Add Marathon Oil (NYSE:MRO) to the list of shale-focused drillers that blew past expectations during the first quarter. Like its peers, Marathon benefited from strong drilling results across much of its U.S. portfolio, which helped increase output 9% from just the fourth quarter, enabling the company to beat analysts' expectations with ease. Because of that, Marathon expects its full-year production to come in well ahead of its initial forecast, even as it keeps a lid on spending.

Drilling down into the numbers

Marathon Oil produced 398,000 barrels of oil equivalent per day (BOE/D) during the first quarter, including 284,000 BOE/D in the U.S., which was 9% more than the fourth quarter of 2017. Output was up in three of the company's four U.S. resource plays:

A chart showing Marathon Oil's production by U.S. resource play in the first quarter of 2018 and the fourth quarter of 2017.

Data source: Marathon Oil. Chart by the author. BOE/D=barrels of oil equivalent per day.

While production in the Eagle Ford Shale declined slightly, Marathon more than made up for that elsewhere. Leading the way was the STACK shale play of Oklahoma where production jumped 17% while output in the Delaware Basin skyrocketed nearly 50%, though off a low base. The Bakken was also impressive during the quarter, not for the size of the gain but for the fact that the company drilled several record-setting wells in the region.

Large shale drillers like Marathon completed several monster wells during the first quarter. While Marathon led the way in the Bakken, rival Devon Energy (NYSE:DVN) set the pace in the Delaware Basin where it completed the two biggest wells in the region's 100-year history. Devon also drilled several prolific wells in the STACK. These strong well results were the key to helping these drillers blast past expectations.

Marathon's gushers in the Bakken along with solid results in the Delaware Basin and STACK enabled the company to earn $154 million of adjusted net income, or $0.18 per share, which was $0.04 per share ahead of the analysts' consensus estimate. Meanwhile, the company produced an even more impressive $649 million in operating cash flow, which covered its capital expenses with room to spare.

A dirt road leading up to a drilling rig that's over the hill.

Image source: Getty Images.

A look at what's up ahead

Marathon's strong start to the year has it on pace to produce 25% to 30% more oil and gas from its U.S. resource plays in 2018 than it did last year. That's above its initial forecast that output in the U.S. would be up 20% to 25% versus 2017. What's impressive about this number is that Marathon can achieve it while maintaining its planned capital spending of $2.3 billion, which it can fund with cash flow at $50 oil. That's similar to what Devon Energy said this quarter. In Devon's case, it expects U.S. oil output to increase 16% in 2018 instead of 14% even as it keeps capital spending within its initial budget.

One other news item of note from Marathon Oil this quarter was that the company announced it leased 250,000 acres of land in new resource plays over the past year, including a large position in the emerging Louisiana Austin Chalk play. In doing so, it joined ConocoPhillips (NYSE:COP) in unveiling that it acquired land in Louisiana. ConocoPhillips said it picked up 245,000 acres in recent months, most of it in the Austin Chalk play in central Louisiana, where it plans to drill several exploration wells in 2018. Marathon, meanwhile, noted that it spent $94 million on resource play leasing and exploration (REx) during the first quarter and expects to spend another $150 million on REx activities during the second quarter. That fits within the company's stated goal to use some of its excess cash to secure new sources of growth.

Off to a strong start in what should be an excellent year

Marathon Oil delivered a gusher of oil and gas during the first quarter thanks to better-than-expected drilling results across much of its portfolio, including completing record-setting wells in the Bakken. That quick start positions the company to produce even more oil and gas this year for the same amount of capital, which sets it up to generate a bounty of cash flow given that crude prices in the U.S. are closing in on $70 per barrel. These factors help further confirm that Marathon is one of the top oil stocks around.

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