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spk09: 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 touchtone 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.
spk06: 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 files. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our arranged materials. So with that, I'll turn the call over to Lee and the rest of the team who will provide prepared remarks. After the completion of their remarks, we'll move to 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?
spk07: 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 CSMP 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% 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 sell 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 refrax 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 EG Gas Mega Hub, 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 methanol 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 EMP 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 8 and 9 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% 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 purchase share metrics. We'll keep improving our capital efficiency, delivering flat year on year total oil production with fewer net wells to sell. And perhaps most importantly, we believe all these results are sustainable. That's true for our US 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 rate 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.
spk10: Well, Lee, thank you for those kind words. I really appreciate it. The past seven years at Marathon Oil has certainly been the highlight of my 40-year career. Working with you, our executive leadership team and board, and with all of our talented employees in forums like this with our analysts and investors. Rob and I have been working very closely together in recent months and that'll continue for a while as we ensure a seamless transition. Rob's been with the company for more than 30 years and they have all the confidence in the world in his leadership. With that, I'll pass the CFO torch to Rob, who will be handling our prepared commentary today on our financial performance and return of capital initiatives. Rob, welcome to the show.
spk11: Thanks, Dane. As Lee mentioned, under Dane's leadership, our company has built a track record of providing a truly compelling shareholder return proposition while at the same time continuing to enhance our investment rate balance sheet. You can expect more of the same going forward with continuity in our long-held capital allocation framework and conservative financial policies. I'll now walk through a few key highlights regarding our first quarter performance and reiterate our key financial priorities for this year. First quarter cash flow and pre-cash flow generation were solid and consistent with our plan, despite not receiving any EG equity affiliate cash distributions in the quarter. As Lee mentioned, this is purely a timing issue. For the full year, we expect total EG cash distributions to approximate our annual equity earnings, starting with catch-up payments during 2Q. The EG catch-up distributions during second quarter will contribute to an overall significant improvement in our pre-cash flow momentum as 2024 progresses. This is driven primarily by a significant production increase, especially in the second and third quarters, and a moderation of our capital spending starting in third quarter, given the front half-weighted nature of our capital program. Turning now to our key financial priorities for this year, priority one is clear. Continuing to return at least 40% of our cash flow from operations to shareholders, consistent with our return of capital framework, which represents one of the strongest shareholder return commitments in our peer space and across the entire S&P 500. For 2024, our minimum 40% commitment translates to $1.7 billion of total distributions to shareholders at $80 per barrel WTI price tag, providing our investors visibility to double-digit shareholder distribution yield, a truly compelling shareholder return proposition. During 1Q, we returned $350 million, 41% of CFO to shareholders. We believe our commitment to shareholder returns and the consistency and transparency of our approach have positively differentiated our company. Over the trailing ten quarters, we now return $5.8 billion to equity holders, including $5.2 billion of share repurchases, reducing our outstanding share count by 29% and contributing to peer-leading growth in our per-share metrics. We continue to see share repurchases as the preferred return vehicle, with our stock trading at a free cash flow yield in the mid-teen. Repurchases remain value-accretive, are a very efficient means to continue driving per-share growth, and are highly synergistic with sustainable base dividend growth. Regarding the base dividend, as we've messaged before, our focus remains on competitiveness and sustainability. Giving the ongoing benefits of our material share repurchase program, as well as the interest expense savings from our gross debt reduction initiatives, we see clear potential for further base dividend growth while protecting the lowest enterprise free cash flow breakeven in the peer group. After meeting our shareholder return commitment, our second priority this year remains continued enhancement of our investment drain balance sheet through gross debt reduction. Last year, we returned meaningful capital to shareholders and also reduced our gross debt by $500 million. My expectation is that you'll see more of the same from us in 2024. During first quarter, we strengthened our financial flexibility by completing a $1.2 billion offering of 5 and 10-year bonds. Investor demand was strong at greater than 7 times oversubscribed, which enabled us to achieve a timely and competitive weighted average interest rate of 5.5%. Proceeds from the offering were used to repay the remaining balance on our variable rate term loan facility in its entirety, which in turn delivers $20 million of annual interest savings. With the term loan facility paid off, our focus now turns to the $400 million of tax exempt bonds that are due in July. As a reminder, this is a very unique vehicle in our capital structure with advantaged interest rates relative to taxable debt instruments. As such, we will likely re-market those bonds as we've done previously. As the bottom right graphic on slide 11 of our deck shows, after having paid off terms the term loan, we have minimal bond maturities over the next five years. We do, however, retain the ability to efficiently see leverage down to our medium term gross debt objective of $4 billion, which would make our current debt to EBITDA one time's strip durable down to a more conservative $50 to $60 WTI pricing environment. To be clear, our balance sheet is in great shape and provides us with tremendous financial flexibility, including $2.2 billion of liquidity at quarter end. Our top priority remains consistently meeting our 40% of CFO shareholder return commitment, but we are also committed to reducing debt over the medium term down to our $4 billion gross debt objective. We can do both. With that, I'll turn the call over to Mike to walk through the operational highlights. Thanks, Rob.
