Marathon Oil Reports First Quarter 2022 Results

Continuing to Prioritize Return of Capital with $900 Million of YTD Share Repurchases and Fifth Consecutive Base Dividend Raise

HOUSTON, May 4, 2022 /PRNewswire/ -- Marathon Oil Corporation (NYSE:MRO) reported first quarter 2022 net income of $1,304 million, or $1.78 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 $749 million, or $1.02 per diluted share. Net operating cash flow was $1,067 million, or $1,280 million before changes in working capital.

• Outstanding first quarter financial delivery highlighted by $940 million of adjusted free cash flow at 27% reinvestment rate
• Returned 50% of first quarter cash flow from operations (CFO) to equity investors through $592 million of share repurchases and $52 million base dividend
• First quarter oil-equivalent production of 345,000 net boed; oil production of 168,000 net bopd
• Continue to build on peer-leading return of capital track record, exceeding minimum commitment to return at least 40% of CFO to equity investors
• Returned approximately 60% of CFO to equity investors through share repurchases and dividends over trailing two quarters
• Executed $1.6 billion of share repurchases since October 1^st, reducing share count by 11%; includes $900 million of share repurchases year-to-date¹
• Board of Directors approved increasing share repurchase authorization to $2.5 billion as of May 4^th
• Raised quarterly base dividend by approximately 15%; fifth consecutive quarterly base dividend raise for cumulative increase of 167% since beginning of 2021
• Expect over $4.5 billion of 2022 adjusted free cash flow at a reinvestment rate of approximately 20% on a $1.3 billion capital budget, assuming $100/bbl WTI and $6/MMBtu Henry Hub
• Uplift of $1.5 billion in adjusted free cash flow from original 2022 financial outlook at $80/bbl WTI and $4/MMBtu Henry Hub and a reduction in the Company's expected reinvestment rate
• Updated 2022 capital budget incorporates 8% inflation adjustment to reflect sustained $100/bbl WTI and $6/MMBtu commodity price environment
• Raising 2022 Equatorial Guinea equity income guidance by $200 million

"Amid tremendous macro volatility, Marathon Oil remains resolutely focused on delivering on all elements of our framework for success, including strong corporate returns, sustainable free cash flow generation, market-leading return of capital to shareholders, and ESG excellence," said Chairman, President, and CEO Lee Tillman. "Our constancy of purpose, differentiated execution, and commitment to providing investors with the first call on cash flow through our unique percentage of cash flow framework are all paying off. In the last two quarters, we've returned approximately 60% of our total CFO back to our equity investors, meaningfully exceeding our minimum 40% commitment. We've executed $1.6 billion of share repurchases over the last seven months, driving significant per share growth through an 11% reduction to our outstanding share count, and have announced five consecutive increases to our quarterly base dividend. With over $4.5 billion of adjusted free cash flow generation expected this year, we remain well positioned to continue delivering financial results and return of capital that are compelling not only relative to the best companies in energy, but relative to the best in the S&P 500."

Marathon Oil's percentage of 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. Over the last two quarters, Marathon Oil has significantly exceeded this minimum commitment, returning approximately 60% of CFO to equity investors. In the current environment, Marathon Oil's preferred return of capital approach includes a competitive and sustainable base dividend in addition to significant share repurchases.

Since October 1^st, Marathon Oil has executed more than $1.6 billion of share repurchases, reducing its outstanding share count by 11%. This includes approximately $900 million of share repurchases year-to-date.

During first quarter, Marathon Oil returned 50% of CFO to equity investors, again exceeding its minimum 40% commitment. First quarter return of capital included $592 million of share repurchases and the $52 million base dividend.

Additionally, the Company's Board of Directors approved an increase in total share repurchase authorization to $2.5 billion, as of May 4^th. The Board also approved an increase of approximately 15% to the quarterly base dividend, from 7 cents per share to 8 cents per share. This is the fifth consecutive increase to the quarterly base dividend, representing a cumulative increase of 167% since the beginning of 2021.

CASH FLOW AND CAPEX: Net cash provided by operations was $1,067 million during first quarter 2022, or $1,280 million before changes in working capital. First quarter cash additions to property, plant, and equipment totaled $332 million, while capital expenditures (accrued) totaled $348 million.

FREE CASH FLOW: Marathon Oil generated $940 million of adjusted free cash flow during first quarter.

BALANCE SHEET AND LIQUIDITY: Marathon Oil ended first quarter with total liquidity of $3.8 billion, which consisted of an undrawn revolving credit facility of $3.1 billion and $681 million in cash and cash equivalents. The Company's first quarter cash balance of $681 million represents an increase of approximately $100 million from the year-end cash balance of $580 million, inclusive of share repurchases and a negative working capital impact.

