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Executives

Howard Thill - VP, Corporate, Government and IR

Lee Tillman - President and CEO

J. R. Sult - EVP and CFO

Analysts

Guy Baber - Simmons & Company International

Ed Westlake - Credit Suisse

Doug Leggate - Bank of America - Merrill Lynch

Evan Calio - Morgan Stanley

John Herrlin - Societe Generale

Pavel Molchanov - Raymond James

John Malone - Mizuho Securities

Amir Arif - Stifel Nicolaus

Jeff Campbell - Tuohy Brothers Investment

Marathon Oil Corporation (MRO) Q4 2013 Earnings Call February 6, 2014 9:00 AM ET

Howard Thill

Good morning and welcome to Marathon Oil Corporation’s Fourth Quarter 2013 Earnings Call. I am Howard Thill, Vice President of Corporate, Government and Investor Relations. Also on the call this morning are Lee Tillman, CEO and President; J. R. Sult, EVP and CFO. As has become our custom, we released prepared remarks last night in conjunction with our 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 statements, 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’ll turn the call over to Lee.

Lee Tillman

Well good morning to everyone joining us on the call and the webcast. Prior to opening up for your questions, I want to recognize the outstanding operational performance achieved by our dedicated employees and contractors in not only the fourth quarter, but for the full year. Since I’ve joined Marathon Oil in August of last year, I’ve had the privilege of getting to know the people and the assets that drive our results. We are a results driven company with a clear focus on shareholder value.

And it’s not just our results, but how we achieve those results. Our firm commitment to core value, safety, health, the environment, security, business ethics, compliance and social responsibility is part of our DNA and how we run the business each and every day. It has been a remarkable 2013 for our Company and for our shareholders.

We grew year-over-year production 11% excluding Libya and Alaska, exceeding our commitment of 8% to 10%, and our U.S. resource play production increased 86% over 2012. Our outstanding Eagle Ford team set the pace with 138% increase in production over 2012, and notably during the last two weeks of the year our Eagle Ford production crossed a significant milestone averaging in excess of 100,000 barrels of oil equivalent per day.

We also had an outstanding reserve replacement ratio for 2013 of 194%, excluding divestitures. As part of our rigorous portfolio management, we reached $3.5 billion in closed or agreed divestitures over the past three years and we anticipate closing the Angola Block 31 sale on or around February 11th. Additionally, we have commenced the marketing of our UK and Norway businesses.

We maintained our capital discipline by delivering our results within our $5.2 billion capital budget, excluding acquisitions. And during 2013 we increased our quarterly dividend 12% to $0.19 per share and repurchased 14 million shares of stock, returning about a billion dollars to our shareholders.

We recognize the importance of delivering on our commitments and our guidance quarter-on-quarter, year-on-year and the fourth quarter continued that theme. $1.1 billion in cash flow from continuing operations, over 98% reliability in our operated assets, 35% production increase in the U.S. resource plays and combined production in our North American international segments above the midpoint of our guidance.

With our high quality assets and ability to execute, we look for continued solid production growth and believe there is a strong investment case for Marathon Oil. Not only achieving but excelling across the seven strategic imperatives that we laid out at our Analyst Day is our corporate strategy and the roadmap for how we plan to become the premier independent E&P.

With that, I’ll turn it back to Howard.

Howard Thill

Thanks, Lee. Before we open the call for questions, we’d like to remind you that, we’d 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.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question is from Guy Baber of Simmons. Please go ahead.

Guy Baber - Simmons & Company International

Thanks, good morning everybody.

Lee Tillman

Good morning Guy.

Guy Baber - Simmons & Company International

Understanding it was just a couple of months ago that you may be announcing about divesting North Sea assets I was just wondering if you could talk about how that marketing process is progressing. When do you expect to have a data room open? Just trying to get a better sense of timing and how quickly you all have been able to move that process along so far?

Lee Tillman

Yes, thanks for the question Guy, this is Lee. Yes, we are often running on the marketing effort. We’re still committed towards a target of closing that transaction towards the end of 2014. Consistent with that we’re working hard to get a data room open here in the first quarter to ensure that we stay on-track relative to that timing.

