development of our deep and high quality inventory in the Eagle Ford, Bakken and Oklahoma Resource Basins.

Our U.S. opportunity set remains economically robust across a broad range of pricing scenarios and we continually high grade and enhance our single well economics through the work of the asset teams via completion optimization, downspacing, capital efficiency and the testing of additional horizons.

We expect our resource play programs to progress fundamentally unchanged with no plans to reduce rig count, except where productivity permits.

Our continued focus on capital discipline and portfolio management has us well positioned to invest intelligently through the commodity cycle, and we will use the optionality across our opportunity inventory to maximize returns while retaining flexibility.

We have a comprehensive process for examining CapEx at the margin and our investment portfolio has the requisite granularity to ensure all opportunities are fully tested for capital allocation. We have clear line of sight on our multiyear commitment as well as those areas of our business that are more discretionary and scalable in nature.

Our resource plays are not the marginal capital dollars. So the key question will be more around pay and further acceleration as we balance growth with returns. We will also focus on protecting and expanding margins through continued expense management and commercial leverage with our service providers.

We readily acknowledge our inability to predict pricing but are in good stead to progress profitable growth and drive shareholder value across range of macro-economic environments. Let’s now open for your questions. And as a reminder, we do have our two operational Vice Presidents joining us today. So please take full advantage of their participation.

Back to Chris to kick us off..

Thanks Lee. Before we open the call to questions, we’d like to request that you ask no more than two questions with associated clarifications. And you can re-prompt as time permits. With that Christine, we’ll open the lines for questions..

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Our first question comes from Ed Westlake from Credit Suisse. Please go ahead..

I just wanted to I mean obviously you said in your opening remarks that you don’t see a need to change.

But say oil prices continue to trade lower, get a sense of what it is that you think would be the first thing that you might defer in terms of the overall CapEx spending?.

Yes. Well, of course Ed, we’re going to be releasing our full view of the capital program in December. But to address your point specifically, I want to emphasize that our portfolio here in the U.S. is robust again across a broad range of pricing scenarios. And so we don’t view the U.S. portfolio as our marginal capital dollar.

But we are well positioned to look at our full portfolio, look at those elements that maybe non-reserve adding or more discretionary in nature, if we do see more moderation in the pricing environment. We want to be intelligent as we move through this commodity price correction but we certainly feel very strong about the quality of our inventory..

Right. And then some good progress up in the Bakken. Maybe talk a little bit about EUR expectations and IPs? Obviously you’ve got some core acreage there; but you’ve perhaps been a bit behind the peer group in terms of using the latest technologies. So just an update on where we are..

Yes. Well, I’ll make a few opening comments and then maybe I’d ask Lance to chime in. But we are moving much more aggressive in the Bakken. As we stated in our release we’ve added an incremental rig effective in September to help us move forward, not only with the downspacing program but also with the enhanced completion designs.

And some of the wells of course we brought, the sales were in fact part of our pilot testing and completions, some of these enhanced completions, which have shown some very promising early results. But maybe I’ll ask Lance just to comment specifically on some of the enhanced completions that we have been able to test thus far..

Yes. We’ve had a very busy Q3, and actually the second half of the second quarter this year in terms of testing those. We recognize the need to continue to move forward with the most effective and best available technologies. To-date we’ve actually had 17 of the 45 wells that Lee talked about originally at Barclays online to sales in that testing.

That group is been comprised of wells testing most specifically increased profit loading on a number of those wells. In fact a majority of them have had up to 6 million pounds of profit.

We’ve also tested incremental stages in those wells, surfactants in two or three of those wells, as well as incremental stages adding for small or more finite stage delivery and then a change in fluid volume, both a decrease and in most cases an increase of fluid volume.

And I would say in the overwhelming majority of those wells, the early response of the 30 day IP has been at or above a type curve. So it’s early.

We'd like to see those cumulative production volumes mature a little bit but we're very encouraged by those results and we'll have the balance of those wells, probably two-thirds to three quarters online in sales in the fourth quarter with a few of those completions pilots trailing into the first quarter, Ed.,.

And so, just very quickly the breakeven oil price you think for that core Bakken or maybe too early to say?.

I think we'd recognize that across our portfolio Myrmidon, Hector and Ajax very different between the Middle Bakken and the Three Forks and all three of those areas. So there's a range of pricing in there.

Our focus is how much better we can make each of those areas in this current commodity price environment or any environment to really compete for capital. As we move through the budgeting process we're going to focus on the wells that deliver the highest returns for next year. .

But I think just kind of building on that a little bit, Ed, certainly in our core areas in the Bakken we have a lot of confidence going forward in their ability to compete per capital allocation, even with the commodity price correction. Those are very strong wells for us. .

