(Marathon, 3.May.2023) — Marathon Oil Corporation (NYSE: MRO) reported first quarter 2023 net income of $417mn or $0.66 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. Adjusted net income was $420mn or $0.67 per diluted share. Net operating cash flow was $865mn or $942 million before changes in working capital (adjusted CFO). Free cash flow was $333mn or $309mn before changes in working capital and including Equatorial Guinea (E.G.) distributions and other financing (adjusted FCF).
- Continued delivery against differentiated Return of Capital Framework, exceeding commitment to return at least 40% of adjusted CFO to shareholders
- Returned 42% of adjusted CFO to shareholders during first quarter, representing $397mn of total distributions; includes $334mn of share repurchases and $63mn base dividend
- Achieved cumulative shareholder distributions of $4.3bn since substantially increasing return of capital in fourth quarter 2021 under current Return of Capital Framework
- Executed $3.9bn of total share repurchases since fourth quarter 2021 that have driven a 22% reduction in outstanding share count and significant growth in all per-share metrics
- Strong first quarter financial and operational results with no changes to full-year production or capital spending guidance
- Generated first quarter FCF of $333mn and adjusted FCF of $309mn despite not receiving any E.G. cash dividends; expect E.G. cash dividends in excess of $200mn second quarter
- Delivered first quarter oil and oil-equivalent production of 186,000 net barrels of oil per day (bopd) and 396,000 net barrels of oil equivalent per day (boed)
- Completed Ensign Natural Resources integration ahead of schedule and brought 14 wells to sales during first quarter on acquired acreage with strong results
- Signed Heads of Agreement (HOA) that aligns all critical parties on next phases of the Equatorial Guinea Regional Gas Mega Hub
- Represents key step in realizing increased Alba equity gas exposure to global liquefied natural gas (LNG) pricing in 2024 under new contractual terms that are expected to drive significant improvement in E.G. earnings and cash flow
- Intended to further leverage and extend life of E.G. LNG facility through future processing of Aseng gas; bilateral agreement between E.G. and Cameroon expected to provide further Gas Mega Hub expansion opportunities
“First quarter adds to our track record of strong execution against our well-established Framework for Success, highlighted by a number of noteworthy accomplishments,” said Chairman, President, and CEO Lee Tillman. “We built on our return of capital leadership, distributing 42% of first quarter adjusted CFO to shareholders, exceeding our minimum commitment. With $2bn of outstanding share repurchase authorization, we expect to continue buying back our stock to drive peer-leading growth in per-share metrics. We further strengthened our portfolio by successfully integrating the highly accretive Ensign Natural Resources asset ahead of schedule and signed an HOA to develop future phases of the E.G. Gas Mega Hub. Additionally, we improved our already investment grade balance sheet with $70mn of gross debt reduction and the recent $200mn remarketing of tax-exempt bonds at an attractive rate. In summary, we believe our company remains well positioned to execute on a 2023 business plan that is resilient across a broad range of commodity prices and benchmarks at the very top of both the E&P sector and the S&P 500 on the metrics that matter most.”
Return of Capital
Marathon Oil’s percentage of CFO framework provides clear visibility to significant return of capital to equity investors, ensuring the shareholder gets the first call on cash flow generation and protecting shareholder distributions from capital inflation. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors. The company remains on track to meet or exceed this minimum objective in 2023.
During first quarter, Marathon Oil returned 42% of adjusted CFO to equity investors, exceeding its minimum commitment. First quarter return of capital totaled $397mn, including $334mn of share repurchases and the $63mn base dividend.
Since significantly increasing return of capital to equity investors in fourth quarter 2021 under its current Return of Capital Framework, Marathon Oil has returned $4.3bn to shareholders, including $3.9bn of share repurchases that have reduced outstanding share count by 22%, contributing to significant growth in all per share metrics.
CASH FLOW AND CAPEX: Net cash provided by operations was $865mn during first quarter or $942mn before changes in working capital. First quarter cash additions to property, plant and equipment totaled $532mn, while capital expenditures (accrued) totaled $601mn, consistent with the Company’s previously provided guidance for approximately 60% of 2023 capital expenditures to be concentrated in the first half of the year.
