Marathon Oil(MRO) - 2020 Q3 - Quarterly Report

Part I - Financial Information Financial Statements Marathon Oil reported a $1.113 billion net loss for the nine months ended September 30, 2020, driven by 41% lower revenues and reduced cash flow Consolidated Statement of Income Highlights (Unaudited) | Indicator (In millions, except per share) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total revenues and other income | $2,256 | $3,975 | | Income (loss) from operations | $(930) | $563 | | Net income (loss) | $(1,113) | $500 | | Diluted net income (loss) per share | $(1.41) | $0.62 | Consolidated Balance Sheet Highlights (Unaudited) | Indicator (In millions) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $1,922 | $2,135 | | Total assets | $18,663 | $20,245 | | Total current liabilities | $1,566 | $1,745 | | Long-term debt | $5,405 | $5,501 | | Total liabilities | $7,771 | $8,092 | | Total stockholders' equity | $10,892 | $12,153 | Consolidated Statement of Cash Flows Highlights (Unaudited) | Indicator (In millions) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,055 | $2,049 | | Net cash used in investing activities | $(1,060) | $(1,924) | | Net cash provided by (used in) financing activities | $266 | $(422) | | Net increase (decrease) in cash | $261 | $(297) | Notes to Consolidated Financial Statements The notes detail significant financial events, including the 2019 U.K. business sale, 2020 impairments of $95 million goodwill and $170 million equity investment, and debt management actions like remarketing $400 million bonds and tendering $500 million notes - In July 2019, the company closed the sale of its U.K. business for proceeds of $95 million, recognizing a pre-tax gain of $14 million in Q3 2019[21] Revenues from Contracts with Customers (Nine Months Ended Sep 30, In millions) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | United States | $2,154 | $3,434 | | International | $121 | $396 | | Total | $2,275 | $3,830 | - For the nine months ended September 30, 2020, the company recorded impairments of $95 million for goodwill in the International reporting unit and $170 million for an equity method investment, primarily due to the deterioration in hydrocarbon prices[52][60] - On September 16, 2020, the company commenced a cash tender offer for $500 million of its 2.8% Senior Notes due 2022, which was fully subscribed and settled on October 1, 2020[85] - During the first nine months of 2020, the company repurchased approximately 9 million common shares for $85 million, with $1.3 billion remaining share repurchase authorization at September 30, 2020[86] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 2020 net loss to declining commodity prices and demand, responding by reducing the capital budget by 50% to $1.2 billion, maintaining $4.1 billion liquidity, and reinstating the quarterly dividend Executive Overview and Outlook The company focuses on U.S. resource plays, prioritizing balance sheet protection and liquidity, with a $1.2 billion capital budget and $4.1 billion liquidity at Q3 2020 - The company's primary focus is on protecting its balance sheet and maintaining a strong liquidity position of approximately $4.1 billion at the end of Q3 2020, including a $3.0 billion undrawn credit facility and $1.1 billion in cash[109] - The full-year 2020 capital spending budget was reduced to $1.2 billion, a 50% reduction from the original budget, in response to declining commodity prices[113] - Full-year 2020 production guidance is between 375 mboed and 390 mboed[114] Operations and Market Conditions Q3 2020 total net sales volumes decreased 14% year-over-year to 368 mboed due to reduced drilling, while average U.S. crude oil realizations fell 31% to $37.78/bbl Net Sales Volumes (mboed) | Segment | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | United States | 297 | 339 | (12)% | | International | 71 | 88 | (19)% | | Total | 368 | 427 | (14)% | - Drilling and completion operations were suspended in Oklahoma and Northern Delaware during Q2, with no new wells brought to sales in Oklahoma in Q3[122] Average Price Realizations (Q3 2020 vs Q3 2019) | Product (U.S. Segment) | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (per bbl) | $37.78 | $55.09 | (31)% | | Natural gas liquids (per bbl) | $11.80 | $11.37 | 4% | | Natural gas (per mcf) | $1.78 | $1.92 | (7)% | Results of Operations Q3 2020 revenues fell from $1.25 billion to $761 million, resulting in a $127 million segment loss, driven by lower prices, volumes, and impairments, partially offset