Marathon Oil Corporation (NYSE:MRO) delivered strong operational and financial results in the third quarter. Not only did production come in above the high end of its guidance range, but the company blew past analysts' expectations. That strong showing came even though timing and maintenance held it back in a couple of regions. Because it easily overcame those issues, the company was able to boost its full-year growth forecast once again.

Drilling down into the results

Metric

Q3 2018

Guidance or Expectations

Production

419,000 BOE/D

395,000 to 415,000 BOE/D

Adjusted earnings per share

$0.24

$0.20

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

Marathon Oil's third-quarter production came in well above its guidance due to strong production results in three of its four U.S. resource plays:

A chart showing Marathon's production by region in the third and second quarters of 2018.

Data source: Marathon Oil. Chart by author.

Leading the way was the Eagle Ford shale, where production rose 8% from the second quarter. Driving that increase were the 38 wells the company brought online during the quarter, which produced an average of 1,680 BOE/D during their first 30 days online. Meanwhile, production in the Bakken was up 4% sequentially, fueled in part by a six-well pad where three wells set records in the basin, including a 6,380 BOE/D gusher. Finally, production in the Delaware Basin surged 24% as Marathon continues ramping up its drilling program on the acreage it has acquired in the past year.

The lone weak region in the U.S. was the STACK shale play of Oklahoma, where production declined 9% because the company only brought 11 new wells online during the quarter. That's due to timing as the company completes recently drilled multi-well pads. Marathon wasn't the only driller that saw its STACK production decline in the third quarter, as Devon Energy (NYSE:DVN) also reported a drop in the region. However, Devon expects to get back on a growth trajectory next year, with it being a key contributor to its 2019 expansion plans. That will likely be the case for Marathon, given that it controls a strong acreage position in the region.

Meanwhile, Marathon's international assets produced 115,000 BOE/D during the quarter. While that was down 4% from last quarter due to planned maintenance activities, output came in at the high end of the company's guidance range.

Marathon's stronger-than-expected production enabled it to beat analysts' earnings expectations. Further, thanks to strong oil pricing, the company generated $963 million of operating cash flow during the quarter, which was enough to cover its capital expenses with $320 million left over. That brought that company's year-to-date free cash flow tally to $630 million. The company returned $500 million of that money to shareholders through share repurchases and planned to pay out a total of $170 million in dividends.

Oil pumps after a storm has passed.

Image source: Getty Images.

A look at what's ahead

Marathon is now on pace to produce an average of 405,000 to 415,000 BOE/D for the full year, which is an increase of 15% to 19% from 2017's total, up from its initial forecast of 10% to 14% production growth. Driving that growth is its U.S. resource plays, where Marathon now sees production surging 30% to 34% year over year. That's the third time the company has increased this forecast from its initial outlook of 20% to 25% growth from 2017.

What's most impressive about the company's rapidly rising production growth forecast is that Marathon isn't budging on its capital budget, which still stands at $2.3 billion. In doing so, the company joins Devon Energy as one of the few U.S. drillers that managed to stick to their budget this year even as service cost inflation and higher activity levels from drilling partners drove up the capital budgets of most rivals.

A shale drilling machine

Marathon Oil has done an excellent job developing its shale resources this year. The best evidence of this is in its ability to produce more oil for the same amount of money, which shows that it's holding the line on costs even as it's boosting well productivity. That achievement, along with higher oil prices, enabled the company to produce a gusher of cash flow during the quarter, giving it more money to return to investors. That combination of high-octane growth and increasing shareholder returns has the potential to create significant value for its investors in the coming years.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.