Marathon Oil(MRO) - 2021 Q4 - Annual Report

Part I Business and Properties Marathon Oil Corporation is an independent exploration and production company focused on U.S. resource plays and international operations in Equatorial Guinea, prioritizing free cash flow generation and shareholder returns - The company operates through two reportable segments: United States, focusing on U.S. resource plays, and International, including operations in Equatorial Guinea (E.G.) for crude oil, natural gas, LNG, and methanol[14] - Marathon Oil's business strategy centers on delivering competitive returns, free cash flow, and cash returns to shareholders by maintaining a disciplined capital reinvestment rate[15] Total Proved Reserves as of December 31, 2021 | Category | Crude Oil & Condensate (million barrels) | Natural Gas Liquids (million barrels) | Natural Gas (billion cubic feet) | Total (million barrels of oil equivalent) | Total (%) | | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. | 541 | 200 | 1,446 | 982 | 89% | | E.G. | 29 | 18 | 466 | 124 | 11% | | Total Proved Reserves | 570 | 218 | 1,912 | 1,106 | 100% | Net Sales Volumes (thousand barrels of oil equivalent per day) | Region | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | United States | 286 | 306 | 323 | | International | 61 | 77 | 91 | | Total | 347 | 383 | 414 | Major Customers (% of Total Commodity Sales) | Customer | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Marathon Petroleum Corporation | 17% | 13% | 13% | | Valero Marketing and Supply | 10% | N/A | 11% | | Koch Resources LLC | N/A | 12% | 13% | | Shell Trading | N/A | N/A | 10% | Risk Factors The company faces significant risks from volatile commodity prices, subjective reserve estimations, and transportation constraints, alongside substantial regulatory and compliance risks related to climate change, hydraulic fracturing, and environmental liabilities, compounded by $4.0 billion in debt as of year-end 2021 - A substantial decline in crude oil, NGLs, and natural gas prices is a primary risk that could reduce operating results, cash flows, and the carrying value of assets, influenced by global supply/demand, OPEC actions, and geopolitical conditions[79] - Estimates of proved reserves are subjective and depend on numerous assumptions, where material changes in commodity prices or other factors could impair the quantity and value of the company's reserves[80][82] - The company is subject to various climate-related risks, including policy and legal risks from increased regulation, market risks from shifts in demand to lower-carbon energy, and physical risks from extreme weather events[90] - As of December 31, 2021, total debt was $4.0 billion, which may limit financial flexibility, increase vulnerability to adverse economic conditions, and restrict the use of cash flow for other purposes[99] - The company faces significant regulatory compliance risks, including potential costs and operating restrictions related to environmental laws, hydraulic fracturing, induced seismicity, and climate change initiatives from the current U.S. administration[104][110][112] Legal Proceedings Marathon Oil is a defendant in various legal proceedings, including royalty, contract, and environmental claims, and lawsuits related to greenhouse gas emissions, with ongoing negotiations with the EPA regarding a Clean Air Act Notice of Violation - The company is a defendant in lawsuits filed by government entities seeking to hold fossil fuel producers liable for the alleged impacts of greenhouse gas emissions[126] - In January 2020, the company received a Notice of Violation from the EPA related to the Clean Air Act and is actively negotiating the terms of a consent decree, which will likely result in monetary sanctions and injunctive terms[126] Part II Market for Common Equity, Stockholder Matters, and Issuer Purchases Marathon Oil's common stock trades on the NYSE under 'MRO', with 45.5 million shares repurchased for approximately $723 million in Q4 2021, leaving $1.9 billion remaining under the authorized share repurchase program as of year-end 2021 Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price per Share | Shares Purchased as Part of Program | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Oct 2021 | 9,976,809 | $15.92 | 9,959,789 | $1,161,719,576 | | Nov 2021 | 10,178,355 | $16.49 | 10,177,722 | $2,373,902,569 | | Dec 2021 | 25,409,775 | $15.63 | 25,409,775 | $1,976,852,884 | | Total | 45,564,939 | $15.88 | 45,547,286 | $1,976,852,884 | - As of December 31, 2021, the company has $1.9 billion of authorization remaining under its share repurchase program[129] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Marathon Oil's 2021 financial performance significantly improved due to higher commodity prices, resulting in $946 million net income and $3.2 billion cash from operations, enabling debt reduction and share repurchases, with a $1.2 billion capital