Marathon Oil Corporation (NYSE:MRO) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET Company Participants Guy Baber - VP of IR Lee Tillman - Chairman, President and CEO Dane Whitehead - EVP and CFO Pat Wagner - EVP, Corporate Development and Strategy Michael Henderson - EVP, Operations Conference Call Participants Jeanine Wai - Barclays Neal Dingmann - Truist Securities Douglas Leggate - Bank of America Merrill Lynch Matthew Portillo - TPH Subhasish Chandra - Benchmark Company Nitin Kumar - Miz ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 1-1513 Marathon Oil Corporation (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or org ...

Financial Data and Key Metrics Changes - The company reported total shareholder distributions of $1.2 billion for Q3 2022, achieving an annual distribution yield of approximately 24%, which is among the highest in the S&P 500 [8][10]. - The return of capital framework is based on operating cash flow, with over 80% of cash flow from operations (CFO) returned to shareholders, marking a significant commitment to shareholder returns [7][8]. - Free cash generation exceeded $1 billion in Q3 2022, with a reinvestment rate of just 29% [13]. Business Line Data and Key Metrics Changes - Oil and oil equivalent production increased to 176,000 barrels of oil per day and 352,000 barrels of oil equivalent per day, surpassing previous guidance [13]. - The company achieved strong performance in the Permian Basin, bringing 13 wells to sales, including eight 2-mile laterals, which are expected to drive future production [13][14]. Market Data and Key Metrics Changes - The company raised its equity income guidance for the year by $70 million to over $600 million, reflecting strong operational performance and favorable pricing, particularly in European natural gas [14][15]. - Capital spending guidance for 2022 was increased to $1.4 billion, up by $100 million, due to inflation and efforts to maintain operational momentum [15][16]. Company Strategy and Development Direction - The acquisition of Ensign Natural Resources' Eagle Ford assets is seen as a strategic move that aligns with the company's core objectives, providing immediate cash flow accretion and future development opportunities [5][18]. - The company aims to maintain a strong return on capital profile, committing to return at least 40% of CFO to shareholders in 2023 and beyond, supported by the cash flow from the Ensign acquisition [20][29]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of financial performance, emphasizing the importance of delivering competitive returns and free cash flow generation [31][32]. - The company is focused on integrating the Ensign assets while maintaining an investment-grade balance sheet and continuing to deliver shareholder returns [30][29]. Other Important Information - The company has repurchased $3.4 billion of its stock since initiating the buyback program, resulting in a 20% reduction in outstanding shares [9]. - The board approved an increase in the base dividend, funded entirely through share repurchases, demonstrating the synergy between dividends and buybacks [11]. Q&A Session Summary Question: How do you value the Ensign deal between PDP and undrilled inventory? - Management views the valuation as roughly 50-50 between PDP and future undrilled development opportunities, highlighting the balance between immediate cash flow and inventory life [35]. Question: What are the expectations for the Delaware play? - Recent results have been impressive, with strong well performance and a focus on extended laterals, indicating a positive outlook for future production [38][40]. Question: How will the Ensign acquisition impact the overall hydrocarbon mix? - The focus remains on economic returns, with the Ensign inventory being competitive within the portfolio, maintaining a balance of oil and gas production [45][46]. Question: What is the plan for debt repayment post-acquisition? - The company models a comfortable pace for debt repayment over a 24-month period, with flexibility to adjust based on commodity prices [72]. Question: How will the acquisition affect cash tax positions? - The acquisition may help defer AMT taxes until 2024, with tangible assets eligible for expensing contributing positively to cash tax positions [66].

Financial Performance & Return of Capital - Marathon Oil returned 82% of adjusted CFO to shareholders in 3Q22[3,6] - Record shareholder distributions of $1.2 billion were achieved in 3Q22[4,6] - The company has reduced its outstanding share count by 20% since October 2021[4,6,11] - $3.4 billion of share repurchases have been executed since October 2021[6,11] - The quarterly base dividend was raised by 13% to $0.09/share[6,15] Operational Highlights & Outlook - 3Q22 adjusted net income was $832 million, or $1.24/share[6] - Adjusted FCF was $1.031 billion with a 29% reinvestment rate in 3Q22[6] - Oil and oil-equivalent production increased sequentially to 176 MBOPD and 352 MBOED respectively[6] - The company is raising 2022 E.G equity income guidance to $610 million[6,18,54] - 2022 capital spending is being raised to $1.4 billion due to incremental inflation and targeted efforts to protect operational momentum into 2023[6,18,52]

```markdown [Part I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) This section provides Marathon Oil Corporation's unaudited consolidated financial statements and management's discussion and analysis for the reported periods [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Marathon Oil Corporation, including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with their accompanying notes [Consolidated Statements of Income (Unaudited)](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20%28Unaudited%29) Marathon Oil Corporation reported significant increases in net income for both the three and nine months ended September 30, 2022, primarily driven by higher revenues from contracts with customers and a favorable shift in commodity derivatives | Metric (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues from customers | $2,008 | $1,438 | $5,937 | $3,869 | | Net gain (loss) on commodity derivatives | $41 | $(79) | $(129) | $(398) | | Income from equity method investments | $190 | $86 | $469 | $179 | | Total revenues and other income | $2,247 | $1,453 | $6,303 | $3,667 | | Total costs and expenses | $1,143 | $1,106 | $3,100 | $3,098 | | Income from operations | $1,104 | $347 | $3,203 | $569 | | Net income | $817 | $184 | $3,087 | $297 | | Basic EPS | $1.22 | $0.23 | $4.40 | $0.38 | | Diluted EPS | $1.22 | $0.23 | $4.39 | $0.38 | [Consolidated Statements of Comprehensive Income (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Unaudited%29) Comprehensive income significantly increased for both the three and nine months ended September 30, 2022, primarily driven by the substantial rise in net income, with other comprehensive income components showing minor fluctuations | Metric (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $817 | $184 | $3,087 | $297 | | Other comprehensive income, net of tax | $4 | $5 | $16 | $9 | | Comprehensive income | $821 | $189 | $3,103 | $306 | [Consolidated Balance Sheets (Unaudited)](index=5&type=section&id=Consolidated%20Balance%20Sheets%20%28Unaudited%29) As of September 30, 2022, Marathon Oil Corporation's total assets and stockholders' equity increased compared to December 31, 2021, driven by higher cash and cash equivalents and retained earnings, while total liabilities also saw an increase | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | Cash and cash equivalents | $1,109 | $580 | | Total current assets | $2,636 | $1,821 | | Property, plant and equipment, net | $14,245 | $14,499 | | Total assets | $17,858 | $16,994 | | Total current liabilities | $2,431 | $1,637 | | Long-term debt | $3,579 | $3,978 | | Total liabilities | $6,671 | $6,308 | | Total stockholders' equity | $11,187 | $10,686 | [Consolidated Statements of Cash Flows (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) Marathon