Marathon Oil Corporation (NYSE:MRO) reported a robust financial performance in the third quarter of 2023, with an adjusted free cash flow of $718 million and a reinvestment rate of 38%. The company exceeded its production guidance and reduced unit cash costs by over 15% compared to the previous year. Marathon Oil has returned a significant amount of capital to shareholders, with $476 million returned in the third quarter and a total of $1.3 billion returned in the first three quarters of the year.
Key takeaways from the earnings call include:
- Marathon Oil plans to continue its shareholder return program and reduce its gross debt to around $4 billion.
- The company's integrated gas business is expected to see a significant financial uplift in 2024 due to increased exposure to the global LNG market.
- Marathon Oil reported strong execution and improved capital efficiency in their drilling and completion operations, with a 10% improvement in drilling efficiency and a 15% improvement in completion efficiency compared to 2022.
- The company announced a new long-term sales agreement with Glencore (OTC:GLNCY) for their integrated gas business in EG, which is expected to drive significant financial uplift.
- Marathon Oil plans to divert a portion of their Alba Gas to their LNG facility to maximize higher-margin LNG production.
In terms of capital allocation, the company expects to allocate the majority of capital to the Eagle Ford (NYSE:F) and Bakken plays, with potential additional capital allocated to the Permian and the Alba Infill program. The company aims to maintain its oil production at around 190,000 barrels per day with a flat well count, and it believes it has the durability and productivity to sustain this production level with a maintenance program that could last for 5 to 10 years.
The company also addressed its balance sheet and stated that it is committed to delivering a minimum of 40% CFO back to shareholders while working towards its gross debt target. The company's stock repurchase program aims to provide long-term value rather than timing the market.
Marathon Oil also mentioned the existence of 700+ existing wells that could be redeveloped or refracked. They stated that they are not willing to compromise on their criteria and see no need to do so. In response to a question about production trajectory, Marathon Oil indicated that they expect a similar profile to previous years, with a concentration of capital in the first half of 2024.
Marathon Oil concluded the call by expressing gratitude to their employees and contractors for their commitment to delivering energy safely and responsibly.
InvestingPro Insights
In harmony with the robust Q3 performance reported by Marathon Oil, InvestingPro data and tips provide additional insights into the company's financial health and future prospects.
InvestingPro data shows a market cap of $16.95B USD, with a P/E ratio of 8.67, indicating a potentially undervalued stock. The company's revenue for the last twelve months as of Q3 2023 was at $6494M USD, with a gross profit of $5061M USD, reflecting a healthy profit margin of 77.93%.
InvestingPro Tips reinforce Marathon Oil's strong earnings quality, with free cash flow exceeding net income. This is in line with the reported adjusted free cash flow of $718 million in the third quarter of 2023. Furthermore, the aggressive share buyback by the management, as mentioned in the InvestingPro Tips, aligns with the company's plans to continue its shareholder return program.
The company's commitment to dividend payments, as evidenced by 53 consecutive years of maintained dividend payments, is another positive indicator. This is supported by the InvestingPro Tips, which highlight that 16 analysts have revised their earnings upwards for the upcoming period, suggesting strong future earnings that could support continued dividend payments.
In conclusion, the InvestingPro Tips and data provide valuable insights that complement the Q3 performance reported by Marathon Oil. For more comprehensive analysis and tips, check out InvestingPro's product offerings.
Full transcript - MRO Q3 2023:
Operator: Good day, and welcome to the Marathon Oil Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Guy Baber, Vice President of Investor Relations. Please go ahead.
Guy Baber: Thank you, Danielle, and thank you as well to everyone for joining us on the call this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that address our third quarter 2023 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials as well as the risk factors described in our SEC filings. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. So with that intro, I'll turn the call over to Lee and the rest of the team who will provide prepared remarks today. After the completion of those remarks, we'll move to a question-and-answer session. Lee?
