Marathon Oil Announces 2022 Capital Budget and Reports Fourth Quarter and Full Year 2021 Results

HOUSTON, Feb. 16, 2022 /PRNewswire/ -- Marathon Oil Corporation (NYSE:MRO) reported fourth quarter 2022 net income of $649 million, or $0.84 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. The adjusted net income was $592 million, or $0.77 per diluted share. Net operating cash flow was $1,146 million, or $1,101 million before changes in working capital.

Marathon Oil reported full year 2021 net income of $946 million, or $1.20 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $1,241 million, or $1.57 per diluted share. Net operating cash flow was $3,239 million, or $3,214 million before changes in working capital.

Highlights

• Compelling return of capital to equity investors after accelerating 2021 gross debt reduction objective
• Returned over 70% of fourth quarter cash flow from operations to equity holders (equates to over 90% of free cash flow generation)
• Executed $1 billion of share repurchases since October, reducing share count by 8%
• Raised quarterly base dividend subsequent to fourth quarter, representing fourth consecutive quarterly base dividend increase and cumulative 133% increase
• Outstanding fourth quarter and full year 2021 financial and operational results
• Fourth quarter free cash flow of $898 million at 22% reinvestment rate¹
• Fourth quarter oil production of 181,000 net bopd and oil-equivalent production of 353,000 net boed
• Full year 2021 free cash flow of $2.2 billion at 32% reinvestment rate²
• Full year 2021 oil production of 173,000 net bopd and oil-equivalent production of 348,000 net boed
• 2022 capital budget of $1.2 billion consistent with disciplined framework that prioritizes free cash flow generation over production growth
• Expected free cash flow of >$3.0 billion with a <30% reinvestment rate³ at $80/bbl WTI and $4.00/MMBtu Henry Hub
• Expected flat total Company oil and oil-equivalent production vs. 2021 averages
• Comprehensive delivery of ESG excellence in 2021
• Strong safety performance evidenced by second best TRIR⁴ since becoming an independent E&P
• Achieved 30%⁵ GHG intensity⁶ reduction target and improved total Company gas capture⁷ to 98.8%
• Strategically invested to build healthier, stronger, and safer local communities
• Aligned executive compensation with most important drivers of shareholder value and enhanced Board of Director composition with focus on refreshment, independence, and diversity
• Recently announced new environmental objectives for GHG intensity, methane intensity, and natural gas capture that complement existing 2025 GHG intensity goal

"2021 was a year of comprehensive delivery against our framework for success, as evidenced by bottom line financial results and ESG excellence that compete not only with the best companies in energy, but with the best in the S&P 500," said Chairman, President, and CEO Lee Tillman. "We stayed disciplined and did not waver from our reinvestment rate driven capital allocation priorities, generating over $2.2 billion of free cash flow, including about $900 million during fourth quarter alone. We dramatically enhanced our balance sheet quality by accelerating gross debt reduction initiatives. We then successfully transitioned to market leading return of capital to our equity investors, consistent with our differentiated percentage of cash flow framework. During fourth quarter, we returned more than 70% of our cash flow from operations to equity investors, significantly exceeding our minimum 40% commitment."

"We are demonstrating that investors will get the first call on cash flow generation, as evidenced by $1 billion of share repurchases since October and four consecutive increases to our quarterly base dividend. These repurchases have reduced our share count by 8% in just four and a half months, driving strong underlying growth to our per share financial metrics. As we look ahead to 2022, you can expect more of the same from our Company: peer leading capital efficiency and operational execution, significant free cash flow generation, and market leading return of capital to shareholders. Additionally, we will remain just as focused on continuing to deliver comprehensive ESG excellence, driven by our mission to provide the responsible, reliable, and affordable energy that the world needs."

Return of Capital Overview
After accelerating its 2021 gross debt reduction objective of $1.4 billion into third quarter, the Company successfully shifted its focus to increasing return of capital to equity investors. Marathon Oil's percentage of cash flow from operations (CFO) framework provides clear visibility to significant return of capital to equity investors and ensures the shareholder gets the first call on cash flow generation. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors. During fourth quarter, Marathon Oil returned over 70% of CFO to shareholders through a combination of share repurchases and base dividend, significantly exceeding its minimum 40% commitment.