spk05: With
spk11: strong first
spk05: quarter execution consistent with our plan, we've made no changes to our annual guidance and remain fully on track to deliver a 2024 program, but once again we've set up the benchmarks at the top of our sector on the metrics that we believe matter most. The combination of free cash flow generation, capital efficiency, and shareholder returns. During the first quarter, oil production of 181,000 barrels of oil per day was slightly better than our guidance, while capital expenditures of $603 million were in loss. It's been a very strong start to the year for our asset teams. That's especially true in the Eagleford, as our first quarter drilling rate of penetration was among the best that's been in the last five years. First quarter Eagleford completion efficiencies also continue to improve. And in the back end, despite the challenging winter weather, we held on to the same execution efficiencies on both the drilling and completion side that we were delivering during the second half of last year. A trend which bodes very well for execution in future quarters. Referencing slide 14 of our deck, I'd like to highlight the performance of our Permian team. The first quarter was another excellent execution quarter marked by significant production growth. The primary driver of the production increase was our growth well outperformance. Three upper Wolfcamp wells in core Red Hills, with all at 100% working interest, are significantly outperforming types, realizing early well productivity almost four times that of the average Delaware basin well. But this isn't just about one pad or one quarter of performance. Our Permian team has now built up a clear track record of execution success for all wells brought online since 2022. Our Permian program has delivered among the best results of any Delaware basin operator for oil productivity per foot. And the team has done so with very competitive drilling and completion execution, now almost exclusively bringing online two mile plus laterals. Additionally, after taking a two year break in the Permian during the 2020 pandemic, we are now of one of the more lightly developed acreage positions in the play, with over two decades of high quality drilling inventory at current activity levels. We're allocating more capital to Permian and the asset will continue to be a growth driver for us, but will continue to increase our capital investment at a disciplined pace with an eye on maintaining our execution excellence. With this exceptionally strong start across our US asset base, our annual guidance midpoints for both production and capital expenditures remain unchanged. And my confidence in delivering on our full year guidance commitments is high. Consistent with our initial outlook, we expect our 2024 capital program to be heavily weighted for the first half of the year, similar to the profile you've seen from us before. Driven by real-eye execution efficiencies, we're pulling forward some of our activity. This should result in a slight increase to both our expected capital spending and our oil production during second quarter versus our original assumptions. We now expect our capital spending to be just over 60% weighted for the first half of the year, which will drive a significant sequential increase in second quarter oil production up to the midpoint of our annual guidance range of 190,000 barrels of oil per year. In addition to delivering on our guidance commitments, we also remain focused on continuing to enhance our capital efficiency and the strength of our underlying asset base. Through both the application of extended laterals and other organic enhancement initiatives, summarized in more detail on slide 13 of our deck, extended laterals remain a compelling opportunity to continue enhancing our capital efficiency. At a high level, we're expecting significantly lower total well cost per foot, yet similar EUR per foot, and thus better returns and higher per well NPV in comparison to shorter laterals. And that's exactly what our initial cohort of 12 three milers during first quarter representing 25% of our total well set is delivering. Execution on the cost front is a clear positive, as we're consistently realizing well cost savings on a per foot basis of more than 20% versus comparable two mile laterals. While early time production in the Bakken and Eagleford has been consistent with our expectations, our first three mile pad in the Permian Basin, as previously mentioned, has dramatically outperformed. It's shaping up to be one of the strongest pads in basin history. In addition to the extending laterals, we also continue to further bolster the strength of our asset base through refrax and redevelopment. More specifically, we're disclosing approximately 600 high quality refrax and redevelopment opportunities across the Bakken and Eagleford. Approximately 30% of these opportunities are concentrated in our N-Site acreage in the Eagleford, representing upside to our acquisition basis. These refrax and redevelopment opportunities are complementary and additive to our decade plus primary drilling inventory at the total company level. They've been de-risked through multiple years of technical work, numerous trials over the last five plus years, and a recent track record of very strong bottom line results. Importantly, we've progressed this opportunity to set tremendous discipline and intentionality. Redevelopment and refrax testing has been a key part of what we long