Oil Corporation experienced a significant increase in net cash provided by operating activities for the nine months ended September 30, 2022, primarily due to higher net income. This allowed for increased share repurchases and dividends, despite higher capital expenditures | Metric (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $4,301 | $2,093 | | Net cash used in investing activities | $(1,095) | $(728) | | Net cash used in financing activities | $(2,677) | $(1,622) | | Net increase (decrease) in cash and cash equivalents | $529 | $(257) | | Cash and cash equivalents at end of period | $1,109 | $485 | [Consolidated Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Unaudited%29) Stockholders' equity increased from December 31, 2021, to September 30, 2022, primarily due to substantial net income, partially offset by significant share repurchases and dividend payments | Metric (in millions) | Dec 31, 2021 Balance | Sep 30, 2022 Balance | | :------------------- | :------------------- | :------------------- | | Treasury Stock | $(4,825) | $(7,240) | | Retained Earnings | $7,271 | $10,196 | | Total Equity | $10,686 | $11,187 | - Shares repurchased under buyback programs totaled **$2,474 million** for the nine months ended September 30, 2022[19](index=19&type=chunk) - Net income contributed **$3,087 million** to retained earnings for the nine months ended September 30, 2022[7](index=7&type=chunk)[19](index=19&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes provide detailed disclosures on the company's accounting policies, financial performance, and position, including segment information, income taxes, debt, equity, and commitments. Key updates include the partial release of a deferred tax asset valuation allowance in 2022 and a subsequent event regarding a significant acquisition in the Eagle Ford play [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) The unaudited consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, reflecting all normal recurring adjustments. They should be read with the 2021 Annual Report on Form 10-K, and interim results are not necessarily indicative of the full year - Statements are unaudited and reflect all necessary normal recurring adjustments for fair presentation[21](index=21&type=chunk) - Interim results for Q3 and first nine months of 2022 are not necessarily indicative of full-year results[21](index=21&type=chunk) [2. Accounting Standards](index=8&type=section&id=2.%20Accounting%20Standards) No material accounting standards were adopted in Q3 or the first nine months of 2022. The company anticipates no material impact from the prospective adoption of ASU 2020-04 regarding LIBOR discontinuation - No material accounting standards were adopted in Q3 or the first nine months of 2022[22](index=22&type=chunk) - ASU 2020-04 (LIBOR discontinuation) is not expected to have a material impact upon adoption[22](index=22&type=chunk) [3. Income and Dividends per Common Share](index=8&type=section&id=3.%20Income%20and%20Dividends%20per%20Common%20Share) Basic and diluted net income per share significantly increased in 2022 compared to 2021, reflecting higher net income and a reduced weighted average common shares outstanding. Dividends per share also increased | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (millions) | $817 | $184 | $3,087 | $297 | | Weighted average common shares outstanding (millions) | 670 | 789 | 701 | 791 | | Diluted weighted average common shares (millions) | 672 | 789 | 703 | 791 | | Basic Net income per share | $1.22 | $0.23 | $4.40 | $0.38 | | Diluted Net income per share | $1.22 | $0.23 | $4.39 | $0.38 | | Dividends per share | $0.08 | $0.05 | $0.23 | $0.12 | - The per share calculations exclude **1 million** and **2 million** of stock options for the three and nine months ended September 30, 2022, respectively, and **4 million** for each period in 2021, as they were antidilutive[23](index=23&type=chunk) [4. Revenues](index=8&type=section&id=4.%20Revenues) Marathon Oil's revenues primarily come from crude oil, condensate, NGLs, and natural gas sales in the U.S. and Equatorial Guinea. Revenues from contracts with customers significantly increased in 2022 compared to 2021 across both segments and product types, driven by higher commodity prices - Majority of revenues are from crude oil and condensate, NGLs, and natural gas sales in the U.S. and Equatorial Guinea[25](index=25&type=chunk) | Revenue Source (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | **United States** | | | | | | Crude oil and condensate | $1,428 | $984 | $4,342 | $2,711 | | Natural gas liquids | $216 | $183 | $671 | $430 | | Natural gas | $261 | $144 | $640 | $450 | | Total U.S. Revenues | $1,927 | $1,375 | $5,730 | $3,696 | | **International (E.G.)** | | | | | | Crude oil and condensate | $75 | $56 | $186 | $151 | | Natural gas liquids | $1 | $0 | $2 | $2 | | Natural gas | $5 | $6 | $17 | $18 | | Total Int'l Revenues | $81 | $63 | $207 | $173 | [5. Segment Information](index=10&type=section&id=5.%20Segment%20Information) Marathon Oil operates in two segments: United States and International (Equatorial Guinea). Both segments saw significant increases in revenues and segment income in 2022 compared to 2021, primarily driven by higher commodity prices. Corporate costs not allocated to segments also saw a reduced loss in 2022 - The company has two reportable operating segments: United States (U.S.) and International (Int'l), based on geographic location and product/service nature[30](index=30&type=chunk)[200](index=200&type=chunk) | Metric (in millions) | U.S. (3M 2022) | Int'l (3M 2022) | Not Allocated (3M 2022) | Total (3M 2022) | | :------------------- | :------------- | :-------------- | :---------------------- | :-------------- | | Revenues from customers | $1,927 | $81 | $— | $2,008 | | Segment income (loss) | $723 | $181 | $(87) | $817 | | Capital expenditures | $406 | $1 | $6 | $413 | | Metric (in millions) | U.S. (9M 2022) | Int'l (9M 2022) | Not Allocated (9M 2022) | Total (9M 2022) | | :------------------- | :------------- | :-------------- | :---------------------- | :-------------- | | Revenues from customers | $5,730 | $207 | $— | $5,937 | | Segment income (loss) | $2,230 | $456 | $401 | $3,087 | | Capital expenditures | $1,124 | $1 | $11 | $1,136 | [6. Income Taxes](index=14&type=section&id=6.%20Income%20Taxes) Marathon Oil's effective income tax rate for the nine months ended September 30, 2022, was 0%, significantly lower than 7% in 2021, primarily due to a $685 million non-cash deferred tax benefit from the partial release of a valuation allowance on U.S. and state deferred tax assets. The Inflation Reduction Act (IRA) is not expected to have a material tax impact in 2022 but will be monitored for future years | Period | Effective Income Tax Rate | | :----- | :------------------------ | | 3 Months Ended Sep 30, 2022 | 23% | | 3 Months Ended Sep 30, 2021 | 2% | | 9 Months Ended Sep 30, 2022 | 0% | | 9 Months Ended Sep 30, 2021 | 7% | - The **0% effective tax rate** for the nine months ended September 30, 2022, was due to a **$685 million non-cash deferred tax benefit** from the partial release of a valuation allowance on U.S. and state deferred tax assets[39](index=39&type=chunk)[209](index=209&type=chunk) - The Inflation Reduction Act (IRA) is generally effective in 2023 or later, with immaterial tax impacts expected in 2022[39](index=39&type=chunk)[209](index=209&type=chunk) [7. Credit Losses](index=14&type=section&id=7.%20Credit%20Losses) Marathon Oil assesses collectability of receivables using historical data, market conditions, and future economic forecasts. The allowance for credit losses decreased from $15 million at December 31, 2021, to $12 million at September 30, 2022, reflecting a net reduction in provision and write-offs - Receivables are primarily from commodity purchasers or joint interest owners, with payment terms of 30 days or less[40](index=40&type=chunk)[210](index=210&type=chunk) | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | Beginning balance as of January 1 | $15 | $22 | | Current period provision | $(2) | $3 | | Current period write offs | $(1) | $(5) | | Recoveries of amounts previously reserved | $— | $(5) | | Ending balance | $12 | $15 | [8. Inventories](index=14&type=section&id=8.