by reduced expenses Price/Volume Analysis - Revenue Change (Q3 2019 to Q3 2020, In millions) | Segment | 2019 Revenue | Price Impact | Volume Impact | 2020 Revenue | | :--- | :--- | :--- | :--- | :--- | | United States | $1,172 | $(256) | $(194) | $722 | | International | $77 | $(16) | $(22) | $39 | - Production expenses decreased by $34 million in Q3 2020 versus Q3 2019, primarily due to lower operational costs and cost management in the U.S. segment[138] - General and administrative expenses decreased by $29 million in Q3 2020 compared to Q3 2019, mainly from cost savings realized from workforce reductions[142] - For the first nine months of 2020, impairments increased by $74 million year-over-year, primarily due to a $95 million goodwill impairment in the International reporting unit[151] Liquidity and Capital Resources As of September 30, 2020, Marathon Oil maintained $4.1 billion liquidity, actively managed debt by tendering $500 million notes, kept a 35% debt-to-capital ratio, and reinstated a $0.03 per share quarterly dividend - Total liquidity at September 30, 2020 was approximately $4.1 billion, consisting of $1.1 billion in cash and $3.0 billion available under the revolving Credit Facility[166] - On October 1, 2020, the company completed a cash tender for $500 million of its 2.8% 2022 Notes, funded by cash on hand, with the next significant debt maturity of $500 million in November 2022[168] - The debt-to-capital ratio was 35% at September 30, 2020, in compliance with the 65% covenant limit[171] - The share repurchase program was suspended to preserve liquidity, while the Board of Directors approved the reinstatement of a quarterly dividend of $0.03 per share on October 1, 2020[167][172] Quantitative and Qualitative Disclosures About Market Risk The company faces commodity price and interest rate risks, with a 10% price decrease potentially increasing net derivative assets from $43 million to $70 million, while its $5.9 billion debt portfolio is fixed-rate Commodity Derivative Fair Value Sensitivity (as of Sep 30, 2020, In millions) | Scenario | Crude Oil Asset | Natural Gas Asset (Liability) | Total Net Asset | | :--- | :--- | :--- | :--- | | Current Fair Value | $42 | $1 | $43 | | 10% Price Increase | $42 | $(30) | $12 | | 10% Price Decrease | $68 | $2 | $70 | - At September 30, 2020, the company's debt portfolio of $5.9 billion consisted of fixed-rate instruments[179] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[182] Part II - Other Information Legal Proceedings No significant changes to legal proceedings have occurred since the 2019 Annual Report on Form 10-K - No significant changes to legal proceedings have occurred since the 2019 Annual Report on Form 10-K[183] Risk Factors The company faces risks from the COVID-19 pandemic's impact on demand and prices, increased environmental regulatory costs, and potential transportation constraints like the Dakota Access Pipeline challenges - The COVID-19 pandemic has had an adverse impact on business, financial condition, and operations due to a substantial decline in demand and prices for hydrocarbons[185] - The company faces risks from numerous environmental laws and regulations, including potential new rules on methane emissions and climate change, which could increase capital expenditures and operating costs[187][190] - Pipeline and transportation capacity constraints pose a risk, where a potential shutdown of the Dakota Access Pipeline could require finding alternative, potentially more costly, transport for approximately 10,000 net bpd of Bakken oil[191] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2020, Marathon Oil suspended open market share repurchases, acquiring 27,584 shares from employees for tax purposes, with $1.32 billion remaining authorization Share Repurchase Activity (Q3 2020) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Publicly Announced Program | Remaining Authorization ($) | | :--- | :--- | :--- | :--- | :--- | | July 2020 | 27,584 | $5.89 | 0 | $1,320,335,751 | | Aug 2020 | 0 | N/A | 0 | $1,320,335,751 | | Sep 2020 | 0 | N/A | 0 | $1,320,335,751 | | Total | 27,584 | $5.89 | 0 | | - The company temporarily suspended its share repurchase program during the second quarter of 2020 in connection with the economic downturn[193] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and XBRL data files - The Exhibit Index lists all documents filed with the report, including the CEO and CFO certifications pursuant to Sarbanes-Oxley Act rules (Exhibits 31.1, 31.2, 32.1, 32.2)[194][196]