describe as our organic enhancement program, which typically comprises 5 to 10% of our total capital budget for a given year. This is capital dedicated to enhancing the returns and resource recovery of our existing asset base through targeted testing of the best concepts the asset teams bring forward each year. For redevs and refrax, we've specifically identified potentially stranded resource from early vintage completions that we can economically access through integration into our primary plan of development. In total, we've brought online over 100 refrax and 50 redevelopment wells across the Bakken and Eagleford to date. So we've compiled a rich technical dataset and amassed a deep operational understanding. All 600 of the future opportunities we are disclosing are strongly economic at prevailing commodity prices, and about half of the 600 we believe are directly competitive with the tier 1 primary development inventory industry is drilling today. More recently, we've been bringing on around 20 or so of these opportunities per year. This year, we're expecting to bring online just over 25. Again, this can account for around 10% of our activity in the Bakken and Eagleford. In terms of our development approach, for the most part, we aren't doing refrax or redevelopment as part of a separate standalone program. Rather, these opportunities are mostly integrated into our primary plan of development, typically directly offsetting our primary activity with the goal of maximizing the capital efficiency and financial returns of our overall program. Recent results have been very strong, proving out the economic attractiveness of these opportunities, supporting the disclosure we're now providing. In the Bakken, our opportunity set is more heavily weighted to refrax, where we've had good success. Over the last couple of years, a refrax program has delivered 6-month oil productivity per foot that is competitive with the base and average for industry new drills. And we've delivered this competitive productivity with a total well cost per foot of more than 20% below the industry average for a new drill well. Again, most of our Bakken refrax have not been standalone. Rather, the offset new development wells. This has had the added benefit of improving the productivity of direct offset middle Bakken wells by around 10%. In the Eagleford, our opportunity set is a bit more balanced. Split roughly 55% to refrax and 45% to redevelopment. Over the last couple of years, our refrax and redevelopment productivity has actually been better than the base and average for industry new drills. In fact, it's been closer to top quartile. And with our refrax, we've realized the same positive impact offset wells that we've seen in the Bakken. To summarize, at approximately 10% of our activity in the Bakken and Eagleford, our refrax and redevelopment programs aren't primary drivers for capital spend in those positions. But they still represent a very valuable opportunity set that is positively contributing to our bottom line results and extending effective inventory life. And they're a great example of our ability to extract the most value possible out of our existing high quality resource base. I'll now turn the call back to Lee, who will wrap up with an EG update and some closing thoughts.
spk07: Thank you, Mike. Shifting to our EG operations on slide 15, with the expiration of our legacy Henry Hub linked LNG contract at the end of last year, first quarter marked the transition to fully realizing global LNG pricing for Alba gas. Under the new contractual agreements effective this year, we began marketing our own share of Alba LNG directly into the global LNG market. During first quarter, these LNG sales at a $7.21 per MCF realization drove a significant increase to the international revenue within our consolidated financials. In comparison to previous years, when our EG income was dominated by equity affiliates, a greater share of our EG profitability will accrue to the upstream through our Alba LNG sales and will therefore be consolidated in our financial statements. These reporting changes should all result in improved transparency into the underlying operations of our integrated gas business in EG. We see no change to our 2024 guidance as we continue to expect $550 to $600 million of total EG EBITDAX this year, assuming $10 TTS. That's a significant increase from our actual 2023 EBITDAX generation of $390 million. Importantly, we don't expect this to be a one-year financial outlook. For some time, we've been focused on sustaining this improved financial performance by progressing all elements of the EG gas mega hub concept. The five-year EG EBITDAX outlook we provided last quarter demonstrates the sustainability of our EG cash flow generation. You'll recall the strength of our multi-year outlook is driven by a number of additional factors beyond realizing global LNG pricing. Ongoing methanol volume optimization, which started during first quarter, our Alba Enfil program, which we just sanctioned, and further off-monetization of third-party gas through the Assain gas cap. A few more details on our just sanctioned Alba Enfil program. This is a high-competence, low-execution risk, shorter-cycle project with returns that are competitive with our high-quality U.S. onshore reinvestment opportunities. We successfully contracted a rig within the region and expect a first half of 2025 spud with first gas from both wells expected during the second half of the
spk06: year.