Lee Tillman: Thank you, Guy, and good morning to everyone listening to our call today. First, I want to again start our call by expressing my thanks to our employees and contractors for another quarter of comprehensive execution against our framework for success. We know than on another great quarter while continue to stay true to our core values as you responsibly remember the oil and gas of our need. There are few key takeaways among leading this morning. First, the third quarter results we've continue to build on our track record of consistent operational execution that is translating to peer leading financial results. Our strong execution culminated in $718 million of adjusted free cash flow at a reinvestment rate of just 38%, truly exceptional delivery. And I expect our free cash flow generation to further improve during fourth quarter from this already strong level. The first half weighted nature of our 2023 capital program contributed to a significant increase in our third quarter production, above the top end of our full year guidance, while capital spending declined. At the same time, we remain focused on managing our unit cash cost, which declined to the lower end of our annual guidance range, down more than 15% from the prior year quarter. We are well positioned to take advantage of any market-based deflation opportunities, are ensuring that we are driving underlying efficiencies in all aspects of our business, both expense and capital. Second key takeaway this morning. Powered by this foundation of consistent execution, we continue to lead our peer group and the broader S&P 500 in returning capital to our shareholders through our transparent cash flow driven framework that prioritizes our shareholders as the first call on cash flow. And importantly, we're delivering on our shareholder return objectives, while continuing to enhance our investment grade balance sheet. During third quarter, we returned $476 million to shareholders, bringing total return of capital through the first three quarters to more than $1.3 billion, representing 41% of our top-line cash flow from operations, fully consistent with our framework. We're offering shareholders a double-digit annualized distribution yield and peer leading per share growth. Our consistent and committed approach to share repurchases has driven a 26% reduction to our outstanding share count over the trailing 8 quarters, far in excess of any peer company. We've also now reduced our gross debt by $450 million this year, including a $250 million October prepayment on our term loan. We are well on our way to our medium-term gross debt objective of about $4 billion that will further enhance our financial flexibility and lower our leverage metrics to less than one times EBITDA at a conservative oil price assumption. Looking ahead, we remain steadfastly committed to both our return of capital program and further gross debt reduction. It is not an either oral position. Consistent with that focus, our board recently approved a 10% increase to our base dividend and an increase in our outstanding share repurchase authorization to $2.5 billion. Importantly, this dividend raise is fully funded by the synergy with our repurchase program. That also ensures we hold the line on our post dividend free cash flow breakeven price, which is the lowest in the peer group. My third key takeaway this morning is that our unique EG integrated gas business is now set to realize a significant financial uplift in 2024, driven by a substantial increase in our global LNG price exposure. To this end, we recently signed a new TTF linked LNG sales agreement for our equity Alba Gas. This contract marks the conclusion of the legacy Henry Hub contract, which expires at the end of this year. In 2024, this new contract is expected to contribute to a year-on-year EBITDA increase of approximately $300 million to $500 million, assuming TTF pricing of $15 to $20 per MMbtu, with all contractual agreements necessary to realize this uplift now formalized. Our focus turns to further enhancing the longer-term free cash flow generation capacity in EG by optimizing our integrated gas operations, including the version of a portion of the methanol feed gas to higher margin LNG, and progressing the additional phases of the EG gas mega hub concept. Our final key takeaway is that we remain on track to deliver a 2023 business plan that benchmarks at the top of our high quality EMP peer group on the metrics that matter most. Free cash flow generation, reinvestment rate, capital efficiency, free cash flow breakeven, and production growth per share. These differentiated outcomes are underpinned by a high quality and high return inventory that is demonstrating durable productivity year-over-year and offers a decade plus of running. And as I look ahead to 2024, I expect more of the same. Our framework for success and our core priorities won't change. Our objective will again be to maximize our sustainable free cash flow generation. An objective we believe is best accomplished by a maintenance oil program of 190,000 barrels of oil per day. We'll, again, strive to deliver pure leading return of capital and per share growth. I fully expect another year of very strong wealth productivity and operational execution across our high quality multi basin portfolio, and we will benefit from the added tailwind of our growing exposure to the global LNG market and the associated financial uplift. With that, I'll turn it over to Dane, who will provide a brief financial update.
Dane Whitehead: Thank you, Lee, and good morning to all on the call today. As Lee mentioned, the third quarter was an exceptional financial quarter for us, highlighted by $718 million for adjusted free cash flow, a reinvestment rate of just 38% and $476 million of capital return back to shareholders. Importantly, we expect even stronger free cash flow generation during the fourth quarter as our capital spending continues to moderate. It should go without saying by now, but we continue to believe that returning significant capital back to our shareholders is foundational to our value proposition in the marketplace. We're successfully building a long-term track record of consistent shareholder returns through the cycle that can be measured in years, not just quarters. We're now two years into that journey and the bottom-line results of our program is delivered are both compelling and differentiated. Over the trailing eight quarters, we've now returned $5.1 billion back to our shareholders. That's over 30% of our current market capitalization. We've repurchased $4.6 billion of our stock and attractive levels, driving a 26% reduction to our standing share count contributing to peer leading growth on our per share metrics. The commitment and the consistency of our approach is paid off, and we remain committed to this powerful combination of material share repurchases along with the competitive and sustainable based dividend. To that end, we raised our base dividend by 10% this quarter, that's the ninth increase in the last 13 quarters. This increase was fully funded by share count reduction from our buyback program, protecting our free cashflow breakeven, which is the lowest in our peer group. Additionally, we've increased our outstanding share repurchase authorization to $2.5 billion, which gives us plenty of runway to continue buying stock. As I've said over the last few quarters, our plan is to maintain this return on capital leadership, while also further improving our already investment grade balance sheet through gross debt reduction. We can do both and that's exactly what we're demonstrating. We've now paid down $450 million of gross debt year-to-date, including $250 million of term loan that we paid down in October. Looking into fourth quarter specifically, we aim to continue paying down the term loan. At current prices, we expect to be able to pay down $400 million to $500 million in the fourth quarter, and that's inclusive of the $250 million reduction already executed in October. With the variable interest rate, that the term loan carries, aggressively reducing outstanding principal of free cash flow will make a meaningful dent in our annual cash interest expense, and we expect to continue to hit our minimum 40% of CFO shareholder return opportunity. Our balance sheet is very strong, firmly in investment grade territory. Yet we'd like to be even stronger. Our current leverage at prevailing commodity prices it's around one time debt to EBITDA. Over the medium-term, our objective is to reduce current gross debt of $5.5 billion down to around $4 billion. That would translate to one time debt to EBITDA, assuming a $50 to $60 WTI price environment. Turn our gross debt level back to where it was before the Ensign acquisition. With that financial summary, I'll turn it over to Mike.