Guy Baber - Simmons & Company International

Okay, great. And then my follow-up is, F&D cost at $16 a barrel, [saw it as a] [ph] replacement, the lowest F&D rate for you all in a number of years. My question is just how that compared to what you had expected and were striving for internally coming into 2013? Is there any area that may have surprised positively relative to your expectations? And then relatedly do you all have any targets that you could share with respect to your goals for F&D costs on a go forward basis?

Lee Tillman

Yes, now we’re very pleased with our F&D cost performance and I probably should emphasize that that is based on total GAAP incurred cost as well just as you start comparing that number perhaps out to some of our peer group. A lot of that of course is driven by some outstanding performance in our U.S. resource plays as you looked at our proved reserve adds you can see the contribution certainly from North America that is the standout and that was part of a very I would say focused effort to ensure that we had appropriately booked and accounted for the growth that we were seeing in those resource plays. And that’s really the uplift that you’re seeing this year that’s driving that excellent reserves replacement.

As we shared at the Analyst Day there still remains an incredible amount of 2P resource and potential total resource growth in those resource plays. And again we of course have internal targets that we look at and challenge our asset teams with, but we have clear line of sight on 100% reserve replacement or greater as we move forward in the next couple of years.

Guy Baber - Simmons & Company International

Thank you for the comments.

Lee Tillman

Thanks Guy. I appreciate it.

Operator

Thank you. Our next question is from Ed Westlake of Credit Suisse. Please go ahead.

Ed Westlake - Credit Suisse

Yes. And just good morning Lee and Howard congratulations on the production growth last year and obviously a strong cash flow growth. As we look into ’14 obviously the shale plays can continue to drive cash flows higher, but you will lose something internationally. Maybe just help us understand your view of, you’ve given production guidance, but how sort of net cash margins should change into ’14 versus ’13 say on a flat oil price deck? And then I’ve got a follow-on around deferred tax.

Lee Tillman

Yes. Well first Ed I think you point out a good component though looking forward in our portfolio which is, we are naturally going to move toward a higher weighting toward North America volumes and the margins that those generate. Traditionally, we have seen those to be a course higher cash margin than what we’d experienced in some aspects of our international portfolio. So we see that as a net positive.

That I think coupled with our continued focus on high liquids content at both our production as well as our reserves we think are going to contribute to very profitable growth moving forward. So, a lot of that mix effect, I think we will be able to take advantage of moving forward.

Ed Westlake - Credit Suisse

And the follow-up is on deferred tax and you obviously you gave some details on it in the release. But just looking forward I mean it seems like it was smaller than perhaps I was modeling, perhaps other people on the call. Maybe just give us a breakdown of how much deferred tax was in the U.S. and how much was international and maybe how that will pan out into ’14 given that you are probably cash tax payor in [our time] [ph], but get some benefits in the U.S.?

Lee Tillman

Yes. Well I’ll maybe handover to J.R. just to address maybe the tax question more on a holistic basis, because we are driving our kind of statutory tax rate down over time, but J.R. if you want to comment on some of the timing effects that we saw at the end of 2013.

J. R. Sult

Yes. Good morning Ed, how are you? Lee is right as we outlined at the Analyst Day we do see our overall aggregate effective tax rate continue to decline as the mix of our production shifts more and more to North America. When I look at Q4 Ed nothing really stands out in terms of being individually significant. As you know there is always two factors that impact Q4 when you look at our overall tax provision including our deferred taxes. Number one is, in Q4 we always ultimately true-up our deferred taxes and all our tax accounts to the filed statutory tax returns in all of our jurisdictions, U.S., sovereign, foreign as well, state and local so that’s one element that’s always going to be running through Q4.

Just as well as finally truing up our final effective tax rate, as you know we go out throughout the year and we estimate what we think that rate is going to be over the next 12 calendar months. And ultimately have to true-up that based on the final mix of our earnings. And I think it’s a little bit of both of those component pieces Ed in terms of true-up to the final tax return just as well as getting the final mix of income by jurisdiction that might have driven a few anomalies none of which are individually significant.

Ed Westlake - Credit Suisse

But just in terms of outlook in ’14, do you think that you will be paying some decent tax in Norway and having some benefits in the U.S., is that how you…?

J. R. Sult

Absolutely I mean in the U.S. with the capital program that we have running you will not see us be a U.S. cash tax payor for a number of years. Norway, EG, all of our taxpaying jurisdictions and it’s fair to assume effectively that all of my taxes for the most part for modeling purposes are current. And so I think you should expect to see that going forward into 2014 together with the overall guidance that we gave in terms of the effective tax rate for the year.