%20Inventories) Inventories, consisting of crude oil, natural gas liquids, supplies, and other items, are valued at the lower of weighted average cost or net realizable value. Total inventories increased to $103 million at September 30, 2022, from $77 million at December 31, 2021 - Crude oil and natural gas liquids are recorded at weighted average cost and carried at the lower of cost or net realizable value[42](index=42&type=chunk)[212](index=212&type=chunk) | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | Crude oil and natural gas liquids | $34 | $8 | | Supplies and other items | $69 | $69 | | Inventories | $103 | $77 | [9. Property, Plant and Equipment](index=15&type=section&id=9.%20Property%2C%20Plant%20and%20Equipment) Net property, plant and equipment slightly decreased to $14,245 million at September 30, 2022, from $14,499 million at December 31, 2021. Exploratory well costs capitalized for suspended wells decreased significantly due to resumed drilling/completion activities and wells brought to sales | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | United States | $13,889 | $14,097 | | International | $302 | $347 | | Corporate | $54 | $55 | | Net property, plant and equipment | $14,245 | $14,499 | - Exploratory well costs capitalized for suspended wells decreased from **$80 million** at December 31, 2021, to **$20 million** at September 30, 2022, with a **$46 million** reduction due to wells brought to sales[214](index=214&type=chunk) [10. Impairments](index=15&type=section&id=10.%20Impairments) Total impairment charges for the nine months ended September 30, 2022, were $4 million, a significant decrease from $60 million in the prior year. This year's impairments primarily involved unproved property leases and dry well costs in Louisiana Austin Chalk and Permian, recorded as exploration expense | Metric (in millions) | 3 Months Ended Sep 30, 2022 Impairment | 3 Months Ended Sep 30, 2021 Impairment | 9 Months Ended Sep 30, 2022 Impairment | 9 Months Ended Sep 30, 2021 Impairment | | :------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Long-lived assets held for use | $0 | $5 | $0 | $30 | | Asset retirement costs of long-lived assets | $2 | $8 | $4 | $30 | - In Q3 2022, **$48 million** of unproved property leases and dry well costs in Louisiana Austin Chalk were impaired due to lease expiration, risk assessment, and development decisions. An additional **$14 million** impairment for unproved Permian leases resulted from an acreage exchange[219](index=219&type=chunk) - In 2021, impairments included **$20 million** for Louisiana exploration leases, **$16 million** for a Permian lease disposition, and **$12 million** for Permian dry well costs, all recorded as exploration expense[219](index=219&type=chunk) [11. Asset Retirement Obligations](index=16&type=section&id=11.%20Asset%20Retirement%20Obligations) Asset retirement obligations, primarily for oil and gas production site restoration, increased to $328 million at September 30, 2022, from $309 million in 2021. This increase is mainly due to incurred liabilities and accretion expense, with revisions of estimates being a minor factor in 2022 compared to significant revisions in 2021 related to Gulf of Mexico assets | Metric (in millions) | Sep 30, 2022 | Sep 30, 2021 | | :------------------- | :----------- | :----------- | | Beginning balance as of January 1 | $316 | $254 | | Incurred liabilities, including acquisitions | $10 | $9 | | Settled liabilities, including dispositions | $(8) | $(3) | | Accretion expense | $11 | $9 | | Revisions of estimates | $(1) | $40 | | Ending balance as of September 30, total | $328 | $309 | | Ending balance as of September 30, short-term | $45 | $23 | - In the first nine months of 2021, revisions of estimates totaled **$37 million**, primarily for decommissioning costs of previously divested offshore assets in the Gulf of Mexico, with **$30 million** recognized as impairment expense[222](index=222&type=chunk) [12. Leases](index=16&type=section&id=12.%20Leases) Marathon Oil acts as both a lessee and a lessor. As a lessee, total ROU assets increased to $121 million and total lease liabilities to $125 million at September 30, 2022, primarily for operating leases. As a lessor, the company leases residential housing in Equatorial Guinea, generating fixed annual lease payments | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------- | :----------- | :----------- | | Total ROU assets | $121 | $87 | | Total lease liabilities | $125 | $93 | - Operating leases are for drilling rigs, well fracturing equipment, compressors, buildings, vessels, vehicles, and field equipment[225](index=225&type=chunk) - The company leases a new Houston office building under a five-year finance lease, with cash payments of approximately **$6 million** for the nine months ended September 30, 2022[226](index=226&type=chunk) - As a lessor, Marathon E.G. Production Limited leases residential housing in E.G., with fixed lease payments of approximately **$6 million per year**, expiring in 2024 with an option to extend through 2034[227](index=227&type=chunk)[228](index=228&type=chunk) [13. Derivatives](index=17&type=section&id=13.%20Derivatives) Marathon Oil uses commodity and interest rate derivatives to manage market risks. As of September 30, 2022, the company had a net derivative asset of $15 million. Commodity derivatives, including three-way collars, two-way collars, and NYMEX roll basis swaps, are used for crude oil and natural gas sales. Interest rate swaps are used to hedge future lease payments for the Houston office, with a notional amount of $295 million designated as cash flow hedges | Derivative Type (in millions) | Sep 30, 2022 Net Asset (Liability) | Dec 31, 2021 Net Asset (Liability) | | :---------------------------- | :--------------------------------- | :--------------------------------- | | Not Designated as Hedges | $(11) | $20 | | Cash Flow Hedges | $26 | $(5) | | Total | $15 | $15 | | Commodity Derivative (as of Sep 30, 2022) | 2022 Fourth Quarter | 2023 First Quarter | | :---------------------------------------- | :------------------ | :----------------- | | NYMEX WTI Three-Way Collars (Bbls/day) | 30,000 | — | | NYMEX Roll Basis Swaps (Bbls/day) | 60,000 | — | | Henry Hub Two-Way Collars (MMBtu/day) | 50,000 | 50,000 | | Henry Hub Three-Way Collars (MMBtu/day) | 100,000 | — | - Net cash paid for settled derivative positions was **$145 million** for the first nine months of 2022, compared to **$203 million** in the same period of 2021[235](index=235&type=chunk) - As of September 30, 2022, **$295 million** notional amount of interest rate swaps are classified as cash flow hedges for the Houston office lease, maturing in September 2026[237](index=237&type=chunk)[239](index=239&type=chunk) [14. Fair Value Measurements](index=20&type=section&id=14.%20Fair%20Value%20Measurements) Marathon Oil measures derivative instruments at fair value on a recurring basis, primarily using Level 2 inputs for interest rate swaps and a mix of Level 1 and Level 2 for commodity derivatives. The fair values of other financial instruments, including long-term debt, are also disclosed, with debt measured using Level 2 market quotes | Derivative Type (in millions) | Sep 30, 2022 Total Fair Value | Dec 31, 2021 Total Fair Value | | :---------------------------- | :---------------------------- | :---------------------------- | | Derivative instruments, assets | $26 | $27 | | Derivative instruments, liabilities | $(11) | $(12) | | Total | $15 | $15 | - Commodity swaps use Level 1 inputs (observable market prices), while three-way and two-way collars use Level 2 inputs (commodity prices and implied volatility)[241](index=241&type=chunk) - Forward starting interest rate swaps are measured at fair value using Level 2 actionable broker quotes[241](index=241&type=chunk) | Financial Instrument (in millions) | Sep 30, 2022 Fair Value | Sep 30, 2022 Carrying Amount | Dec 31, 2021 Fair Value | Dec 31, 2021 Carrying Amount | | :--------------------------------- | :---------------------- | :--------------------------- | :---------------------- | :--------------------------- | | Total financial assets | $10 | $28 | $23 | $37 | | Total financial liabilities | $3,916 | $4,183 | $4,850 | $4,215 | [15. Debt](index=21&type=section&id=15.