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spk00: Welcome to the Marathon Oil third quarter earnings conference call. My name is Cheryl and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you have a question, please press star then one on your touchtone phone. Please note that this conference call is being recorded. I will now turn the call over to Guy Baber, Vice President, Investor Relations. You can begin, sir.
spk01: Thank you, Cheryl, and thank you as well to everyone for joining us this morning on the call. Yesterday, after the close, we issued a press release, a slide presentation, and an investor packet that addressed our third quarter 2021 results. These 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 always, today's call will contain forward-looking statements subject to risks and uncertainties that can 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 to the risk factors described in our SEC filings. With that, I'll turn the call over to Lee, who will provide his opening remarks. We'll also hear from Mike, Dan, and Pat before we get to our question and answer session.
spk04: Lee? Thank you, Guy, and good morning to everyone listening to our call today. I want to start by once again thanking our employees and contractors for their continued dedication and hard work, for their commitment to safety and environmental excellence, and for their contributions to another quarter of outstanding execution and financial delivery. While I get the privilege of talking about our company's impressive results and outlook today, it is their hard work that makes all of this possible. Through our commitment to capital discipline and our differentiated execution, we are successfully delivering outsized financial outcomes for our shareholders, highlighted by more than $1.3 billion of free cash flow year-to-date. For our $1 billion full-year 2021 capital budget at forward curve commodity pricing, we now expect to generate well over $2 billion of free cash flow this year at a reinvestment rate below 35% and a free cash flow break-even below $35 per barrel WTI. We are successfully delivering on all of our financial and operational objectives. and achieving bottom line results that we will put head-to-head against any other energy company and against any other sector in the S&P 500. This strong financial performance has enabled us to pull forward our balance sheet targets, and this further improvement to our already investment-grade balance sheet has given us the confidence to dramatically accelerate the return of capital to equity holders. Under our unique return of capital framework, our shareholders get the first call on cash flow, a minimum of 40% of our total cash flow from operations in the current price environment. Consistent with our commitment to shareholder returns and our objective to pay a competitive and sustainable base dividend, we have raised our base dividend by 20% this quarter. This is the third quarter in a row that we have increased our base dividend, representing a cumulative 100% increase since the end of 2020, a sign of the increased confidence we have in our business. We are also targeting approximately $500 million of share repurchases during fourth quarter, with $200 million already executed. At a free cash flow yield north of 20%, we believe our equity offers tremendous value. Additionally, there remains a dislocation between our equity and strengthening commodity prices, coupled with a more mature business model that underwrites repurchases through the cycle. Further, buying back our stock for good value provides the added potential of significantly reducing our share count, meaningfully improving all of our per share metrics, even under a maintenance scenario, and increasing our longer term capacity for continued per-share base dividend increases. Looking ahead to fourth quarter, including our base dividend and planned share repurchases, we expect to return approximately 50% of our total cash flow from operations to equity holders, fully consistent with our return of capital framework that prioritizes the shareholder first. Our financial flexibility and the power of our portfolio in the current commodity price environment provided the confidence for our board to also increase our total share repurchase authorization to $2.5 billion to ensure we can continue executing on our return of capital plans as we progress through 2022. And perhaps most importantly, Everything that we are doing is sustainable, backed by our five-year benchmark maintenance scenario and our ongoing pursuit of ESG excellence through top quartile safety performance, significant reductions to our GHG intensity, and best-in-class corporate governance. With that brief overview, I will turn it over to Mike Henderson, our Executive VP of Operations, who will provide an update on our execution relative to our 2021 business plan.
