- Returned Over $475 Million to Shareholders
- Raised Quarterly Base Dividend and Increased Share Repurchase Authorization
Marathon Oil reported third quarter 2023 net income of $453 million or $0.75 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $466 million or $0.77 per diluted share. Net operating cash flow was $1,066 million or $1,144 million before changes in working capital (adjusted CFO). Free cash flow was $573 million or $718 million before changes in working capital and including Equatorial Guinea (E.G.) distributions and other financing (adjusted FCF).
- Reported another quarter of strong financial performance and consistent operational execution
- Generated $718 million of adjusted free cash flow during third quarter, up 35% sequentially, at a 38% reinvestment rate
- Delivered sequential increase in total third quarter production to 421,000 net barrels of oil equivalent per day (boed) and 198,000 net barrels of oil per day (bopd), both above the high end of annual guidance ranges
- Continued delivery on sector-leading commitment to return at least 40% of adjusted CFO to shareholders
- Returned $476 million or 42% of adjusted CFO to shareholders during third quarter through $415 million of share repurchases and $61 million of base dividend
- Returned $1.3 billion of capital to shareholders through first three quarters of 2023, including over $1.1 billion of share repurchases
- Further enhanced investment grade balance sheet through gross debt reduction
- Achieved year-to-date gross debt reduction of $451 million, including $250 million prepayment on its Term Loan Facility in October
- Expect additional gross debt reduction in fourth quarter while continuing to return at least 40% of adjusted CFO to equity holders
- Remain committed to Return of Capital Framework featuring sustainable and competitive base dividend and significant share repurchases
- Announced 10% quarterly base dividend increase to $0.11/share which is expected to be funded by share count reduction through the Company's share repurchase program
- Board of Directors approved increase in share repurchase authorization to $2.5 billion as of Nov. 1
- As previously announced, the signed LNG sales agreement linked to the European natural gas market (TTF) is expected to drive significant improvement in 2024 financial performance for E.G. Integrated Gas Business
'Third quarter results are a continuation of our track record of consistent operational execution, strong financial results, and peer-leading return of capital to our shareholders,' said chairman, president, and CEO Lee Tillman. 'We expect to finish the year strong with free cash flow generation growing sequentially again in the fourth quarter, contributing to both peer- and market-leading shareholder distributions. Not only are we leading the peer group in shareholder returns, consistent with our differentiated cash flow driven Return of Capital Framework where our shareholder gets the first call on cash flow, we're doing so while further enhancing our already investment grade balance sheet through additional gross debt reduction. Looking ahead to 2024, while the macro environment is sure to remain volatile, our commitment to our Framework for Success remains steadfast. We'll continue to prioritize strong corporate returns on every dollar we invest while striving to deliver peer-leading free cash flow generation, return of capital to shareholders, and per-share growth across a broad range of commodity prices. Additionally, we will work to further bolster our investment grade balance sheet through continued gross debt reduction and maximize value from our unique E.G. integrated gas operations, which are set to realize a substantial financial uplift through our increasing exposure to the global LNG market, while we also progress the next phase of opportunities in support of the E.G. Gas Mega Hub.'
Return of Capital
Marathon Oil's percentage of CFO framework provides clear visibility to significant return of capital to equity investors, ensuring the shareholder gets the first call on cash flow generation. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors. The Company remains on track to meet or exceed this minimum objective in 2023.
During third quarter, Marathon Oil returned $476 million to shareholders, including $415 million of share repurchases and $61 million of base dividend. Through the first three quarters of 2023, Marathon Oil has returned $1,307 million to shareholders, representing 41% of adjusted CFO. Shareholder distributions through the first three quarters of 2023 include $1,121 million of share repurchases and $186 million in base dividends.
Over the trailing eight quarters, since significantly increasing return of capital to equity investors under its current Return of Capital Framework, Marathon Oil has returned $5.1 billion to shareholders, equivalent to approximately 30% of the Company's current market capitalization. Over this same timeframe, Marathon Oil has executed $4.6 billion of share repurchases that have reduced outstanding share count by 26%, contributing to significant growth in per-share metrics.