Thank you. Our next question comes from Paul Sankey from Wolfe Research. Please go ahead. .

I'm sure you can imagine we want to see slightly paddle long on the same theme of sensitivity of CapEx. .

I said I am shocked Paul. .

Yes alright. Apologies by the way if this noise issues here -- someone seems to be fracing Park Avenue right now.

But if you could talk about where the sensitivity does lay, you mentioned that there's other areas that don’t add reserves directly or I wasn’t quite -- if you could just be more specific about where you would be looking to cut back, if you needed to and at what type of point you feel you would have to cut back CapEx as well? If you could talk about that for next year? Thanks.

.

And again Paul, I don’t want to push the downtime but we do plan to comeback in a comprehensive way in December and really detail out our plan. We're right in the midst of our planning process and like many of our peer group, I think our planning process has been bit overtaken by the change in the commodity price environment.

But when we talk about looking at the full portfolio, when we test our U.S. resource plays, again they just are simply not are marginal capital dollars. So we look at those moving forward largely unchanged, meaning that we're still committed to the two incremental rigs in Oklahoma plus the rig that we've already added in the Bakken.

Beyond those elements of our portfolio, we do have aspects that are more discretionary in nature, that are either non-reserve add bearing or particularly longer term investments, including even within our exploration portfolio that we'll take a hard look at it in from a CapEx at the margin standpoint.

But we haven’t put any limiter to this point on our budget process but we want to make sure that we invest intelligently, recognizing the change in commodity pricing. .

Yes I got. So I understood that about the unconventional U.S. not being the marginal barrel. Could you talk a bit about the parameters of cash balances and cash flows that you want to work with and just remind us of how you see credit rating, how you see dividend obviously et cetera. Thank you. .

I'll maybe say few words, then invite J.R. to also time in. But and foremost and I think we've been very clear on this point, as you know we do not view our operating cash flows per se as a limiter on our investment program.

If we have good investment opportunities to pursue, then we certainly are going to take those on and leverage the strength of our balance sheet to support that. Now over the long-term, is being within cash flows good discipline? Absolutely. But when it comes to calls on our capital, maybe I'll turnover to J.R. and just let him emphasize how we do that.

.

Well, I think when you about it more broadly as Lee indicated in his earlier remarks, not only where the balance sheet exists today, even now with incremental $2.1 billion capital from the disposition of Norway, that really gives us tremendous optionality as we're doing this almost as plug-n-play exercise with regard to determining what the right capital allocation is throughout the portfolio.

It gives us that ability to use as much of those proceeds as we think is prudent, to either both grow and earn the record [ph] return that we think is necessary for our shareholders without in anyway jeopardizing the strength of that balance sheet. Honestly as you know commodity price environment is where it is.

It does present or could present opportunities in the future as well. And we want to make sure that we are well positioned to take care of and pursue those potential opportunities. .

And our next question comes from Doug Leggate from Bank of America-Merrill Lynch. Please go ahead. .

So I've got a couple also, Lee, if I may. I want to go -- same theme as you can imagine. If I go back to Oklahoma, when you gave us the resource update back in September that was one of the biggest drivers of your backlog increase. Obviously is a bit more gassy and some of the acreage I'm guessing is still being added.

So I'm trying to understand what is the trade-off between a very large position and very small rig count? In other words you could probably do a lot more if the economics are competitive and really what was the trade-off between holding acreage out of necessity as opposed to drilling for the economic return? Then I've got a follow-up, please..

Well, first of all, let me try to address your question I guess around product mix and Oklahoma. First and foremost, we’ve been drilling primarily leasehold and potentially all leasehold this year in Oklahoma. In fact even this quarter as well, the [indiscernible] the SCOOP to in the -- and the STACK are essentially drilling leasehold.

Now within that, we quoted one particular IP that I believe had liquid content around 55%. That’s actually a lane condensate well. When we look across the wells that we drilled in this quarter, the liquid yields on those wells from the low 70s to the low80s.

So these are relatively high liquids content wells and competed very favorably for capital allocation. And as we move and transition from a mode of holding leases to optimizing our development plans, we’ll have a lot more opportunity to move closer into the core areas, which we also feel will have higher liquids yield.

And then as we test further some of this exploration horizons, including the Springer, our view of those very early on is mainly on the back of our participation, some of our OBO wells is that those are also going to be very high liquid yield. So, we do not necessarily see Oklahoma driving us per say to be more gassy. In fact just the opposite.

We see very good liquid yields, particularly as we move into the core areas of the play. And those wells will compete head-to-head with the wells that we have in the Bakken and the Eagle Ford. Hence we’re very comfortable with the two incremental high spec rigs we'll be bringing in later this year..