Ed Westlake - Credit Suisse

Thank you.

J. R. Sult

Thanks Ed.

Lee Tillman

Thanks Ed.

Operator

Thank you. Our next question is from Doug Leggate of Bank of America. Please go ahead.

Doug Leggate - Bank of America - Merrill Lynch

Well, thanks. Good morning everybody. Thanks for taking my questions.

Lee Tillman

Good morning Doug.

Doug Leggate - Bank of America - Merrill Lynch

Good morning. I’ll take my two as well if I may, so Lee in the event that you are successful in selling Norway and the UK. You are going to remove some fairly high decline assets from your portfolio. Would you be able to give us some kind of pro forma CapEx and growth rate ex the sales, because the growth rate obviously has been diluted by the decline rate, so if we really just focus on the onshore assets, ex those assets what does CapEx and growth look like? And then I’ve got a follow-up please.

Lee Tillman

Okay, yes, sure, absolutely. So let me maybe take on the volumes growth piece first, I believe in our Analyst Day we talked a little bit about that on a pro forma basis and the way we really couched it in a pro forma sense was to say well when you look at our 2012 to 2017 compound annual growth rate based on our current portfolio, we had committed to 5% to 7% externally.

When we in a pro forma sense, ex Norway and the UK assets, that pro forma growth moves to 8% to 10% over that 2012 to 2017 period. We haven’t given any specific CapEx guidance on that but what I will tell you and I think we also shared this in the Analyst Day is that we are in relatively high investment years in both the UK and Norway.

As you are aware Doug in Norway we are in the installation phase of the boiler project this year, which will have a very high CapEx demand between the installation as well as the associated drilling. In addition to that, we are doing some development drilling in the UK also. So 2014 is actually a bit of a high investment year and we’re probably north in a combined sense in 2014, north of $500 million of capital investment in the UK and Norway.

Doug Leggate - Bank of America - Merrill Lynch

Okay, that’s helpful. I’ll put it under the numbers. But I guess my follow-up is kind of relatedly because assuming you secure the sales of these assets at some point and given the growth in the Lower 48, it strikes us that you are fairly flushed with cash. Obviously the buyback is part of the process, but where is your, -- where I guess is management’s head out at this point. I mean bear in mind you are still relatively new to the Company. Are you at the point now where you are ready to reload the portfolio? Are you happy with the current portfolio structure meaning that incremental cash continues to buy back stock? And I’ll leave it there. Thank you.

Lee Tillman

Yes, okay, great, now good question. And probably maybe a good bridge to my previous answer Doug is when I talk about that 8% to 10% CAGR that also presumes that you are simply removing the pro forma performance of UK and Norway. It makes no assumption about how you might use those reinvestment proceeds to grow the business organically. So I think it’s important to make that statement.

But in terms of if we are successful in the North Sea marketing case I think we’re going to go back to the capital allocation process that we talked about and described pretty fully in the Analyst Day. Our first call on capital is going to be looking for those long-term accretive organic investments in the business. From there we’ll take a look at how can we do an effective job of resource capture, whether that’d be through business development or through our exploration program.

After that we’re going to ensure that we deliver our dividend commitment to our shareholders and as I mentioned that’s running just around $500 million a year at current rate. Of course and all the while ensuring that we’re protecting our investment grade balance sheet. And I think once we work through those calls on capitals, we’re going to look very carefully at opportunistic share repurchases as well as an option to bring value to our shareholder. But that’s the strategy that you will see us apply and of course we have to do that in the context of the business environment at that point in time that we find ourselves from a commodity price standpoint et cetera.

Doug Leggate - Bank of America - Merrill Lynch

Got it. Thanks for the answers Lee.

Lee Tillman

Thank you, Doug.

Operator

Thank you. Our next question is from Evan Calio of Morgan Stanley. Please go ahead.

Evan Calio - Morgan Stanley

Thank you and good morning guys and thanks for taking the question allocations. First I know utilization’s impact to the quarter and really given uncertainty and volatility in the spreads and particularly Brent LS as it relates to your Eagle Ford volumes I mean do you have any greater interest or see the potential to term-up volumes with the refiner to provide surety around that forward spread?

