Marathon Oil(MRO) - 2023 Q4 - Annual Results

Executive Summary & 2023 Performance Highlights Marathon Oil delivered strong 2023 financial results, reduced debt, and returned significant capital to shareholders Full-Year and Fourth Quarter 2023 Financial Results Marathon Oil reported strong full-year and Q4 2023 financial results, including significant net income, adjusted net income, and free cash flow Full-Year and Fourth Quarter 2023 Financial Highlights | Metric | Full-Year 2023 (million $) | Q4 2023 (million $) | | :-------------------------- | :-------------------------- | :------------------- | | Net income | 1,554 | 397 | | Adjusted net income | 1,587 | 406 | | Net operating cash flow | 4,087 | 1,080 | | Adjusted CFO | 4,187 | 980 | | Free cash flow | 2,029 | 681 | | Adjusted FCF | 2,182 | 624 | | Net income per diluted share | $2.56 | $0.68 | | Adjusted net income per diluted share | $2.61 | $0.69 | - Full-year 2023 adjusted FCF was $2.2 billion, including $624 million during the fourth quarter[4] Key Achievements and Strategic Priorities In 2023, Marathon Oil returned 41% of adjusted CFO to shareholders, reduced gross debt, and achieved strong operational and ESG performance - Returned 41% of adjusted CFO to shareholders in 2023, distributing $1.7 billion and executing $1.5 billion of share repurchases, driving a 9% reduction to outstanding share count[4][5] - Reduced gross debt by $500 million in 2023, further strengthening the investment grade balance sheet[4][5] - Achieved record annual safety performance (TRIR of 0.21) and met the 2025 GHG Intensity reduction goal of 50% two years ahead of schedule, improving total Company gas capture rate to 99.5%[4][5] - Announced a 2024 capital budget of $2.0 billion, expected to deliver 190,000 net bopd and return at least 40% of adjusted CFO to shareholders[4][5] 2024 Capital Budget and Guidance Marathon Oil's 2024 plan focuses on capital efficiency, stable production, and maximizing free cash flow Capital Expenditure Plan Marathon Oil's 2024 capital budget of $1.9-$2.1 billion prioritizes corporate returns and free cash flow generation - 2024 capital expenditure budget is set between $1.9 billion to $2.1 billion, prioritizing corporate returns and FCF generation[6] - The 2024 program is expected to deliver approximately $1.9 billion of FCF, assuming $75/bbl WTI, $2.50/MMBtu Henry Hub, and $10/MMBtu TTF[6][42] - 2024 financial guidance assumes Alternative Minimum Tax (AMT) cash tax payments at 15% of pre-tax income, partially offset by approximately $150 million of expected R&D tax credits[7] Production Outlook The company expects 190,000 net bopd in 2024, maintaining flat year-on-year production despite Q1 weather impacts - Marathon Oil expects to deliver total Company oil production of 190,000 net bopd at the midpoint of its 2024 guidance range[8] - Winter weather is expected to lower first quarter production by about 4,000 net bopd, primarily in the Bakken, but with no impact to full-year flat oil production guidance[8] Operational Efficiency and Well Optimization Marathon Oil plans to optimize its 2024 well mix for flat oil production, maximizing returns and free cash flow - Expects 5% to 10% fewer net wells to sales in 2024 to deliver flat year-on-year total oil production by optimizing well mix to maximize corporate returns and FCF generation[9] - Capital spending is approximately 60% weighted to the first half of the year, driving higher production during the second half[14] - Approximately 70% of total capital is allocated to the Eagle Ford and Bakken, with higher year-on-year spending in the Permian[14] Return of Capital and Balance Sheet Marathon Oil prioritizes shareholder returns and maintains a strong investment-grade balance sheet Shareholder Return Framework and 2023 Performance Marathon Oil exceeded its 40% adjusted CFO return target in 2023, distributing $1.7 billion and reducing outstanding shares - The Company targets returning a minimum of 40% of adjusted CFO to equity investors in a $60/bbl WTI or higher price environment[10] - During 2023, Marathon Oil returned 41% of adjusted CFO, or $1,724 million, to equity holders, representing a total shareholder distribution yield of >12%[11] - Executed $1,473 million of share repurchases during 2023, driving a 9% reduction to outstanding share count; since October 2021, outstanding share count reduced by more than 27%[11] - For 2024, expects to return at least 40% of adjusted CFO, equating