spk07: These wells will largely mitigate Alba-based decline, contributing to a flat production profile from full year 2024 to full year 2026. Our 2024 capital spending for this program is limited, but fully accounted for in the capital spending guidance we provided at the market in February. We expect 2025 capital for the program to be about $100 million. We covered a lot of ground today. All great stuff and all intended to further our more S&P mandate. Consistent with that mandate, for the last three plus years, we've been delivering financial performance highly competitive with the most attractive investment alternatives in the market, as measured by corporate returns, pre-cash flow generation, and return of capital. I fully expect 2024 to build on this track record, and we're off to a great start. Our compelling investment case is simple. A high quality multi-basin U.S. portfolio, an integrated global gas business that delivers pure leading pre-cash flow. A unique and differentiated return of capital framework that provides our shareholders with the first call on cash flow. The output of which is clear visibility to compelling shareholder distributions across a broad range of commodity prices and sector leading growth and per share metrics. And a multi-year track record of consistent execution and proven discipline. And perhaps most importantly, everything we're doing is sustainable with resilience through the commodity cycle. This is due to the quality and depth of our U.S. multi-basin portfolio, where we have over a decade of high return inventory and a disciplined and multifaceted approach to portfolio renewal, including organic enhancement initiatives. It's also due to our differentiated integrated gas business that's now fully realizing global LNG pricing as we continue to progress all elements of the regional gas mega hub concept. Rest assured, our commitment to our strategy is unwavering and is built upon our core values, resilience across the commodity cycle, and our long-term track record of success. With that, we can open up the line for Q&A.
spk09: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please limit yourself to one question and one follow-up. The next question, the first question comes from Scott Hanold from RBC. Please go ahead.
spk12: Yeah, hey, thanks. You know, Mike, you spent a lot of time kind of going through the refracks and talking about that a lot. Obviously, it seems like it's going to be, it has been an initiative, but it's got a little bit more prominence. But could you sort of dumb some of the sort of the economic and productive parameters down for us? Like, what would a typical Bakken and then a typical Eagleford whale be producing when you'd kind of play the refrack? And, you know, what would that bounce to, you know, after that? And could you just give us a sense of the cost associated with it?
spk05: Yeah, let me let me start with the cost, Scott. So, I mean, typically when you look at these refracks, I mean, refracks, we got a deeper history in the Bakken and the Eagleford necessarily. But when when you look at the costs, we're kind of thinking about it, you know, roughly 80 percent of a new grassroots whale. And that's kind of how we'd be thinking about it on a go forward basis. In terms of the whale productivity, I think I covered that in some of the prepared comments that we just gave you. You know, the refracks that we're seeing in the Bakken pretty comparable from when we look at some of the new wells that the peers are bringing online. And Eagleford, it's actually it's actually a more constructive story where we're seeing the refrag redeb whales actually outperforming some of the new wells that are bringing online. In fact, if anything, they're kind of you're looking at kind of top core performance there.
spk12: Yeah. And I guess maybe the point is trying to ask is, is there these wells like produce like 50 or 100, you know, 100 a day, and then they're going to get back to a new well and kind of continue the typical profile that you would see with a new well? You know, that I guess that that was my specific kind of question.
spk05: Yeah, I mean, I mean, very similar to the UL, you get that initial production and then you get back onto that. That pretty regular decline rate that you would expect with the new well.
spk12: Okay. And then my follow up question is a permian. Obviously, you guys, you know, really stood out this quarter with those, you know, those Lee County wells. And, you know, you talked about having like two decades roughly of inventory, but looking to maybe increase that pace, like where where where should we think about like marathon kind of moving, you know, the the permeant terms of capital allocation as you think about 2025 and beyond? Because obviously 20 years is nice, but, you know, optimally, it seems like your investment there, you know, should should probably increase given given your returns and in your visibility of inventory.
spk07: Yeah, maybe maybe I'll start, Scott. And let's see if Mike wants to add any additional color. You know, I think we've been very methodical in our approach to the permeant. I think as we stated in the prepared comments, it's probably one of the light more lightly developed positions, you know, in the basin because we have pasted. I mean, we have fantastic black oil assets right in the bottom of the eagle for the deliver superior, you know, top of tier one kind of returns. And so it's taken a bit of time for, you know, permeant to to kind of penetrate into the capital allocation. But based on the results that we've really seen kind of post, I'd say the past pandemic pause, they are now competing. What you've seen is a steady increase in the capital that is flowing into the permeant. And you should expect to see that continue. We don't view it as a it's going to be a step change increase in one given budget cycle. But you should expect to continue to see a strive more investment there as permanent. You said it is going to be a growth asset for us as we move into the future. And there's a tremendous amount of potential. And so with no doubt, as that consumption of wells to sales goes up, that 20 plus years of inventory will obviously moderate. But the strength of that inventory is unquestioned and probably at least half of that inventory life. We believe we can ascribe to extended lateral drilling as well. So it's we're very excited about it. I mean, the permeant team is definitely earned their spot in capital allocation now.