Mike Henderson: Thanks, Dane. The strength and sustainability of our shareholder return and balance sheet initiatives are ultimately underpinned by the high quality of our U.S. multi basin portfolio and our ability to consistently execute. Slide 12 highlights we're delivering strong and durable well productivity, while also continuing to improve our drilling and completion efficiencies. While we are positioning ourselves to take advantage of commercial leverage and potential deflation, we recognize that self-help is fully within our control. More specifically, our average oil productivity per foot this year is trending flat with 2020. And at those levels, we are 25% better on a 180 day cumulative basis than our high quality peers. In Eagle Ford, the successful integration of the Ensign acquisition earlier this year this further enhanced both the quality and quantity of our inventory. Our fully integrated program is delivering another very strong year, with oil productivity flat to 2022 and oil equivalent productivity better. In the Bakken, we're consistently bringing online the best wells in the basin. Wells that payout in less than 6 months with early oil productivity 40% better than the basin average. We're also just wrapping up the drilling of our first 3 mile laterals in the Ajax area. And in the Permian, we've significantly improved our capital efficiency through our transition to a 2 mile lateral or longer program, now reliably delivering oil productivity consistent with the industry top quartile. Yet while underlying well productivity gets most of the external attention, there are 2 components to the capital efficiency equation, and we're equally focused on both the numerator and the denominator. Field level operational execution matters and is a primary driver for well costs. I'm pleased to report that our year-to-date execution has been strong with drilling and completion efficiencies continuing to improve. More specifically, our average drilling efficiency this year is on pace for a 10% improvement versus 2022, while our completion efficiency is set to improve 15%. We've taken advantage of an improved market, high grading certain areas of our business where it's made sense. We've placed a greater emphasis on preplanning efforts, which will reduce non-product time on location. And we continue to work closely with our longer term service providers to implement incremental changes that can drive quantifiable execution improvements. Turning to our integrated gas business in EG, great job by our teams in achieving all our targeted commercial milestones this year. With the signing of our new TTS linked Alba LNG contract with Glencore's beginning January 1, 2024. Of the sourced LNG will no longer be sold at a Henry Hub linkage. The current arbitrage between Henry Hub and European natural gas pricing is expected to drive significant financial uplift for our company at current forward curve pricing next year. A year-over-year EBITDA increase of $300 million to $500 million assuming a TTF price range of $15 to $20 per MMBtu. With the commercial framework now fully in place to realize this financial uplift. Our focus now turns to further extending the longevity of stronger financial performance. Next year, we'll begin diverting a portion of our Alba Gas from the methanol facility to the higher margin, higher working interest LNG facility. Highlighting the flexibility of our integrated EG operations where we have alignment across the entire volume chain. Additionally, we're continuing to assess up to 2 well in field drilling program on the Alba block, targeting high confidence, low execution risk, shorter cycle opportunities that could partially mitigate Alba field decline beginning in 2025 and maximize the flow of our equity molecules through the LNG plant. Our Alba infill program is expected to compete with the risk-based returns generated from our U.S. resource base. Before any other infill capital spending is unlikely to make a significant impact on our overall 2024 capital program. And finally, we continue to advance longer term gas mega hub concept in EG, as more fully described in the edge agreement signed between ourselves, to the EG government and our partner Chevron (NYSE:CVX) earlier this year. By truly leveraging our unique world class infrastructure in one of the most gas prone areas West Africa. We expect to extend the life of EGLNG well into this decade and further enhance our multiyear free cash flow capacity. The next phases of development likely with the same gas cap monetization, as well as potential cross border opportunities. With that, I will turn it over to Lee, who'll wrap up our call.