ADJUSTMENTS TO NET INCOME: The adjustments to net income for first quarter reduced adjusted net income by $555 million, primarily due to income recognized from a partial release of the valuation allowance on deferred tax assets, partially offset by the income impact associated with unrealized losses on derivative instruments, and other miscellaneous items.

UNITED STATES (U.S.): U.S. production averaged 281,000 net barrels of oil equivalent per day (boed) for first quarter 2022. Oil production averaged 158,000 net barrels of oil per day (bopd). The Company brought a total of 57 gross Company-operated wells to sales during first quarter, consistent with guidance for 50 to 60 wells to sales. U.S. unit production costs averaged $5.59 per boe during first quarter.

Marathon Oil's first quarter production in the Eagle Ford averaged 80,000 net boed, including 53,000 net bopd of oil, with 28 gross Company-operated wells to sales. In the Bakken, production averaged 118,000 net boed, including 77,000 net bopd of oil, with 20 gross Company-operated wells to sales. In Oklahoma, production averaged 52,000 net boed, including 12,000 net bopd of oil, with 9 gross Company-operated wells to sales. Northern Delaware production averaged 20,000 net boed, including 11,000 net bopd of oil.

INTERNATIONAL: Equatorial Guinea production averaged 64,000 net boed for first quarter 2022, including 10,000 net bopd of oil. First quarter sales averaged 61,000 net boed, including 8,000 net bopd of oil, as the asset was underlifted on the quarter. Unit production costs averaged $1.92 per boe. Net income from equity method investees totaled $127 million during first quarter. The Company received $54 million of total cash distributions from equity method companies during first quarter in the form of dividends and return of capital.

Marathon Oil's original 2022 financial outlook included over $3 billion of adjusted free cash flow generation at a reinvestment rate of less than 30% on a  $1.2 billion capital budget, assuming $80/bbl WTI and $4/MMBtu Henry Hub. At $100/bbl WTI and $6/MMBtu Henry Hub, the Company expects to generate over $4.5 billion of 2022 adjusted free cash flow at a reinvestment rate of approximately 20% on an inflation-adjusted capital budget of $1.3 billion. 2022 production guidance remains unchanged, as the Company continues to expect oil and oil-equivalent production to remain flat with the 2021 averages. The Company is also raising its 2022 E.G. equity income guidance by $200 million, to a new range of $480 million to $520 million.

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, May 4. On Thursday, May 5, 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/.

Footnotes:
¹ Includes share repurchases settled and share repurchases executed with settlement pending

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, adjusted free cash flow, net cash provided by operating activities before changes in working capital, total capital expenditures (accrued) and 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 or losses on dispositions, impairments of proved and certain unproved properties, goodwill and equity method investments, changes in our valuation allowance, unrealized derivative gains or losses 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 adjusted free cash flow is a non-GAAP measure. Adjusted free cash flow before dividend ("adjusted free cash flow") is defined as net cash provided by operating activities before changes in working capital, capital expenditures (accrued), and EG 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 fund other distributions to stockholders. Adjusted 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 operating activities before changes in working capital is defined as net cash provided by operating activities adjusted for working capital and is a non-GAAP measure. 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 operating activities before changes in working capital 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 (accrued) is a non-GAAP measure. Total capital expenditures (accrued) is defined as cash additions to property, plant and equipment adjusted for the change in capital accrual 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 capital accrual and other items. Total capital expenditures (accrued) 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.

Our presentation of reinvestment rate is a non-GAAP measure. The reinvestment rate is defined as total capital expenditures (accrued) divided by net cash provided by operating activities before changes in working capital and EG return of capital and other. Management believes the 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.

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 (both absolute and relative), expected adjusted free cash flow, reinvestment rates, future debt retirement and the timing thereof, returns to investors (including dividends and share repurchases, and the timing thereof), business strategy, capital expenditure guidance, production guidance, E.G. equity method income guidance and other plans and objectives for future operations, are forward-looking statements. Words such as "anticipate," "believe," "continue," "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 and global and domestic market conditions; 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; liabilities or corrective actions resulting from litigation, other proceedings and investigations or alleged violations of law or permits; 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; the availability, cost, terms and timing of issuance or execution of, competition for, and challenges to, mineral licenses and leases and governmental and other permits and rights-of-way, and our ability to retain mineral licenses and leases; non-performance by third parties of contractual or legal obligations, including due to bankruptcy; unexpected events that may impact distributions from our equity method investees; changes in our credit ratings; hazards such as weather conditions, a health pandemic (including COVID-19), acts of war or terrorist acts and the government or military response thereto; security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or breaches of the information technology systems, facilities and infrastructure of third parties with which we transact business; 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 2021 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:
Kathy Sauve: 713-296-3915

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

The following table sets forth outstanding derivative contracts as of May 2, 2022, and the weighted average prices for those contracts:

SOURCE Marathon Oil Corporation

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