spk10: Thankfully, third quarter operations were again solid, demonstrating that we remain on track to achieve or outperform all of the key 2021 financial, operational, and ESG-related objectives that we established at the beginning of the year. First and foremost, our consistent execution is translating to outsized financial outcomes, highlighted by over $2 billion of expected free cash flow, with a material sequential increase expected in the fourth quarter, a full year 2021 reinvestment rate below 35%, and a full year corporate free cash flow break-even below $35 per barrel WTI. Our gas capture during third quarter also exceeded 99%, as we continue to reduce our GHG emissions intensity. There is no change to our $1 billion full year 2021 capital budget, raising our spending levels this year has never been a consideration, consistent with our commitment to capital discipline. There is also no change to the midpoint of our full year total company oil or total company oil equivalent production guidance. We are also raising our full year 2021 EG equity method income guidance for the second consecutive quarter to a new range of $235 million to $255 million due to stronger commodity prices. This is a 30% increase from the guidance we provided last quarter and a 120% increase relative to our initial guidance at the beginning of the year. Our full year production and EG equity method income guidance truly contemplate an unplanned outage we experienced in EG late in the third quarter. Looking ahead to fourth quarter, we expect to finish the year strong with our total company oil production increasing to between 176 and 180,000 barrels of oil per day in comparison to 168,000 barrels of oil per day during third quarter. Our quarterly production volumes are always subject to some normal variability associated with well timings But this more significant sequential increase is due largely to deferred backing production associated with third-party midstream outages, strongly well performance, and solid base production management. We also expect our fourth quarter total company oil equivalent production to be similar to the third quarter at 345,000 barrels of oil equivalent per day. with a sequential increase in the U.S., offsetting a sequential decrease in Equatorial Guinea associated with the previously referenced outage. I will now turn it over to Dane Whitehead, EVP and CFO, who will discuss how our strong operations are contributing to an improved balance sheet and an acceleration in return of capital to equity holders. Thank you, Mike.
spk06: As I noted last quarter, our financial priorities are clear and unchanged. generate strong corporate returns with significant sustainable free cash flow, bulletproof our already investment-grade balance sheet, and return significant capital to shareholders. Early in the third quarter, we retired $900 million in debt, bringing total 2021 gross debt reduction to $1.4 billion and achieving our targeted $4 billion gross debt level. With this milestone, we no longer feel the need to accelerate additional debt reduction And going forward, we plan to simply retire debt as it matures. And please note that we have no significant maturities in 2022. This balance sheet repositioning was achieved well ahead of our original schedule, which opened the door to begin returning a significant amount of capital to equity holders. To be clear, these are returns beyond our base dividend, which we just increased for the third consecutive quarter, Our base dividend is actually up 100% over that time period, now at $0.06 share per quarter. And the $50 million of annual interest savings we'll realize due to lower gross debt will help fund a significant portion of this base dividend increase. Our equity return framework calls for delivering a minimum of 40% of cash from operations to shareholders when WTI is at or above $60 a barrel. This is a peer-leading return of capital commitment but it's also competitive with any sector in the S&P 500. Our fourth quarter is shaping up to be an exceptionally strong free cash flow quarter due to a combination of higher commodity prices and oil volumes quite a bit stronger than the third quarter. At recent strip pricing, this could take our operating cash flow to approximately $1.1 billion, or about a 25% sequential increase versus the third quarter. Add to that an expected increase in dividend distributions from EG and lower CapEx relative to the third quarter peak, and fourth quarter free cash flow could almost double to north of $850 million. So in Q4, we expect to have lots of flexibility to exceed our 40% of operating cash flow minimum threshold for equity returns. In fact, through our base dividend and approximately $500 million of share purchases, We expect to return approximately 50% of our operating cash flow to investors during the fourth quarter, while further improving our cash balance and net debt position. As Lee also mentioned, we believe that buying back our stock in a disciplined fashion makes tremendous sense. There are many opportunities in the market right now that provide a sustainable free cash flow yield north of 20%. Stepping back, the full year 2021 financial delivery is exceptional. $140 million in base dividends, $1.4 billion in debt reduction, and $500 million in share repurchases, representing a total return to investors, combined debt and equity, of over $2 billion, or over 60% of our expected full-year operating cash flow at script commodity prices. Our actions in 2021 have successfully repositioned the balance sheet and kicked off a strong track record of equity returns. Going forward, we're going to stay laser-focused on our financial priorities and our return of capital framework, taking into account our cash flow outlook when making return decisions. Because our framework is based on a minimum percentage of cash flow from operations and not free cash flow, the equity investor will have the first call on cash, not the drill bit. I'll now turn the call over to Pat Wagner, EVP of Corporate Development Strategy, for an update on the Resource Play Exploration Program.
