(Marathon, 1.May.2024) — Marathon Oil Corporation (NYSE: MRO) reported first quarter 2024 net income of $297mn or $0.52 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 $317mn or $0.55 per diluted share. Net operating cash flow was $757mn or $861mn before changes in working capital (adjusted CFO). Free cash flow (FCF) was $271mn or $239mn before changes in working capital and including Equatorial Guinea (E.G.) distributions and other financing (adjusted FCF).
Highlights
- Continued delivery on sector-leading commitment to return at least 40% of adjusted CFO to shareholders; returned $349mn or 41% of adjusted CFO to shareholders during first quarter, including $285mn of share repurchases and $64mn base dividend
- Strong financial and operational quarter with no change to full-year production or capital spending guidance
- Generated $271mn of FCF and $239mn of adjusted FCF during first quarter, despite no E.G. cash dividends; expect catch-up in E.G. cash dividends during second quarter
- Delivered first quarter oil production of 181,000 net bopd and first quarter oil-equivalent production of 371,000 net boed, inclusive of winter weather downtime, primarily in the Bakken
- Reiterated midpoints of full year production and capital spending guidance and on track to deliver 2024 program that benchmarks at top of peer group on combination of FCF, capital efficiency, and shareholder returns
- Enhancing capital efficiency and resource recovery organically through extended laterals and ongoing progression of refrac and redevelopment opportunity set
- Brought online 12 three-mile wells during first quarter, delivered at a total per foot well cost more than 20% below comparable two-mile lateral wells; first three-mile Permian pad achieved an average per well 30-day IP rate of over 5,000 net boed
- Disclosing approximately 600 high-quality refrac and redevelopment opportunities across the Bakken and Eagle Ford, with approximately 30% concentrated on the acquired Ensign acreage
- Continued to progress development of E.G. Regional Gas Mega Hub
- Realized uplift in value during first quarter from shift to global LNG pricing for Alba LNG sales
- Sanctioned two Alba infill wells with first gas from both wells expected in 2025
- Enhanced financial flexibility through successful offering of $1.2bn aggregate principal five and ten-year notes; proceeds used to pay off entirety of remaining variable-rate Term Loan balance and expected to deliver $20mn of annualized net interest savings
“With first quarter results, we continued to build on our multi-year track record of consistent operational execution, strong financial results, and compelling return of capital to our shareholders,” said chairman, president, and CEO Lee Tillman. “During first quarter, we improved our capital efficiency by bringing online 12 three-mile laterals, including one of the strongest pads industry has delivered in the Permian Basin; we enhanced our financial flexibility through a highly successful $1.2bn bond offering; and we continued to progress the E.G. Regional Gas Mega Hub by sanctioning two high-confidence, low-execution risk infill wells on the Alba Block. The combination of outstanding performance from our extended lateral program and material additions to our refrac and redevelopment opportunity set continue to enhance and further extend our decade-plus of development well inventory life. Bottom line, I’m proud of our team, as we executed according to our plan during first quarter while holding true to our core values of safety and environmental excellence. We remain fully on track to deliver a 2024 program that provides a sector-leading combination of free cash flow, capital efficiency, and shareholder returns.”
Return of Capital & Balance Sheet Enhancement
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. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors.
During first quarter, Marathon Oil returned 41% of adjusted CFO to equity investors. First quarter return of capital totaled $349mn, including $285mn of share repurchases and the $64mn base dividend.
Over the trailing ten quarters, since significantly increasing return of capital to equity investors under its current Return of Capital Framework, Marathon Oil has returned $5.8bn to shareholders. Over this timeframe, Marathon Oil has executed $5.2bn of share repurchases that have reduced its outstanding share count by 29%, contributing to significant growth in per-share metrics.
During first quarter, the company successfully completed a public offering of $1.2bn aggregate principal amount of five and ten-year notes, with a weighted average interest rate of 5.5%. Net proceeds from the offering were used to repay the entirety of outstanding borrowings under the company’s variable-rate Term Loan facility and are expected to deliver $20mn of annualized net interest savings.
1Q24 Financials
CASH FLOW AND CAPEX: Net cash provided by operations was $757mn during first quarter or $861mn before changes in working capital. First quarter capital expenditures totaled $603mn, consistent with the Company’s prior guidance that 2024 capital expenditures would be approximately 60% weighted to the first half of the year.
BALANCE SHEET AND LIQUIDITY: Marathon Oil ended first quarter with total liquidity of $2.2bn, including $49mn of cash and cash equivalents and $2.1bn of available borrowing capacity on its revolving credit facility that matures in 2027. All three primary credit rating agencies continue to rate Marathon Oil investment grade.
ADJUSTMENTS TO NET INCOME: The adjustments to net income for first quarter increased net income by $20mn, primarily due to the income impact associated with unrealized losses on derivative instruments.
1Q24 Operations
UNITED STATES (U.S.): U.S. production averaged 326,000 net boed during first quarter 2024. Oil production averaged 172,000 net bopd. January winter storms negatively affected first quarter oil production by 4,000 net bopd, with the impact primarily concentrated in the Bakken, consistent with prior guidance.
First quarter U.S. unit production cost averaged $6.77 per boe, above the high end of the annual guidance range, consistent with seasonally higher workover activity and lower first quarter production levels. U.S. unit production costs are expected to decline as production increases in coming quarters. The midpoint of Marathon Oil’s full year 2024 U.S. unit production cost guidance remains unchanged.