to a minimum shareholder return of $1.6 billion and providing shareholders visibility to a double-digit distribution yield[13] Debt Reduction and Liquidity Marathon Oil reduced gross debt by $500 million in 2023, ending Q4 with $2.3 billion in total liquidity - Reduced gross debt by $500 million in 2023, including a $300 million prepayment on its Term Loan Facility during fourth quarter[12] - Ended fourth quarter with total liquidity of $2.3 billion, including $155 million of cash and cash equivalents and $2.1 billion of available borrowings on the Company's revolving credit facility[19] - All three primary credit rating agencies continue to rate Marathon Oil investment grade[19] Fourth Quarter 2023 Operations Review Q4 2023 operations saw stable U.S. production, optimized well activity, and a shift in international LNG pricing United States Operations U.S. production averaged 352,000 net boed in Q4 2023, with 32 Company-operated wells brought to sales Q4 2023 U.S. Production and Costs | Metric | Q4 2023 | | :-------------------------- | :------ | | U.S. Production (net boed) | 352,000 | | U.S. Oil Production (net bopd) | 180,000 | | U.S. Unit Production Costs ($ per boe) | $6.51 | - Brought a total of 32 gross Company-operated wells and 10 joint venture wells to sales during fourth quarter[15] - Eagle Ford production averaged 144,000 net boed (71,000 net bopd) with 4 Company-operated wells; Bakken averaged 118,000 net boed (76,000 net bopd) with 23 Company-operated wells[16] International Operations (Equatorial Guinea) E.G. production averaged 52,000 net boed in Q4 2023, with LNG sales contract pricing shifting to global LNG-linked terms Q4 2023 E.G. Production and Financials | Metric | Q4 2023 | | :-------------------------- | :------ | | E.G. Production (net boed) | 52,000 | | E.G. Oil Production (net bopd) | 9,000 | | Unit Production Costs ($ per boe) | $2.30 | | Net income from equity method investees | $45 million | | Total cash distributions from equity method companies | $33 million | - Effective Jan. 1, 2024, pricing for the LNG sales contract shifted from Henry Hub-linked to global LNG-linked, and all 2024 LNG cargoes have been successfully contracted under these new terms[17] Corporate Information Marathon Oil maintains strong proved reserves, liquidity, and commitment to ESG excellence Proved Reserves Year-end 2023 proved reserves totaled 1,320 mmboe, effectively replacing produced volumes despite lower commodity pricing - Year-end 2023 proved reserves totaled 1,320 million barrels of oil equivalent (mmboe), comparable to year-end 2022 despite lower SEC commodity pricing[18] - Reserve additions effectively replaced produced volumes, with reserve replacement totaling over 120% excluding SEC commodity pricing impacts[18] - Oil and liquids accounted for 49% and 73% of the Company's year-end 2023 proved reserves, respectively[18] Balance Sheet and Liquidity Marathon Oil ended Q4 2023 with $2.3 billion in total liquidity and maintained investment-grade credit ratings - Total liquidity at the end of Q4 2023 was $2.3 billion, comprising $155 million of cash and cash equivalents and $2.1 billion of available borrowings on the revolving credit facility[19] - All three primary credit rating agencies continue to rate Marathon Oil investment grade[19] Safety, Environmental, Social, and Governance Excellence Marathon Oil achieved record safety, met GHG reduction goals early, and enhanced board governance in 2023 Safety Performance Marathon Oil achieved a record-low annual Total Recordable Incident Rate (TRIR) of 0.21 in 2023 - Achieved a record-low annual Total Recordable Incident Rate (TRIR) of 0.21 for employees and contractors during 2023[20] - Safety performance remains a key element of its executive compensation scorecard[20] Environmental Performance Preliminary calculations indicate Marathon Oil met its 2025 GHG intensity reduction goal two years early - Preliminary calculations indicate achievement of the 2025 GHG intensity reduction goal of 50% two years ahead of schedule[21] - Improved total Company 2023 gas capture to 99.5% and continues progress toward World Bank Zero Routine Flaring by 2030 commitment[21] Social Initiatives Marathon Oil made key strategic social investments in 2023, supporting health, conservation, and education - Key strategic social investments during 2023 included ongoing support of Equatorial Guinea's Bioko Island Malaria Elimination Project and partnership with the