Lee M. Tillman, an engineer and former Exxon Mobil Corp. executive, last week took the reins of Houston-based Marathon Oil Corp., succeeding longtime Chief Executive Officer Clarence Cazalot.
Tillman, 51, oversaw global engineering staff at Exxon Mobil, where he began his career in 1989 as a research engineer. He earned a bachelor’s degree in chemical engineering from Texas A&M and a doctorate at Auburn University in Alabama. Tillman spoke with FuelFix about his new job at Marathon Oil, an independent exploration and production company since it spun off its downstream business in 2011. Edited excerpts:
Q: How did you decide to come to Marathon?
A: It was all about the journey that Marathon had started. In early 2011, Marathon decided to create this independent E & P company. I found it fascinating to be able to pick up on that vision and continue that journey. We are still in the early days of defining Marathon Oil as the independent oil and gas producer. Clarence and the team identified some clear advantages by making this change. First and foremost, it brings a focus to our E&P strategies and objectives. I also think it brings transparency to the investor community as well as to our employees. I think it also brings clarity to how we manage risk and how we manage our portfolio as well. It also added a dimension to Marathon Oil around being flexible and agile in this new opportunity space. We wanted to maintain our ability to develop world-scale, complex energy projects.
Q: How does the boom in unconventional plays fit into Marathon’s strategy?
A: Like many companies, we have a good deal of focus and investment in the unconventional plays — particularly for us in the Eagle Ford (in South Texas) and the Bakken (in North Dakota and Montana). As you look at it from the lens of an independent, the unconventionals have some unique attributes that make them appealing. These include strong profitability, scalability, the ability to build toward more liquids-rich plays, and a moderate risk dimension. They are not considered higher risk plays. If you are in the deep water, you are making investment decisions that are in the hundreds of millions of dollars, if not billions. In the unconventional plays, you can make a hundred $6 million decisions and that gives you a unique attribute. We need both aspects in our portfolio. Marathon has the breadth and depth to really span the opportunity space. We want the large, complex higher-risk projects, but the scalability and profitability of the unconventional projects is also a good balance within our portfolio.
Q: What factors do you consider when you decide whether to make an investment outside of the United States?
A: There are two elements of risk when we look at opportunities internationally.
The first is what I would call the “below ground” risk, which deals with the things that our engineers and geoscientists deal with all over the world: What is the geology and what is going to be the reservoir performance? There is also the “above ground” risk, which deals with the geopolitical environment, the host government, sanctity of contracts, rule of law, local content requirements, fiscal structure and durability — all of these things start coming into play as you move into the international space. Our shareholder demands that we look at that risk holistically. It’s necessary but not sufficient to have the high-quality subsurface resource. You have to have all these other elements and dimensions in place as well.
Another component of international work is just how important relationships become. When you move into the international front, you are relying on strong relationships with national oil companies, with resource holders — you are in their country, you are working in their environment — and the strength of the relationships, the amount of collaboration to find that win-win value proposition, that is the other challenge.
Q: How has working in deep water internationally changed in the last five years?
A: It differs by region. As you look at West Africa, we as well as others have had great success in deep water. As you look at Brazil, it is less clear. Going back to that above ground risk, you have a resource holder and national oil company that really has not defined a material opportunity space for participation by the international oil companies and by smaller exploration and production companies. They have fantastic sub-surface there — great rock and great opportunities, but those other dimensions were just not quite there yet.
Q: How about deep water drilling in the Gulf of Mexico?
A: We continue to move the bar in terms of the technology requirements and the technology risk, whether that be in subsurface imaging, high pressure drilling, greater depths, higher temperatures — these are challenging systems. As you look at the cost of just doing an appraisal or exploration drilling, the costs are enormous — millions of dollars. If you need six or seven of these wells, you are suddenly in a multimillion-dollar development. Those are big, higher risk investments for our shareholders. It doesn’t mean we shouldn’t be operating there, and we have had some success there lately on the exploration side. It has some advantages on that above ground risk that we talked about, but you are carrying much more technology risk, because of the types of opportunities that you are chasing.