spk11: Thanks, Dane. We recently completed our 2021 RECS drilling program, which was focused on the continued delineation of our contiguous 50,000 net acre position in our Texas Delaware oil play. As a reminder, this is a new play concept for both the Woodford and Merrimack that was secured through grassroots leasing at a very low cost of entry and with 100% working interest. It is essentially an exploration bolt-on that is complementary to our already established in the northern Delaware. We brought online our first multi-well pad during the third quarter, and while it is still very early, initial production rates in both Woodford and Merrimack are exceeding our pre-jill expectations. More specifically, one of the Woodford wells achieved an IP of 30 of almost 2,100 barrels of oil per day and an oil cut of 66%. This appears to be the strongest Woodford oil well ever drilled in any basin. And while we don't yet have 30-day rates for the other two wells, early indicators, including IP24s, are all very positive. A primary objective of this three-well pad was to execute our first spacing test in the play. To date, we are seeing no evidence of interference between the Woodford and Merrimack, consistent with our expectations, due to over 700 feet of vertical separation between the two zones. As I stated, it's still early, and we need more production history to draw stronger conclusions but we are certainly encouraged by the initial results from this first spacing test, including the record Woodford productivity. The second objective was to continue to progress our learnings and cost improvements in completed well costs. We expect to ultimately deliver well costs comparable to those achieved in the Scoop and are aggressively leveraging our substantial experience in Oklahoma to that end. In total, we have now brought online nine wells since play entry, that have successfully delineated our positions. The six wells with longer data production have collectively demonstrated strong long-term oil productivity, oil cuts greater than 60%, low water-oil ratios below one, and shallow declines. Looking ahead to 2022, you should expect us to continue to integrate our learnings and progress our understanding of this promising play. However, we will do so in a disciplined manner and within our strict reinvestment rate capital allocation framework. I will now turn the call over to Lee who will wrap this up.
spk04: Thank you, Pat. I will close with a quick summary of how we have positioned our company for success and a preview of what to expect from us in 2022. Spoiler alert, there will be no surprises in 2022 and no compromise with respect to our capital return framework. If we focus on the financial benchmarks that matter, we are delivering top-tier capital efficiency, free cash flow yield, and balance sheet strength. Our 2021 capital rate of sub-35% and capital intensity as measured by CapEx per barrel of production are both the lowest in our independent EMP peer group, a strong validation of our leading capital and operating efficiencies. We are also one of the few ENPs expecting to deliver a 2021 reinvestment rate at or below the S&P 500 average. We're also delivering top quartile free cash flow yield this year among our peer groups and well above the S&P 500 average. And we are doing all of this with an investment-grade balance sheet at sub-one-time net debt to EBITDA, a 2021 leverage profile also well below both our peer group and the S&P 500 average. In short, we are successfully delivering outsized financial performance versus our peer group and the broader market with the commodity price support we are experiencing this year. Yet perhaps more importantly, we are well positioned to deliver competitive free cash flow and financial performance versus the broader market at much lower prices than we see today, all the way down to the $40 per barrel WTI range. This is the power of our sustainable cost structure reductions, our capital and operating efficiency improvements, and our commitment to capital discipline, all contributing to a sub $35 per barrel break even. Looking ahead to 2022, our differentiated capital allocation framework that prioritizes the shareholder at the first call on cash flow generation will not change. Our commitment to capital discipline will not waver, with maintenance oil production the case to beat as we finalize our 2022 budget. We believe the right business model for a mature industry prioritizes sustainable free cash flow, a low reinvestment rate, and meaningful returns to equity investors, not growth capital. Recall that we introduced a unique five-year maintenance scenario earlier this year that featured $1 to $1.1 billion of annual spending, $1 billion of annual free cash flow at $50 WTI, and a 50% reinvestment rate. Given we are no longer living in a $50 per barrel environment and that prices are currently north of $80 per barrel, it is both prudent and reasonable to consider some level of limited inflation, up to about 10%, that would yield modest pressure on the maintenance scenario capital range. Yet importantly, this modest level of inflation pales in comparison to the uplift to our financial performance in the current environment. with a 2022 maintenance scenario free cash flow potentially on the order of $3 billion at recent strip pricing, or nominally three times the $50 benchmark outcome. And under such a maintenance scenario, we are positioned to leave the peers once again with a 2022 free cash flow yield above 20%, far in excess of the S&P 500 free cash flow yield of approximately 4%. Our minimum 40% of cash flow target translates to about $1.6 billion of equity holder returns next year. But that is a minimum, and we see significant headroom to drive that number higher. At the expected 4Q run rate of 50% of CFO, 2022 equity holder returns would increase to approximately $2 billion, while still improving our cash balance and net debt position. Even at a more conservative $60 per barrel oil price environment, our minimum 40% of cash flow target still translates to about $1.1 billion of equity holder returns in 2022. And applying 2022 consensus estimates to the return frameworks disclosed by our peers only confirms our leading return of capital profile with a double digit cash distribution yield to our equity investors in 2022. The confidence in this outsized delivery is further supported by recent board action to increase our share repurchase authorization to $2.5 billion to ensure we have sufficient runway to continue delivering on our return of capital commitment next year. To close, our company was among the first to recognize the need to move to a business model that prioritizes returns, sustainable free cash flow, balance sheet improvement, and return of capital. We have also led the way in better aligning executive compensation to this new model and with investor expectations. We are successfully executing on our model today, delivering both financial outcomes and ESG excellence that are competitive not just with our direct EMP peers, but also the broader market. With that, we can open up the line for Q&A.