%20Debt) Marathon Oil had no borrowings on its $2.5 billion revolving Credit Facility as of September 30, 2022, which was recently amended to extend maturity to July 2027 and replace LIBOR with SOFR. Total long-term debt outstanding was $4.0 billion, with $402 million due within one year. The company maintains an investment-grade credit rating and is in compliance with its debt covenant - No borrowings against the **$2.5 billion** unsecured revolving Credit Facility as of September 30, 2022[247](index=247&type=chunk) - The Credit Facility maturity was extended to July 28, 2027, its size decreased from **$3.1 billion to $2.5 billion**, and the interest rate benchmark was replaced with SOFR[248](index=248&type=chunk) - Total long-term debt outstanding was **$4.0 billion** at September 30, 2022, including **$402 million** due within one year[249](index=249&type=chunk) - The company's total debt to total capitalization ratio was **20%** at September 30, 2022, well below the **65% covenant limit**[248](index=248&type=chunk) [16. Stockholders' Equity](index=22&type=section&id=16.%20Stockholders%27%20Equity) Marathon Oil repurchased approximately $2.5 billion of common stock in the first nine months of 2022. The Board of Directors increased the remaining share repurchase authorization to $2.5 billion effective November 2, 2022 - Approximately **$2.5 billion** of common stock was repurchased under the share repurchase program during the first nine months of 2022[250](index=250&type=chunk) - The total remaining share repurchase authorization was **$926 million** at September 30, 2022, and was increased to **$2.5 billion** effective November 2, 2022[250](index=250&type=chunk) - An additional **$21 million** of shares were repurchased for tax withholding obligations related to employee restricted stock awards, separate from the main buyback program[250](index=250&type=chunk) [17. Incentive Based Compensation](index=22&type=section&id=17.%20Incentive%20Based%20Compensation) Activity in stock options, restricted stock, and restricted stock units for the first nine months of 2022 included grants of 1.7 million shares/units and vesting/exercise of 2.8 million shares/units. The company also granted 167,043 stock-based performance units, both share-settled and cash-settled | Metric | Outstanding at Dec 31, 2021 | Granted | Exercised/Vested | Canceled | Outstanding at Sep 30, 2022 | | :---------------------------------------- | :-------------------------- | :------ | :--------------- | :------- | :-------------------------- | | Stock Options (Number of Shares) | 4,274,304 | — | (1,842,093) | (414,952) | 2,017,259 | | Restricted Stock & Units (Number of Shares & Units) | 5,888,242 | 1,719,757 | (2,796,967) | (187,859) | 4,623,173 | - **167,043 stock-based performance units** were granted to eligible officers, settled in shares, with a grant date fair value of **$34.07 per unit**[253](index=253&type=chunk) - An equal number of cash-settled performance units were granted, with a fair value of **$23.37 per unit** as of September 30, 2022[253](index=253&type=chunk) [18. Defined Benefit Postretirement Plans](index=23&type=section&id=18.%20Defined%20Benefit%20Postretirement%20Plans) Net periodic benefit costs for pension plans decreased for the nine months ended September 30, 2022, while other postretirement benefits remained a credit. The company made contributions to its funded pension plan and other postretirement benefit plans in 2022 and expects further pension contributions | Metric (in millions) | Pension Benefits (3M 2022) | Other Benefits (3M 2022) | Pension Benefits (9M 2022) | Other Benefits (9M 2022) | | :------------------- | :------------------------- | :----------------------- | :------------------------- | :----------------------- | | Service cost | $4 | $0 | $11 | $0 | | Interest cost | $1 | $1 | $5 | $2 | | Expected return on plan assets | $(2) | $0 | $(7) | $0 | | Amortization: prior service credit | $(1) | $(4) | $(4) | $(12) | | Amortization: actuarial loss | $0 | $0 | $1 | $1 | | Net periodic benefit costs (credits) | $2 | $(3) | $6 | $(9) | - Contributions of **$17 million** were made to the funded pension plan and **$7 million** to other postretirement benefit plans during the first nine months of 2022[257](index=257&type=chunk) - An additional **$4 million** in contributions to the funded pension plan is expected this year[257](index=257&type=chunk) [19. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)](index=24&type=section&id=19.%20Reclassifications%20Out%20of%20Accumulated%20Other%20Comprehensive%20Income%20%28Loss%29) Reclassifications from accumulated other comprehensive income (loss) to the income statement for the nine months ended September 30, 2022, resulted in a net income of $11 million, a significant shift from a $26 million net loss in 2021. This change was primarily driven by the absence of reclassification of de-designated forward interest rate swaps in 2022 | Reclassification (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization of prior service credit | $5 | $5 | $16 | $16 | | Amortization of actuarial loss | $0 | $(2) | $(2) | $(6) | | Net settlement loss | $0 | $(3) | $0 | $(8) | | Reclassification of de-designated forward interest rate swaps | $0 | $0 | $0 | $(28) | | Provision for income taxes | $(1) | $0 | $(3) | $0 | | Total reclassifications of (income) expense, net of tax | $4 | $0 | $11 | $(26) | - During 2021, a full valuation allowance on net federal deferred tax assets in the U.S. meant no tax impact to postretirement and postemployment plans[260](index=260&type=chunk) [20. Supplemental Cash Flow Information](index=24&type=section&id=20.%20Supplemental%20Cash%20Flow%20Information) Supplemental cash flow information shows a decrease in interest paid and a significant increase in income taxes paid, net of refunds, for the nine months ended September 30, 2022, compared to the prior year. Noncash investing activities included a lower increase in asset retirement costs | Metric (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------- | :-------------------------- | :-------------------------- | | Interest paid | $153 | $185 | | Income taxes paid, net of refunds | $128 | $8 | | Increase in asset retirement costs (noncash) | $9 | $49 | [21. Equity Method Investments](index=25&type=section&id=21.%20Equity%20Method%20Investments) Marathon Oil's equity method investments, primarily in EGHoldings (LNG), Alba Plant LLC (LPG processing), and AMPCO (methanol production) in Equatorial Guinea, increased to $568 million at September 30, 2022. These investees reported significantly higher revenues and net income in 2022, leading to increased cash distributions to Marathon Oil | Investee | Ownership as of Sep 30, 2022 | Investment (Sep 30, 2022) | Investment (Dec 31, 2021) | | :--------- | :--------------------------- | :------------------------ | :------------------------ | | EGHoldings | **56%** | **$293 million** | **$148 million** | | Alba Plant LLC | **52%** | **$142 million** | **$154 million** | | AMPCO | **45%** | **$133 million** | **$148 million** | | Total | | **$568 million** | **$450 million** | | Income Data (100% combined, in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenues and other income | $499 | $325 | $1,332 | $806 | | Net income | $335 | $155 | $811 | $312 | - Cash received from equity investees (dividends and return of capital) totaled **$350 million** for the nine months ended September 30, 2022, up from **$137 million** in the prior year[265](index=265&type=chunk) [22. Commitments and Contingencies](index=26&type=section&id=22.