(Marathon, 4.May.2022) — Marathon Oil Corporation (NYSE:MRO) reported first quarter 2022 net income of $1,304mn, or $1.78 per diluted share, which includes the impact of certain items not typically represented in analysts’ earnings estimates and that would otherwise affect comparability of results. The adjusted net income was $749mn, or $1.02 per diluted share. Net operating cash flow was $1,067mn, or $1,280mn before changes in working capital.
- Outstanding first quarter financial delivery highlighted by $940mn of adjusted free cash flow at 27% reinvestment rate
- Returned 50% of first quarter cash flow from operations (CFO) to equity investors through $592mn of share repurchases and $52mn base dividend
- First quarter oil-equivalent production of 345,000 net boed; oil production of 168,000 net bopd
- Continue to build on peer-leading return of capital track record, exceeding minimum commitment to return at least 40% of CFO to equity investors
- Returned approximately 60% of CFO to equity investors through share repurchases and dividends over trailing two quarters
- Executed $1.6bn of share repurchases since October 1st, reducing share count by 11%; includes $900 mn of share repurchases year-to-date1
- Board of Directors approved increasing share repurchase authorization to $2.5bn as of 4 May
- Raised quarterly base dividend by approximately 15%; fifth consecutive quarterly base dividend raise for cumulative increase of 167% since beginning of 2021
- Expect over $4.5bn of 2022 adjusted free cash flow at a reinvestment rate of approximately 20% on a $1.3bn capital budget, assuming $100/bbl WTI and $6/MMBtu Henry Hub
- Uplift of $1.5bn in adjusted free cash flow from original 2022 financial outlook at $80/bbl WTI and $4/MMBtu Henry Hub and a reduction in the company’s expected reinvestment rate
- Updated 2022 capital budget incorporates 8% inflation adjustment to reflect sustained $100/bbl WTI and $6/MMBtu commodity price environment
- Raising 2022 Equatorial Guinea equity income guidance by $200mn
“Amid tremendous macro volatility, Marathon Oil remains resolutely focused on delivering on all elements of our framework for success, including strong corporate returns, sustainable free cash flow generation, market-leading return of capital to shareholders, and ESG excellence,” said Chairman, President, and CEO Lee Tillman. “Our constancy of purpose, differentiated execution, and commitment to providing investors with the first call on cash flow through our unique percentage of cash flow framework are all paying off. In the last two quarters, we’ve returned approximately 60% of our total CFO back to our equity investors, meaningfully exceeding our minimum 40% commitment. We’ve executed $1.6 billion of share repurchases over the last seven months, driving significant per share growth through an 11% reduction to our outstanding share count, and have announced five consecutive increases to our quarterly base dividend. With over $4.5 billion of adjusted free cash flow generation expected this year, we remain well positioned to continue delivering financial results and return of capital that are compelling not only relative to the best companies in energy, but relative to the best in the S&P 500.”
Return of Capital
Marathon Oil’s percentage of CFO framework provides clear visibility to significant return of capital to equity investors and ensures the shareholder gets the first call on cash flow generation. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors. Over the last two quarters, Marathon Oil has significantly exceeded this minimum commitment, returning approximately 60% of CFO to equity investors. In the current environment, Marathon Oil’s preferred return of capital approach includes a competitive and sustainable base dividend in addition to significant share repurchases.
Since 1 October, Marathon Oil has executed more than $1.6bn of share repurchases, reducing its outstanding share count by 11%. This includes approximately $900mn of share repurchases year-to-date.
During first quarter, Marathon Oil returned 50% of CFO to equity investors, again exceeding its minimum 40% commitment. First quarter return of capital included $592mn of share repurchases and the $52mn base dividend.
Additionally, the company’s Board of Directors approved an increase in total share repurchase authorization to $2.5bn, as of 4 May. The Board also approved an increase of approximately 15% to the quarterly base dividend, from 7 cents per share to 8 cents per share. This is the fifth consecutive increase to the quarterly base dividend, representing a cumulative increase of 167% since the beginning of 2021.
1Q22 Financials
CASH FLOW AND CAPEX: Net cash provided by operations was $1,067mn during first quarter 2022, or $1,280mn before changes in working capital. First quarter cash additions to property, plant, and equipment totaled $332mn, while capital expenditures (accrued) totaled $348mn.
FREE CASH FLOW: Marathon Oil generated $940mn of adjusted free cash flow during first quarter.
BALANCE SHEET AND LIQUIDITY: Marathon Oil ended first quarter with total liquidity of $3.8bn, which consisted of an undrawn revolving credit facility of $3.1bn and $681mn in cash and cash equivalents. The company’s first quarter cash balance of $681mn represents an increase of approximately $100mn from the year-end cash balance of $580mn, inclusive of share repurchases and a negative working capital impact.
ADJUSTMENTS TO NET INCOME: The adjustments to net income for first quarter reduced adjusted net income by $555mn, primarily due to income recognized from a partial release of the valuation allowance on deferred tax assets, partially offset by the income impact associated with unrealized losses on derivative instruments, and other miscellaneous items.
1Q22 Operations
UNITED STATES (US): US production averaged 281,000 net barrels of oil equivalent per day (boed) for first quarter 2022. Oil production averaged 158,000 net barrels of oil per day (bopd). The company brought a total of 57 gross company-operated wells to sales during first quarter, consistent with guidance for 50 to 60 wells to sales. U.S. unit production costs averaged $5.59 per boe during first quarter.
Marathon Oil’s first quarter production in the Eagle Ford averaged 80,000 net boed, including 53,000 net bopd of oil, with 28 gross company-operated wells to sales. In the Bakken, production averaged 118,000 net boed, including 77,000 net bopd of oil, with 20 gross company-operated wells to sales. In Oklahoma, production averaged 52,000 net boed, including 12,000 net bopd of oil, with 9 gross company-operated wells to sales. Northern Delaware production averaged 20,000 net boed, including 11,000 net bopd of oil.
INTERNATIONAL: Equatorial Guinea production averaged 64,000 net boed for first quarter 2022, including 10,000 net bopd of oil. First quarter sales averaged 61,000 net boed, including 8,000 net bopd of oil, as the asset was underlifted on the quarter. Unit production costs averaged $1.92 per boe. Net income from equity method investees totaled $127mn during first quarter. The Company received $54mn of total cash distributions from equity method companies during first quarter in the form of dividends and return of capital.
Guidance
Marathon Oil’s original 2022 financial outlook included over $3bn of adjusted free cash flow generation at a reinvestment rate of less than 30% on a $1.2bn capital budget, assuming $80/bbl WTI and $4/MMBtu Henry Hub. At $100/bbl WTI and $6/MMBtu Henry Hub, the company expects to generate over $4.5bn of 2022 adjusted free cash flow at a reinvestment rate of approximately 20% on an inflation-adjusted capital budget of $1.3bn. 2022 production guidance remains unchanged, as the company continues to expect oil and oil-equivalent production to remain flat with the 2021 averages. The company is also raising its 2022 E.G. equity income guidance by $200mn, to a new range of $480mn to $520mn.
A slide deck and Quarterly Investor Packet will be posted to the company’s website following this release today, 4 May. On Thursday, 5 May, at 9:00 a.m. ET, the company will conduct a question and answer webcast/call, which will include forward-looking information. The live webcast, replay and all related materials will be available at https://ir.marathonoil.com/.
Footnotes:
1 Includes share repurchases settled and share repurchases executed with settlement pending
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