spk00: Thank you. We will now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. Once again, if you have a question, please press star 1 on your touchtone phone. Our first question comes from Janine Way from Barclays. Your line is now open.
spk02: Hi. Good morning, everyone. Thanks for taking our questions.
spk00: Good morning.
spk02: Good morning. Our first question may be for Dane. Can you walk us through the mechanics of how you're determining the buyback tranches? It looks like it could be on a concurrent quarterly basis, but we just wanted to kind of get some more detail on that. And how did you decide on the 50% level of returns for 4-2-21 other than it meets the criteria of more than 40%? And I guess what would make you change that number quarter to quarter?
spk06: Yeah, great question, Jeanine. I think there's kind of a couple different aspects to it. One is a little more tactical about how we execute these share purchases. So briefly on that, we execute under short sort of 30 to 60 day 10b51 programs. So we can set those in motion and execute them over a short period of time. And because of that short duration, it allows us to really calibrate return percentages more on a real-time basis based on what we're seeing in the business, whether it's capital spend levels, commodity prices, other aspects of what's going on. It also gives you the advantage in the 10b-5-1 of writing through blackout periods. And so we do that. Sort of stepping back a little more context for the decision process about when do you exceed the minimum. Our decisions are always grounded in our financial priorities, which we talk about on a regular basis. Generate corporate returns, significant sustainable free cash flow, bulletproof balance sheet, and then return significant capital to shareholders. We just talked about what we've done year-to-date, generated significant operating and free cash flow. Q4 looks like by far the best quarter yet from a financial perspective. The balance sheet is really strong. We retired $900 million in debt in September, a billion four year to date. So we're at our $4 billion gross debt target ahead of schedule. And that really opens the door for much more substantial returns to equity holders if the conditions warrant. We also bumped the base dividend for the third time this year. It's up 100% over that period. And it feels competitively positioned right now and also very sustainable through cycles at the current level. So we turn to the capital return framework that calls for returning a minimum of 40% of operating cash flow to shareholders when WTI is above $60. We look at Q4. Not only is WTI well above $60, all the commodity complex is high. Oil volume should be quite a bit stronger than they were in Q3. We expect an uptick in dividend distributions from EG and lower CapEx versus Q3, which was sort of the high point of our burn rate for the year on the capital side. So we expect to have lots of flexibility to exceed 40%. We also have a desire to continue to add some level of cash to the balance sheet. As we go through the year, ultimately our plans are to pay off debt, future debt maturities as they mature. And they aren't significant in the future, but it's nice to have that level of flexibility and in the process reduce our net debt. So all of this, I think it's a great example of our shareholder return framework in action. It's based on a minimum percentage of operating cash flow, but it's we have the ability and latitude to make real-time decisions to exceed those minimums when conditions are right. They sure appear to be in Q4. So there's a little bit of judgment involved. Is it 50% or 55% or whatever that is? But we just need to make a call. And over time, we'll have the ability to modulate that accordingly.
spk02: OK, great. Thank you for the detailed answer. We appreciate it. My second question may be for Mike. The well cost per foot, it decreased quarter over quarter in the Eagleford and the Bakken. Would you characterize those decreases as sustainable for 22? And Amy Culler, just on current inflation and your outlook for 22 would be helpful. For example, one of your peers mentioned earlier this week that they would adjust 22 activity if inflation warranted it. And I believe Lee said just now in his prepared remark that 10% cost inflation would put pressure on the maintenance scenario. And I didn't catch whether that meant on the 1.1 capex or if that meant on activity. Thank you.
