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As Marathon Oil (MRO) focuses more on the onshore oil and gas production, the Eagle Ford shale has become the core to Marathon Oil's North American operations. Marathon has approximately 230,000 core net acres in Eagle Ford, with reserves of around 2 billion barrels of oil equivalent.

Marathon had a production rate of 81,000 barrels of oil equivalent per day, or boepd, in the third quarter and expects to produce 100,000 boepd by the end of this fiscal year. In addition, the company is also emphasizing an efficient drilling process. The following chart shows the rig utilization by Marathon over the given period of time:

(click to enlarge)

Marathon Oil has taken initiatives that are expected to reduce the number of drilling days, resulting in cost savings. In the Eagle Ford shale formation, Marathon's drilling days dropped to an average of 12 days from 14 days during the third quarter, down 20% year over year. Marathon Oil is using the pad drilling technique, where an operator can drill multiple wells in a shorter time by using high mobility rigs that can move quickly and safely to the next well location, resulting in fewer drilling days. This created savings in the range of $600,000 to $700,000 per well for Marathon.

Another oil and gas producer, Chesapeake Energy (CHK), is also in line to surpass the 100,000 boed mark per day by the end of this year in the Eagle Ford shale. In the third quarter, it produced net 95,000 boed from the Eagle Ford shale. Chesapeake is currently operating 10 rigs with working interest on 100 wells. It is planning to add more than 5 rigs in the play by 2014. The total production from 100 wells was around 930 boepd in the third quarter this year. The company uses pad drilling for around 70% of its wells in Eagle Ford and plans to increase the number to around 85% next year. Chesapeake has a total 788 producing wells, and 117 other wells are waiting in the pipeline in various stages of completion in the Eagle Ford shale.

Horizontal drilling in North Dakota: Expecting production growth

Marathons Oil has also focused on the increasing production from North Dakota. In the third quarter, the Bakken shale in North Dakota produced 38,000 net boed that accounted for 26% of Marathon Oil's total U.S. liquid hydrocarbon sales last year. The company holds 410,000 net acres in North Dakota Bakken formation. To continue with its increasing production in the Bakken shale, Marathon plans to drill 300 gross company operated wells for the next four years and expects well production to be 50 thousand barrels of oil equivalent, or mboed, to 60 mboed by 2017. In order to increase the production in North Dakota, the company continues its exploring activity, and it added a few more formations in its net acreage portfolio.

One of the developed formations in North Dakota is Tyler formation, where the company recently started horizontal drilling. Previously, the company employed vertical drilling in this formation, but with the help of horizontal drilling, the exposed section of the reservoir can be expanded by drilling the reservoir at an angle.

Marathon Oil used horizontal drilling in Bakken previously and completed 200 wells with production over 18,000 boepd. The average oil production from Bakken shale for the next 45 years is around 615,000 barrels of oil per average Bakken well. The Tyler formation in North Dakota has characteristics similar to the Bakken.

Marathon received the permits to drill four wells in the Tyler formation and already started drilling horizontally in the northeastern slope county in September 2013. Marathon expects that these wells could yield an average of 400,000 barrels of oil equivalent each. So comparatively, this formation has more potential oil production in the longer term for the company. Hence, I believe the production growth will impact the company's top line in the coming quarters.

Whiting Petroleum Corporations (WLL) has also shifted its focus towards the Tyler formation after the Bakken. The total reserve has increased and is estimated to be around 396.3 million barrels of oil equivalent, or mmboe, from 378.8 mmboe. The company plans to produce around 9.20 mmboe in the fourth quarter and exit with around 34.30 mmboe by the end of this year.

In the third-quarter, Whiting Petroleum reported production of 92.8 mboed. In a recent acquisition, the company developed the Bakken shale properties by acquiring 17,282 net acres in and around the Missouri Breaks and Hidden Bench prospects. This recently acquired property has 13 operated Bakken/Three Forks drilling spacing units, and it currently has a total of 23 operating rigs working in the Bakken shale.

Conclusion:

Marathon Oil's acreage portfolio in the Eagle Ford shale provides a high production opportunity. With the substantial reduction in drilling and completion days, Marathon shown an exceptional improvement over its future growth potential. Moreover, the new horizontal drilling concept in North Dakota will certainly be a new breakthrough for the company in the coming years. So overall, I believe that the strong production growth and its cost reduction strategy will pay off, and therefore, investors should go long on this stock.

Source: Marathon Oil: Accelerating Performance With The Eagle Ford And The Bakken Shale