But Lee, what I'm getting at is that still leaves me with a relatively limited rig counted compared to the size of the opportunity. So I'm just trying to understand, right now you’ve got a multi-decade drilling inventory with a peer with only a few rigs running.

So I’m just trying to understand where that slacks up in terms of competing for capital relative to the rest of the portfolio?.

Well certainly you're correct Doug. We’re in the very early days in Oklahoma. We’re in the early days of understanding downspacing, completion design, the key core areas and delineating the core areas of the field and certainly in the early days of things like the Springer and the Caney and Granite Wash.

So we are -- but I think adding that additional rig capacity is going to first and foremost allow us to ensure that we protect our lease hold, but secondly is going to allow us to get out in front of really understanding the full potential of that area and then we’ll make a progressive and measured and thoughtful ramp up from there.

Bear in mind, we have moved from two rigs in 2013 to basically four rigs this year moving to six and so we are moving up quite aggressively in terms of rig count. And we see that rig capacity being very well justified based on the inventory we see in front of us.

So I think it's just a question, as we learn more about the play Doug, we’ll generate more confidence to move more aggressively with that ramp up in activity, just like we've done in most of the other resource plays..

Thank you. And my quick follow-up is for J.R. Just now that you've cleaned up the portfolio with Norway, J.R., can you give us an idea of what the current tax -- that is the deferred tax guidance should be on a go forward basis? And I’ll leave it there. Thanks..

Doug, I think that we wouldn’t necessarily say we’ve cleaned up the portfolio with Norway. We’ve definitely simplified the portfolio and concentrated it more towards North America. I don’t think you should in anyway think that we’re done with portfolio management. It's very integral to capital allocation.

But when I think about deferred taxes going forward, we are going to be a very U.S. centered cash flow company. We’ve given guidance from an effective tax rate standpoint in the 30% to 35% standpoint and I think you should assume that I do not expect to be U.S. tax payer for the foreseeable future and adjust your deferred taxes accordingly..

Thank you. Our next question comes from Ryan Todd from Deutsche Bank. Please go ahead..

If I could do one follow-up question on CapEx from a slightly different angle. I know that the absolute level of the CapEx budget is probably still quite a bit and flux given the current environment, but if we think about year-on-year, your ability to shift CapEx is in the portfolio towards the U.S.

onshore, obviously you've got lower CapEx year-on-year from the Norway sale. How should we think about how much CapEx you might be able to flex within that portfolio towards the U.S.

onshore in 2015 in a flat CapEx environment?.

Yes. Well, certainly Ryan, our intent is to always prioritize and flex our capital allocation toward the highest returns. And in this case there is no doubt that the three U.S. resource plays are in very good stead to compete for that capital allocation.

In fact that was part of the basis for moving more aggressively with the additional rigs that we’re bringing in before the end of the year. As we think about CapEx broadly, as you rightly say Norway accounted for about $500 million-ish our $5.9 billion in CapEx.

And so as we look at kind of re-base lining our CapEx spend going forward, you kind of have to reorient back to that $5.4 billion type number. And so that’s a bit of a starting point from where we are today.

And then we’ll test to see how much more aggressive we want to be in that in terms of really the pace and the acceleration level that we want to step into in the U.S. resource play. Beyond that, we’ll look very hard at CapEx at the margin outside of the U.S.

resource plays to ensure that we make reasonable decisions based on the commodity price environment, which, as everyone knows, is still moving and really hasn’t found equilibrium yet..

Great, thanks. And then maybe one follow up on the Eagle Ford. Stronger than expected results, at least on from our expectations in terms of production in the quarter and obviously a lot of that was driven by record completions.

But can you talk as well about -- you mentioned 59 wells at over 180 days production on the enhanced completions and 25% improvement relative to type curves.

Can you talk about what you’ve seen to-date in terms of how much you think about earlier capture and how much [indiscernible] flow towards higher EURs?.

Yes. Maybe I’ll let Lance. He is already smiling though because you acknowledged the great performance in the Eagle Ford. So I'm sure I'm going to pay for that later.

So Lance why don’t you talk a little bit about the enhanced completion design?.

Sure. I’d say directionally, Eagle Ford is performing where we expected it to this year, starting the year knowing we would gain efficiencies through the year. So some part of what you’ve seen in that production growth is driven by at a constant activity in the field just getting more and more efficient with the existing equipment and people.

Certainly a credit to the team for their drive on that basis. The second part of the growth is driven, perhaps a large part of it by the simulation design. As we’ve tested stage spacing, profit loading perforation clusters and rate, we found a better completion design.