spk10: Yeah, Jeannie, I'll start with the expectation on the well costs for 2022. What I'd say is we're still working up our bottoms-up planning. And obviously, as we know, the macro environment is pretty dynamic at the moment. kind of highlighted third quarter being the lowest quarter of the year in terms of CWC for foot costs in both Eagleford and Bakken. We're actually here today down 12% from where we were in the 2020 average. So what I'd say is while that's probably going to be our starting point for 22, and similar to what you've seen in 21, we'll continue to progress opportunities to improve our cost structure I think as we noted, we could and probably should start to see some inflation in 22. On the inflation question, maybe a little bit more color there. I'm going to start with 21. How I'd characterize that, inflation is very much in check for 21. It's been largely confined to steel and OCTG. We have fully accounted for that in our $1 billion capital budget. As noted, we're working through 22 at the moment. It seems reasonable to assume modest inflation. I think I would highlight that we are looking to take some action. So, for example, we've secured some of our REG, FRAC, FRACSAN, and OCTG requirements for next year. I think maybe the area where there's quite a bit of uncertainty is labor, but that's probably a broader issue economy-wide. So, as we noted, could see up to 10% inflation. I think that will depend on activity levels. But again, similar to 21, we're going to be working hard to mitigate and offset any of those cost pressures.
spk04: I think, Janine, maybe just to round out too, just for clarity, as I mentioned in my remarks, when you think about the benchmark case being predicated on really $50 WTI and that capital range that we provided, that 1 to 1.1, I think kind of applying that kind of up to 10% to that range would at least kind of get you in the correct zip code under a maintenance scenario for 2022. Perfect. Thank you.
spk00: Thank you, Janine. Thank you. Our next question comes from Arun Jayaram from JP Morgan. Your line is now open.
spk05: Yeah, good morning. Mike, and perhaps Lee, I wanted to get your thoughts on how you plan to lean on some of the basins outside of the Bakken and Eagleford. Obviously, in a lower commodity price environment, you guys have really focused on your core of the core inventory in both those plays. But how should we think about, in a much better environment for oil, gas, and NGLs, kind of the capital allocation to plays such as Oklahoma and the Permian.
spk04: Yeah. Yeah, Arun, this is Lee. You know, I think consistent with how we've talked about in the past, we do expect to be increasing our Oklahoma and Permian allocation up to kind of that 20% to 30% range under, again, a maintenance scenario. For reference, those two basins accounted for more like 10%. of our allocation in 2021 this year. Clearly, all of the commodity prices are moving in a very constructive direction, which really has the net effect of really lifting all boats, even in our black oil plays of the Bakken and the Eagleford. And I think where we're really seeing the benefit of having that strength across the commodity complex is the fact that we have this very balanced portfolio already with about a 50% exposure to oil and a 50% exposure to natural gas and NGL. So our thinking hasn't changed. We believe there are extremely strong and competitive opportunities in both Permian and Oklahoma. The strengthening in NGL and gas has only served to elevate those further, but oil has also elevated the returns in our other basins as well. So we feel the strength of the balanced portfolio gives us that great exposure across the commodity complex.
spk05: Great, great. And Lee, my follow-up is maybe just to get a bigger picker question for you on just U.S. resource benefits. basins. You know, two of your larger peers in the Bakken, you know, Ryan and Harold have announced, you know, large multi-billion dollar transactions in the Permian. And I wanted to get your thoughts on what this says about the Bakken. They're two of the larger operators in the Bakken, in that basin, pardon me. And just, you know, how you're thinking about portfolio renewal. You know, Pat gave us an update on the REX program, but you do have some other inventory expansion opportunities within your existing basin. So I wanted to see how you're thinking about portfolio renewal and some of the moves of some of your key, you know, peers in the basin.
spk04: Yeah. Yeah, Arun. First of all, I would just start off by saying, you know, Any transaction, any M&A work, whether it be large or small, we're always going to view that through the lens of our very compelling organic case, our peer-leading financial delivery, and really a strict criteria that's predicated on financial accretion. And so that's really the filter that we're gonna view any type of opportunity. The same discipline that we apply to our organic opportunities, we certainly are gonna apply in the inorganic space. We believe, obviously, that the Bakken continues to offer If you look at some of the material within our earnings deck, you will see that certainly in some of the appendix slides just how competitive Bakken is relative to the other plays here in the U.S. But for us, it really, anything that we would look at inorganically would have to offer significant value. It would have to come in and move our full cycle returns in the right direction. And that, quite frankly, is a very high bar today. You could argue that the M&A market has become a little bit more of a seller's market today with the commodity prices that we're experiencing. And with over 10 years of extremely strong inventory, we simply don't see the need to do anything dramatic in the market, certainly not do anything that would be diluted to our exceptional financial delivery. But however, having said that on portfolio renewal, what we have talked about in the past is that embedded in that capital budget that we talk about each and every year, we have kind of up to about 10% of that dedicated to what we consider to be organic enhancement opportunities that could be things like redevelopment opportunities in the Eagle Herd and the Bakken. It could be things like the Texas-Delaware oil play that Pat addressed in the opening remarks. And we want to make sure that we continue those programs on a consistent and sustainable basis as we look out in those out years and make best attempts to continue to our inventory I think the Texas Delaware oil play is you know a great example of something that we were able to get into for very low entry cost and now it certainly we see today a very clear path for that to compete for capital allocation and you know we still have some work to do in terms of getting some longer dated production information from the spacing test and we want to drive some learnings into the DNC program and But there's definitely a path there for that asset now to compete head-to-head with some of the best in our current portfolio. So hopefully I addressed all of your questions, Arun. Did I miss anything?