Lee Tillman: Thank you, Mike. For years now, I have reiterated that for our company and for our sector to attract increased investor sponsorship. We must deliver financial performance competitive with other investment alternatives in the market as measured by corporate returns, free cash flow generation, and return of capital. More S&P, less ENT. We've delivered exactly that type of performance over the last two years and counting, and not just competitive, but at the very top tier group. And looking ahead to 2024, I don't expect anything to change. To close, I would be remiss if I didn't address the competitive landscape for our sector. We've obviously seen significant consolidation in our peer space recently. While every transaction is unique with its own set of facts and circumstances, a common takeaway is clear, low cost, high quality traditional oil and gas assets will have a critical role to play in helping meet global energy demand for decades to come. And within the oil and gas space, the short cycle, U.S. shell opportunities where there advantage, risk adjusted returns and potential for further innovation will continue to be highly valued and critical to meeting that long-term demand. Recently, you may have seen articles speculating on Marathon's involvement in M&A. While I won't address any specific market rumors or speculation on today's call, I will reiterate that it's our duty to always explore avenues to further enhance the long-term value for our shareholders. Whether those opportunities are organic or inorganic, that's always been our objective and our responsibility to our shareholders and nothing has changed. For Marathon oil, our approach to M&A, small or large has been consistent and will not be compromised. As exemplified by the inside transaction, which ticked all the boxes of our well-established criteria. It is about making our company better, not just bigger and enhancing the delivery against our framework for success. Any transaction must meet or tried and true principles of financial and return of cash accretion, industrial logic within our existing basins, inventory life extension and no harm to our investment grade balance sheet. Our paradigm needs to shift from that of an energy transition to one of an energy expansion. And I continue to believe that elite group of high-quality U.S. EMP companies are necessary to drive that energy expansion to deliver strong financial results for shareholders, while also collectively defending U.S. energy security, playing our role in lifting billions out of energy, poverty, and protecting the standard of living we've all come to enjoy. Marathon Oil is well positioned to be one of those significant few companies, with over a decade of high return U.S. unconventional inventory and a differentiated EG integrated gas business with unique and growing global L&G exposure. I'm proud of how our company is delivering for our shareholders. Our financial and operational leadership speaks for itself, and you can have confidence that our strategic framework will continue to guide all of our decisions by prioritizing strong corporate returns, sustainable free cash flow generation, significant return of capital to our shareholders, and ongoing resource base enhancement, and all while protecting our investment grade balance sheet. With that, we can open the line for Q&A.
Operator: [Operator Instructions] The first question comes from Arun Jayaram of JP Morgan.
Arun Jayaram: I wanted to follow up on your M&A comments and wanted to get your thoughts on how you would view transactions that could potentially be viewed as more of an MOE for Marathon. And just maybe if you could address, we got numerous buy-side pings and an 8-K filing from MRO last week that was filed under M&A or an asset disposition or under Reg FD. Looks like you had an amendment earlier this week, but just wanted to see if you could touch upon what the deal was with that 8-K filing as well?
Lee Tillman: Yes. No worries. Yes. Good morning. Well, first of all, just around M&A and whatever flavor of M&A you want to talk about, whether that's MOE or a large bolt on transaction like we did in Ensign, the criteria is still fully in play. We don't look at those, really, through any different lens, and I'll take you back to what I stated in the prepared remarks, which is any transaction of scale is going to have to tick all the boxes in and our criteria. It's going to need to be financially accretive, it's going to need to be return of cash accretive, it needs to add to our already high quality in resource life and inventory life. It needs to have very clear industrial logic, meaning for us, it exists in one of the basins where we have high execution confidence. And then finally, it can't do any harm to our investment grade, balance sheet, and financial flexibility. So it's really irrespective of the scale, that's going to be the lens, the criteria that we're going to evaluate any opportunity. Yes, let me just, maybe put to rest any of the noise created on the 8-K. We had not updated, our corporate bylaws since back in 2016. This was just some cleanup on those bylaws. There was a little bit of a mistake on how those got classified which prompted the amendment, but there's nothing more to it than that.
Arun Jayaram: My follow-up is on EG. Lee, you mentioned in your press release earlier in October. You had a long-term sales agreement by Glencore. Can you talk about why they were the right partner for you? And maybe you could talk about, the new wrinkle, which is the ability to shift maybe some volumes from Methanol to back to LNG, some thoughts on what the implications of that could be? And perhaps, as well, you could outline kind of your development program, at Alba later in 2024?
Lee Tillman: Okay. Well, you just packed a lot into that question. Let me start maybe with Glencore. First, I want to say up front that the team, the marketing team, did an exceptional job of creating competitive tension in the marketplace, and we had a lot of interest, when we put out the RFP for those, base load cargos, so, the positive, of course, is Glencore came in with a very competitive offer with a 5-year term, a TTF linkage, a fixed transportation element as well. They also have experience working and operating an EG. So from a lifting, scheduling standpoint, etcetera, they're very familiar with how we operate the business there. So, 1st and foremost, it was about driving the best competitive offer, and I think an added bonus, of course, was just the fact that Glencore did have a lot of experience already, in country. On the diversion question, we've talked a lot about the arbitrage between Henry Hub and, obviously, TTF and Global LNG, but there's another element of arbitrage that we have available to us in EG as well. And that is the feed gas that we send to the Methanol facility. And because of our alignment across the full value chain, we can look at optimization, around that, where we can divert some of those volumes where we believe the highest value can be attained. And as we look at and we're methanol pricing and were TPF pricing under the new, contract terms, as well as just the market in general, we feel very strongly that redirecting those molecules and optimizing, that flow, we'll end up just adding some incremental value as we look ahead to '24. And then finally, I think the last element of your question was really around just the Alba infill program and some of the opportunities that we're pursuing there. The way we've described that thus far has been up to a 2 well infill program. And as Mike mentioned in his comments, the reason we really like this, well, first of all, it competes head-to-head from an economic return standpoint, with our U.S. resource play, but importantly, this is about as short cycle as you can get, in the offshore space. We have very high geologic certainty. This'll all be jack-up drilling with dry trees. There's no facilities investment, required, and so we're just working through that process, and I would just say, just be patient with us. We'll have a lot more to say about the Alba Enzo program, as part of February's budget release and work program. I think, I called it every day, but I was telling if I did it.
