The Marathon Oil Third Quarter 2023 Earnings Conference Call began with a welcome from the operator and an introduction from Vice President of Investor Relations, Guy Baber. The call included Chairman, President and CEO Lee Tillman, Executive VP and CFO Dane Whitehead, Executive VP of Corporate Development and Strategy Pat Wagner, and Executive VP of Operations Mike Henderson. The call contained forward-looking statements and referenced non-GAAP terms, with a reminder of risk factors and a question-and-answer session. Lee Tillman expressed thanks to employees and contractors for a successful quarter and staying true to core values.

In the third quarter, the company continued to demonstrate strong operational execution and financial performance, with $718 million in adjusted free cash flow and a low reinvestment rate. They exceeded their production guidance and managed to decrease unit cash costs. The company also prioritizes returning capital to shareholders and has already returned $1.3 billion through the first three quarters of the year, with a 26% reduction in outstanding shares. They offer a double-digit annualized distribution yield and have outperformed peer companies in terms of per share growth.

The company has reduced its gross debt by $450 million this year and plans to further reduce it to $4 billion in the medium-term. They are committed to returning capital to shareholders and have recently approved a 10% increase in dividends and a $2.5 billion share repurchase authorization. The EG integrated gas business is set to see a significant financial uplift in 2024, driven by a new LNG sales agreement and optimization of operations. This is expected to contribute to a year-on-year EBITDA increase of $300 million to $500 million. The company's focus is now on further enhancing free cash flow generation in the EG business through various initiatives.

The fourth key takeaway is that the company remains on track to deliver a strong business plan in 2023, with high benchmarks in free cash flow generation, reinvestment rate, capital efficiency, and production growth per share. The company's inventory is of high quality and offers long-term productivity. In 2024, the company's priorities will remain the same, with a focus on maximizing sustainable free cash flow generation. The company expects another strong year of operational execution and financial uplift from their exposure to the global LNG market. The third quarter was exceptional, with high adjusted free cash flow, low reinvestment rate, and significant capital return to shareholders. The company believes that returning capital to shareholders is important for their value proposition.

The company has a strong track record of consistent shareholder returns, having returned $5.1 billion over the past two years through a combination of share repurchases and dividend increases. They have a commitment to maintaining this leadership in return on capital while also reducing their debt. In the fourth quarter, they plan to pay down $400-500 million of their term loan.

The company is confident in its variable interest rate term loan and expects to reduce its annual cash interest expense by aggressively reducing outstanding principal. The balance sheet is strong and the goal is to reduce current gross debt to around $4 billion. The company's U.S. multi basin portfolio is high quality, and they are focused on self-help and improving efficiencies. The integration of the Ensign acquisition has enhanced their inventory, and they are seeing strong well productivity in both the Eagle Ford and Bakken regions.

The company has achieved strong results in their drilling and completion efficiency, with a 10% improvement in drilling and 15% improvement in completion. They have also made changes to improve operational execution and have signed a new contract for their integrated gas business, which is expected to drive significant financial uplift for the company.

The company has successfully established a commercial framework to improve financial performance and is now focused on extending this trend. They plan to divert some of their Alba Gas to a higher margin LNG facility and continue assessing drilling opportunities to mitigate field decline. They also have a longer term gas mega hub concept in development and expect to enhance their free cash flow capacity. The company's goal is to deliver strong financial performance to attract more investors.

The speaker discusses the company's strong performance over the past two years and their expectations for continued success in the future. They also address the recent consolidation in the oil and gas sector and emphasize the importance of low-cost, high-quality assets in meeting global energy demand. While they do not address any specific market rumors, they state that their duty is to explore opportunities for long-term value for shareholders, whether through organic or inorganic means. They reiterate their consistent approach to M&A and state that any potential transactions must meet their established criteria for success. The speaker also mentions a shift in perspective from energy transition to energy expansion.

The speaker believes that a select group of high-quality U.S. energy companies are necessary for driving energy expansion, protecting national security, and improving global living standards. Marathon Oil is well positioned to be one of these companies, with a strong portfolio and focus on financial returns, free cash flow, and shareholder returns. The speaker also addresses recent M&A activity and clarifies that the company is open to various types of transactions as long as they meet their criteria.

The company evaluates all potential transactions based on the same criteria, regardless of their scale. This includes financial and return of cash accretion, resource and inventory life, industrial logic, and maintaining a strong balance sheet. The recent amendment to their corporate bylaws was simply a cleanup and not indicative of any major changes. The company has a long-term sales agreement with Glencore and views them as the right partner. They also have the flexibility to shift volumes between Methanol and LNG. The development program for Alba is expected to occur in 2024.