And through the third quarter, almost 60 wells had reached six months of cumulative production and that uplift is about 25%. And so as we have a relatively constant pace of activity in the field and we get better well performance across a large group of wells, you're really seen that move through and create that broad production lift in the field.

So this current design is working very well. As you would imagine we’re out testing additional enhancements to that design for future improvement. I think we’re very satisfied by that this year and what we’ve learned from that will take us to the next steps in terms of enhancement and future growth..

And is it too early to speculate as to whether you’ve shifted the entire curve up or whether you’ve just pulled forward production?.

That’s a great question, and right now what we see is early well performance is very strong. We’d like to see those wells mature. We’re focused on creating more value per drilling spacing unit by bring those volumes forward in time and doing it in a very capital efficient manner.

I think as those wells mature and we have that history that we’ll reevaluate the EURs and talk about potential for resource growth later this year or early next..

Thank you. Our next question comes from Jeoffrey Lambujon from Tudor, Pickering & Holt. Please go ahead..

Just one follow up on capital allocation, you talked about the U.S. onshore and international CapEx.

Just focusing specifically on exploration, what’s your view on capital spend there over the next few years?.

Well, certainly as we included in the investor package, our near term focus is really wrapped around the Gulf of Mexico. We’re really bringing that into full view right now. We’ve got multiple wells that we’re executing in the Gulf, our operated Key Largo well. In addition we have an appraisal well and another exploration well that’s non-operated.

So a lot of focus on the Gulf of Mexico in the near term. But I think what you’ll find is that the program is much more focused in the next couple of years. So we would expect to see some moderation in the overall exploration spend regardless of the pricing environment. This is not really linked directly to pricing.

This is just a function of us continuing to drive focus towards oil prone emerging plays that we think can be accretive and can compete for capital allocation across our full portfolio.

So you'll see that we have a focus as we move through towards the end of the year on our EG program, which we think is also quite promising and also plays right to that fair way on oil prone emerging plays.

And maybe I could ask our Vice President on the International side just to comment just briefly on the EG program, which we hope to kick-off at the end of the year. .

Yeah, thanks Lee and thanks for the question. Just quickly following up on the Lee’s comments. We will start a two well exploration program most likely towards the very end of the year this year. It’s in an area offsetting a couple of proven fields just across the international border.

We're very encouraged with the revised interpretations from integrating reprocess size mix. We see chance of success for these in excess of 50% based on integrating all of the data available to us, and on a gross resources basis, with the multiple follow-on prospects, we see potential ranging from 200 million to 500 million barrels.

So certainly a material opportunity that we'll be testing late this year. .

Okay, thanks, Mitch. So bottom-line is certainly in the near-term, next couple of years, we see much more focused, a better moderation in our exploration spend that are really driving at these high impact oil prone prospects..

And then lastly on the Oil Sands Mining, can you talk about progress towards improved reliability there and then plans for that long-term as well?.

Yes absolutely. I'll maybe make a few comments and then I'll offer Lance an opportunity to chime in as well. I think we had a strong performance in the third quarter but the reality is one quarter a trend does not make. We still have some hard work left to do on the reliability front.

Lance and his team are working with our other joint venture partners, as well as the operator on the reliability front and maybe Lance, I'll just let you comment on how that work is progressing. .

I think the operator and the joint venture partners of which we're more clearly focused on reliability. We are making progress there. The variability in quarterly performance is higher than we would like it to be. I think the peers would agree.

So we're focused and I would say broadly the third quarter showed some support on reliability focus but there is a dedicated program that is focused and targeted at the key mine reliability impact that we have experienced over the past few years. And so it’s too early to tell but certainly the rigor and the focus is there.

That consistent results remain to be delivered..

And I think again to -- also to the operators' credit, I think they did move the needle this quarter. I think they have also brought in some more focused mining leadership into the operation, and we think those are all positive signs. But again we need to see that consistent performance quarter-on-quarter from the OSM operation. .

Thank you. Our next question comes from Guy Baber from Simmons & Company. Please go ahead. .

Surprise, surprise but I wanted to start off with capital spending and this year’s budget, but it would appear that you all have been able to accomplish more within the confines of that original budget than may have been initially planned. Granted Norway is dropping out but you're adding three rigs, albeit late in the year.

You're testing various completion enhancements in the Bakken. You've enhanced completion designs in the Eagle Ford. You're more active in Oklahoma. So it appears like you're doing more with the same amount of capital as the budgets then changed. Is that a fair observation that we've made.

And can you discuss maybe where you've driven efficiencies and spending and what some of those implications might be for 2015 as we think about your budgeting process?.