Operator: The next question comes from Scott Gruber of Citi.
Scott Gruber: Just looking back at your tilt schedule and how that's evolved over the course of the year. It looks like the targeted well count for the full year has tick tire, just a bit over the course of the year. So the question is, as you look out at your maintenance program next year. Do you think you can achieve the 190 or so in oil production at a flat well count from the 260 or so this year, if you include all the JV wells, or would you anticipate the well count needing to take higher a bit next year?
Lee Tillman: Well, first of all, I would just say that the till count, there's a positive story in there, which is around execution efficiency. And obviously, we don't want to pump the brakes on that. When we're achieving that kind of efficiency that Mike talked about on both the drilling and completion side, we want to continue, that momentum. And so you saw that, again, that wells to sales count being a bit higher. It's still probably a little premature to talk specifically about the 2024 program, but I will tell you, even with, a bit of capital, say, from some long lead kit in EG, we expect the capital program to essentially the flattish year-over-year. And so I think the subtext to that would be that we would, on a, if you kind of move from maybe gross wells to net wells, we would expect, on a net well basis, to generally be in alignment with where we have been this year. And a lot of that, quite frankly, is driven by the productivity that we have machine, that underlying productivity that was in the deck, which really shows you that as we move from 2022 to 2023, there was really no downshift in productivity, and as we've just started our early planning for 2024, we believe that's a trend that we're going to be able to support, even moving into next year. So we feel very good about the capital efficiency that we're going to be able to deliver in 2024. We set a pretty high bar this year, but we believe that we can continue that trend and that momentum going into 2024.
Scott Hanold: Got it. And those drilling completion efficiencies, look robust and it's obviously given you some leverage, your service contractors. So what's the latest thinking on kind of overall deflation potential into ‘24?
Mike Henderson: Yes, Scott, it's Mike here. I'll take that one. So still feels a little bit early to make any definitive call on 2024 Service cost. I mean, that said, I think we're likely to trending towards that kind of low single digit year-on-year deflation in ‘24. But again, I think ultimately, it's going to be dependent on what commodity prices do, and probably more importantly, what kind of industry activity levels look like. I think for us, looking at ‘24 largest contribution to any deflation is likely going to be around steel and hydraulic horsepower. Maybe the counter to that categories that have significant labor, any labor costs feel pretty sticky. So don't see much movement there. And when you think about B&C services, that's a big part of that is labor. So maybe an area where we don't see as much deflation, certainly absent any kind of material move in the commodities. Maybe just providing a little bit more detail in the various areas for us steel costs, they are trending down, as I've said from kind of first half eyes in 2023. We're kind of thinking about 20% there. And that's pretty consistent. Lower raw materials, milk capacity has opened up and just a bit of decreased demand as well. Similar story in the frack space. Hydraulic horsepower softened, spot rates have come down. We're kind of looking at off at 25% from those highs. Now, what I would note is we were never contracted at those levels, so that's more just about an industry perspective. Similarly, high spec rig market availability has definitely improved. Again, pricing's kind of trended down your at 20% of peaks there. And again, we weren't contracted at those levels. And as I mentioned, anything that has got a labor components or things like directional drilling, cement, coil, wire line, hauling, all of those kinds of costs are probably going to be a little bit stickier and it's worth recognizing that is not an insignificant component of your total well costs. And then maybe the last area is diesel. And that is a bit of a wild card. Supply demand fundamentals still feel pretty tight there.
Operator: The next question comes from Umang Choudhary of Goldman Sachs (NYSE:GS).
Umang Choudhary: On EG, appreciate all of your response to Arun's questions. I guess one more, any update you can provide us on the progress on capturing the third party as saying volumes?
Lee Tillman: Yes, I mean, I would just say that right now that's an active dialogue as we look to bring those third party. And maybe just as a little bit of a reminder, we already have a commercial model in place that will guide that discussion. And obviously the saying gas cap was also part and parcel of the heads of agreement that we signed earlier this year. But again, just to maybe lay out the opportunity here, this is a reservoir where the operator has been producing the oil rim. They're now looking to really turn that around and blow down the gas cap. There's already the existing Alen pipeline that connects in to our gas plant and LNG plant, so much of the infrastructure to get to our facility is already in place. And again, we have the commercial model, which is a tolling plus percentage of proceeds or profit-sharing model, that we already have in place for the Alem molecule. So I would say that's just a continuing effort right now and a negotiation that's ongoing, and I would just say stay tuned. But at the end of the day, this is really the only monetization route, ultimately for that gas.