Lee Tillman

I’ll maybe start the answer and then invite Howard and J.R. to jump in there. Because that’s clearly a big feature of the release this quarter as the realizations and I think you bring up a great point which is our Eagle Ford volumes are really driven from a realization standpoint to LLS. And through a lot of activity the LLS Brent spread was under some challenge. We also of course saw some challenge in the Bakken as well on the spread. And then finally on Western Canada select we also saw some challenges there. So the spreads and realizations are very important too at this quarter.

On the positive, those had generally moved back in line with where we had been earlier in 2013, but maybe I’ll ask Howard just to comment specifically on some of the factors we saw impacting the Eagle Ford LLS impact and then perhaps J.R. could comment a bit on our overall I would say risk management strategy around commodity risk.

Howard Thill

Sure. Thanks Lee and thanks for the question Evan. To Lee’s point what we saw was from the third quarter where LLS and Brent were essentially imparity we saw that really widen to about an $8 differential between LLS and Brent and of course there is a lot of the crude that you wouldn’t typically think of besides just the Eagle Ford that has an LLS component to it the Bakken being one of them because of rail and other pricing mechanisms that saw that drive those prices lower.

To Lee’s point in January we’ve already seen that discount close from that $8 down to about $4 and so it continues to narrow that was really from what we’ve seen that was really driven by the opening up of the southern leg of Keystone XL as well as reversal of the Ho-Ho line into Houston.

And so what you had was that that bottleneck really moved from a WTI pricing Cushing to a Gulf Coast price LLS and as that’s been absorbed then you’ve seeing that those differentials as I’ve said really start to close and maybe not back to normal but getting back to more of where we were on a pre-fourth quarter basis.

Lee Tillman

Yes, thanks for that Howard. J.R.?

J. R. Sult

Yes, I mean Evan two quick things Evan not to pile on to listen to three folks answer your single question but number one is we are also looking at additional commercial solutions that would give us additional outlets for our crude to increase our optionality around what markets we ultimately go to. The other thing I would say so that’s more of a commercial focus, on the financial focus of course we have had in the past and we will continue to look for opportunistic financial hedging potential.

We just had some fairly successful positions in 2013. I would tell you that given the strength of our financial position however I think we have a lot of optionality in terms of how we manage our aggregate risk from a cash flow standpoint. But again we watch very carefully and confidentially those forward markets and we’ll take advantage of opportunities as they present themselves.

Evan Calio - Morgan Stanley

Great. My second question thanks for that full response. My second question is related on the commercial side on crude oil exports, and has Marathon filed for an export permit or swap which sounds more right, with commerce and if not I guess why not and what is your strategy there to help break that potential supply log jam in the Gulf Coast?

Lee Tillman

Well, clearly it’s encouraging to us as a Company to see the crude export issue being out there and discussed openly now. I mean if you rewind back not so long ago that was not the case we were hard pressed to get any traction around that, but now I think there is some traction in the political circle. Bur I still think it’s a challenge to move it all the way to a full opening of exports but some of the swaps and some of the export permits that folks are talking about we’re monitoring that we’ve not entered into any swaps or any export permits at this time.

We’re really spending our time with ensuring that we communicate the significant advantages that an export option will generate for the U.S., both on the producers, the refiners as well as the consumers side. And so we’re spending our time with the influence leaders, the policy makers to ensure that they have the facts, they understand how that will positively impact the overall situation here in the U.S. whether you take a look at it from a consumer position and price at the top or whether you look at it from a balance and trade standpoint. But certainly with the growth and the economic growth that is being generated in the North America resource plays we need to continue to enable that and to me it’s a natural next step for us to move into a commodity situation we’re in the world open market that benefits the producers that benefits the consumers it doesn’t in any way damage our energy security but rather I think creates opportunities for further growth here in the U.S.

Evan Calio - Morgan Stanley

Great, thanks guys.

Lee Tillman

Thank you, Evan.

J. R. Sult

Thanks Evan.

Operator

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

John Herrlin - Societe Generale

Yes hi. Two quick ones, that are unconventional. Could you split your Anadarko Base and acreage between the SCOOP, the Cana Woodford and the [misspa’s]? And is it fair to say if you do monetize your North Sea assets that capital will flow towards this region as well?