%20Commitments%20and%20Contingencies) Marathon Oil faces various legal and administrative proceedings, including a $153 million liability for suspended royalty and working interest revenue related to a land ownership dispute in North Dakota. The company is also negotiating with the EPA regarding Clean Air Act violations and is a defendant in royalty underpayment lawsuits. Additionally, it has third-party guarantees for Equatorial Guinea operations totaling $116 million, with a recorded liability of $4 million - A **$153 million** current liability exists for suspended royalty and working interest revenue, including interest, related to a land ownership dispute in North Dakota involving the State and Three Affiliated Tribes[267](index=267&type=chunk) - The company is actively negotiating a consent decree with the EPA for alleged Clean Air Act violations on the Fort Berthold Indian Reservation (2015-2019), which may include monetary sanctions and environmental mitigation projects[267](index=267&type=chunk) - Marathon Oil is a defendant in royalty underpayment lawsuits in domestic operations and has accrued for potential liabilities[267](index=267&type=chunk) - Third-party guarantees for Equatorial Guinea LNG Operations, S.A. and Alba Plant LLC total **$91 million** and **$25 million**, respectively, expiring no later than December 31, 2027, with a recorded liability of approximately **$4 million**[268](index=268&type=chunk) [23. Subsequent Event](index=28&type=section&id=23.%20Subsequent%20Event) On November 2, 2022, Marathon Oil signed an agreement to acquire Ensign Natural Resources' assets in the Eagle Ford resource play for $3.0 billion in cash. The acquisition, expected to close by year-end 2022, includes 130,000 net acres, 700 wells, and estimated current production of 67,000 net boepd - On November 2, 2022, Marathon Oil agreed to acquire Ensign Natural Resources' assets in the Eagle Ford resource play for **$3.0 billion cash**[270](index=270&type=chunk) - The acquired assets include approximately **130,000 net proved and unproved acres** (**97% working interest**), **700 existing wells**, and estimated current production of **67,000 net boepd** (**22,000 net bopd oil**)[270](index=270&type=chunk) - The acquisition is expected to be funded by cash on hand, borrowings from the Credit Facility, and new prepayable debt, with closing anticipated by year-end 2022[270](index=270&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Marathon Oil's financial condition and operational results, highlighting significant increases in revenues, income, and operating cash flow driven by higher commodity prices. The company's strategy focuses on disciplined capital allocation, free cash flow generation, and shareholder returns, complemented by a recent acquisition in the Eagle Ford play - Marathon Oil is an independent exploration and production company focused on U.S. resource plays (Eagle Ford, Bakken, STACK, SCOOP, Northern Delaware) and international operations in Equatorial Guinea[273](index=273&type=chunk) - The business strategy aims to deliver competitive corporate returns, free cash flow, and sustainable cash returns to shareholders through disciplined reinvestment[273](index=273&type=chunk) - The company experienced significant increases in revenues, income from operations, and operating cash flow compared to the prior year, primarily due to higher commodity prices[274](index=274&type=chunk) - Year-to-date cash generated from operations fully funded the capital program, dividend payments, and share repurchases[274](index=274&type=chunk) [Executive Overview](index=29&type=section&id=Executive%20Overview) Marathon Oil, an E&P company with U.S. and E.G. operations, reported significantly improved financial results in Q3 2022, with net income of $817 million (vs. $184 million in Q3 2021) driven by higher commodity prices, increased equity method investment income, and a favorable shift in commodity derivatives. The company also returned $2.5 billion to shareholders through buybacks in the first nine months of 2022 and maintained an investment-grade balance sheet - Net income for Q3 2022 was **$817 million**, compared to **$184 million** in Q3 2021[274](index=274&type=chunk) - Revenues from contracts with customers increased by **$570 million** in Q3 2022 due to significantly higher realized commodity prices[274](index=274&type=chunk) - Income from equity method investments rose by **$104 million** to **$190 million** in Q3 2022, also due to higher realized prices[274](index=274&type=chunk) - A net gain of **$41 million** on commodity derivatives in Q3 2022 contrasted with a **$79 million net loss** in Q3 2021, increasing income by **$120 million**[274](index=274&type=chunk) - The company repurchased approximately **$2.5 billion** of shares in the first nine months of 2022, including **$1.1 billion** in Q3[275](index=275&type=chunk) - As of September 30, 2022, Marathon Oil had **$1.1 billion cash** on hand and **$3.6 billion total liquidity**, maintaining investment-grade credit ratings[275](index=275&type=chunk) [Outlook](index=30&type=section&id=Outlook) Marathon Oil increased its 2022 capital budget to $1.4 billion, up from the initial $1.2 billion, to account for persistent inflationary pressures and to maintain operational momentum into 2023 - The 2022 capital budget was increased from **$1.2 billion to $1.4 billion**[276](index=276&type=chunk) - The increase is attributed to persistent inflationary pressures and efforts to protect execution and operational momentum into 2023[276](index=276&type=chunk) [Operations](index=30&type=section&id=Operations) Total company net sales volumes increased by 3% in Q3 2022 YoY and remained flat year-to-date. U.S. operations saw a 5% increase in Q3 volumes, driven by Bakken and Northern Delaware, while International volumes decreased by 5% due to natural decline. Drilling activity varied across U.S. resource plays, with notable increases in wells brought to sales in Eagle Ford and Northern Delaware | Net Sales Volumes (mboed) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Increase (Decrease) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Increase (Decrease) | | :------------------------ | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | United States | 295 | 281 | **5%** | 286 | 280 | **2%** | | International | 58 | 61 | **(5)%** | 59 | 64 | **(8)%** | | Total | 353 | 342 | **3%** | 345 | 344 | **0%** | | U.S. Resource Play (mboed) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Increase (Decrease) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Increase (Decrease) | | :------------------------- | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Eagle Ford | 90 | 95 | **(5)%** | 85 | 88 | **(3)%** | | Bakken | 118 | 103 | **15%** | 116 | 107 | **8%** | | Oklahoma | 54 | 55 | **(2)%** | 54 | 54 | **0%** | | Northern Delaware | 24 | 21 | **14%** | 21 | 24 | **(13)%** | | Drilling Activity (Gross Operated) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Eagle Ford: Wells brought to sales | 95 | 99 | | Bakken: Wells brought to sales | 49 | 46 | | Oklahoma: Wells brought to sales | 19 | 4 | | Northern Delaware: Wells brought to sales | 13 | 3 | [Market Conditions](index=31&type=section&id=Market%20Conditions) Commodity prices significantly impact Marathon Oil's financials, with 2022 seeing substantial volatility due to geopolitical events, inflation, OPEC+ limitations, and COVID-related impacts. Average price realizations for crude oil, NGLs, and natural gas in the U.S. and International segments increased significantly in 2022 compared to 2021 - Commodity prices are the most significant factor impacting revenues, profitability, and cash flows[285](index=285&type=chunk) - 2022 experienced significant price volatility due to geopolitical events (Russia-Ukraine conflict), macroeconomic inflation, OPEC+ supply limitations, COVID impacts, and strategic petroleum reserve releases[285](index=285&type=chunk) | Average Price Realizations (U.S.) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Increase (Decrease) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Increase (Decrease) | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Crude oil and condensate (per bbl) | $93.67 | $69.40 | **35%** | $99.28 | $63.16 | **57%** | | Natural gas liquids (per bbl) | $34.00 | $30.68 | **11%** | $37.14 | $26.50 | **40%** | | Natural gas (per mcf) | $7.84 | $4.17 | **88%** | $6.52 | $4.35 | **50%** | | Average Price Realizations (Int'l E.G.) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Increase (Decrease) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Increase (Decrease) | | :------------------------------------ | :-------------------------- | :-------------------------- | :------------------ | :-------------------------- | :-------------------------- | :------------------ | | Crude oil and condensate (per bbl) | $74.01 | $56.36 | **31%** | $72.26 | $51.54 | **40%** | [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Marathon Oil's results of operations for both the three and nine months ended September 30, 2022, showed substantial improvements in revenues and segment income compared to 2021, primarily driven by higher commodity prices and favorable derivative impacts. These gains were partially offset by increased production expenses and taxes, though DD&A and impairments decreased [Three Months Ended September 30, 2022 vs. Three Months Ended September 30, 2021](index=33&type=section&id=Three%20Months%20Ended%20September%2030%2C%202022%20vs.%20Three%20Months%20Ended%20September%2030%2C%202021) For Q3 2022, revenues from contracts with customers increased by $570 million to $2,008 million, driven by higher price realizations across all product types in both U.S. and International segments. Net gain on commodity derivatives was $41 million (vs. $79 million loss in Q3 2021). Production expenses increased by $62 million due to higher activity and inflation, while DD&A decreased by $62 million due to lower rates. Segment income for the U.S. increased to $723 million and for International to $181 million | Revenue Source (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :--------------------------- | :-------------------------- | :-------------------------- | | United States | $1,927 | $1,375 | | International | $81 | $63 | | Total Revenues | $2,008 | $1,438 | - Net gain on commodity derivatives was **$41 million** in Q3 2022, compared to a net loss of **$79 million** in Q3 2021[294](index=294&type=chunk) - Production expenses increased by **$62 million**, primarily due to higher U.S. workover activity and inflationary pressures[295](index=295&type=chunk) - Depreciation, depletion and amortization (DD&A) decreased by **$62 million**, mainly due to a lower DD&A rate impacted by field-level changes in reserves[297](index=297&type=chunk) | Segment Income (in millions) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :--------------------------- | :-------------------------- | :-------------------------- | | United States | $723 | $305 | | International | $181 | $93 | | Items not allocated to segments, net of income taxes | $(87) | $(214) | | Net income | $817 | $184 | [Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021](index=35&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202022%20vs.%20Nine%20Months%20Ended%20September%2030%2C%202021) For the first nine months of 2022, revenues from contracts with customers increased by $2,068 million to $5,937 million, driven by higher price realizations. Net loss on commodity derivatives decreased by $269 million. Production expenses increased by $131 million due to inflation and activity, while DD&A decreased by $231 million. Impairments decreased by $56 million. Segment income for the U.S. increased to $2,230 million and for International to $456 million, with a significant positive shift in unallocated items due to a deferred tax benefit | Revenue Source (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------- | :-------------------------- | :-------------------------- | | United States | $5,730 | $3,696 | | International | $207 | $173 | | Total Revenues | $5,937 | $3,869 | - Net loss on commodity derivatives decreased by **$269 million** compared to the same period in 2021[305](index=305&type=chunk) - Production expenses increased by **$131 million**, primarily due to higher U.S. workover activity and inflationary pressures[305](index=305&type=chunk) - Depreciation, depletion and amortization (DD&A) decreased by **$231 million**, mainly due to a lower DD&A rate impacted by field-level changes in reserves[309](index=309&type=chunk) - Impairments decreased by **$56 million**, with 2021 including significant charges for decommissioning costs and Eagle Ford facilities[309](index=309&type=chunk) | Segment Income (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------- | :-------------------------- | :-------------------------- | | United States | $2,230 | $724 | | International | $456 | $211 | | Items not allocated to segments, net of income taxes | $401 | $(638) | | Net income | $3,087 | $297 | [Critical Accounting Estimates](index=38&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates remain consistent with its 2021 Form 10-K, with no material changes, except for income taxes. In Q1 2022, Marathon Oil re-evaluated and partially released a $685 million valuation allowance on U.S. and state deferred tax assets due to increased commodity prices and future taxable income projections - No material changes to critical accounting estimates, except for income taxes, as disclosed in the 2021 Form 10-K[312](index=312&type=chunk) - In Q1 2022, a **$685 million non-cash deferred tax benefit** was recorded due to the partial release of a valuation allowance on U.S. and state deferred tax assets[313](index=313&type=chunk) - The release was based on significant increases in commodity prices and corresponding projections of future taxable income[313](index=313&type=chunk) [Accounting Standards Not Yet Adopted](index=38&type=section&id=Accounting%20Standards%20Not%20Yet%20Adopted) This section refers to Note 2 of the consolidated financial statements, indicating that no new accounting standards are expected to have a material impact on the company's financial statements upon adoption - Refer to Note 2 for details on accounting standards not yet adopted[313](index=313&type=chunk) [Cash Flows](index=39&type=section&id=Cash%20Flows) Marathon Oil generated significantly higher cash flow from operating activities in the first nine months of 2022 ($4,301 million vs. $2,093 million in 2021), primarily due to increased commodity prices. This strong operating cash flow funded increased capital expenditures, debt repayments, and substantial share repurchases - Commodity prices are the most significant factor impacting cash flows[314](index=314&type=chunk) | Cash Flow Source/Use (in millions) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $4,301 | $2,093 | | Additions to property, plant and equipment | $(1,117) | $(772) | | Debt repayment | $(35) | $(1,400) | | Shares repurchased under buyback programs | $(2,474) | $0 | | Dividends paid | $(162) | $(94) | - Capital expenditures for the U.S. segment increased due to inflationary pressures on oil field services, labor, drilling materials, and equipment, as well as timing differences in drilling and completion programs[316](index=316&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Marathon Oil maintains strong liquidity, with $3.6 billion available at September 30, 2022, comprising $1.1 billion cash and $2.5 billion from its revolving Credit Facility. The Credit Facility was recently amended to extend maturity to 2027 and replace LIBOR with SOFR. The company continues to be investment-grade rated and plans to fund a $3.0 billion Eagle Ford acquisition using