Umang Choudhary: And then on Slide 12, you've highlighted strong productivity and efficiency gains across your U.S. asset base. When you look across your assets, which ADAS are moving up from a return perspective and are probably going to likely demand more capital deployment over time? And then, the housekeeping question which I have for you is that implied 4Q guidance, oil guidance, it's calls for a bigger step down versus what we were expecting if you plan to keep, if you plan to hit the midpoint of your FY guidance. So any color you can provide there?
Lee Tillman: Yes. Let me start with what I think was kind of a little bit of a question around capital allocation and how we're thinking about that, certainly, as you look ahead to 2024. I think, again, we're very early in the cycle, so it's a bit difficult to give specifics, and more to come on this. But certainly, the Eagle Ford and the Bakken are going to continue, to compete for the lion's share of capital. We do expect that because of the strong results that we've seen in the Permian, so that will start competing for a bit more capital as we finalize the 2024 plan as well, and of course, we've also talked about potentially the need to loop in some long lead items for the Alba Infill program in 2024. So when you think about capital allocation next year, not any seismic shifts there. You're looking at, again, a couple $1 billion inclusive of a little bit of EG spend, but again, Bakken, Eagle Ford, the black oil plays, coupled with a little more incremental, allocation, to the Permian, is likely the case to be. On the 4Q, kind of, I'll call it the 4Q squeeze against where we sit right now. First of all, we don't get that fussed about quarter-to-quarter variations. That's just an output of our business plan. Our focus is really on delivering our annual guidance commitment. That's where we're really looking to drive the results. So if you just reflect, for instance, on this year, we started in the first quarter at about 186,000, second quarter we're about at 189,000 barrels of oil per day. Third quarter, we're at 198,000. We'll probably be in the upper kind of 180s in fourth quarter. All that being driven by our business plan and that commitment to meet that 190 annual average. And we do expect, just like we saw this year, that there will be some quarter-to-quarter variation, going into 2024. It's likely that we'll once again have a bit of a first half weighted program, and that'll translate into a bit of a shape to our production volumes. But at the end of the day, we believe, for a nominal $2 billion program, we're going to nail those 190,000 barrels of oil per day because of the underlying productivity durability that we're seeing in our portfolio.
Operator: The next question comes from Josh Silverstein of UBS.
Josh Silverstein: Just on EG, now that you guys are linked to TTF pricing. It's been pretty volatile over the last two years. Is there anything that you guys can do to lock in some of that $300 plus $1 million uplift whether through some hedges or any other tools in the Glencore contract?
Lee Tillman: Yes. I'll maybe say a few things and let maybe Pat jump in as well. Our philosophy has been that we obviously want to protect the upside and the linkage to TPF are investors. We have an investment grade balance sheet. We have the lowest enterprise breakeven in the peer group. We have a very balanced portfolio from a product mix standpoint. And so when you couple all that together, we feel that we can Hold some of that upside and not hedge that away for our investors. Taking as a little bit different, maybe not quite as liquid as some of the other markers as well. But we believe, because of the way we position this asset within a broader portfolio, That with the TTF linkage, that's going to give us the market based upside, that's going to give us the biggest valve. Pat, do you want to add anything?
Pat Wagner: You really did it all. I mean our contract is linked to TTF, but we'll close that. And we have a commodity risk committee that meets weekly and looks our opportunity to hedge that volume and we said there's not a lot of liquidity there. We'll continue to look at it.
Josh Silverstein: And then thanks for the commentary on the thoughts around spending as well and the 190 for next year. Can you talk about how much runway you guys see to kind of hold that level of oil and total production of around a similar couple of billion-dollar CapEx level?
Lee Tillman: Well, certainly, in the past, we've talked about, a maintenance program, they can take us out 5, even 10 years, and when you look at our inventory life and the quality of that inventory, when we talk about a decade plus of inventory, it really is thinking about projecting that maintenance program out in time. There'll be some well mixed effects, as you move through the portfolio, but I believe our productivity and the durability of that productivity is pretty resilient. And the example I would use is, when you look at places like the Bakken where we've made the shift into the Hector area, that type of productivity and capital efficiency, that's the forward inventory there. Similarly, all the good work in Permian that's been done on extended laterals 2 miles or beyond, that's the type of capital efficiency that we see, going forward and with the addition of something like Ensign, which had capital efficiency at or above our legacy acreage, we see that also being very additive as we look forward in time and look at projecting that maintenance program out across our, like I said, over a decade in inventory.
Operator: The next question comes from Doug Leggate from Bank of America (NYSE:BAC).