spk05: I think maybe the only other thing I'd say minutes. We've been very thoughtful in terms of how we reengage with that asset. And I think I described in your comments, we've been doing things at a very disciplined pace. We've done that for a number of reasons. It certainly allows us to mitigate any potential execution risk of moving too quickly. It also provides us the ability to integrate any learnings into what we're doing. You know, maybe the final thing I'll say is when I think about our go forward program in the permit, I probably characterizes. You know, we've been we have been focused on the Wolf Camp. But as I think about the go forward program, I say we're going to be targeting it's going to be proven benches at a very proven well spacing, maybe even slightly conservative wells. So I think that equals Lee's comments about we feel we feel very, very good about the go forward program there.
spk07: And the last thing I would maybe add, you know, Scott, is this is also a great demonstration of the strength of the multi-basin portfolio and how we kind of feather these other assets. I mean, today, as you see the dislocation between value between oil and natural gas, obviously the true black oil areas are very strong, the Eagleford and the Bakken. And then you even even if you look at some of the realizations coming out of the Permian, which, you know, are challenged today on the gas side, very little of our revenue and production is being sourced or being exposed to that today. And again, it just really demonstrates the strength of having a multi-basin approach where you can move capital allocation around.
spk02: Thanks for
spk07: the call.
spk09: The next question comes from Arun Jayaram from JP Morgan. Please go ahead.
spk04: Good morning, team. Mike, I want to get a little bit more details on the Refract program. As you know, the buy side has historically been a little reticent to give value for refracts versus called primary sticks on the map. So you mentioned that you're doing kind of 25 refracts this year. I'd love to get a sense of, you know, what kind of MPVs per well do you see in this program versus a primary development? And how do you think about value creation potential? You know, you highlighted 600 opportunities across the Bakken and Eagleford.
spk05: Yeah, as I mentioned to Scott in the last call, in terms of value, we're looking at these Bakken refracts being very comparable to industry new drills. So I think you could you could tie a number of that around. And then similarly in the Eagleford, again, we mentioned that refracts there were probably out competing some of the new drills that industry was bringing on. If anything, they're kind of top quartile. So again, I think you could get at a number there and you can you can do the math 600 times that number. It gets you to get you the potential value uplift.
spk07: Yeah, and maybe just to stress around, you know, we're not we're not looking at refract and redevelopment necessarily displacing primary development opportunities within our portfolio. But when we benchmark them against what others are drilling today, economic wise, they're very, very competitive. But it's going to be, you know, Mossa Manus, you know, kind of 10 percent of the Eagleford Bakken program. It's not a, you know, it's not a major driver necessarily in terms of capital, but it is very high value. And that's what I think is very exciting. The other thing that I'll just emphasize is, you know, if you rewind back to when we talked about the inside acquisition, we were very clear that we ascribe no value in that transaction to refract and redevelopment. And here and so the importance of think of this disclosure is multifold, you know, not only in an enterprise level, but even zooming in on that acquisition. 30 percent of these opportunities lie in the inside acreage, which is that upside that we reference when we describe that acquisition.
spk05: I'll make a final point around, you know, when when I think about we're doing 10 percent refrags, redev's every year, I think that talks to the quality of our primary inventory. You know, the fact that we are undertaking refrags, we've done as part of the overall primary development. It's not a standalone program. Again, I think it just talks to the quality that we've got in the existing primary portfolio.
spk04: Great. Just my follow up. I know that some of the accounting and EG will change, you know, this year giving the change in the marketing agreements. We'll have to spend some time with Guy to go through this in terms of our model. But one of the questions that's come in is, does it impact how you're recognizing cash flow from Ops versus CFI? Just wanted to see if there's any changes to how you're you know, how this will impact the reporting of cash flow on a go forward basis.
spk07: I'll maybe hand over here in just a minute to Rob and Erdang. But, you know, first of all, I want to be clear is don't let the accounting situation kind of take away from the results in EG. I think that's a great point. And I think that's one of the key implications of capturing that global LNG pricing. So we can get into the vagaries of consolidated versus equity accounting. But from a bottom line delivery standpoint, the asset is delivering exactly what we described. OK, so now I'll turn over to the to the green eyeshades here and let them talk a little bit about the accounting piece.
spk11: Hey, Erdang. This is Rob. Just a quick point there. I think actually a difference you would see would be a positive difference on the cash flow perspective with more of our business flowing through the consolidated side. It kind of eliminates the timing issue of the dividend. So as we migrated that from the EG LNG EMI earnings over to the consolidated side, these LNG lifting the cash would come in without a dividend process. We'll be subject to lifting schedules. So the timing of some of those liftings might put us in an under-overlift position at the end of any quarter, but would potentially be a positive on on dividend timing.