cash, Credit Facility borrowings, and new debt - Total liquidity was approximately **$3.6 billion** at September 30, 2022, consisting of **$1.1 billion** in cash and cash equivalents and **$2.5 billion** available under the revolving Credit Facility[317](index=317&type=chunk) - The Credit Facility's maturity date was extended to July 28, 2027, its size decreased from **$3.1 billion to $2.5 billion**, and the LIBOR interest rate benchmark was replaced with SOFR[317](index=317&type=chunk) - The company maintains investment-grade credit ratings from all three primary agencies[318](index=318&type=chunk) - A **$3.0 billion** acquisition of Eagle Ford assets, announced November 2, 2022, is expected to be funded by cash on hand, Credit Facility borrowings, and new prepayable debt[318](index=318&type=chunk) - The total debt to total capitalization ratio was **20%** at September 30, 2022, well within the **65% covenant limit**[319](index=319&type=chunk) - The Board of Directors increased the remaining share repurchase program authorization to **$2.5 billion** effective November 2, 2022[319](index=319&type=chunk) - A dividend of **$0.09 per share** was approved on October 26, 2022, payable December 12, 2022[319](index=319&type=chunk) [Environmental Matters and Other Contingencies](index=41&type=section&id=Environmental%20Matters%20and%20Other%20Contingencies) Marathon Oil continues to incur capital, operating, and remediation expenditures due to environmental laws and regulations. The company believes it will not have a material adverse effect on its financial position, results of operations, or cash flows. Accrued liabilities for environmental remediation were not material at September 30, 2022 - The company incurs capital, operating, maintenance, and remediation expenditures due to environmental laws and regulations[320](index=320&type=chunk) - Resolution of legal and administrative proceedings is not expected to have a material adverse effect on consolidated financial position, results of operations, or cash flows[267](index=267&type=chunk)[320](index=320&type=chunk) - Accrued liabilities for environmental remediation were not material at September 30, 2022[268](index=268&type=chunk)[320](index=320&type=chunk) [Forward-Looking Statements](index=42&type=section&id=Forward-Looking%20Statements) This section outlines various forward-looking statements made in the report, covering future performance, business strategy, capital budget, reserve estimates, and the Ensign acquisition. It also details numerous factors that could cause actual results to differ materially from projections, including commodity price volatility, geopolitical conditions, operational risks, and regulatory changes like the Inflation Reduction Act - The report contains forward-looking statements regarding future performance, business strategy, capital budget, reserve estimates, asset acquisitions (e.g., Ensign), and other operational and financial objectives[322](index=322&type=chunk) - Factors that could cause results to differ materially include conditions in the oil and gas industry (supply, demand, price), changes in political and economic conditions (U.S. and E.G.), OPEC+ actions, hedging risks, drilling and operating risks, and regulatory changes (e.g., Inflation Reduction Act of 2022)[322](index=322&type=chunk) - Specific risks related to the Ensign acquisition include potential delays, failure to consummate, changes in cash consideration, and the risk that acquired assets may not perform as expected[324](index=324&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Marathon Oil is exposed to commodity price risk and interest rate risk, which it manages using financial derivatives. A hypothetical 10% change in commodity prices would significantly impact the fair value of derivative positions, while a similar change in interest rates would affect cash flow hedges - The company is exposed to commodity price risk and interest rate risk, managed through financial derivatives[326](index=326&type=chunk) [Commodity Price Risk](index=45&type=section&id=Commodity%20Price%20Risk) As of September 30, 2022, Marathon Oil had open commodity derivatives. A hypothetical 10% increase in crude oil and natural gas futures prices would change the fair value of commodity derivative positions from a $(11) million liability to a $(20) million liability, while a 10% decrease would result in a $(4) million liability | Derivative Type (in millions) | Fair Value at Sep 30, 2022 | Hypothetical Price Increase of 10% | Hypothetical Price Decrease of 10% | | :---------------------------- | :------------------------- | :--------------------------------- | :--------------------------------- | | Crude Oil | $(7) | $(12) | $(4) | | Natural Gas | $(4) | $(8) | $0 | | Total | $(11) | $(20) | $(4) | [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) Marathon Oil's $4.0 billion debt portfolio consists of fixed-rate instruments, limiting sensitivity to interest rate movements unless debt is repurchased. The company uses forward starting interest rate swaps with a $295 million notional amount as cash flow hedges for lease payments. A hypothetical 10% increase in interest rates would change the fair value of these hedges from $26 million to $31 million, while a 10% decrease would result in $22 million - The **$4.0 billion** current and long-term debt portfolio consists of fixed-rate instruments[329](index=329&type=chunk) - Forward starting interest rate swap agreements with a total notional amount of **$295 million** are designated as cash flow hedges to manage exposure to LIBOR fluctuations for future lease payments[329](index=329&type=chunk) | Metric (in millions) | Fair Value at Sep 30, 2022 | Hypothetical Interest Rate Increase of 10% | Hypothetical Interest Rate Decrease of 10% | | :------------------- | :------------------------- | :----------------------------------------- | :----------------------------------------- | | Interest rate asset (liability) - designated as cash flow hedges | $26 | $31 | $22 | [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) As of September 30, 2022, Marathon Oil's management, including the CEO and CFO, concluded that the design and operation of its disclosure controls and procedures were effective. No material changes in internal control over financial reporting occurred during the first nine months of 2022 - Disclosure controls and procedures were effective as of September 30, 2022[331](index=331&type=chunk) - No material changes in internal control over financial reporting occurred during the first nine months of 2022[331](index=331&type=chunk) [Part II - OTHER INFORMATION](index=46&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity security sales, and exhibits for Marathon Oil Corporation [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) Marathon Oil is involved in several legal proceedings, including ongoing negotiations with the EPA regarding Clean Air Act violations on the Fort Berthold Indian Reservation (2015-2019) and a new NOV in July 2022 for alleged Clean Air Act violations in New Mexico. The company is also defending against royalty underpayment lawsuits in Oklahoma. While outcomes are uncertain, the company believes these matters will not have a material adverse effect on its business or operations - Ongoing negotiations with the EPA for Clean Air Act violations on the Fort Berthold Indian Reservation (2015-2019), likely to include monetary sanctions and environmental mitigation projects[333](index=333&type=chunk) - Received a new NOV from the EPA in July 2022 for alleged Clean Air Act violations in New Mexico, with potential fines exceeding **$300,000**[333](index=333&type=chunk) - Defending against royalty underpayment lawsuits in domestic operations, including a settlement in principle for an Oklahoma lawsuit[333](index=333&type=chunk) - The company believes the resolution of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows[267](index=267&type=chunk)[333](index=333&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) Marathon Oil highlights increased inflationary pressures, supply chain disruptions, and labor shortages in 2022 as new material risk factors. These conditions, exacerbated by global economic recovery and geopolitical events, could adversely impact the company's ability to procure materials cost-effectively, leading to reduced margins and production delays. Changes in U.S. and international tax rules, including the Inflation Reduction Act of 2022, also pose potential material adverse effects on future cash flows and financial condition - Higher than expected inflationary pressures, supply chain disruptions, and labor shortages in 2022 are new material risk factors[334](index=334&type=chunk) - These conditions, driven by increased demand for oil and gas and systemic underinvestment, coul