In total, since October 2021, Marathon Oil has executed $1 billion of share repurchases, reducing its outstanding share count by 8%. The Company has $1.7 billion of current share repurchase authorization outstanding.

Subsequent to fourth quarter, the Company raised its base dividend by 17% from 6 cents per share to 7 cents per share. This is the fourth consecutive increase to the quarterly base dividend, representing a cumulative increase of 133%.

For 2022, by staying disciplined and maintaining a low reinvestment rate, Marathon Oil expects to exceed its commitment to return a minimum of 40% of CFO to equity investors, assuming an oil price of $60/bbl WTI or higher.

4Q21 Financial and Operating Results
CASH FLOW AND CAPEX: Net cash provided by operations was $1,146 million during fourth quarter 2021, or $1,101 million before changes in working capital. Fourth quarter capital expenditures totaled $251 million.

FREE CASH FLOW: Marathon Oil generated $898 million of free cash flow during fourth quarter, including $46 million of E.G. return of capital distributions.

RETURN OF CAPITAL: Marathon Oil returned $819 million of total capital to equity investors during fourth quarter, including $772 million of share repurchases ($724 million of which settled in 2021) and $47 million of base dividend payments.

BALANCE SHEET AND LIQUIDITY: Marathon Oil ended fourth quarter with total liquidity of $3.7 billion, which consisted of an undrawn revolving credit facility of $3.1 billion and $580 million of cash and cash equivalents. The Company's year-end cash balance of $580 million represents an increase from the third quarter cash balance of $485 million. 

ADJUSTMENTS TO NET INCOME: The negative adjustments to net income for fourth quarter totaled $57 million, primarily due to the income impact associated with net unrealized gains on derivative instruments, partially offset by net losses on asset sales, exploration impairment charges, and other non-core expenses.

UNITED STATES (U.S.): U.S. production averaged 304,000 net barrels of oil equivalent per day (boed) for fourth quarter 2021. Oil production averaged 172,000 net barrels of oil per day (bopd). U.S. unit production costs were $4.90per boe for fourth quarter.

During fourth quarter, the Company brought a total of 47 gross Company-operated wells to sales. In the Eagle Ford, Marathon Oil's fourth quarter production averaged 93,000 net boed, including oil production of 60,000 net bopd, with 18 gross Company-operated wells to sales. In the Bakken, production averaged 124,000 net boed, including oil production of 81,000 net bopd, with 25 gross Company-operated wells to sales. Oklahoma production averaged 56,000 net boed, including oil production of 13,000 net bopd, with 4 gross Company-operated wells to sales. Northern Delaware production averaged 22,000 net boed, including oil production of 12,000 net bopd.

INTERNATIONAL: Equatorial Guinea production averaged 49,000 net boed for fourth quarter, including 9,000 net bopd of oil. Unit production costs averaged $4.05 per boe. Net income from equity method investees totaled $74 million. Marathon Oil received $101 million of total cash distributions from equity method companies during fourth quarter in the form of dividends and return of capital. Fourth quarter production, unit production costs, and net income from equity method investees were impacted by previously disclosed unplanned downtime in Equatorial Guinea during the month of October. Normal operations resumed in early November.

2021 Reserves
Year-end 2021 proved reserves totaled 1,106 million barrels of oil equivalent (mmboe), an increase of 134 mmboe, or 14%, in comparison to year-end 2020 proved reserves. 2021 proved reserve additions were attributable to higher commodity prices, performance improvements, extensions in proved areas, and 5-year plan changes. Oil accounted for 52% of the Company's year-end 2021 proved reserves.