budget for 2022 focused on free cash flow generation Key Financial Highlights: 2021 vs. 2020 (in millions) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues from contracts | $5,601 | $3,097 | +$2,504 | | Net Income (Loss) | $946 | ($1,451) | +$2,397 | | Net Income (Loss) per Share | $1.20 | ($1.83) | +$3.03 | | Cash from Operations | $3,239 | $1,473 | +$1,766 | - The company enhanced its balance sheet by redeeming $1.4 billion of senior notes in 2021, with the next significant maturity of $1.0 billion due in 2027[135] - For 2022, the company announced a $1.2 billion capital budget that prioritizes free cash flow generation over production growth, aiming to maintain 2021 oil production levels[136] Average Realized Prices: 2021 vs. 2020 (United States) | Product | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Crude oil and condensate (per barrel) | $66.88 | $35.93 | +86% | | Natural gas liquids (per barrel) | $28.89 | $11.28 | +156% | | Natural gas (per thousand cubic feet) | $4.57 | $1.77 | +158% | - At year-end 2021, the company had approximately $3.7 billion of liquidity, comprising $580 million in cash and $3.1 billion available under its revolving credit facility[178] Quantitative and Qualitative Disclosures About Market Risk Marathon Oil is primarily exposed to commodity price and interest rate risks, utilizing derivative instruments like three-way collars and swaps to manage exposure and support cash flow predictability - The company periodically uses commodity derivative instruments, including futures, swaps, and options, to manage price risk on a portion of its forecasted U.S. sales[213] Commodity Derivative Fair Value Sensitivity (as of Dec 31, 2021) | Scenario | Fair Value Change (in millions) | | :--- | :--- | | Current Net Liability | ($7) | | Hypothetical 10% Price Increase | ($31) | | Hypothetical 10% Price Decrease | $10 | - The company's debt portfolio consists of fixed-rate instruments, and it uses interest rate swaps to manage exposure to interest rate movements on future obligations, such as lease payments[215] Financial Statements and Supplementary Data The audited consolidated financial statements for 2021 show a significant turnaround with $5.47 billion in total revenues and $946 million net income, reflecting $17.0 billion in total assets and $3.2 billion net cash from operations, with proved reserves totaling 1,106 million barrels of oil equivalent and a standardized measure of discounted future net cash flows of $12.4 billion Consolidated Statement of Income (in millions) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenues and other income | $5,467 | $3,086 | $5,190 | | Total costs and expenses | $4,159 | $4,266 | $4,554 | | Income (loss) from operations | $1,308 | ($1,180) | $636 | | Net income (loss) | $946 | ($1,451) | $480 | Consolidated Balance Sheet (in millions) | Line Item | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,821 | $1,612 | | Property, plant and equipment, net | $14,499 | $15,638 | | Total assets | $16,994 | $17,956 | | Total current liabilities | $1,637 | $1,213 | | Long-term debt | $3,978 | $5,404 | | Total liabilities | $6,308 | $7,395 | | Total stockholders' equity | $10,686 | $10,561 | Consolidated Statement of Cash Flows (in millions) | Line Item | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $3,239 | $1,473 | $2,749 | | Net cash used in investing activities | ($1,010) | ($1,303) | ($2,818) | | Net cash used in financing activities | ($2,391) | ($286) | ($535) | | Net (decrease) in cash | ($162) | ($116) | ($604) | - Supplementary data shows a standardized measure of discounted future net cash flows from proved reserves of $12.4 billion at year-end 2021, a significant increase from $4.0 billion at year-end 2020, primarily due to higher commodity prices[419] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes during Q4 2021 - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[423] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, a conclusion audited by PricewaterhouseCoopers LLP[423][666] Part III Directors, Executive Officers, Corporate Governance, and Related Matters This section covers directors, executive officers, corporate governance, executive compensation, security ownership, and principal accountant fees, with detailed information incorporated by reference from the company's 2022 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees (Item 14) is incorporated by reference from the company's 2022 Proxy Statement[425][426][428] Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 7,506,052 | $17.50 | 25,948,349 | Part IV Exhibits, Financial Statement Schedules This section lists all documents filed as part of the Form 10-K report, including financial statements from Item 8, notes on omitted financial schedules, and a comprehensive index of all exhibits - This section contains the list of financial statements, financial statement schedules, and exhibits filed with the Form 10-K[431]