Marathon Oil Corporation

Good morning, everyone, and welcome to the Marathon Oil First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Guy Baber, Vice President of Investor Relations. Please go ahead.

Thanks, Jamie, 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 packets that address our first 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, our 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 files. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our rings of materials. With that, I'll turn the call over to Lee, and the rest of the team will provide prepared remarks. After the completion of those remarks, we'll move to a question and answer session. Lee? Thank you, Guy, and good morning to everyone listening to our call today. First, I want to say thank you to our employees and contractors for another quarter of comprehensive execution against our framework for success. I'm especially grateful for your commitment to safety, differentiated execution, and environmental excellence. Well done on another great quarter while staying true to our core values. We have a number of notable topics to cover today that continue to build on our peer leading and market leading financial and operational performance. I'll start by reviewing some key takeaways consistent with the summary on slide five of our earnings presentation. First, we reported another very strong quarter both financially and operationally that is fully consistent with the guidance we provided back in February and further builds on our track record of delivery. We continue to execute against our differentiated cash flow driven return of capital framework, again exceeding our commitment to return at least 40% of our cash flow from operations to shareholders, an industry leading commitment. Our adjusted earnings per share handily beat consensus, and we generated strong free cash flow during first quarter, despite not receiving any EG cash dividends. The entirety of the variance in our cash flow and free cash flow versus consensus can be explained by the fact that we reported $80 million of EG equity income but did not receive any EG cash dividends. This difference is strictly related to timing, and importantly, we expect to receive over $200 million of EG cash distributions during second quarter, more than making up for the first quarter delta versus consensus. And in fact, we expect EG cash distributions to exceed EG equity income for full year 2023. We continue to strengthen our already investment-grade balance sheet, proving we can both deliver industry-leading shareholder returns and reduce our gross debt. It's not an either-or proposition. And operationally, first quarter oil production came in at 186,000 barrels of oils per day, consistent with our guidance. We expect an improving oil production trend into the second and third quarters, given our first half-weighted capital program and the associated timing of our wells to sales. Second key takeaway. Our full-year capital spending and production guidance remains unchanged. We remain on track to deliver our 2023 business plan, a plan that benchmarks at the very top of our high-quality E&P peer group on the metrics that matter most. Those metrics include total shareholder distributions relative to our market capitalization, free cash flow yield and free cash flow efficiency, reinvestment rate and capital efficiency, free cash flow breakeven on both the pre and post dividend basis, and growth in our production per share. This is strong evidence of not only the quality of our assets, but the strength of our operational execution and the merits of our discipline, shareholder friendly, capital allocation and return of capital framework that focuses on per share growth. And my third and final takeaway this morning. While we're focused on executing a 2023 plan that leads our sector, we're equally focused on continuous portfolio enhancement to further improve our competitive positioning and longer term sustainability. We've now successfully integrated the highly accretive ensign acquisition ahead of schedule and we're realizing excellent results from our initial wells sales. We're delivering tremendous results in the Permian Basin since our return to activity last year. Today, the Permian is effectively competing for capital on a heads-up basis with the best of the Eagleford and Bakken in our portfolio, a very high bar to clear. In Equatorial Guinea, we've made great strategic progress in further strengthening the longer-term outlook of our unique, fully integrated global gas business. With that, I'll turn it over to Dane, who will provide more detail on our 2023 outlook and how it stacks up to peers.