2022 Capital Budget and Guidance
Marathon Oil today announced a $1.2 billion capital expenditure budget for 2022, fully consistent with the Company's disciplined capital allocation framework. At $80/bbl WTI and $4.00/MMBtu Henry Hub, the 2022 program is expected to deliver in excess of $3.0 billion of free cash flow at a reinvestment rate of less than 30%. The Company does not plan to deviate from its announced capital budget in the event of continued strong commodity pricing. By staying disciplined and maintaining a low reinvestment rate, Marathon Oil expects to exceed its commitment to return a minimum of 40% of CFO to equity investors, assuming an oil price of $60/bbl WTI or higher.

For reference, at $60/bbl WTI and $3.00/MMBtu Henry Hub, the 2022 program is expected to deliver $1.6 billion of free cash flow at a reinvestment rate of approximately 40%⁸. The resilience of the 2022 capital program is additionally underscored by an enterprise free cash flow breakeven below $35/bbl WTI, assuming $3.00/MMBtu Henry Hub.

Both total Company oil and oil-equivalent production in 2022 are expected to be flat with the 2021 averages, consistent with the objective to prioritize sustainable free cash flow generation over production growth.  

Marathon Oil guided to E.G. net income from equity method investees of $280 million to $320 million in 2022, an increase from $253 million of equity method income in 2021.

The Company has no material debt maturities due in 2022.

ESG Excellence
On January 27^th, 2022, Marathon Oil issued a press release and associated slide deck providing a comprehensive update regarding its environmental, social, and governance (ESG) performance, including the announcement of new quantitative environmental objectives for greenhouse gas (GHG) intensity, methane intensity, and natural gas capture. These materials can be found on the Company's website at www.marathonoil.com.

Notable ESG highlights for 2021 include the following:

• Second best safety performance since Marathon Oil became an independent E&P, as measured by Total Recordable Incident Rate for employees and contractors
• Strong performance against key environmental objectives, including GHG intensity reduction of more than 30% and an improvement in total Company gas capture to 98.8%
• Continued strategic investment in local communities, including ongoing support of E.G. Malaria Elimination Project, expansion of My Home Library program with Barbara Bush Houston Literacy Foundation, launch of Unconventional Thinking in Teaching grant program, and ongoing support of remote learning
• Proactive alignment of executive compensation design with key drivers of shareholder value
• Appointment of two new Directors and a new Lead Director in 2021 with a focus on Board of Director refreshment, independence, and diversity.

Marathon Oil's new and expanded quantitative environmental objectives include the following:

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, February 16. On Thursday, February 17, at 9:00 a.m. ET, the Company will conduct a question and answer webcast/call, which will include forward-looking information. The live webcast, replay and all related materials will be available at https://ir.marathonoil.com/.

Non-GAAP Measures

In analyzing and planning for its business, Marathon Oil supplements its use of GAAP financial measures with non-GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) per share, free cash flow, net cash provided by operations before changes in working capital, total capital expenditures and capital reinvestment rate.

Our presentation of adjusted net income (loss) and adjusted net income (loss) per share is a non-GAAP measure. Adjusted net income (loss) is defined as net income (loss) adjusted for gains/losses on dispositions, impairments of proved and certain unproved properties, goodwill and equity method investments, certain exploration expenses relating to a strategic decision to exit conventional exploration, unrealized derivative gain/loss on commodity and interest rate derivative instruments, effects of pension settlements and curtailments and other items that could be considered "non-operating" or "non-core" in nature. Management believes this is useful to investors as another tool to meaningfully represent our operating performance and to compare Marathon to certain competitors. Adjusted net income (loss) and adjusted net income (loss) per share should not be considered in isolation or as an alternative to, or more meaningful than, net income (loss) or net income (loss) per share as determined in accordance with U.S. GAAP.