Doug Leggate: Lee, I wonder if I could just address the balance sheet topic that you obviously touched on what your targets are there, but I want to kind of put it to you a little differently and say your capital structure today is still about 25% net debt. And if you think about market recognition of value, you've got a backward if the oil curve and a buyback program that is arguably buying back stock at the front of a very backwardated oil price. Why would it not make more sense to try and tackle the net debt formula to transfer value from debt to equity rather than pursue the per share growth metrics that obviously come with the buyback program?
Lee Tillman: Yes. Well, Doug, maybe I'll start it off then I'll get Dane to jump in here. First of all, this for us -- this is not an either or proposition. I mean, we are consistently delivering our minimum a 40% CFO back to our shareholders while also continuing to work against that gross debt kind of midterm gross debt target. And I'll let Dane talk about that a little bit more. But on your -- on the stock repurchase question, keep in mind that, we're trying to look through the cycle. I mean, this is a different business model today. I mean, we're not trying to time the market or be opportunistic. We're putting TD programs in place, we're getting dollar averaging, we're consistently doing free cashflow yield on our shares is still well into the double digits, which means that program is devastatingly efficient. And so, because we can do both, that's what we in essence are doing. So we don't have to make that choice today. And we still believe, when you look at some of the numbers that Dane shared on just how much dilution we have taken out of the share repurchase program, we've done that at a very attractive price point on our shares as well. So as long as we continue to have that free cash flow yield efficiency in our shares, it's still very competitive for us to focus on that per share metric and drive that. Dane, you want to say anything a little bit more about kind of how we're approaching the gross debt?
Dane Whitehead: Yes, maybe how we think about prioritization, it is -- it's a both answer right now. We could -- we feel like we've got the capacity to do both. I think about the investment rate balance sheet. We're on positive watch with one or more of the ratings agencies in our current state. We've got a ton of flexibility with regard to debt maturities over $2 billion of liquidity. We just have all the tools in the toolkit we need to manage a glide path from $5.5 billion of gross debt down to 4 billion over time. And I think over the next 12 to 18 months, we're well positioned to do that while we need that minimum 40% return to shareholders. So really, if I was perceiving something a little more stressed than that or that was showing up in our stock valuation, for example, maybe it would be a little more urgent to pay down the debt. But I don't feel like we're in that situation at all. Current pricing environment. We're generating a bunch of free cash flow, and if we get a tailwind, it will just further accelerate things. And remember also, Doug, our return of cash framework also does recalibrate as you move through price bands as well. So if we start seeing some of that backwardation, and obviously, we can -- we will adjust by virtue of the framework that we have put out to the market.
Doug Leggate: That's very clear, thanks guys. On how you think about this. I guess my follow up is, if you don't mind on EG, I think, we all recognize the capacity, the potential of the legacy plant. And clearly, you're the only game in town, so I think, it's inevitable that you find opportunities, I guess to help frame the current situation though. I wonder if you could just share with us, with what you have today, how long do you keep the plant full, in other words to try and kind of risk what the future opportunity needs to be. If nothing else happened, what do you have today in terms of plant longevity?
Lee Tillman: Yes. No. I understand the question, Doug. Let me maybe describe it in financial terms, Doug. So, we've shown very clearly the potential uplift that's going to occur in 2024. That is a very durable uplift at a minimum for the duration of this 5-year contract, that we have with Glencore. So, I can say with great confidence that that financial uplift that we're capturing in 2024 is very durable over the next 5 years. With just a few of these incremental items that we're talking about, the out of the infill program as well as the same, which, as you say, we're the only game in town. Just those relatively modest projects are going to extend the EG LNG operating life well into the Next decade. And that's wonderful, and that gives us a much broader runway on cash flows and EBITDA, but it also provides some time for us to continue to work on things like the cross border opportunities, some of the discovered undeveloped assets that could really be game changers for us, and they just take time to mature. And so when we think back, a lens was kind of the first step. Now we've moved on to the next step, which is the recalibration of the commercial terms. From there, we're now looking at diversion options from, Methanol, because it makes value sense to do so. And finally, the Alba Infill work is under evaluation right now between ourselves and our partners, and the commercial terms are being discussed with the same. So, just with those few incremental wins, and I hope you see that we've demonstrated a track record of actually capturing those wins, will extend EG LNG, like I said, well out into the next decade.
Operator: The next question comes from Neal Dingmann from Truist.
Neal Dingmann: My first question is on maybe for John just on the regional activity. Specifically, I'm just wondering, how do you view sort of upcoming quarterly plans for the Bakken and Permian? And it seems like the Bakken activity remains brisk with 20 plus wells to sales quarterly while the Permian incremental activity has gone back to a couple wells.