Excluding joint venture wells, the company brought a total of 49 gross company-operated wells to sales during first quarter. First quarter Eagle Ford production averaged 127,000 net boed, including 65,000 net bopd, with 27 gross company-operated wells to sales. Bakken production averaged 105,000 net boed, including 68,000 net bopd, with 18 gross company-operated wells to sales. Permian production averaged 48,000 net boed, including 28,000 net bopd, with four gross company-operated wells to sales. With no gross operated wells to sales, Oklahoma production averaged 45,000 net boed, including 10,000 net bopd.
Marathon Oil continues to organically improve capital efficiency and enhance resource recovery through longer laterals and the ongoing progression of its refrac and redevelopment program. During first quarter, the Company brought 12 three-mile lateral wells to sales (eight in Bakken, three in Permian, one in Eagle Ford) with a total per foot well cost more than 20% below comparable two-mile lateral wells. The company’s first three-mile lateral pad in the Permian achieved an average per well 30-day IP rate of 5,265 boed (62% oil, 3 wells), and contributed to significant sequential production growth in the Permian. Derisked by recent well results and ongoing technical work, Marathon Oil has also disclosed a refrac and redevelopment opportunity set of approximately 600 high-quality wells, complementary and additive to the company’s decade-plus of primary drilling inventory. Approximately 30% of the company’s total refrac and redevelopment opportunities are concentrated on the Ensign Eagle Ford acreage, representing upside to the company’s acquisition basis.
INTERNATIONAL: During first quarter, Marathon Oil realized the uplift in value from the shift to global LNG pricing for Alba LNG sales. Prior to 2024, the company primarily sold natural gas to equity method investees via Gas Sales Agreements (GSAs) in the form of feedstock for methanol (to AMPCO, MRO 45% interest) and LNG (to EG LNG, MRO 56% interest) at long-term fixed prices ($0.24 per mcf). Whereas the GSA with AMPCO continues until 2026, the GSA with EG LNG expired, as did the legacy Henry Hub-linked contract under which EG LNG sold Alba LNG.
Beginning 1 Jan. 2024, under new contractual agreements, Marathon Oil is responsible for directly marketing its own share of Alba LNG. The majority of its expected LNG sales over the next five years are covered by a previously announced TTF-linked LNG sales agreement. All 2024 Alba LNG cargos have been contracted at a mix of TTF and JKM indexed pricing. Under the new contractual agreements, Marathon Oil assumes responsibility for shrink and plant losses during liquefaction, which results in a reduction to reported net production and sales volumes for Alba gas sold as LNG. The company is also subject to an LNG lifting schedule, which may result in an underlift or overlift position.
Starting in first quarter, the revenue from Marathon Oil’s Alba LNG sales into the global market are consolidated in the company’s financial statements. EG LNG now processes Marathon Oil’s Alba LNG under a tolling and profit-sharing agreement. The tolling and profit-share fees are recorded as related party expense (shipping, handling and other operating expense) in Marathon Oil’s consolidated financials and Marathon Oil’s share of this income for EG LNG is included in income from equity method investments. Equity method accounting continues to be applied to the Alen third party gas, which is also processed by EG LNG under a tolling and profit-sharing agreement.
During first quarter, E.G. production averaged 45,000 net boed, while total sales volumes averaged 43,000 net boed, as a 2,000 net bopd condensate overlift was more than offset by a 24,000 net mcfd (4,000 net boed) LNG underlift. While Marathon Oil continued to sell Alba gas to AMPCO at a fixed-price, during first quarter, the company began optimizing its operations by diverting a portion of its Alba gas from AMPCO methanol sales to higher-margin LNG sales. Marathon Oil’s Alba LNG sales achieved a realized price of $7.21 per mcf during first quarter, consistent with the company realizing the uplift in value from the shift to global LNG pricing. Total International net income was $82mn during first quarter, including $39mn of net income from equity method investees. The company did not receive any cash distributions from equity method companies during first quarter, but expects to receive catch-up dividends from equity method companies during second quarter.
During first quarter, Marathon Oil and its partners also made a final investment decision on two Alba infill wells and have successfully contracted a rig within the West Africa region, expecting a first half 2025 spud date. First gas from both wells is expected during the second half of 2025 and is expected to largely mitigate Alba field base decline for two years, contributing to a relatively flat production profile from full year 2024 to full year 2026. Capital expenditures in 2024 are modest, limited to long lead equipment, and are already included in the company’s full year 2024 capital budget. The company anticipates capital spending of approximately $100mn for the infill project in 2025.
2024 Guidance
Marathon Oil’s originally provided 2024 production, capital expenditure, cost, and tax guidance ranges are all unchanged as the Company remains on track to deliver a 2024 program that benchmarks at the top of its peer group on the combination of FCF, capital efficiency, and shareholder returns. The Company continues to expect its capital program to be heavily weighted to the first half of the year, with production expected to increase from first quarter levels. At the midpoint of annual guidance, the Company expects its $2bn capital program to deliver 190,000 net bopd, 390,000 net boed, and approximately $2.2bn of adjusted FCF, assuming $80/bbl WTI, $2.50/MMBtu Henry Hub, and $10/MMBtu TTF. Cash flow sensitivities to WTI, Henry Hub, and TTF commodity prices are provided in the Company’s first quarter 2024 earnings presentation.
A slide deck and Quarterly Investor Packet will be posted to the company’s website following this release. On Thursday, 2 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/.
____________________