Financial Data and Key Metrics Changes - The second quarter of 2022 saw record financial results, including adjusted net income of $934 million or $1.32 per share and adjusted free cash flow exceeding $1.2 billion with a 24% reinvestment rate [16][12][9] - The company returned $816 million of capital to equity holders during the second quarter, representing 51% of adjusted cash flow from operations (CFO) [18][19] - For the full year 2022, the company expects to generate around $4.5 billion of free cash flow, translating to a free cash flow yield of over 25% [12][21] Business Line Data and Key Metrics Changes - The company is focused on maintaining a disciplined capital program, prioritizing free cash flow generation and operational efficiency [22] - The U.S. production expense guidance was increased by $0.25 per barrel, but this was offset by a reduction in U.S. depreciation, depletion, and amortization (DD&A) guidance [22] - The company expects third-quarter oil production to increase sequentially from 167,000 barrels per day to over 172,000 barrels per day [23] Market Data and Key Metrics Changes - Global demand for oil and gas continues to recover, while supply remains constrained due to years of underinvestment and geopolitical factors, particularly the ongoing situation in Ukraine [5][6] - The U.S. Energy Renaissance is providing some protection against inflationary pressures faced by consumers [6][7] Company Strategy and Development Direction - The company aims to responsibly meet global energy demand while prioritizing safety, environmental, social, and governance performance [8] - The strategy includes a focus on returning capital to shareholders through a framework based on operating cash flow rather than free cash flow, which is designed to provide a competitive edge in an inflationary environment [10][11] - The company is committed to maintaining a high-quality portfolio of U.S. unconventional resources complemented by global LNG exposure [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of financial results, supported by a high-quality asset base and disciplined capital allocation [14][25] - The company is preparing for potential macroeconomic uncertainties and is focused on maintaining a robust balance sheet [25][66] - Management highlighted the importance of delivering competitive financial performance to attract investor interest [26] Other Important Information - The company has returned approximately $2.5 billion of capital to shareholders since achieving its leverage objective in October 2021 [11][20] - The base dividend has been raised by 167% since the beginning of the previous year, reflecting a commitment to returning capital to shareholders [20] Q&A Session Summary Question: Thoughts on capital allocation for 2023 - Management indicated that it is too early to provide specifics on capital allocation for 2023 but noted a shift in focus among U.S. basins [30][31] Question: Impact of AMT proposal on cash tax position - Management expressed uncertainty regarding the AMT proposal's impact on cash taxes but noted that current tax attributes would shield from cash taxes until the second half of the decade [38][42] Question: M&A strategy and requirements - Management stated that the criteria for evaluating M&A opportunities remain high, focusing on financial accretion and maintaining capital discipline [52][58]

Financial Data and Key Metrics Changes - In Q1 2022, the company generated $1.3 billion of cash flow from operations and $940 million of free cash flow, with a reinvestment rate of just 27% [10][11] - The company returned $640 million, or 50% of cash flow from operations, back to shareholders [10][11] - Over the trailing two quarters, approximately 60% of cash flow from operations, or over $1.4 billion, was returned to shareholders [9][14] Business Line Data and Key Metrics Changes - The company reported oil production of 168,000 barrels per day in Q1 2022 [10] - The capital spending for the quarter was $348 million, consistent with prior guidance [10][24] - The company raised its equity income guidance from Equatorial Guinea by $200 million, or 67% [11][19] Market Data and Key Metrics Changes - The company rebased its 2022 financial outlook to reflect pricing of $100 WTI and $6 Henry Hub, expecting to generate over $4.5 billion of free cash flow at a reinvestment rate of just 20% [11][19] - The company noted that the inflationary environment is impacting costs, with expectations of inflation rising to 15-20% due to higher commodity prices [20][52] Company Strategy and Development Direction - The company emphasizes a return of capital to shareholders, with a commitment to return a minimum of 40% of cash flow from operations when WTI is above $60 per barrel [14][15] - The strategy focuses on sustainable free cash flow and meaningful returns to shareholders, supported by a high-quality portfolio and a strong balance sheet [8][27] - The company aims to balance cash returns with portfolio renewal, dedicating a portion of capital to organic growth initiatives [37][41] Management Comments on Operating Environment and Future Outlook - Management highlighted the geopolitical tensions and inflationary pressures affecting the energy market, emphasizing the need for a responsible energy transition that includes oil and gas [5][7] - The company believes it is well-positioned to meet growing energy demands while maintaining strong financial returns for shareholders [8][27] - Management expressed confidence in the company's ability to generate significant free cash flow and return capital to shareholders, even in a volatile market [35][50] Other Important Information - The company has increased its buyback authorization to $2.5 billion, indicating confidence in its stock valuation [9][16] - The company expects to continue to outperform its minimum cash flow return commitments, with potential for significant returns in 2022 [16][35] Q&A Session Summary Question: Broader LNG strategy and operational leverage - Management discussed the balanced exposure to commodities and the unique asset in Equatorial Guinea, which is well-positioned to benefit from global LNG market dynamics [30][31] Question: Cash return strategy and portfolio renewal - Management clarified that the cash return strategy is designed to be flexible and responsive to market conditions, with a commitment to return significant capital to shareholders while maintaining a strong balance sheet [32][33] Question: Impact of owning Chevron assets on cash flow - Management indicated that owning additional gas assets would generate incremental value, but emphasized the need for any acquisition to be accretive to the existing high-return organic case [40][41] Question: Capital allocation in the current gas environment - Management noted that the current commodity pricing environment is uplifting the economics of the entire portfolio, allowing for increased capital allocation to gas projects [45][46] Question: Inflationary pressures and planning for 2023 - Management acknowledged the challenges posed by inflation and supply chain constraints, indicating a proactive approach to securing contracts and planning for 2023 [52][53]