Lee Tillman: Yes. I think, naturally, there's going to be some ebb and flow from a capital allocation standpoint. First of all, I just want to recognize the Bakken team had a tremendous third quarter and that was a, as usual, that was a combination of things. We brought on some fantastic wells. Execution efficiency was strong, which we've already talked about, so we're getting more wells to sell today. The team did an amazing job of keeping our facilities, up and running. I mean, our most profitable barrels are the ones that we've already invested in. Keeping it online, doing things like very aggressive workover programs. All of these things are contributing to that very strong performance that you saw in the Bakken. But again, we're going to balance, capital allocation across. That's one of the beauties of the multi basin model, and we're going to move that capital and take advantage of the efficiency that we have across all the bases. I don't know, Mike, if you wanted to add anything else.
Mike Henderson: Maybe just the other, the only other thing I'd add, Neil, is don't interpret lack of wells to sales as lack of activity. We got 9 rigs running at the moment. We got a couple of JV rigs running. We've got 3 rigs running in Bakken City and Eagle Ford. We've actually got 3 running in between Oklahoma and Northern and Permian. So, I think that's an indicator. I think the value that we place in that asset and the potential future upside I think is going to be, a key contributor for us next year is just maybe well as the sales in the fourth quarter and third quarter, for that matter, just down a little bit, but wouldn't read too much into it.
Neal Dingmann: And then, Lee, just a follow-up. I'm just wondering, how does the broad M&A market look today in terms of just potential deals or quality of deals out there versus, it's interesting. I would say versus exactly a year ago today when you announced the Ensign deal?
Lee Tillman: Well, the Ensign deal for us was a little bit of a unicorn in the sense that it did tick all the boxes in our criteria. And as we look at what's in the market today or rumored to be in the market today, I have to say, frankly, that they really don't tick the boxes on our criteria. They may tick 1 or 2, possibly, but we can be patient. I mean, we have a tremendous amount of organic opportunity that was made only stronger with the addition of Ensign. Remember, Ensign added 600 plus wells into the Eagle Ford, very high quality wells. And keep in mind, there were already 700 plus existing wells, many of those with earlier early designs for the completions, and we took no credit for redevelopment and refrac, which based on our legacy experience in the Eagle Ford, we know will ultimately compete for capital as well. So when I look at what's out there today, Neil, we're just not seeing anything that would really fit, our criteria, and there's just no need for us to compromise.
Operator: The next question comes from Phillips Johnston from Capital One.
Phillips Johnston: Lee, you just touched on the 190 for next year and how there's some similarities to this year. Just in terms of activity weighting, this might be too granular, but relative to the high 180s exit rate after a pretty flush Q3 here. Can you maybe directionally talk about the sequential quarter-over-quarter trajectory from Q4 into Q1?
Lee Tillman: Well, I think you probably can be pretty well informed just by looking at what we have done in the past. If you go back and you kind of look at how we have trended, even from '22 to '23, that's probably a good indicator. I know Ensign may have muddied the waters a little bit, this year, early in the year. But if you get down to the underlying legacy business, That profile, where we come in probably a little bit lighter, like I said, if you just look at 2023, we're at 186,000, 189,000. Now we're at 198,000 probably trending toward the high 180,000 in the fourth quarter. That kind of profile, because of the way that we laid our capital, directionally, that's what you should expect to see in 2024. And again, we'll give a lot more color and granularity on that in February, but that shape and that concentration of capital in the first half, that's going to feel very familiar relative to this year.
Mike Henderson: Okay. But the only thing I'd add to that, Lee. But if you look back to this time last year, fourth quarter last year. We brought 26 wells to sales. This quarter sorry, fourth quarter last year we brought '22. We're getting the quarters mixed up. This time last year, we brought 22 wells to sales. This quarter, we're projecting ‘26, so there's a playbook there that we've tried and tested it works well. Just really building on these comments there.
Phillips Johnston: Okay, great. And then just one more follow up on EG, I guess. I think in the past you guys have talked about sort of an 8% to 10% natural PDP decline rate there, so I wanted to check to see if that's still a good number. And then, obviously you're still evaluating the two infill wells, but if you were to drill those, how might they impact your production trajectory in EG just over the next couple of years? I guess the question is will those wells more than offset those declines and they keep production relatively flat or just offset some of the declines?
Lee Tillman: Okay. First of all, your, your 10% decline number is in the right zip code. In terms of thinking about our EG gas production there, for sure. With respect to the info wells, obviously we are -- we've talked about up to two wells. Even if we get to the two well program, what we're talking about is partially mitigating the decline. And of course, those wells wouldn't even be coming online until 2025. But the beauty of those wells, they're very high value molecules for us, because of our alignment, again, across the value chain from the Alba PSC, all the way through the LNG plant. Those are going to be extremely valuable equity molecules. So if I accept the fact that we're -- we won't obviously offset all of the decline, but if you look at it through a financial lens and being able to extend the financial performance of the con -- of the integrated asset, those wells are really going to help us there.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Lee Tillman for closing remarks.
Lee Tillman: All right. Thank you for your interest in Marathon Oil. And I'd like to close by again thanking all our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs now, more than ever. I could not be prouder of what they achieve each and every day. Thank you and that concludes our call.
Operator: Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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