Marathon Oil expects to continue returning significant capital to shareholders through the combination of a competitive and sustainable base dividend and significant share repurchases. Consistent with this objective, the Company's Board of Directors recently approved a 10% increase to the quarterly base dividend to 11 cents per share, which is expected to be funded by share count reduction through the Company's share repurchase program. This is the ninth increase to the Company's base dividend in the last 13 quarters. The Board also approved an increase in total share repurchase authorization to $2.5 billion as of Nov. 1.
3Q23 Financials
CASH FLOW AND CAPEX: Net cash provided by operations was $1,066 million during third quarter or $1,144 million before changes in working capital. Third quarter cash additions to property, plant and equipment totaled $493 million, while capital expenditures (accrued) totaled $449 million.
BALANCE SHEET AND LIQUIDITY: Marathon Oil ended third quarter with $174 million in cash and cash equivalents. The Company redeemed $131 million of 8.125% Senior Notes in July and pre-paid $250 million on its Term Loan Facility in October, bringing year-to-date total gross debt reduction to $451 million. At quarter end, Marathon Oil had $2.1 billion of available borrowing capacity on its revolving credit facility that matures in 2027. All three primary credit rating agencies continue to rate Marathon Oil investment grade.
ADJUSTMENTS TO NET INCOME: The adjustments to net income for third quarter increased net income by $13 million, primarily due to an unproved property impairment and the income impact associated with unrealized losses on derivative instruments.
3Q23 Operations
UNITED STATES (U.S.): U.S. production averaged 369,000 net boed for third quarter 2023, an increase from 356,000 net boed during second quarter. Oil production averaged 189,000 net bopd for third quarter, an increase from 181,000 net bopd during second quarter. The Company brought a total of 65 gross Company-operated wells to sales during third quarter, excluding joint venture wells. U.S. unit production costs declined sequentially to average $5.07 per boe during third quarter.
Marathon Oil's third quarter Eagle Ford production averaged 158,000 net boed, including 80,000 net bopd, with 38 gross Company-operated wells to sales. Bakken production averaged 121,000 net boed, including 77,000 net bopd, with 25 gross Company-operated wells to sales. Oklahoma production averaged 46,000 net boed, including 9,000 net bopd. Permian production averaged 42,000 net boed, including 22,000 net bopd, with two gross Company-operated wells to sales.
INTERNATIONAL: E.G. production averaged 52,000 net boed for third quarter 2023, including 9,000 net bopd. Unit production costs declined sequentially to average $3.99 per boe during third quarter. Net income from equity method investees totaled $38 million during third quarter. Third quarter cash distributions from equity method companies totaled $47 million, including $24 million of dividends and $23 million of distributions classified as return of capital.
In a separate press release published Oct. 16, Marathon Oil announced that through its wholly-owned subsidiaries it entered into a five-year firm LNG sales agreement for a portion of its equity natural gas produced from the Alba Field (Alba Unit, MRO 64% working interest), effective Jan.1, 2024. The pricing structure for the LNG sales agreement is linked to the Dutch Title Transfer (TTF) Index, providing Marathon Oil with significant incremental exposure to the European LNG market. The new LNG sales agreement is expected to contribute to a significant year-on-year EBITDA increase in 2024 for the Company's E.G. integrated gas business.
Separately, due to the expected arbitrage between LNG and methanol pricing, Marathon Oil announced it expects to optimize its E.G. integrated gas operations in 2024 by redirecting a portion of Alba Unit natural gas from the local methanol facility (MRO 45% working interest) to the LNG facility (MRO 56% working interest).
2023 Guidance
Marathon Oil's originally provided 2023 production and capital expenditure (accrued) guidance ranges remain unchanged. For the full year 2023, the Company is trending to the high end of its annual 2023 total oil-equivalent production guidance range, the midpoint of its annual oil production guidance range, and the high end of its annual capital spending guidance range (accrued).
Source: Marathon Oil