National Fish and Wildlife Foundation on grassland restoration projects[21] - Awarded grants to teachers through the Unconventional Thinking in Teaching Program and continued support of the Barbara Bush Houston Literacy Foundation My Home Library Program[21] Governance Practices Marathon Oil enhanced board oversight in 2023 through focus on refreshment, independence, and diversity - Continued to enhance board of director oversight through focus on refreshment, independence, and diversity, electing one new board member in 2023[22] - Seven of eight directors are independent, three directors are female (including the lead director), and two directors are ethnically/racially diverse[22] About Marathon Oil Marathon Oil is an independent E&P company focused on competitive U.S. resource plays and an integrated E.G. gas business - Marathon Oil Corporation is an independent oil and gas exploration and production (E&P) company[25] - Focuses on four competitive U.S. resource plays (Eagle Ford, Bakken, STACK and SCOOP in Oklahoma, and Permian) complemented by an integrated gas business in Equatorial Guinea[25] - The Company's Framework for Success is founded on a strong balance sheet, ESG excellence, and the competitive advantages of a high-quality multi-basin portfolio[25] Non-GAAP Measures and Forward-Looking Statements This section defines non-GAAP financial measures and provides a disclaimer for forward-looking statements Non-GAAP Financial Measures Definitions Marathon Oil uses non-GAAP measures like adjusted net income and free cash flow to supplement GAAP results for investor understanding - Marathon Oil uses non-GAAP financial measures such as adjusted net income, adjusted CFO, free cash flow, adjusted free cash flow, and reinvestment rate to supplement GAAP results[26][32] - These measures are considered useful to investors for understanding operating performance, cash generation, and ability to fund capital programs, service debt, and make distributions to stockholders[27][28][29][30][31] - Non-GAAP measures should not be considered in isolation or as an alternative to, or more meaningful than, their most directly comparable GAAP financial measures[27][28][29][30][32] Forward-Looking Statements Disclaimer This disclaimer identifies forward-looking statements and cautions that actual results may differ materially due to various factors - The release contains forward-looking statements regarding future capital budgets, performance, free cash flow, returns to investors, production, and business strategy[34] - Actual results could differ materially from projections due to various factors, including conditions in the oil and gas industry, political or economic changes, capital availability, and regulatory shifts[34] - The Company undertakes no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise[34] Financial Statements and Supplemental Data This section presents Marathon Oil's consolidated financial statements and supplemental operational data Consolidated Statements of Income Full-year 2023 net income was $1,554 million, down from 2022, primarily due to lower revenues Consolidated Statements of Income (Unaudited) | Metric | Q4 2023 (million $) | Q4 2022 (million $) | FY 2023 (million $) | FY 2022 (million $) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Revenues from contracts with customers | 1,585 | 1,603 | 6,407 | 7,540 | | Total revenues and other income | 1,691 | 1,733 | 6,697 | 8,036 | | Total costs and expenses | 1,171 | 985 | 4,449 | 4,085 | | Income from operations | 520 | 748 | 2,248 | 3,951 | | Net income | 397 | 525 | 1,554 | 3,612 | | Adjusted net income | 406 | 563 | 1,587 | 3,078 | | Net income per diluted share | $0.68 | $0.82 | $2.56 | $5.26 | | Adjusted net income per diluted share | $0.69 | $0.88 | $2.61 | $4.48 | Adjusted Net Income Per Diluted Share This section reconciles net income per diluted share to adjusted net income per diluted share, detailing special item impacts Adjusted Net Income Per Diluted Share (Unaudited) | Metric | Q4 2023 ($) | Q4 2022 ($) | FY 2023 ($) | FY 2022 ($) | | :------------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | Net income per diluted share | 0.68 | 0.82 | 2.56 | 5.26 | | Adjustments for special items (pre-tax): | | | | | | Net (gain) loss on disposal of assets | (0.02) | 0.06 | (0.03) | 0.06 | | Exploratory dry well costs, unproved property impairments and other | 0.01 | 0.02 | 0.05 | 0.11 | | Unrealized (gain) loss on derivative instruments | (0.03) | (0.03) | (0.02) | (0.03) | | Valuation allowance | — | — | — | (1.00) | | Total Adjustments for special items | 0.01 | 0.06 | 0.05 | (0.78) | | Adjusted net income per share | 0.69 | 0.88 | 2.61 | 4.48 | Cash Flow and Reinvestment Rate Marathon Oil generated $4,087 million in net operating cash flow and $2,029 million in free cash flow for full-year 2023 Cash Flow and Reinvestment Rate (Unaudited) | Metric | Q4 2023 (million $) | Q4 2022 (million $) | FY 2023 (million $) | FY 2022 (million $) | | :------------------------------------ | :------------------- | :------------------- | :------------------- | :------------------- | | Net cash provided by operating activities | 1,080 | 1,127 | 4,087 | 5,428 | | Adjusted CFO | 980 | 1,104 | 4,187 | 5,410 | | Free cash flow | 681 | 794 | 2,029 | 3,978 | | Adjusted free cash flow | 624 | 763 | 2,182 | 3,947 | | Reinvestment rate | 37 % | 31 % | 48 % | 27 % | 2024 Free Cash Flow Outlook For 2024, Marathon Oil projects $1.9 billion in free cash flow based on estimated operating activities and capital expenditures 2024 Free Cash Flow Outlook (Unaudited) | Metric | 2024 Outlook (million $) | | :------------------------------------ | :------------------------ | | Expected net cash provided by operating activities | 3,900 | | Less: Capital expenditures | (2,000) | | Expected free cash flow | 1,900 | - Outlook is based upon an $75/bbl WTI, $2.50/MMBtu Henry Hub and $10/MMBtu TTF price assumption[42] Production and Sales Volumes Total net production for full-year 2023 was 405,000 boed, with U.S. operations as the primary contributor Net Production and Sales Volumes (Unaudited) | Metric | Q4 2023 | FY 2023 | Q4 2022 | FY 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Total Net Production (mboed) | 404 | 405 | 333 | 343 | | United States | 352 | 355 | 278 | 284 | | International | 52 | 50 | 55 | 59 | | Total Oil Production (mbbld) | 189 | 190 | 166 | 169 | | United States | 180 | 182 | 156 | 159 | | International | 9 | 8 | 10 | 10 | | U.S. Net Sales Volumes (mboed) | 352 | 355 | 277 | 284 | | Crude oil and condensate (mbbld) | 179 | 181 | 156 | 159 | | Natural gas liquids (mbbld) | 86 | 87 | 59 | 64 | | Natural gas (mmcfd) | 520 | 521 | 371 | 363 | | International Net Sales Volumes (mboed) | 48 | 50 | 56 | 59 | | Crude oil and condensate (mbbld) | 5 | 9 | 11 | 10 | | Natural gas liquids (mbbld) | 6 | 5 | 6 | 7 | | Natural gas (mmcfd) | 219 | 214 | 235 | 252 | Average Price Realizations Average price realizations for crude oil, NGLs, and natural gas declined in 2023 across U.S. and International segments Average Price Realizations and Benchmarks (Unaudited) | Metric | Q4 2023 | FY 2023 | Q4 2022 | FY 2022 | | :------------------------------------ | :------ | :------ | :------ | :------ | | U.S. Average Price Realizations | | | | | | Crude oil and condensate ($ per bbl) | $77.28 | $76.42 | $84.29 | $95.58 | | Natural gas liquids ($ per bbl) | $20.92 | $21.20 | $26.02 | $34.55 | | Natural gas ($ per mcf) | $2.32 | $2.36 | $4.93 | $6.11 | | International Average Price Realizations | | | | | | Crude oil and condensate ($ per bbl) | $47.43 | $57.50 | $59.27 | $68.67 | | Natural gas liquids ($ per bbl) | $1.00 | $1.00 | $1.00 | $1.00 | | Natural gas ($ per mcf) | $0.24 | $0.24 | $0.24 | $0.24 | | Benchmark Prices | | | | | | WTI crude oil (per bbl) | $78.53 | $77.60 | $82.64 | $94.33 | | Brent (Europe) crude oil (per bbl) | $83.72 | $82.47 | $88.56 | $100.78 | | Henry Hub natural gas (per mmbtu) | $2.88 | $2.74 | $6.26 | $6.64 | | TTF natural gas (per mmbtu) | $13.61 | $13.10 | $37.18 | $40.85 | Derivative Contracts As of February 19, 2024, Marathon Oil had NYMEX WTI Three-Way Collars in place for 2024, covering specific volumes and price ranges Outstanding Derivative Contracts as of February 19, 2024 | Contract Type | Volume (barrels/day) | Weighted Average Price per Barrel (Ceiling) | Weighted Average Price per Barrel (Floor) | Weighted Average Price per Barrel (Sold put) | | :---------------------- | :---------------- | :--------------------------------------- | :------------------------------------- | :---------------------------------------- | | NYMEX WTI Three-Way Collars (Q1 2024) | 40,000 | $101.01 | $66.25 | $51.25 | | NYMEX WTI Three-Way Collars (Q2 2024) | 40,000 | $101.01 | $66.25 | $51.25 | | NYMEX WTI Three-Way Collars (Q3 2024) | 20,000 | $101.95 | $65.00 | $50.00 | | NYMEX WTI Three-Way Collars (Q4 2024) | 20,000 | $101.95 | $65.00 | $50.00 |