The marketing team did a great job creating competition for base load cargos, and Glencore offered the most competitive deal with a 5-year term and experience working in EG. There is also potential for optimization by diverting feed gas to the Methanol facility. The Alba infill program is expected to compete well with U.S. projects.

The speaker is discussing their offshore resource play and the progress they have made with it. They mention high geologic certainty and the use of jack-up drilling with dry trees. They also mention the upcoming budget release and work program in February. The speaker then addresses a question about their tilt schedule and how it has evolved over the year, stating that there has been a positive story around execution efficiency. They expect their capital program to be flat year-over-year and to have a similar number of net wells as this year.

The company's productivity and efficiency have remained strong, with no expected decrease in the coming years. They are confident in their ability to deliver strong capital efficiency in 2024. While it is too early to make a definitive call on deflation potential in 2024, they are likely to see low single-digit deflation, with steel and hydraulic horsepower being the biggest contributors. Labor costs are expected to remain sticky, with no significant changes unless commodity prices shift. Steel costs are expected to decrease by 20%.

The company has seen a decrease in demand and pricing for their services in the raw materials and frack space industries. However, they were never contracted at the peak levels and have seen improvements in availability and pricing for high spec rigs. Labor costs and diesel supply and demand remain uncertain. The company is actively discussing bringing in third party gas volumes for their EG project, which already has a commercial model in place and infrastructure in place for the gas plant and LNG plant.

The company is currently negotiating a tolling plus percentage of proceeds or profit-sharing model for the Alem molecule. They have seen strong productivity and efficiency gains in their U.S. assets and are considering allocating more capital to the Eagle Ford, Bakken, and potentially the Permian. However, the specifics of capital allocation for 2024 are still being finalized. The company expects to spend around $1 billion next year, including some spending on the EG project.

The company is not concerned about quarterly variations and is focused on meeting their annual guidance. They expect some variation in production volumes in the future, but are confident in their ability to reach their target. They are now linked to TTF pricing and will not hedge away the upside for investors.

The speaker discusses the company's asset portfolio and how they plan to maximize its value. They mention the TTF linkage and their commodity risk committee, and also touch on their spending plans for the next year and the potential for maintaining a similar level of production for the next decade. The speaker emphasizes the company's strong inventory and productivity in places like the Bakken.

The speaker explains that the company's capital efficiency and the addition of Ensign will be beneficial for the company's growth in the future. They also mention their focus on maintaining a strong balance sheet and delivering value to shareholders through a combination of stock repurchases and reducing net debt. They emphasize their long-term approach and consistent free cashflow yield on shares.

The company is currently focused on both reducing its debt and increasing its share repurchase program. They have the flexibility to manage their debt and have a strong liquidity position. Their return of cash framework will also adjust according to changes in the pricing environment.

The speaker is confident that the financial uplift that will occur in 2024 will be durable for the next 5 years due to the 5-year contract with Glencore. With incremental projects, the operating life of EG LNG will be extended into the next decade, providing more time to work on cross border opportunities and undeveloped assets. The speaker mentions the first step of the lens, followed by the recalibration of commercial terms and the evaluation of Alba Infill work with partners.

The speaker discusses the company's recent successes and future plans, including extending EG LNG and balancing capital allocation across multiple regions. The Bakken team had a strong third quarter, with efficient execution and a focus on keeping facilities operational. Capital will be allocated across all regions, with 9 rigs currently running and activity in multiple areas.

The speaker discusses the performance of the company's asset and its potential for growth, as well as their M&A strategy. They mention that the current market does not offer any deals that meet their criteria, but they are confident in their organic opportunities. The speaker also mentions their projected activity for next year, which is similar to the current year's performance.

The company expects to see a similar trend in production for Q4 and Q1 as in previous years, with a concentration of capital in the first half of the year. They plan to bring 26 wells to sales this quarter, compared to 22 in the same quarter last year. The natural PDP decline rate in EG is estimated at 8-10%. The impact of drilling two infill wells in EG is still being evaluated.

The speaker responds to a question about whether new wells will offset production declines, stating that the decline estimate is accurate and the wells will only partially mitigate the decline. However, these wells will provide valuable equity molecules and extend the financial performance of the integrated asset. The speaker thanks employees for their commitment and concludes the call.

This summary was generated with AI and may contain some inaccuracies.