Well certainly we are on track on our capital budget this year. There have been pluses and minuses across the budget. Some of those have been timing impacts as we've had rigs arrive later than expected.

A good example of that is the EG program, which we thought would be kicked-off before now but the operator that has the rig has had some success in his currently testing. So there are some timing impacts there. But I agree with -- we have been able to do more in this year’s program from an activity perspective particularly in the U.S. resource play.

The additional rigs really haven’t put a lot of pressure on us because they've come somewhat late in the year but the higher intensity completion design certainly in the Eagle Ford, where we have such a high number of wells to sales, absolutely that has put some upward pressure into the budget. But that’s all been well justified based on economics.

As we look at the incremental returns of those higher intensity completion designs, those are generating a 100% incremental rates of returns. So we have been able to drive a bit more success, a bit more activity this year within the confines of the $5.9 billion budget. .

Okay, great. Then I had a follow-up for Lance. But obviously across the portfolio, drilling longer laterals in the Bakken, testing enhance completion design. So it does -- it appears there is some experimentation going on that I would imagine might make it difficult in driving continued improvement to the cycle times, in your spud to TD time.

So could you discuss maybe a little bit for us, your view on the evolution of cycle times, from where we stand today in the Eagle Ford and in the Bakken and how you balance that with improved well performance and just how we should be thinking about that?.

Absolutely Guy. We continue to focus above all else on value in the resource plays and which requires us to continue to focus on completion enhancement, every month, every quarter to find that opportunity to create that enhanced value. Within the chain, the teams are focused on that and that systematic development.

So let's start first with an Eagle Ford. They've been systematically developing and they've been at a constant rate through this year in terms of activity. You see that activity quarter after quarter. They continue to get more efficient and bring more wells to sales, even as they continue to experiment.

So I look at that as a great success that we’re controlling and managing that capital that Lee referenced. And so while we are spending more per well to generate that value, it's certainly worth it and the team is continuing to actually bring that per well cost down, even if they enhance it broadly through efficiencies.

And I would say, incumbent in that, in the first-half of the year, we actually achieved a substantial amount of savings and efficiencies in a well and commercial leverage across our service lines. And then from mid-year forward, it has been effectively flat.

So that’s really helped offset much of the capital spend you referenced earlier, as we achieve those savings early in the year. And then looking at Bakken, they are experimenting more. It's a very mature team. They continue to get faster this year. They were more than a day faster on the spud to TD cycle even what they changes you referenced.

That mature team is very systematic with planning those completing optimization pilots, putting those in a queue and managing those effectively.

And as you’ve seen our production grow 12% from Q2 to Q3, well I would say that broadly their execution remains very robust, even in the face of that experimentation and we expect that to continue as we move forward..

I guess I would just say in the resource play, that component of experimentation is just part of the business model. We have to do that to continue to drive optimization, capital efficiency into the resource play. So, our asset teams view that just part of the expectations..

That’s very helpful. And then more -- I guess a final quick one for me.

Do you all have a target Eagle Ford production exit rate for the year that you might be willing to share?.

No currently Guy. We’ll spend some time at the end of the year, chatting a little bit about exit rates and forward-looking rates and all three of the resource plays..

Thank you. Our next question comes from John Herrlin from Societe Generale. Please go ahead..

Yes. Hi, this is either for Lee or J.R.

Given a large review as focus, any change in view with respect to product hedging, commodity price hedging?.

Lee Tillman:.

That sounds like a great question for J. R. .

Now we've talked about it on a pass couple of calls. We try and look at the commodity price risk through the lens of our ability to meet what we believe is kind of the core of a capital program necessary to achieve and kind of those growth and return metrics that we set out for ourselves internally and that’s the way we look at it.

Now no doubt today, we are and still remain substantially un-hedged when you look out to 2015. It is something we will continue to consider. We’ll look at the risks, not only the downside but also to the risk with the lost opportunity to the upside.

But the focus is more in terms of that core capital program and our ability and our assessment of the probability of being able to fund that with both operating cash flows, cash on hand and the ability still to maintain a really strong balance sheet..

Thanks. Next one for me is, you mentioned you’ll be opportunistic in terms of portfolio management on the sell side.

What about buying acreage or assets in the downturn?.

Well, I think as J.R. kind of mentioned, having that strength of balance sheet does give us the -- I’ll say the horsepower to be opportunistic in the market whether the prices are up or down. It does allows us some flexibility to entertain opportunity.

I think a great example of the type of opportunities that we’re able to pursue is to add this quarter in the SCOOP area, which is a very accretive add, I guess 12,000 net acres to kind of 300,000 acre position.