Lee Tillman

Okay. Yes, I mean I would just maybe answer the question a bit generally we typically have not split out our acreage. And we’ve shown some maps I think in our Analyst Day which gives you a feel of the general acreage spread between SCOOP as well as the Southern Mississippi trend the core kind of Cana Woodford and then also even the Granite Wash as well. What I will tell you is that we are essentially doubling and have doubled the rig count in our Oklahoma resource basins. You might recall from our Analyst Day we talked about ramping-up across all of our resource plays to a 28 rig program.

I am pleased to confirm that we are at that 28 rig count today, so we have ramped-up a very effectively early in 2014. We’re looking very closely at the SCOOP. We’re doing some work there on some extended reach wells where we’re looking at much longer horizontal sections to continue to drive those wells to be economically competitive with our best wells in the Eagle Ford as well as the Bakken. We absolutely see the Oklahoma resource basin as an area of future growth and future capital allocation and competition. So we see it very much as a growth opportunity for us.

John Herrlin - Societe Generale

Okay, thanks Lee. Next one is on the Bakken. You have been completing a lot of Three Forks wells, how they have been performing?

Lee Tillman

Yes, I know that there has been a little bit of chatter out there on Three Forks’ performance, so let me be really clear on this. We have got a considerable amount of our production today that’s in the Three Forks first bench about 20% of our production today is there. We have a very aggressive Three Forks development program in 2014 that includes not only first bench, but also second bench piloting. In our particular acreage areas which we believe to be very high quality, we’re seeing excellent performance and tight curves from the Three Forks first bench and we look forward to testing what the second bench can deliver as well.

I think what you are hearing is that there is a natural variability across the plays which whether you are talking about the middle Bakken or the Three Forks first bench depending upon where your acreage is located, there is going to be a natural variability in the quality and based on the type curves that we have seen thus far particularly in the Three Forks first bench we have no concerns there.

John Herrlin - Societe Generale

Thanks.

Lee Tillman

Thanks John.

Operator

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

Pavel Molchanov - Raymond James

Thanks for taking the question, so obviously some kind of discouraging results initially in Ethiopia and Kenya. As you look to your next prospect, can you give us a sense of the capital at risk in both countries?

Lee Tillman

Yes, well of course we have a relatively robust exploration program in 2014, it’s running right now. Our capital budget is right around 500 million for our global exploration program. In Ethiopia and Kenya you are right I would say we have had mixed results there. What we’re currently doing in both basins though as you know in these rift plays you have basins within sub-basins. There has been good success of course in Ethiopia and Kenya in the rift plays and we’re now moving over in general to the opposite side of the rift to test fully those very large acreage positions.

But we are looking to moderate our capital exposure in those areas until we can confirm working hydrocarbon systems and prospectivity. We’re doing that in really a non-operated position with our partners there with two very reliable operators Tello and Africa Oil. So, we remain hopeful. These are extremely large acreage positions that we’re looking at here. They’re still in our view competing favorably for capital within our exploration program. But I would just caution that it’s still very early days in these plays.

Pavel Molchanov - Raymond James

Okay. You also remarked in the press release that even so far this year you have not had any liftings from Libyan oil terminals close but we have heard from some of other operators that in fact there has been improvement over the last perhaps three to four weeks. Are your operations kind of distinct from that or are you seeing any improvement perhaps more recently?

Lee Tillman

Yes, well I think there of course is news each and every day coming out of Libya and I know you guys read it just like we do. It remains a very fluid situation there, very unpredictable. Hence the reason we carry Libya volumes really below the line due to that unpredictability. There is positive data. There is a lot of difference though between the east and the west and where your terminals happen to be located. And of course we still today are not doing liftings. We don’t have a clear view of when those liftings may or may not restart.

On the positive side we do know that the quality of the resource is such as that when we can restart we will be able to ramp-up production relatively quickly and efficiently and get back on track in Libya. That’s the real shame here, is that this really is a world-class resource and if we can just get access again to our export solution. It’d had some real benefits for the partners that we have there in the Waha concession.

Pavel Molchanov - Raymond James

Okay, great. I appreciate it guys.

Lee Tillman

Thanks Pavel.

Howard Thill

Thanks Pavel.

Operator

Thank you. Our next question is from John Malone of Mizuho Securities. Please go ahead.