spk04: Great. Dane, I wanted to thank you for all of your counsel and help over the years and glad you had a successful act after EP. But great work and we'll miss you.
spk10: Thanks, Arun. I really appreciate it. Yeah. Thinking back to the early days of EP Energy, boy, there's been a lot of water under the bridge, but it's been a great run here at Marathon and really proud of where this company is right now. Thank you for all your support. Thanks.
spk09: The next question comes from Betty Jang of Barclays. Please go ahead.
spk08: Good morning. I want to ask about the continued value maximization efforts that we're seeing here at EG Integrated Gas Assets. Lee, perhaps if you could help us think about the value uplift from redirecting the volumes into the methanol plant instead of LNG sales. And basically, is there an opportunity to do more of that before that gas contract expires in 2026, I believe?
spk07: Yeah, no, thanks. Thanks for the question, Betty. Yeah, I think the, you know, the overall approach in EG has been very comprehensive. You know, we've always talked about EG in terms of a value proposition that consists of the ALBA gas condensate field, but also this world class infrastructure and how we can maximize taking advantage of that. And so we're always looking to drive more opportunity here. And, you know, you just highlighted one of the very key ones as we look to optimize gas flows within this integrated gas asset. And for where methanol stands today and where obviously uplift to global LNG stands today, it makes a lot of sense to divert a large component of the gas feed into AMCO or the methanol facility into LNG. It's best for our partners. It's also best for the state as well in terms of maximizing revenues. The GSA, the gas sales agreement that we have with the methanol plant runs its course in 2026. And obviously at that point in time, we'll have another strategic decision to make going forward around what is the future of that facility. But again, we would not be subject to that gas sales agreement in 2026. So maximizing flow to EG LNG becomes a real option for us at that stage. Today, you should really think about it as a, you know, we're taking advantage of that arbitrage to the extent that we can while also keeping AMCO running in good stead and continuing to meet our marketing obligations on the methanol side.
spk08: Got it. That's clear. Thanks. And then I have another question on the Permian. It's great to see that the 1Q results showcase the strength of the wells that were brought on during the quarter. But I'm also wondering how sustainable is this level of productivity that we're seeing in the Permian? Basically, as you start ramping up activities in the basin, as the development approach potentially evolve, can we expect to see this level of productivity going forward? Or would there be some level of dilution as you get into full development?
spk05: Hey, Betty, it's Mike here. I'll take that question. Yeah, I mean, we probably touched on that one a little bit, one of the earlier responses. But, you know, when I look at the Permian, we talk about over 20 years of inventory at the current drilling pace. You know, when I look at what we're going to be targeting in the future, again, I'd describe it as it's we're going to be targeting proven benches at proven, if not conservative, well spacing. So when I think about the capital efficiency coming out of that basin, you know, I think it's going to be pretty consistent, certainly in the near term. So you should expect more of the same as we as we potentially look to even ramp up some activity there in the coming years.
spk07: Yeah, I would just reference the fact again that, you know, when you look at our acreage position, just because of the way we've developed it, it is one of the more lightly developed positions, you know, in the peer group, which I think just underpins what Mike says. We've got a lot of running room there with very high quality inventory, a big chunk of which will still be subject to extended lateral drilling as well.
spk08: Great to see. Thank you.
spk09: The next question comes from Neil Dingman from Truist Securities. Please go ahead.
spk03: Morning, guys. Thanks for my time. My first question is on capital allocation specifically. I was hoping maybe you could just maybe give a broad comment on how you view the current value of your stock versus what you're seeing out there for potential assets in the market. I'm just wondering, I mean, I love how you continue to sort of dig in and keep approaching those shares. And I'm just wondering if that's still because of your view on the valuation versus, you know, where some of this external assets are at.
spk07: Yeah, well, certainly as you look at the efficiency of a share repurchase program, you know, when you quickly go to the free cash flow yield that you're generating and being strongly and double digit yield there, it still makes a lot of sense to see any discretionary cash flow above and beyond our base dividend flowing to that vehicle. I mean, I think as we said in the opening remarks, that that still is our preferred vehicle, the combination of a competitive and sustainable base dividend as well as, you know, rateable share repurchases. We still believe in that. Now, I would say there's there's really two independent questions there. I think that, you know, your shares can be a good value in the market, but we obviously continue to watch all of our basins for for opportunities in organic opportunities to enhance our business. But we have a very strict criteria for that. And we've been very clear about that, you know, from the beginning. And that was really exemplified in the inside transaction. If anything, that criteria is even higher when you consider the addition of ensign, some of the Permian performance that we just described and the length and duration of inventory there and even the refract and redevelopment opportunity set that we've disclosed here. So that bar for that type of opportunity remains high as it should be in such a high quality portfolio. But I kind of view those a little bit as as two independent decisions. I still think from a return of cash to shareholder standpoint, a 40 percent CFO commitment that reigns supreme and the best vehicles for accomplishing that are base dividend and share repurchases. But we're going to continue to obviously watch and evaluate any and all high quality opportunities that come into the market. But we're going to scrutinize those through the lens of a very exacting M&A criteria.
