Additional climate change laws and regulations will continue to evolve as guided by U.S. policy and global agreements such as those adopted by the 2015 United Nations Climate Change Conference.
At the same time, we recognize the need for reliable and affordable energy and petrochemical feedstock to fuel global economic progress, and the important role oil and natural gas are projected to play in meeting long-term global demand. Marathon Oil’s long-standing commitment to sustainability remains a core of our business strategy as we evaluate both shorter- and longer-term risks. To manage these risks, we work to quantify and mitigate our GHG emissions, use well-established business processes to evaluate climate change risk in our investment decisions, and engage with external stakeholders to understand their perspectives.
Marathon Oil’s Strategy and Processes for Managing Risks
Marathon Oil continuously reviews the impact that future climate change regulation could have on our business decisions. We believe that oil and gas development and production will remain crucial to the world economy, and our business model is focused on continued operation in this space.
Our business strategy, which is overseen by the board of directors, is to be the lowest-cost, highest-margin U.S.-focused resource play operator. We use several complementary methods to monitor and mitigate risks to our business strategy posed by commodity price changes resulting from market forces, including global climate change policies.
In 2017, Marathon Oil devoted 95 percent of our capital program to high-return resource plays. Our resource play capital expenditure decisions are typically made on a five-year basis. Marathon Oil makes capital investments after examining a variety of data, including commodity price forecasts prepared by IHS and Wood Mackenzie, that consider the impact of supply and demand in global markets, the market penetration of alternative fuels and potential climate policies, among other factors, on global commodity prices. We consider these third-party forecasts, along with Company-specific insights and guidance, to prepare the Marathon Oil forecast. Potential investments are stress tested at or below the lower range of available forecasts to ensure they are robust at lower price levels. Profitability and capital allocation are based on expected prices, and specific financial targets or strategic objectives must be met to sanction a project. Additionally, the cost of carbon is factored into expense and revenue models for assets in the U.K., where carbon trading regulations are in place. Marathon Oil exercises discipline in our capital expenditures and maintains a relentless focus on lowering costs, which further reduces our exposure to price fluctuations.
Through the Enterprise Risk Management process, overseen by our board of directors, we examine regulatory changes, commodity price fluctuations and other risks that could impact the Company beyond the current planning cycle. Marathon Oil is well positioned to act if a shift in strategy is warranted due to any market force. Our long history of strategic adaptation includes transforming from an integrated oil and gas company to an independent exploration and production company, and more recently shifting from conventional production to unconventional resource plays.