spk05: Well, just maybe a quick follow-up, Lee. In terms of the Texas-Delaware, just on this topic of portfolio renewal, are you aware of any of your peers which are testing the play at this point?
spk11: Hi, everyone. This is Pat. There have been some other tests, specifically to the south of us. There have been some Woodford tests, but that area is a little bit lower pressure and not as thick. And then on the eastern side of the platform, there's been some Merrimack tests as well, but some of them have been okay. But again, not as good a pressure as ours. We think we absolutely have the best, sweetest spot on the play where we have both Woodford and Merrimack stacked. with good separation between them, and we've had good results today, obviously.
spk05: Great. Thanks a lot.
spk00: Thank you. Our next question comes from Scott Hanold of RBC Capital Market. Your line is now open.
spk07: Thanks. Good morning, all. I was wondering if you provided some good framework for 2022, and just to clarify a couple things. One, obviously you're having a big uplift in oil production here in 4Q. Should we think about the baseline maintenance cases, your average 21 oil production, or should we look more to the, you know, the exit rate of where you might be this year? And then on the capital spending, you know, concept, can you remind me within that circa one to $1.1 billion in CapEx, you know, where does, you know, Rex, you know, capital fall within that? Is that included in that or would that be in addition?
spk04: Yeah. First of all, on your first question, Scott, yes, you should think about a maintenance scenario in 2022 being calibrated to our average 2021 oil production. You know, all of us, you know, experience some variability, you know, quarter to quarter in our production numbers. It's natural in the short cycle investments that you see that natural variability. But again, we'd be looking in a maintenance scenario to drive toward that notional 172,000 barrels of oil per day. Your second question, Scott, around, you know, our capital spending number, even in the benchmark case of 1 to 1.1, That number is all-inclusive. It includes all of our investments, including RECs, as well as any other organic enhancement opportunity, just as the $1 billion budget did this year. I mean, one of the reasons that we saw a little bit of peak CapEx in third quarter was the impact of bringing the three-well pad online in the Texas-Delaware oil play. So that should be looked at as an all-in number. There's nothing... carved out and put on the side.
spk07: Okay, that's great. I appreciate that. And kind of pivoting back to shareholder returns, I mean, you guys obviously have a very robust buyback sitting in front of us. And it seems like that plus goosing up that fixed dividend over time is the plan. I know the answer is probably going to be, let's wait until we actually harvest some of this free cash flow. But You know, as we look forward, you know, even with the increased, you know, buyback authorization, I mean, it looks like you're going to eat through that pretty quickly next year if these commodity prices hold out. And as you kind of continue to look forward, is the buyback still going to be your likely, you know, primary outlet for that? Or do you see any other opportunities going forward such as, you know, special or variable dividends, you know, in the mix as you look kind of longer term, bigger picture?
spk06: Yeah, Scott, this is Dane. Let me take a first cut at that at least. I think where we sit today, it's kind of a no-brainer when you look at the valuation of our stock and the fact that it's yielding in excess of 20% free cash flow, that that's the place to go with the excess distribution to shareholders. It gets great value, and if that persists, then that will still be the first call on incremental cash above the base dividend. But we haven't said that's the only thing we'll ever do. Obviously, over time, you have to keep your options open as you manage through this process. The $2.5 billion authorization, there's really no magic to that number. It was clear to us as of yesterday when that authorization went into place, we had $1.1 billion of remaining authorized capacity left. And we would chew through a chunk of that, getting through this fourth quarter, $500 million that we talked about, go into the year pretty light. So we just asked the board to top that up, $2.5 billion as of today. And that would give us good running room into next year. And if we need to up that authorization over time, we can certainly do that.