John Malone - Mizuho Securities

Hi, good morning gentlemen. Just sticking with international for a moment, you saw a drop in international reserves, if read correctly, can you lay out sort of what international projects sanctions are that are coming up that are pushed that back into the block?

Lee Tillman

Yes. I guess just on the reserves piece, we did have adds in the international space. If you look at the table that was provided in the press release, we did have proved reserved in our international E&P space and they were relatively significant. In addition, we did have some reserves as well in our oil sands mining.

In terms of investment opportunities, I’ve mentioned one of those already which is the boiler project that’s going on in Norway along with boiler there is some development drilling that’s occurring also in Norway as well as in the UK which are contributing to those proved reserve adds.

Looking forward in time, we also development drilling this year in Equatorial Guinea where we’re drilling one development well. And so we continue to see investment opportunities as well as very strong reservoir performance. In Norway’s case and point we continue to move the needle there and overall base reservoir performance that remains the case. We’re still seeing very strong performance even with water breakthrough at the all time field the overall reservoir performance there is quite strong.

John Malone - Mizuho Securities

Okay. Thanks. And then just specific to Kurdistan, you’re looking for first all potential out of Atrush next year. Now given the current political situation, would you see having a change before you be comfortable actually exporting oil out of your assets there?

Lee Tillman

Well, again this is a discussion that’s ongoing between the south and the north and clearly we’re going comply with the guidance that we received not only from the Kurdistan Regional Authority but also the sovereign government of Iraq. Our field development plan that was put in for Atrush reflected essentially what we would consider to be an early production system of first phase of development that essentially would be three wells producing around 30,000 gross barrels a day.

The plan that was submitted reflected an export solution of trucking as opposed to a pipeline solution. We’re of course keenly interested in an export solution via pipe from Kurdistan but we’re going to let that process play out between the regional authority as well as the sovereign government there that’s something we are certainly encouraging, it adds a tremendous amount of value to our blocks in Kurdistan of which we have three blocks today, where we’re doing no more work and have a transition to soften block over to total.

So we have three blocks one operated, two non-operated with discoveries on all three. So, we’re still very positive on our position in Kurdistan, if the export solution does come to fruition on the pipe side that’s just going to add incremental value and potentially allow us to proceed at a faster pace from a phasing standpoint as we won’t be limited to a trucking solution.

John Malone - Mizuho Securities

Okay. That’s helpful, thanks Lee.

Lee Tillman

Thank you. You bet.

Howard Thill

Thanks John.

Operator

Thank you. The next question is from [Jeff Rambajon] [ph] of Tudor, Pickering, Holt. Please go ahead.

Unidentified Analyst

Good morning guys.

Lee Tillman

Good morning.

Unidentified Analyst

Just my question is on U.S. ops, are there any updates to the spacing parts and progress in the Bakken or, which was taken about in terms of down spacing potential across your position or what do you like to see from offset operators some with tighter spacing there?

Lee Tillman

Okay. Yes I mean on the Bakken I think we did a pretty comprehended job of describing where we were headed in the Bakken on spacing. One of the things we talked about at the Analyst Day of course are high-density pilots where we’re combining the middle Bakken as well as the Three Forks off of single-pad drilling. Those pilots are still moving forward but we are aggressively pursuing down spacing particularly in our high quality acreage, it’s something where we’re keenly interested and that’s what is contributing to the increase in resource potential that we described at the Analyst Day.

But really I would say we haven’t, we don’t really have new data to share today relative to the Analyst Day that’s only a couple of months and that really hasn’t given us enough run time yet to come out and state definitively the impact ultimately of the down spacing.

Unidentified Analyst

Okay. And on the SCOOP you guys talked about that on the Analyst Day as well regard to extend the laterals, is there any update there as far as how those are progressing?

Lee Tillman

Yes, but we’re just now starting our extended lateral program there. Again, we feel very encouraged about what we’re seeing as we continue to optimize completions in the SCOOP area. We see very strong incremental well economics. So, again it’s really a question, now Jeffery of getting a bit of cumulative production from those wells and being able to really understand the impact not only on ITs but ultimately the EUR.

Unidentified Analyst

Thanks guys.

Lee Tillman

Okay. Thanks Jeffery.

Operator

Thank you. Our next question is from Amir Arif of Stifel. Please go ahead.

Amir Arif - Stifel Nicolaus

Thanks, good morning guys.

