Marathon Oil Corporation

Good day and welcome to the Marathon Oil first quarter 2024 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 touch-tone phone. To withdraw your question, 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.

Thank you very much, Danielle, and thank you as well to everyone for joining us on our call this morning. Yesterday, after the close, we issued a press release, a slide presentation, and investor packet that address our first quarter 2024 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, who as of yesterday is now our Advisor to the CEO. Dane's successor as our EVP and CFO, also effective yesterday, Rob White. Welcome, Rob. 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 to the risk factors described in our STC file. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings material. So with that, I'll turn the call over to Lee and the rest of the team will provide prepared remarks. After the completion of their remarks, we'll move to a question and answer session. And in the interest of time, we have a lot to cover today, so we ask that you all limit yourselves to one question and a follow-up. Lee?

Thank you, Guy, and good morning to everyone joining us on the call. I want to start by again extending my heartfelt thanks to our employees and contractors. We built a track record of execution excellence that is differentiated in our peer space and the S&P 500, a track record that now spans multiple years through the ups and downs of the commodity cycle. Such execution is only made possible through the hard work and dedication of our talented people, who through it all remain committed to our core values, including safety and environmental excellence. Now turning to first quarter results. We have a lot to cover today. I'll start with three key takeaways. First, first quarter was another strong financial and operational quarter. We executed our plan and we built on our multi-year track record of sustainable free cash flow generation, meaningful return of capital to shareholders, and strong capital and operating efficiency. More specifically, we returned 41 percent or $350 million of our cash flow from operations back to our investors. consistent with our cash flow-driven return of capital framework that provides our investors with the first call on capital. Oil production of 181,000 barrels of oil per day was just above our guidance, and free cash flow generation was solid, despite not receiving any EG cash distributions from equity affiliates. This is purely due to timing, and we expect to receive a catch-up in EG cash distributions during second quarter. Importantly, and similar to last year, first quarter marked the trough for both our oil production and free cash flow generation for 2024. Free cash flow momentum should build significantly as the year progresses starting with the second quarter. This is driven by several factors, including the expected catch-up in EG cash distributions, a significant increase to our oil production, especially into the second and third quarters, and a moderating capital spending profile over the second half of the year, consistent with the phasing of our capital program. My second key takeaway this morning, we continue to make important strides to organically enhance our asset base, making Marathon Oil a stronger, more resilient, and more sustainable company. Specifically, we're improving our capital efficiency through extended lateral drilling. About 25% of our first quarter wells to cells were three-mile laterals spread across the Permian, Bakken, and Eagleford. Execution on this program was excellent, including a record pad in the Permian Basin. We continue to bolster the strength of our asset base through refracts and redevelopment, disclosing approximately 600 opportunities across the Bakken and Eagleford. These opportunities are complementary and additive to our company's decade-plus of primary development inventory life and have been de-risked through multiple years of technical work by our teams and actual results generated in the field. Notably, 30% of these opportunities are concentrated in the acquired inside acreage and upside to our acquisition basis. And we continue to progress the EGCAS mega hubs. a key competitive differentiator for our company. During first quarter, we realized the long-awaited shift to global LNG pricing for our ALBA LNG. We started optimizing our integrated gas operations by diverting a portion of our ALBA gas away from ethanol production and toward higher margin LNG cells. And we sanctioned a high-competence, low-execution-risk ALBA infill program that offers risk-adjusted full-cycle returns that are competitive with our U.S. onshore portfolio. So not only are we realizing improved financial performance this year on the back of our shift to global LNG price realization, but we believe this improvement is sustainable due to all the great work our teams continue to do to advance the EG Mega Hub concept. My third and final key takeaway this morning. We remain fully on track to deliver a 2024 business plan that once again benchmarks at the top of the E&P sector on the metrics that I believe matter most, free cash flow generation, capital efficiency, and shareholder returns. This is demonstrated by the strength of our first quarter execution supporting no changes to our annual guidance. This data is comprehensively summarized on slides eight and nine of our deck and is a compelling endorsement of our value proposition in the marketplace. No peer offers such comprehensive top quartile performance across this powerful combination of metrics. More specifically, we're expecting $2.2 billion of free cash flow generation this year, equivalent to a mid-teens free cash flow yield. We'll stay true to our CFO-driven return of capital framework and expect to again return at least 40 percent of our CFO back to investors through the combination of our base dividend and material share repurchases, providing visibility to both a double-digit distribution yield and significant growth in per share metrics. We'll keep improving our capital efficiency, delivering flat year-on-year total oil production with fewer net wells to sales. And perhaps most importantly, we believe all these results are sustainable. That's true for our U.S. multi-basin portfolio, and that's true for our integrated gas business, NEG. Before I close my introductory remarks, I'd be remiss if I didn't use this time to recognize Dane Whitehead and his contributions to Marathon Oil as our Executive VP and CFO over the last seven years. Under Dane's watch, we've established a truly differentiated track record of sustainable free cash flow generation and return of capital to our shareholders underpinned by an investment-grade balance sheet. Dane's contributions to this success have been invaluable. But more than that, he's led his organization with the utmost integrity and humility. Dane, on behalf of the entire organization, thank you, and you'll be missed.