spk04: I do think, though, Scott, clearly when you look at the potential financial delivery in 2022, We have a unique opportunity, just as we did in fourth quarter, to not only deliver against the minimum of 40% back to equity holders, but to actually exceed that. But again, that's going to be calibrated to real-time cash flow from operations, and that will be something that we'll watch closely. I think Dane did a great job of laying out the mechanics. But I also wanted to stress one thing we've been really clear on. We developed our framework to really give the investor confidence in the quantum, the quantum of cash we were going to give back to shareholders. And we knew that that would be a competitive and sustainable based dividend plus something else. That something else clearly today is share repurchases. But we didn't, we purposefully and intentionally didn't limit ourselves to a potential delivery mechanism. We wanted to keep that flexibility going forward. But as Dane said, in the current environment, the impact of a a steady rateable share repurchase program going forward makes the absolute most sense today.
spk07: Okay. I agree. Thanks for that, Claire.
spk00: Thank you. Our next question comes from Doug Legate from Bank of America. Your line is now open.
spk10: Good morning, guys. Thanks for getting me on the call this morning. Fellas, I want to ask you about how the inventory view has changed given the backdrop and the commodity. What I'm thinking is given gas in particular, mid-continent, does that compete better? Does it change the view of capital allocation? And what I'm really trying to get to is going back to your comments, Lee, at the beginning of the year, I think it was Mike actually that talked about in the maintenance scenario you would drill half your high-quality inventory in five years, because at the end of the day, that's ultimately what's going to dictate how the market perceives your free cash flow yield.
spk04: Yeah, well, I think stepping back from the inventory, when we have talked about the greater than a decade of capital-efficient high-return inventory, Doug, it's really been based on kind of nominally our $50 WTI kind of mid-cycle view. As actual prices move around that planning basis, clearly that has an impact on the tiering of those opportunities and may in fact even bring additional opportunities into the economic window. So it is a very dynamic thing, but we set that planning basis conservatively so we could give a very conservative and strong view of just how our inventory can deliver in a more modest pricing environment. To your question around how does the commodity strengthening, particularly in the secondary products of gas and NGL, alter our investment decision, look, we're a return-driven company. As we look at individual opportunities, we're going to be driven by economics. I won't say we're completely agnostic to the product mix, but at the end of the day, it's not about barrels, it's about dollars. And we're going to be driven by selecting the most economic opportunities across all of our core plays and then putting those into our business plan and executing those. efficiently against them. So it's strictly an economic decision. And although I'm thrilled that the gas and NGL has recovered, I'm equally as thrilled that oil is sitting at above the $80 mark as well, because that tends to uplift really all of our portfolio. Because although we have an oil weighted portfolio, it is a very balanced portfolio. And so we are in essence taking advantage at a portfolio level, but our individual capital allocation decisions are going to be driven by economics.
spk10: I appreciate that. Maybe this is a quick footnote to that, Guy, perhaps. I think a dynamic inventory, you know, some visibility in that would be really, really helpful because, you know, it would get a lot of folks away from the idea that there's an inventory challenge. If you can show how that changes with the commodity deck, just maybe a footnote. But my follow-up, real quick, is on slide seven. And you've been early and very clear about your views on the business model. And again, I congratulate you on leading the market on that . But nevertheless, on slide seven, you still talk about, in a greater than $60 WPI environment, a production growth cap that underscores the commitment to discipline. The issue is that 5% growth is not part of your rhetoric today. So when do you decide is the right time to go back to growing production?
spk04: Yeah, I think that that was simply, as you stated, a way for us to set a bright line on the framework that there is a very, very high hurdle for growth. We will always be informed by the macro, but at the end of the day, it's all about delivering outsized financial metrics when we're above $60. To the extent that we see that some moderate growth would fit into that financial framework, it would become a consideration, but it still remains more of an output of our financial model as opposed to an input. And I think given, I think, the past history of the sector, it's very important for us to demonstrate clearly that in a very constructive oil price environment that we can deliver outsized financial outcomes relative to alternative investments because the reality is that we know there will be future volatility and we have to be able to, within that volatility, offer competitive returns when prices are lower. So it's really just set there to really put it in the framework, acknowledge it. I think today we would say the need to drive to a number even in that 5% range, we just don't see that today. And it's hard to see it even in the near future.