spk03: Very clear. And then just a quick second one. I think I know the answer. I want to ask, is there any room there to expand your current footprint? I'm just going to give it how positive the contractual terms and other things you have there. Is there any opportunities for expansion over needy?
spk07: Yeah, I think when you say expansion, we continue to look at, I would say, gas aggregation in the area, both indigenous gas and EG, but also cross border opportunities as well, particularly in Cameroon. So, yeah, I think there is opportunity there to expand our footprint. Now, that may not necessarily look like upstream investment. It could look at look like maximizing throughput through EGL and G for an extended duration. But we see a lot of opportunity there. But right now, I think as you as you look at kind of the multiple phases and how we're executing those within the gas mega hub, you know, it really started with the land, you know, third party. Molecules that got it. That got infrastructure built using someone else's money. And we now have access to that infrastructure. And we're realizing both tolling plus profit share on those molecules. The next step was really coming into the global LNG market with our Alba equity molecules. We can now kind of take that one off the list. Complementary to that was to get more Alba molecules, which the infill program will help us drive more high value molecules, equity molecules there. And then finally, you know, we're right now in the throes of negotiating the same gas processing, which, you know, that's the same gas cap that we know is there. We were well positioned with the infrastructure that was built for a land to bring those molecules to EGL and G. And all of these are continuing to extend the runway of this world class infrastructure. And by extending that runway, you just open up the aperture for even more opportunities, which may look like something like could be indigenous EG gas, but it could also very well be cross border gas. Because this facility is going to be the natural aggregation point for regional gas in this area.
spk03: Very thorough answer. Thank you, Lisa.
spk09: The next question comes from Nitten Kumar from Mizuho Securities. Please go ahead.
spk01: Hi, good morning and thanks for taking my question. Lots of good updates this quarter. I just want to focus on the long laterals. Obviously, this quarter you did, I think, about eight long laterals in the Eagleford and the Bakken and a few less in the Permian. Given that your Bakken and Eagleford are more developed than your Permian assets, what's the mix of your future inventory when it comes to these three milaterals?
spk07: Yeah, maybe I'll take it at a high level now, let Mike jump in and maybe talk a little bit about at an asset level. You know, year over year, the portfolio is actually the lateral length has increased by about five to 10 percent. And so we are moving the entire portfolio toward longer laterals. Some areas, some leases and some basins are more adaptable to an extended lateral to three mile kind of approach. So it's going to be very dependent upon the lease form, you know, our position in that particular basin. But we're definitely pressing hard to drive as much of our capital allocation toward extended laterals because we see just the efficiency of doing that. The reduction in costs on a per foot basis and then essentially very similar EUR per foot in the extended laterals. I mean, what we're seeing in the third mile is, you know, consistent with a lot of capture out of that third mile. So there's a lot of incentive for us to continue to drive and other operators feel the same way. And so in areas where perhaps there are some trades or some swaps that you can make, it kind of benefits everyone to continue to consolidate and drive as much of their operated acreage toward extended laterals as they can.
spk05: I think you've covered it. We I think maybe the only thing I'd add in our land teams doing a great job. They've done a great job. Continue to a great, great job. I think we mentioned we see the capital efficiency enhancements alignment there with with offsetting operators. So, you know, the trend that we've been on in terms of increasing our average lateral lengths, obviously gets a little bit more difficult every year. But see, the land teams done a phenomenal job and they're all of the assets teams are very, very active in terms of engaging with those offset operators just to see if there are deals that we could do to just extend the average line.
spk01: Great. Thanks for the answer there. And I just wanted to touch on the hedging. We noticed that you had added some gas hedges to your portfolio in 2025. They're pretty wide callers, but just to the thought process behind hedging some of the gas exposure. It's not like you have much of it anyway, but just any thoughts there.
