Marathon Oil's (NYSE:MRO) decision to focus on four of the top oil-focused U.S. shale plays continued paying dividends during the second quarter. The company once again blew past analysts' earnings expectations as its production came in well above the top end of its guidance range. That has it well on track to achieve its full-year forecast.

Drilling down into the results

Metric

Q2 2019

Guidance or Expectations

Difference at the Midpoint

Total production

435,000 BOE/D

405,000 to 425,000 BOE/D

20,000 BOE/D

Production from U.S. shale

332,000 BOE/D

310,000 to 320,000 BOE/D

17,000 BOE/D

Earnings per share

$0.23

$0.14

$0.09

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

Fueling Marathon's expectation-beating output were robust drilling results in the Bakken and Delaware Basin:

Marathon Oil's production by U.S. resource play in the second quarter of 2019 and 2018.

Data source: Getty Images. Chart by the author.

Output in the Bakken surged nearly 27% year over year, fueled by the 30 high-rate wells it finished during the quarter. One of the highlights was a six-well pad that delivered an average of 3,160 BOE/D during their first month on line. The company also completed a record-setting well into the Middle Bakken formation, which produced 12,250 BOE during its first 24 hours.

Marathon also delivered strong results in the Delaware Basin, where its output zoomed roughly 65% year over year. Driving that growth is the company's continued ramp-up of activities in this mostly undeveloped area.

Overall, Marathon's oil production in the U.S. jumped 17% after adjusting for asset sales to an average of 192,000 barrels per day. Meanwhile, the company continued driving down production costs, which fell 14% year over year to $4.89 per BOE. That's the lowest level since 2011.

The combination of rising output and falling costs enabled Marathon to generate $771 million in cash from operating activities during the quarter. That was more than enough to cover the $636 million it spent on capital projects. As a result, it produced $137 million of free cash flow during the quarter after paying its dividend, bringing its year-to-date total to $217 million.

Marathon used its free cash to continue buying back its stock. It has now repurchased $250 million in shares so far this year while also paying out $82 million in dividends.

An oil pump with a blue sky in the background.

Image source: Getty Images.

A look at what's ahead

The company plans to continue returning money to shareholders. Marathon increased its remaining share repurchase authorization to $1.5 billion, which is a $950 million boost. The company has already repurchased $950 million in shares since the beginning of last year, which has helped retire 6% of its outstanding stock.

In the meantime, Marathon has continued to narrow its focus and strengthen its financial position through asset sales. The company sold its U.K. business in July, which followed its exit of Kurdistan during the second quarter. As a result, it has now exited 10 countries since 2013 so that it can focus on its best assets. Those include its four high-growth U.S. shale plays and its cash-flowing assets in Equatorial Guinea. The sales have enabled the company to reduce debt, which resulted in all three credit rating agencies giving it an investment-grade rating.

Marathon's excellent production results during the second quarter keep it on track with its forecast that asset-sale adjusted oil production will grow by 10% to 12% this year. The company also reaffirmed that it intends to stick to its $2.4 billion capital budget.

Marathon's shale strategy continues to pay dividends

Marathon Oil has reshaped its portfolio around four oil-rich U.S. shale plays over the past few years. This strategy is paying off as the company continues to deliver strong production growth while it's generating lots of free cash flow. That's giving it the money to enrich shareholders through a needle-moving buyback program. The combination of growth and shareholder returns should give Marathon's stock plenty of fuel to rise in the coming years.