So in our view those adds will always be open to -- if they make sense and they reflect the quality that can come in and compete in our inventory. I think we’ll always look to be opportunistic and consider those opportunities that present themselves particularly here in the U.S.

unconventionals, because of the strength of our execution model and I think the credibility that we’ve generated, I believe we have confidence in pursuing those opportunities. But again it will have to be something that can come in and compete with the quality of inventory that we have today.

It really all starts in the ends with quality and having that running room looking forward to add significant growth opportunity in the future..

John as we talked before, I think Lee’s point is a good one. Whether we’re in a $100 price environment or an $80 price environment or lower, the same litmus test applies. Now no doubt this sort of environment can create opportunities for those who could take advantage of those opportunities.

But that natural tension in the capital allocation process still exists. It’s still got to compete with those very high quality resource plays that we have today..

Our next question comes from David Heikkinen from Heikkinen Energy. Please go ahead..

Look-forward to the 2015 outlook in December.

Can you walk us through your fourth quarter expectations for wells drilled and online in the Eagle Ford, Bakken and Oklahoma?.

Yes. I think again, we were on track, on plan to deliver the guidance that we’ve provided. Of course as part of last year’s budget, we still remain within those brackets. So there's really no change in the activity outlook in terms of wells we expect to drill and wells we expect to bring to sale.

So we’re not singling anything different David than what we’ve communicated in the past..

Okay. So no hard details as usual. Just trying.

It's worth a try David..

And then the 12,000 acres that you added….

Maybe David, just to not dive that completely though, I think you’ve seen our delivery in the three resource plays over the last three quarters. You’ve seen the efficiency that Lance has referenced.

So I think based on the activity level we have in our three resource plays, it’s relatively straight forward I think to project that into the fourth quarter outlook..

You’re on track.

And then the 12,000 acres, can you give any specificity or details on where you added the acres in the SCOOP?.

Yes, I don’t want to talk about the specifics on the acreage add, but just I think suffice to say that our view is that it’s comprised a good core acreage that will compete going forward.

The other element that we find very appealing in the acreage is that it also looks like it has prospectivity in the Springer formation, which we already have acres that are prospected in the Springer, but this would be in addition to that. And so we saw the Springer as a distinctive upside in this particular acreage position. .

Thank you. Our next question comes from Roger Read from Wells Fargo. Please go ahead..

Just wanted to I guess follow up a little bit, maybe the details aren’t available yet. But your Bakken re-completions, particularly you had mentioned the Hector and Ajax, 16 wells.

Can you give us a little more idea of what exactly you’re doing there, what you’re hoping to accomplish? Maybe if there's any way you can give us any expectations for volumes and changes relative to where the wells were before or what they did originally?.

Yes. Maybe few opening comments and I’ll turn over to Lance. We’ve got quite a large inventory of wells that were completed with our earlier technology in the Bakken, essentially single stage open hole frac designs.

And we saw that inventory and we felt that there was a real potential there to go in and do recompletions to more modern multistage technology and generate not only uplift on IPs but also EURs. We started not surprisingly in kind of the best area of the field which was the Myrmidon area. We’ve now moved into Hector and Ajax.

The majority of what you’ve seen this quarter is really Hector wells and that’s where the majority of acreage lies. But maybe I’ll let Lance just comment a little bit on what we’re doing in the wells and how the team is driving, not only capital efficiency but economics in those wells..

Thanks Lee. Roger what you would find in terms of operational basis as we go into recomplete wells, we’re going back into a drilling unit most of the time that has one or maybe two wells in it on a 1,280 acre unit. And we’re going in to move to higher density full field development.

Sometimes those wells are not using -- those original wells weren’t using the best available technology that we understand today. And they’re three, four maybe five years on production.

So we’re re-stimulating those wells to that modern best available technology as we drill and complete the rest of the wells on that pad for efficiency, all at the same time and to see those results. We’re having good success with that. We had it in Myrmidon. We're having equal success in Hector.

We do not have any more inventory outside of Hector effectively today for those recompletions. But they compete for capital very nicely. And otherwise those wells and pads would have to be shut in for some period as we do the offset stimulations.

So rather than having expense workover, this is an opportunity for us to re-stimulate those wells on a capital basis and bring the EURs up.

So far the wells have performed very well and we’re going to continue that program through the end of this year and pinning our capital evaluation into next year and we have about 70 more wells that are viable candidates..

Yes. And just to add to that, we do have a dedicated recompletion rig running in the field and that rig will essentially be liquidating that inventory over the next couple of years on a go forward basis..

I would say too that we’re now far enough into it that even as we move to Hector and the reservoir quality may not be quite equal to Myrmidon, our efficiency of doing the recompletions, we’ve gotten a faster as well as lower cost over the year which is really helping balance the returns on those..

