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spk00: Good morning and welcome to the Marathon Oil second 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 then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Guy Baber, Vice President of Investor Relations. Please go ahead.
spk02: Thank you, Danielle, and thank you as well to everyone for joining us on the call this morning. Yesterday, after the close, we issued a press release, a slide presentation, and an investor packet that addressed our second quarter 2023 results. Those documents can be found on our website at MarathonOil.com. Joining me on today's call are Lee Tillman, our Chairman, President, and CEO, Dane Whitehead, Executive VP and CFO, Pat Wagner, Executive VP of Corporate Development and Strategy, and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials, as well as the risk factors described in our SEC files. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. So with that, I'll turn the call over to Lee, and the rest of the team will provide prepared remarks today. After the completion of these 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 again kick off our call by expressing my thanks to our employees and contractors for another quarter of comprehensive execution against our framework for success. We don't take such delivery for granted, and I'm especially grateful for your commitment to safety and environmental excellence, in addition to delivering on all of our operational and financial objectives. Well done. on another great quarter while staying true to our core values. There are a few takeaways I want to leave you all with this morning. First, we delivered another very strong quarter on all fronts, highlighted by sequential increases to our cash flow from operations, free cash flow, and our total company oil and oil equivalent production. We delivered around $530 million of free cash flow during second quarter. with a significant increase from first quarter driven by strong execution and improving production trend and a catch-up in EG cash distributions. Second key takeaway, we continue to lead our peer group in the broader S&P 500 in returning capital to our shareholders. During second quarter, we returned $434 million to shareholders, including $372 million of share repurchases. Through the first half of 2023, we returned over $830 million to our shareholders, representing 40% of our top line cash flow from operations, consistent with our framework. Our differentiated cash flow driven return of capital framework continues to prioritize our shareholders as the first call on our cash flow, not the drill bit and not inflation. First half 2023 return of capital represents a double-digit total shareholder distribution yield on an annualized basis and the highest in our E&P peer space. Our commitment and consistency in returning significant capital is contributing to peer-leading growth in our per-share metrics. We've now reduced our outstanding share count by 24% in just the last seven quarters, and we are on track to deliver 30% year-over-year production growth per share. My third and final key takeaway this morning, our forward outlook remains compelling and differentiated. We are on track to deliver a 2023 business plan that benchmarks at the top of our high-quality E&P peer group on the metrics that matter most, shareholder distributions, free cash flow generation, reinvestment rate, capital efficiency, free cash flow break-even, and production growth per share. Our business plan remains on track with operational and financial momentum improving over the second half of the year. More specifically, our first half-weighted capital spending and completion activity will drive our third quarter total company oil and oil equivalent production to at or above the high end of our annual guidance range. With both higher production and lower capex over the second half of 2023, we expect continued sequential improvement to our underlying free cash flow generation across the third and fourth quarters. And finally, though our annual production guidance ranges remain unchanged, our full-year oil equivalent production is trending above the midpoint of that guidance. Looking ahead to 2024, while it's too early to share any specific guidance, rest assured that our framework for success and core priorities will remain unchanged. Our case to beat will be another year of maintenance-level oil production that maximizes our sustainable free cash flow and prioritizes shareholder distribution and per share growth. My expectation is that we will once again lead the peer group on the metrics that matter most in 2024. benefiting from any deflation that might present itself in the market, as well as from the added tailwind of a significant financial uplift in EG from our increased exposure to the global LNG market. With that, I'll turn it over to Dane who will provide a brief financial update.
spk04: Thank you, Lee, and good morning, everyone. As Lee mentioned, second quarter was a tremendous financial quarter for us, as we generated $531 million of adjusted free cash flow, and returned $434 million of capital back to shareholders. That's a 10 percent increase in shareholder distributions relative to the first quarter. Importantly, we expect our financial delivery to improve even further over the second half of the year. On a price-normalized basis, we expect our pre-cash flow generation to improve across the third and fourth quarters relative to the second quarter's already meaningful level. Driven by higher expected production, and lower capital spending, consistent with the phasing of our 2023 program. Returning significant capital back to our shareholders remains foundational to our value proposition in the marketplace. We're focused on building a long-term track record of consistent shareholder returns through the cycle that can be measured in years, not just quarters. And the first half of 2023 represents another successful step in that journey. Through the first two quarters of the year, we returned over $830 million to shareholders, representing 40 percent of our adjusted CFO. First half return of capital translates to a double-digit shareholder distribution yield on an annualized basis, and that's the highest in our peer group. Over the trailing seven quarters, we've now returned approximately $4.6 billion back to our shareholders. That's almost 30 percent of our current market capitalization that we've returned in less than two years. We were purchased $4.2 billion of our stock at attractive levels, driving a 24% production in our outstanding share count, contributing to peer-leading growth in our per-share metrics. We remain confident our cash flow-driven return of capital framework is uniquely advantaged versus peers, providing investors with first call on cash flow and offering them a differentiated shareholder return provide a clear visibility to one of the strongest shareholder distribution yields in the entire S&P 500. For the full year, we expect to continue to deliver against our framework, returning a minimum of 40 percent of our top-line CFO to shareholders. We're committed to the powerful combination of a competitive and sustainable base dividend and material share purchases. late last 11 quarters and we're well positioned for another dividend raise later this year with the increase expected to be fully funded by the share count reduction from our and our objective to maintain one of the lowest post-dividend free cash flow break-evens in the peer space. Additionally, we have ample capacity to continue buying back a significant amount of our stock
spk01: with $1.8 billion of share repurchase authorization out.
spk04: Our plan is to maintain our return of capital leadership and improve our already investment-rate balance sheet through gross debt reduction. We can do both, and that's exactly what we're demonstrating. We've paid down $200 million of high-coupon USX debt so far this year and remarketed $200 million of tax-exempt bonds at a favorable interest rate. The strength and durability of our shareholder return and balance sheet enhancement initiatives are underpinned by the quality of our assets, our disciplined capital allocation framework, our peer-leading capital efficiency, and our strong free cash flow generation. This is proven out by our leadership. For the whole year of 2023, we expect to deliver the best free cash flow yield in the high-quality E&P space, the lowest reinvestment rate, and among the best capital efficiency
spk01: all while maintaining the lowest enterprise free cash flow breakeven on a pre to provide a brief update of our 2023 execution that's delivering the sector leading outcomes.
spk03: Thanks, Dane. My key message today is that the priorities for our capital program remain unchanged, and that we remain fully on track to deliver on our key commitments to the market, including annual capital spending and production guidance. Starting with our capital program, we spent just over 60%
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