Lee Tillman

Good morning.

Amir Arif - Stifel Nicolaus

Yes, just first question on the Oklahoma resource base and can you just give us a breakout of the roughly the 20, 25 wells you’re going to be drilling this year, how much are going in each in the southern way of the SCOOP and the Granite Wash?

Lee Tillman

Yes. I don’t think we’ve given specific breakdown on the well count. I would say that really what we’re trying to do though in the Oklahoma Woodford is ensure that we work the capital efficiency and optimization question in the SCOOP. In the Granite Wash as well as the Southern Mississippi line, it’s more a question of really understanding the resource base there. So, those two programs are really kind of somewhat complementary to one another.

But right now, we’re looking at something like probably a couple of wells in the Granite Wash to against our proving up that resource four wells in the Southern Mississippi line trend to again help us really understand that resource base and ultimately position us for the development.

So, SCOOP really focused on capital efficiency, completion optimization, the extended lateral. And then in parallel, really testing the development potential that exist in the Granite Wash in the Southern Mississippi line.

Amir Arif - Stifel Nicolaus

Okay. And then as a follow-up and for the southern miss, where you have drilled two wells could you tell us what you thought at the results, what the oil cuts were and how that compares in terms of returns to what you have in the SCOOP?

Lee Tillman

Yes. I would just say, right now, I mean we’re way to early probably to talk about those results with high confidence, I would say maybe stay tuned and watch the space. As soon as we’re comfortable that we’ve got enough production behind us, we’re going to -- we’ll bring out those results and talk about them in a more full-some sense.

Amir Arif - Stifel Nicolaus

Okay. Thank you.

Lee Tillman

Thanks Amir.

Operator

(Operator Instructions) And our next question is from Jeff Campbell of Tuohy Brothers Investment. Please go ahead.

Jeff Campbell - Tuohy Brothers Investment

Good morning.

Lee Tillman

Good morning.

Jeff Campbell - Tuohy Brothers Investment

My first question is with regard to the Austin Chalk and the Eagle Ford, I was wondering, first of all, what percentage of your current acreage is potentially perspective for these Austin Chalk and Eagle Ford combination completions? And as the second part of that how many successful tests do you require before you can begin to talk more specifically about locations in EUR uplift?

Lee Tillman

Now, good question Jeff, and again we spend of quite bit of time at the Analyst Day on the Austin Chalk, when you talk about prospectively across our acreage position. Really what we’re doing with our pilots, Jeff, is really delineating that prospectively today, I mean we have our models but we really need to confirm that by stepping around our play with the bid and that’s exactly what we’re doing with our pilot testing.

The early results from the Austin Chalk wells though are very compelling as we shared at the Analyst Day, the type curves of the Austin Chalk wells looked very, very similar to what we have observed in our Eagle Ford wells of similar lateral length. So we remain very encouraged. Again, as we get more run time on the pilots we will bring that story forward but we are in the process of really understanding the full extent of the Austin Chalk around our core acreage position.

Jeff Campbell - Tuohy Brothers Investment

Okay. Great, that’s helpful. And my other question was with regard to the Southern Mississippi trend, I was wondering if you also have exposure to the Hunton lime if that is something you’re taking a look at, I’m thinking like Logan, Kingfisher County that area? Thank you.

Lee Tillman

I’m sorry, I lost the first part of the question Jeff.

Jeff Campbell - Tuohy Brothers Investment

What I was asking was I was wondering if you had any exposure to the Hunton limestone, I’m thinking Kingfisher, Logan County that kind of area if that’s something you have exposure to and if you might plan any testing on it?

Lee Tillman

Yes. I would probably have to get back to you, I don’t have a specific answer on that one Jeff. I know the horizons we are looking at but I’m not familiar if we’ve really assessed the position on the lime there.

Jeff Campbell - Tuohy Brothers Investment

Okay. We can take that up later offline.

Lee Tillman

Yes.

Jeff Campbell - Tuohy Brothers Investment

Thanks very much.

Lee Tillman

That will be great. Thank you.

Operator

Thank you. We have no further questions. I will now turn the call back over to Howard Thill.

Howard Thill

Thanks Christine and we appreciate all the interest in Marathon, all the questions. If you have additional questions please don’t hesitate to call Chris or myself. We hope you have a wonderful day.

Operator

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

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