Okay, great. Thanks. And then sort of another way of asking the capital allocation question and maybe ways to lower spending commitments for next year.

Key Largo I know the -- I guess that well's really maybe more of an impact on ’14 CapEx but at 60% working interest, any efforts to cut that back, sell down a little bit? Or any of the other exploration wells for next year?.

Certainly Roger we look at the risk profile on all of these wells and make a determination on do we want to try to bring in additional partners to mitigate the go forward risk, particularly on some of these high-dollar wells in the Gulf of Mexico.

So we're going to continue to be interested in looking at that risk profile on all of these deep Paleogenetype wells to ensure that we balance materiality versus risk in the well. So you will continue to see us pursuing farm downs when it makes sense to reduce our exposure on these wells. Because these are very dollar wells as you know. .

Thank you. Our next question comes from Pavel Molchanov from Raymond James. Please go ahead. .

You guys operate in obviously a diverse of areas.

Can I get some comments from you on what’s been happening with service costs in your various geographies in the last let’s say 90 days? In other words if there is a response on the cost side to the moves in the commodity market?.

Maybe I'll try again and then certainly I think Lance has already indicated that, at the beginning of the year we were quite successful in negotiating some very favorable commercial terms for our key service providers. And when you look at our business, particularly here in the U.S.

it’s dominated really by the supply chain, it’s dominated our pumping service, our rig contracts et cetera. That’s really what’s driving our business here in the U.S.

I think we were starting to see certainly some tightening in the availability of high spec rigs as we move through the second half of the year, but had not really seen a "price response" per se in the rig market.

So I think now going forward in this somewhat different commodity price environment, our expectation is that there will be opportunity for both operators at scale and we very much have scale in our favor that we'll be able to expand margin by getting in and driving much more favorable commercial terms, just given the significant magnitude of our book of business.

.

Okay, that’s helpful. Small housekeeping item in relation to Atrush. Given the delay that of course you've because of the fighting in the region, I understand that construction there was postponed for a period of time. You're still guiding to start up in 2015.

In any sense kind of during the year when that might be?.

I will maybe just make a couple of comments and then turnover to Mitch. We were certainly impacted by the security situation in Iraq.

We were impacted to varying degrees across all of the blocks that we have interest, including our own operated block where we temporarily suspended operations on logistic one well, but there were also other operations on our non-operated blocks that were also impacted.

But maybe I will just let Mitch comment specifically on Atrush but I do think it’s important to note that Atrush from a net volume standpoint is still a very small component of our go forward portfolio..

Yeah thanks Lee and Pavel, good question. Clearly with the security developments in the region, several activities by various operators were put on hold or suspended. In the case of Atrush and the development of the Phase 1, a majority of that work is currently being done outside of the country. So that was able to progress.

We had been expecting first production around mid-year. The team is working on developing recovery options and we're still in the midst of that process. So we can expect some impact from the security situation there but don’t have a definitive timeframe nailed down until we work through the recovery plan. .

Okay, but you are still firm on the 2015. .

That’s correct. .

Thank you. Our next question comes from Scott Hanold from RBC Capital Markets. Please go ahead. .

Maybe this is a question for J.R. Obviously you all have gotten the proceeds of from the Norway sale and did indicate some intent to spend on some of the U.S. unconventional plays but J.R.

could you talk about the -- looking at sort of the balance sheet in a lower commodity price environment, you've got that senior note I think coming due at the end of ’15.

Is there a certain amount of comfort level you're going to create by I guess warehousing some of those proceeds before that coming due?.

Well Scott, as we have said a number of times now, I sleep very well at night with the strength of our balance sheet and the flexibility that that gives us especially in this slower commodity price environment. I wouldn’t necessarily view that I am warehousing those proceeds for debt repayment.

In fact if anything, I'd like to be able to put as much of those proceeds that we think make sense in this environment from a return perspective to work in our organic portfolio. And so I would have every expectation that I’ll be refinancing that debt later in the year when it comes due in October of 2015. .

Thank you. Our next question comes from Jeffrey Campbell from Tuohy Brothers Investment. Please go ahead. .

I apologize, just a preamble if I'm being repetitive, because I knocked off Q&A for a little bit and got back on. You announced some [ph] Chalk results were identified as being within the previously announced delineated area.

What’s the status of magnifying that area beyond the approximately 155000 acres presently de-risked as you move into 2015?.

Well, I think thus far we have delineated about 18,000 net acres in the Austin Chalk and I would say we are on plan to not only continue the development, co-development of the Austin Chalk, but also to continue to delineate to the east and the west and maybe Lance, you could just add a little bit about the forward Austin Chalk program..