spk10: Thanks so much, Lee.
spk04: Thank you, Doug.
spk00: Thank you. Our next question comes from Neil Dingman from Truist Securities. Your line is now open.
spk08: Morning, all. My question has kind of been asked, but I want to ask about just on the plan for next year, does that basically assume as far as total activity about the same percentage of Eagleford and Bakken activity? I know you've kind of run those two consistent here for the last few quarters, and I'm wondering if that's still kind of the plans for next year.
spk04: Yeah, you know, Neil, obviously we have not released our budget for next year. I mean, we're kind of still speaking in hypothetical terms around a maintenance budget. But when you consider the fact that we will have incremental capital flowing to Oklahoma and Permian, We would expect, obviously, that some of that capital would be coming out of Eagleford and the Bakken to make room for that. But I would just say stay tuned. We'll get into a lot more detail at an asset level of allocation when we get out to the budget release in February.
spk08: Okay. No, I did assume that. And then just to follow up, we really encourage, like the comments on that slide 14 about the resource plan, I'm just wondering if Maybe could you comment for you, one of the guys, as far as how much further do you think you could push this in terms of pad size, completion, some other things? Obviously, the results, earlier results here are very encouraging, especially as you all pointed out when you compare them to some of the Delaware. I'm just wondering sort of where we go from here.
spk11: Hi, Neil. This is Pat. You know, a primary objective of this pad test was spacing. So right now, we drilled this at a spacing of four wells per zone. We drilled two in the Woodford and one in the Merrimack. So far, we're seeing no interference at all between those because of the 700-foot thickness between the two. So we're going to get some more longer-term production on this pad and see how these wells perform. And if so, then we'll, four by four, probably be development scenario. However, I think we have some opportunities to test that even further. We've obviously drilled nine wells now, so we've had a lot of learnings on the drilling end completion side. I'm not going to give any details on that, but we continue to refine our approach to that. I think we'll continue to drive our cost down, as I mentioned in our prepared remarks. So as we go into 22, we'll continue to progress our learning there and see what else we need to do to take this thing forward.
spk08: Very good. Thanks, Pat. Thanks, Lee.
spk00: Thank you. And our final question comes from Scott Gruber from Citigroup. Your line is now open.
spk09: Yes, good morning. The ET equity income was raised, which is great to see. I expected, but it's so good to see. Cash dividends from EG were $47 million, but I believe those lag the booking of income. Can you speak to how we should think about cash coming back to Marathon from your equity interest in EG in the quarters ahead in terms of both pace and magnitude?
spk06: Hey, Scott. This is Dane. For our EG investments that are accounted for on the equity method, Excuse me. I think over time, it's fair to expect that cash dividends match equity income. Quarter to quarter, they don't always match. The timing can vary, especially in periods where you have significant changes like a big run-up in prices that we saw in Q3. And so in this case, dividends lagged earnings fairly significantly. significantly in Q3, we expect that to catch up in the reasonable near future. So I think when you're modeling, it's probably just they're going to be equal, pretty much equal over time, but you can expect to see some variability quarter to quarter.
spk09: Gotcha, gotcha. Would there be a point where cash dividends, at least in the near term, exceed equity income, or is it just kind of on a lag basis? Is there a catch-up period?
spk06: Yeah, yeah. We certainly can see a catch-up where the dividends exceed equity earnings in the next period.
spk09: Gotcha. And then just thinking about cash taxes, you guys have a large NOL. But can you remind us, do you have U.S. cash taxes ramping up within your five-year outlook? And given better earnings now at the front end, does the five-year outlook for cash taxes change materially?
spk06: Yeah, that's a good question. I'm glad you asked it. So we do have significant tax attributes in the form of NOLs. That's the big one, $8.2 billion. And then foreign tax credits as well, both of which, of course, will be used to offset future taxes. Our outlook, even at forward pricing, doesn't have us paying federal income taxes until the latter part of the decade. And that really hasn't changed. The outlook is durable. We tested against commodity prices. higher corporate tax rates, changes to the IDC tax treatment really don't have a meaningful impact on accelerating cash taxability. So I think that answer hasn't changed over the past few quarters.
spk09: Got it. Appreciate the call.
spk00: Thank you. That concludes our question and answer session. I will now turn the call back to Lee Tillman for final comments.
spk04: Thank you for your interest in Marathon Oil, and I'd like to close by again thanking all of our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs each and every day. Thank you.
spk00: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.
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