spk02: Good morning. This is Pat. I'll take that one. I think we've covered our hedging strategy in the past. And, you know, we, as you said, gas is not not a big component of our revenue, but we did see a unique opportunity in the market for next year. You may be seeing weakness in the prop this year. And so we saw some really nice hedges available on a two way collar last year sitting at a 250 floor. So we went ahead and took that. I mean, hedging is just a part of how we manage our commodity risk. We have a strong balance sheet, very low break evens. We're in a good position, so we don't need to go into the market to protect our capital program. But when we see an opportunity like that, we'll do that. We meet regularly to look at those opportunities and we're always ready to capitalize on them when we see them.
spk01: Great. Thanks for the answers.
spk09: The next question comes from Matt Portillo from TPH. Please go ahead. Good
spk07: morning, all.
spk13: Just maybe a follow up to this question on the three mile laterals. I was actually curious on Ajax specifically seeing some strong results there with the lighter spacing in the three mile lateral development. I'm wondering if you might be able to just speak to the return profile you're seeing at Ajax versus maybe the development program that's more focused on Hector over the last year or so.
spk05: Yes. It's Matt, it's Mike here. It's certainly getting it more competitive. But as you know, we've had a pretty successful program there with the Living Wells brought online between the fourth quarter last year, first quarter this year. We covered it in the prepared comments. Over 20 percent reduction in TWC per foot savings. And you couple that with the solid initial production. It was very consistent with our expectations. Now, what I would say is we probably do need to monitor the longer term production just to make sure that the shallower declines that we're expecting actually come to fruition. But, you know, with with the enhanced capital efficiency that we expect is going to come from it, I'd certainly hope that the Ajax portfolio is going to get more more competitive.
spk13: Great. And then maybe just a high level question. I'm curious if you might be able to speak to maybe the drilling and completion efficiency gains you've seen this year. I know that was a big theme for you all last year, but it seems like you're continuing to see success on that front, both on the drill bit and on the frac side. And what that may mean, I guess, as we think about the guidance range for the Wells to sales, it's a little bit early. But should we be thinking about biasing our expectations towards the higher end of the range if you guys continue to see success on efficiency gain?
spk05: No, you shouldn't expect much of a change in terms of Wells to sales. It's really just a phasing within within the year, Matt, is how I describe it.
spk07: I think, you know, just on your specific question, I think, you know, Mike, get upon a little bit of this in his opening comments. But, you know, on the D and the C side, we've definitely seen improvements on rate of penetration. Certainly, Eagleford was a bit of a standout there on the drilling side. I mean, we continue to find ways to drive execution efficiency there and even on the frac side as well. I think we're continuing to see in terms of stages per day and hours, pump hours, see improvements there. And I don't know if Mike, you want to
spk05: quantify that a little bit? Yeah, I think we touched on the Eagleford and the Bakken. I think Bakken, despite the winter weather challenges that we had in the first quarter, we held onto a lot of the efficiencies that we secured the second half of last year. So that obviously bodes really well for future quarters. You know, interestingly, in Permian, that first quarter three mile Wolf Camp program, when we look at peer data, it looks like we drilled those wells 40% faster than the peer average. You know, we're also just completing up the drilling of the Texas Delaware multi-well pad. Looking at some of the numbers there, our ROT 25% faster than the last time we were drilling wells there. Yeah, I think there's a lot going into that. We certainly took advantage of the improved market situation towards the backend, backend of last year where it made sense. We've high graded in certain areas of the business. I think you're seeing the benefits of that and the performance. You know, a lot of effort has gone into the pre-planning side of things. We actually brought on a couple of new rigs in Eagleford at the beginning of the year, and we have not missed a beat there. They very quickly got up to the expected pace. You know, and then just continuing to work with the longer term program contractors, implementing a lot of changes with them. You know, we're drilling these extended laterals. What we're finding, we're drilling a lot more of these laterals with a single trip, and that includes some of the three-mileers that we recently drilled. That's a little bit of a balancing act, but we've had some success there just in terms of trying to get a little bit more probabilistic in terms of how we should manage the directional plan. So, you know, a lot going on in the execution space, but great to be off to such a solid start beginning of the year, and I think it bodes well for the rest of the year.
spk07: Yeah, I think at the end of the day, it provides us very high confidence in delivery of our full year guidance. It's more of a timing question, as Mike said, is pulling forward a little bit of activity, and that just enhances our confidence and overall delivery on both our financial and operating commitments this year.
spk06: Great. Thanks so much.
spk09: This concludes our question and answer session. I would like to turn the conference back over to Lee Tillman for closing remarks.
spk07: Thank you for your interest in Marathon Oil, and I'd like to close by again recognizing all our dedicated employees and contractors for their commitment safely and responsibly deliver the energy the world needs now more than ever. And let me end also by just thanking Dane once again for his commitment as well to Marathon Oil. So, thank you, and that concludes our call.
spk09: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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