Thank you, Lee, and good morning, everybody. Full year 2022 data shows that we performed at the very top of a high-quality E&P peer group last year, as well as the broader market. consistent with the charts on slide seven of our deck. An analysis of 2023 guidance indicates that our business plan again benchmarks at the very top of our sector on all the metrics that we believe matter most. I'll start with a recap of our 2023 return of capital outlook, summarized on slide eight of our slide deck. As I've stated many times on our earnings calls, returning significant capital to shareholders through the cycle remains foundational to our value proposition. We're focused on building a long-term track record of consistent shareholder returns that can be measured in years, not just quarters. And 1Q was another step on that journey. We again exceeded our commitment to return a minimum of 40% of our CFO, returning 42% to shareholders, including $334 million of share purchases and our $63 million base dividend. Looking at the full year, we expect to continue adhering to our return on capital framework while also paying down debt, including some of the Ensign-related finance. We believe we can do both, maintain our return on capital leadership and further enhance our already investment-grade balance sheet. And we're off to a great start, beating our 40% of CFO target in one queue. while paying down $70 million of high-coupon USX debt and remarketing $200 million of tax-exempt bonds at a very favorable rate. We'll take down the remaining $130 million of USX debt in July at maturity. We continue to believe our cash-flow-driven return-to-capital framework is uniquely Advantage versus Peers, truly providing investors with the first call on cash flow and insulating shareholder returns from the effects of capital inflation. Offsetting inflation is on us, not the shareholder. Even at our minimum 40% of CFO commitment, return of capital framework is sector leading. It provides clear visibility to a double digit distribution yield across a broad range of commodity prices as shown on the top right graphic on slide eight. And it benchmarks the very top of our peer group, the total shareholder yield about double the peer average. In terms of our preferred vehicle for shareholder returns, There's no change to our approach. We'll pay a competitive sustainable base dividend with the lion shareholder returns coming through share purchases. We currently have $2 billion of buyback authorization outstanding, which gives us plenty of room to keep executing. With our free cash flow yield in the high teens, buybacks remain significantly value accretive, a very efficient means to drive per share growth, and highly synergistic, withdrawing our base dividends, which we've raised eight out of the last 10 quarters without compromising sustainability. Though peers have now migrated to our model, we were an early proponent of share repurchases, and our dollar cost averaging approach since October 2021 has delivered a peer-leading 22% reduction in our shares outstanding. The strength and durability of our shareholder return profile is underpinned by strong free cash flow generation and capital efficiency. While first quarter free cash flow was solid at $330 million, we expect both our underlying free cash flow and cash flow from operations to strengthen as we progress through the year. There are a number of factors driving this trend. As Lee mentioned, we didn't receive any EG cash dividends during 1Q. We expect to start receiving those distributions in the second quarter, beginning with a large and normal dividend of more than $200 million. Additionally, our CapEx is front-end loaded with 2Q capital spend expected to be comparable first quarter, consistent with our outlook for about 60% of our full-year capital to be concentrated in the first half of the year. And the timing of this spend will drive oil production growth from 1Q levels, improving our cash flow generation capacity as we move through the year. Therefore, operationally and financially, we remain fully on track with the assumptions that underpinned our initial full-year free cash flow outlook provided earlier this year. And our 2023 outlook very clearly benchmarks at the top of our peer space, as illustrated on page 9 of the deck. We continue to trade at one of the most attractive free cash flow yields in the entire S&P 500, as the top left graphic shows. While this leading free cash flow yield is in part due to attractive valuation, it's also a function of our peer-leading free cash flow efficiency. The top right graphic shows our free cash flow margins well above the peer average. For every barrel we produce, we're delivering 30% more free cash flow than the average high-quality E&P. Similarly, our reinvestment rate, a direct measure of capital invested versus cash flow generated, a true cash flow efficiency metric as it considers both capital and operating expenditures, is the lowest in the peer space, a full 10 percentage points below average. Further, our capital intensity as measured by CapEx per barrel of production is more than 20% better than the peer average. Such strong performance is a testament to not only the quality of our asset base, but the strength of our operational execution and the discipline inherent in our capital allocation framework. Our focus remains on maximizing the free cash flow and corporate returns on every dollar we spend. Turning to slide 10, we benchmark ourselves on one of the most important metrics for our sector, our free cash flow break even. or the WTI oil price necessary to achieve free cash flow neutrality, a metric so important that we've hardwired it into our short-term incentive scorecard. Through disciplined capital allocation, ongoing cost structure optimization, and a relentless focus on our capital and operating efficiency, our objective is to maintain the lowest sustainable free cash flow break-even level. This is crucial to maintaining business model resilience and ensuring more positions to deliver compelling free cash flow across a broad range of commodity prices. When commodity prices are healthy, we expect to materially outperform the S&P 500 in free cash flow generation. When commodity prices are challenged, we expect to remain competitive with the S&P 500. We can only do this by maintaining a low free cash flow break-even. And slide 10 shows we have the lowest 2023 pre-dividend free cash flow break-even among high-quality peers at around $40 per barrel WTI. Additionally, we expect to realize significant improvement in our free cash flow breakeven from 2023 to 2024, largely driven by the expected financial uplift in EG. So while our 2023 competitive positioning is strong, it's even better in 2024. Finally, our free cash flow breakeven is also the lowest on a post-dividend basis. While we've raised our base dividend in the eight of the last ten quarters, we've stayed focused on base dividend sustainability and the synergies that exist between share buybacks and sustainable dividend growth. Whereas certain peers now have base dividends that add $10 or even $15 per barrel to their break even, our base dividend adds a more modest $3 to $4 a barrel, underscoring its sustainability and our headroom for longer-term growth as long as we continue to reduce our share count. Turning to slide 11, we've been a leading proponent of a capital allocation framework that strongly prioritizes corporate returns and free cash flow generation over production growth. The reality is that we're leading the peer group in growth on a per share basis. 2021 to 2023, we expect to grow our production per share by more than 40%. In 2023 alone, we expect to grow production per share by approximately 30% year over year. Absolute production growth is not the objective, but we do see value in significantly growing our underlying per share metrics. Two primary factors are driving our exceptional per share growth profile. First, a consistent and disciplined approach to shareholder returns with a strong emphasis on buybacks. Through our buyback program, we've reduced our share count by 22% in the last six quarters. Our peers have moved toward our model, but we're definitely enjoying a first mover advantage. And second, the highly accretive Ensign acquisition, which increased our maintenance oil production by approximately 12% with no increase in share count. So with that summary of our 2023 business plan competitiveness, I'll turn it over to Mike to provide a brief update on Ensign and our recent outstanding performance in the program. Thank you.