Absolutely. Jeff we have four wells in the fourth quarter that will test new areas outside of the currently delineated area and combination will be east and west of that area and they'll test about 8,000 more acres that we view as prospective for the Austin Chalk.

In addition to that in the Eagle Ford area, we also have two pilots that we've previously described to STACK n frac that will test a combination of Austin Chalk, upper Eagle Ford and lower Eagle Ford, up to four wells vertically STACK. Those pilots are also drilling today.

Results will be roughly Q1 available, by the time they're all drilled and completed. And we also have some standalone upper Eagle Ford tests that are also drilling today, but we haven’t developed before and with those results likely first quarter as well.

So we have a substantial amount of activity testing other vertical horizons as well as combinations of horizon and then those four wells that should test about 8,000 acres in the Austin Chalk. And again I didn’t say that Austin Chalk was also.

I think most of these are on pace all be drilled and start completions into Q4 and then first sales in early Q1..

Okay, that was great color.

If I could just clarify one thing that you just said, that the STACK and frac pilots, would you qualify those as being within presently de-risked acreage are they a part of de-risking the additional 8,000 acres that you saw to that?.

Those will be some about, actually. We’ll have some outside the area and the majority inside that area..

Okay and if I could ask one follow-up, a little bit higher level, it seems like condensate export momentum has slowed as that government struggles with methodology to accurately categorize condensate.

What's your current view on how the condensate export market is progressing and what do you anticipate in 2015?.

Well, I don’t know that I would necessarily characterize it is as slowing down. I think that definitely there has been -- if you're referring of course to the BIS process within the commerce department, I think that has slowed a bit as we move through the elections et cetera. So I still view this as a very important issue for the industry.

I think for Marathon specifically the one advantage that we have is that our Eagle Ford production is relatively heavy compared to other operators with the bulk of our barrels being heavier than 50 degree API. And so we tend to see this as an issue going forward as those higher API condensate levels move up.

But today it's not a hot pipe issue for us right now. Certainly we want to get high behind not only the lifting of the condensate export van, but also move toward lifting really of the crude export van fully and completely. We think that is really the long-term correct answer for the industry.

But certainly if we see a progressive listing of condensate restriction, we want to make absolutely sure that we're positioned to take full advantage of that and the Eagle Ford team has definitely taken those steps..

That’s helpful and just to be clear -- and to your point, really what I was thinking of is the EIA has sort of been empowered to try to arrive at some sort of an industry agreeable definition on condensate based on API. So that sort of moves into wheelhouse, I think…..

Well, certainly it would be helpful as to the extent that there is a clear and definitive definition of condensate. I think that will be helpful for the industry..

Thank you. Our last question comes from Mike Kelly from Global Hunter Securities. Please go ahead..

I know its early days in the delineation of the Springer, but I was hoping to get your initial thoughts on how much of your 300,000 acres in Oklahoma could be perspective for the formation and also really get your sense on how the Springer could fare on a rate of return basis versus the SCOOP and the STACK? Thanks..

I’ll maybe just let Lance jump in on the Springer..

Absolutely, so Mike, today we participate in about 11operated by other wells at our Springer and we see very high liquids rigs in those. It tends to be a lower gravity. And so I think what we’re working on now is to see is it really an oil intuit reservoir or is it a retrograde condensate reservoir.

We’re very encouraged by the high liquids content to-date. It's little bit shallower than the existing Woodford. And so this is an opportunity continue to work on capital efficiencies there. But that liquids content been very high and high value products suggest that it should be able to compete favorably for capital on a go forward basis.

We will have our own wells starting in the Springer on operated basis late in the first quarter next year as we evaluate that. And by virtue of having a very core valuable SCOOP position, we also have a large part of that position as perspective for the Springer.

I don’t think we’re quite ready to declare how many of those acres are perspective but we’re encouraged by where we are and what we see because we’ve been working on the Springer for some time now really almost a year and looking at. And so I think it’s going to be a great opportunity for us to test in the future.

And feel very comfortable it’s going to have a chance to complete for capital..

Thank you. I will now turn the call back over to Chris Phillips for closing comments..

Before turning back to Chris maybe just a closing thought here.

I very much believe that as a company Marathon is very well positioned to invest intelligently through the commodity cycle and certainly we’re going to be using the optionality that we have across our opportunity inventory to not only maximize returns and growth but also retain flexibility as the market tries to find some equilibrium.

And certainly we look forward to sharing more details on that later in December. So with that I’ll turn back to Chris to close out the call..

Thank you, Christine. And to everyone, we appreciate questions and interest in Marathon..

Thank you. And thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..