Marathon Oil(MRO) - 2021 Q3 - Quarterly Report

Part I Financial Statements This section presents the unaudited consolidated financial statements for Marathon Oil Corporation for the third quarter and first nine months of 2021, including detailed notes Consolidated Statements of Income This section details the company's revenues, expenses, and net income for the third quarter and first nine months of 2021 and 2020 Q3 & Nine Months 2021 vs 2020 Income Statement Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues from contracts with customers | $1,438 | $761 | $3,869 | $2,275 | | Total revenues and other income | $1,453 | $754 | $3,667 | $2,256 | | Income (loss) from operations | $347 | $(242) | $569 | $(930) | | Net income (loss) | $184 | $(317) | $297 | $(1,113) | | Diluted EPS | $0.23 | $(0.40) | $0.38 | $(1.41) | Consolidated Statements of Comprehensive Income This section presents the company's net income and other comprehensive income components for the third quarter and first nine months of 2021 and 2020 Q3 & Nine Months 2021 vs 2020 Comprehensive Income (in millions) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $184 | $(317) | $297 | $(1,113) | | Other comprehensive income (loss) | $5 | $20 | $9 | $(48) | | Comprehensive income (loss) | $189 | $(297) | $306 | $(1,161) | Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Balance Sheet Highlights (in millions) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $485 | $742 | | Total current assets | $1,655 | $1,612 | | Property, plant and equipment, net | $14,734 | $15,638 | | Total assets | $17,161 | $17,956 | | Long-term debt | $3,977 | $5,404 | | Total liabilities | $6,365 | $7,395 | | Total stockholders' equity | $10,796 | $10,561 | Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the first nine months of 2021 and 2020 Nine Months Ended Sep 30 Cash Flow Summary (in millions) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,093 | $1,055 | | Net cash used in investing activities | $(728) | $(1,060) | | Net cash provided by (used in) financing activities | $(1,622) | $266 | | Net (decrease) increase in cash | $(257) | $261 | Notes to Consolidated Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering accounting policies, revenue disaggregation, segment performance, derivatives, debt management, and contingencies - The company's revenues are primarily from the sale of crude oil, condensate, NGLs, and natural gas in the United States and Equatorial Guinea[24] - The company operates through two reportable segments: United States (U.S.) and International (Int'l), which is primarily focused on Equatorial Guinea (E.G.)[31] - In the first nine months of 2021, the company redeemed $1.4 billion of senior notes, incurring $121 million in costs for early extinguishment[82][12] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial condition and results of operations for the third quarter of 2021, highlighting free cash flow generation, balance sheet enhancement, and capital discipline - The company's strategy focuses on capital investment in U.S. resource plays to prioritize free cash flow generation for shareholder returns and balance sheet enhancement[108] - For the first nine months of 2021, the company generated $2.1 billion in cash from operations, which funded $1.4 billion in debt redemption, $772 million in capital expenditures, and $94 million in dividends[109] - The 2021 capital budget is set at a maintenance level of $1.0 billion, designed to keep total company oil production consistent with the Q4 2020 exit rate[113] Operations This section details the company's net sales volumes and factors influencing production across its segments Net Sales Volumes (mboed) | Segment | Q3 2021 | Q3 2020 | % Change | YTD 2021 | YTD 2020 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | United States | 281 | 297 | (5)% | 280 | 314 | (11)% | | International | 61 | 71 | (14)% | 64 | 79 | (19)% | | Total | 342 | 368 | (7)% | 344 | 393 | (12)% | - Lower sales volumes in both the U.S. and International segments were attributed to reduced capital investment, natural decline, and timing of wells coming to sales[116][121] Market Conditions This section analyzes the impact of commodity price fluctuations on the company's financial performance - Commodity prices increased through the first nine months of 2021 due to rising oil demand, increased global economic activity, and ongoing OPEC supply limitations, significantly impacting revenues and profitability[123] U.S. Average Price Realizations (Q3 2021 vs Q3 2020) | Product | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (per bbl) | $69.40 | $37.78 | +84% | | Natural gas liquids (per bbl) | $30.68 | $11.80 | +160% | | Natural gas (per mcf) | $4.17 | $1.78 | +134% | International Average Price Realizations (Q3 2021 vs Q3 2020) | Product | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (per bbl) | $56.36 | $30.28 | +86% | | Natural gas (per mcf) | $0.24 | $0.24 | 0% | Results of Operations This section provides a detailed comparison of the company's financial performance for the third quarter and nine-month periods of 2021 and 2020 - For Q3 2021, U.S. segment income was $305 million, a significant turnaround from a $135 million loss in Q3 2020, driven by higher price realizations[140] - International segment income for Q3 2021 was $93 million, up from $8 million in Q3 2020, also due to higher price realizations[140] - A loss on early extinguishment of debt of $102 million was recorded in Q3 2021 related to the redemption of $900 million in senior notes[138] Liquidity and Capital Resources This section discusses the company's financial flexibility, cash position, debt management, and capital allocation strategies - As of September 30, 2021, the company had approximately $3.6 billion of liquidity, comprising $485 million in cash and an undrawn $3.1 billion revolving credit facility[158] - The company redeemed $500 million of 2.8% Senior Notes due 2022 in April 2021 and $900 million of 3.85% Senior Notes due 2025 in September 2021[160] - Subsequent to the quarter, the company resumed its share repurchase program and the Board increased the authorization from $1.1 billion to $2.5 billion[165] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to commodity price and interest rate risks, using derivatives to manage commodity price fluctuations Commodity Derivative Fair Value Sensitivity (in millions) | Scenario | Crude Oil | Natural Gas | NGL | Total | | :--- | :--- | :--- | :--- | :--- | | Fair Value at Sep 30, 2021 | $(81) | $(51) | $(21) | $(153) | | +10% Price Change | $(135) | $(63) | $(24) | $(222) | | -10% Price Change | $(41) | $(41) | $(17) | $(99) | - The company's debt portfolio consists of fixed-rate instruments, so interest rate movements only affect results when debt is retired at prices different from carrying value; interest rate swaps are used to hedge future lease payments[173] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[175] Part II Legal Proceedings The company faces an EPA Notice of Violation and royalty underpayment lawsuits, but believes these will not materially affect its financial position - The company received a Notice of Violation from the EPA regarding the Clean Air Act, with potential for monetary sanctions and corrective actions[177] - Marathon Oil is defending against various lawsuits alleging royalty underpayments in its domestic operations, with some plaintiffs seeking class certification[177] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - No material changes to risk factors from the 2020 Annual Report on Form 10-K were reported[178] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, Marathon Oil did not repurchase shares under its program but acquired shares from employees for tax withholding, with $1.3 billion remaining authorization - No shares were repurchased under the publicly announced plan in Q3 2021[179][180] - 25,352 shares were acquired from employees at an average price of $12.04 per share to satisfy tax withholding obligations[179][180] Exhibits This section references the Exhibit Index accompanying the Form 10-Q, which lists all exhibits filed with the report