BALANCE SHEET AND LIQUIDITY: Marathon Oil ended first quarter with $178mn in cash and cash equivalents. The company redeemed $70mn of 8.5% Senior Notes during first quarter on the maturity date. At quarter end, Marathon Oil had $2.1bn of available borrowing capacity on its revolving credit facility that matures in 2027. On 3 April 2023, the company closed a $200mn remarketing of tax-exempt bonds at an interest rate of 4.05% that matures July 1, 2026.
ADJUSTMENTS TO NET INCOME: The adjustments to net income for first quarter increased net income by $3mn, primarily due to dry well expense. This was partly offset by a gain on asset sale and the income impact associated with unrealized gains on derivative instruments.
UNITED STATES (U.S.): U.S. production averaged 341,000 net boed for first quarter 2023. Oil production averaged 176,000 net bopd. The company brought a total of 61 gross company-operated wells to sales during first quarter in comparison to guidance for approximately 62 to 67 gross company-operated wells to sales. U.S. unit production costs averaged $5.82 per boe during first quarter.
Marathon Oil’s first quarter Eagle Ford production averaged 144,000 net boed, including 75,000 net bopd of oil, with 36 gross company-operated wells to sales. Bakken production averaged 95,000 net boed, including 63,000 net bopd, with 17 gross company-operated wells to sales. Oklahoma, production averaged 54,000 net boed, including 12,000 net bopd. Permian production averaged 45,000 net boed, including 25,000 net bopd, with eight gross company-operated wells to sales. The company also brought five gross wells to sales during first quarter in Oklahoma under its joint venture program.
ENSIGN NATURAL RESOURCES: As previously announced, Marathon Oil closed on the acquisition of the Eagle Ford assets of Ensign Natural Resources on 27 Dec. 2022. Integration of the asset has progressed ahead of schedule, with transition activities now complete. Of the total 36 Eagle Ford wells to sales during first quarter, 14 were on the recently acquired Ensign acreage in the condensate window of Karnes and Live Oak Counties. These 14 wells have demonstrated top decile oil productivity in the Eagle Ford, as measured by average 30-day production rates.
INTERNATIONAL: E.G. production averaged 55,000 net boed for first quarter 2023, including 10,000 net bopd. Unit production costs averaged $4.54 per boe. Net income from equity method investees totaled $80mn. There were no cash distributions from equity method companies during first quarter. However, Marathon Oil expects to receive cash dividends in excess of $200mn during second quarter. In addition, the previously announced planned second quarter E.G. turnaround was successfully completed. The planned turnaround is expected to reduce second quarter E.G. production by approximately 12,000 boed.
EQUATORIAL GUINEA HOA: During first quarter, Marathon Oil signed an HOA with the Republic of E.G. and Noble Energy E.G. Ltd, a Chevron company, to progress the development of the E.G. Regional Gas Mega Hub (GMH). The HOA aligns all critical parties on necessary commercial principles to advance the next phases (II and III) of the GMH, which is expected to further leverage and extend the life of E.G.’s world-class gas monetization infrastructure, including the E.G. LNG facility, into the next decade.
More specifically, Phase II is anticipated to process Alba Unit (MRO 64% interest) gas, from Jan. 1, 2024, under new contractual terms following the expiration of the legacy Henry Hub-linked Alba sales and purchase agreement at the end of this year. Phase II is expected to materially increase Marathon Oil’s exposure to global LNG pricing and drive significant improvement to E.G. earnings and cash flow. Phase III of the GMH is expected to facilitate gas processing from the Aseng Field at Punta Europa facilities. Beyond Phase III, a recently established bilateral agreement on cross-border oil and gas development between E.G. and Cameroon is expected to provide other opportunities to further expand the GMH through fast-track monetization of cross-border wet gas fields.
Marathon Oil’s originally provided 2023 production guidance remains unchanged, as does the Company’s 2023 capital spending guidance range of $1.9bn to $2bn, with approximately 60% of 2023 capital spending weighted to the first half of the year.
The company’s 2023 business plan benchmarks at the top of its high-quality E&P peer group, as measured by expected shareholder distribution yield; FCF yield and FCF efficiency; capital efficiency; pre and post-dividend FCF breakeven; and growth in production per-share.
A slide deck and Quarterly Investor Packet will be posted to the company’s website following this release. On Thursday, 4 May at 9 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/.