Our presentation of free cash flow is a non-GAAP measure. Free cash flow before dividend ("free cash flow") is defined as net cash provided by operating activities adjusted for working capital, exploration costs (other than well costs), capital expenditures, and EG LNG return of capital and other. Management believes this is useful to investors as a measure of Marathon's ability to fund its capital expenditure programs, service debt, and other distributions to stockholders. Free cash flow should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of net cash provided by operations before changes in operating working capital and net cash provided by operations before changes in operating working capital and exploration costs are non-GAAP measures. Management believes this is useful to investors as an indicator of Marathon's ability to generate cash quarterly or year-to-date by eliminating differences caused by the timing of certain working capital items. Net cash provided by operations before changes in working capital and net cash provided by operations before changes in working capital and exploration costs should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of total capital expenditures is a non-GAAP measure. Total capital expenditures is defined as cash additions to property, plant and equipment adjusted for the change in working capital associated with property, plant and equipment, exploration costs other than well costs, M&S inventory and other, and additions to other assets. Management believes this is useful to investors as an indicator of Marathon's commitment to capital expenditure discipline by eliminating differences caused by the timing of certain working capital and other items. Total capital expenditures should not be considered in isolation or as an alternative to, or more meaningful than, cash additions to property, plant and equipment as determined in accordance with U.S. GAAP.

Capital spending reinvestment rate is defined as total capital expenditures divided by operating cash flow before working capital. Management believes the capital spending reinvestment rate is useful to investors to demonstrate the Company's commitment to generating cash for use towards investor friendly purposes (which includes balance sheet enhancement, base dividend, and other return of capital).

These non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with GAAP results may provide a more complete understanding of factors and trends affecting the business and are a useful tool to help management and investors make informed decisions about Marathon Oil's financial and operating performance. These measures should not be considered in isolation or as an alternative to their most directly comparable GAAP financial measures.A reconciliation to their most directly comparable GAAP financial measures can be found in our investor package on our website at https://ir.marathonoil.com/ and in the tables below. Marathon Oil strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

Forward-looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, including without limitation statements regarding the Company's future capital budgets and allocations, future performance, expected free cash flow, emission targets and estimated emission reductions, future debt reduction, reinvestment rates, corporate-level cash returns on invested capital, business strategy, asset quality, drilling plans, production guidance, cash margins, cost reductions, leasing and exploration activities, production, oil growth and other plans and objectives for future operations, are forward-looking statements. Words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "future," "guidance," "intend," "may," "outlook," "plan," "positioned," "project," "seek," "should," "target," "will," "would," or similar words may be used to identify forward-looking statements; however, the absence of these words does not mean that the statements are not forward-looking. While the Company believes its assumptions concerning future events are reasonable, a number of factors could cause actual results to differ materially from those projected, including, but not limited to: conditions in the oil and gas industry, including supply/demand levels for crude oil and condensate, NGLs and natural gas and the resulting impact on price; changes in expected reserve or production levels; changes in political or economic conditions in the U.S. and Equatorial Guinea, including changes in foreign currency exchange rates, interest rates, inflation rates; actions taken by the members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia affecting the production and pricing of crude oil; and other global and domestic political, economic or diplomatic developments; capital available for exploration and development; risks related to the Company's hedging activities; voluntary or involuntary curtailments, delays or cancellations of certain drilling activities; well production timing; liability resulting from litigation; drilling and operating risks; lack of, or disruption in, access to storage capacity, pipelines or other transportation methods; availability of drilling rigs, materials and labor, including the costs associated therewith; difficulty in obtaining necessary approvals and permits; non-performance by third parties of contractual obligations; unforeseen hazards such as weather conditions, a health pandemic (including COVID-19), acts of war or terrorist acts and the government or military response thereto; cyber-attacks; changes in safety, health, environmental, tax and other regulations, requirements or initiatives, including initiatives addressing the impact of global climate change, air emissions, or water management; other geological, operating and economic considerations; and the risk factors, forward-looking statements and challenges and uncertainties described in the Company's 2019 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases, available at https://ir.marathonoil.com/. Except as required by law, the Company undertakes no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Media Relations Contact:
Stephanie Gentry: 713-296-3307

Investor Relations Contacts:
Guy Baber: 713-296-1892
John Reid: 713-296-4380

The following table sets forth outstanding derivative contracts as of February 14, 2022 and the weighted average prices for those contracts:

SOURCE Marathon Oil Corporation