The operator welcomes participants to the Marathon Oil 4Q and Full Year 2023 Earnings Conference Call. The company has issued a press release, slide presentation, and investor packet discussing their fourth quarter 2023 results and full year 2024 outlook. The call will contain forward-looking statements and non-GAAP terms, and the team will provide prepared remarks before moving to a question-and-answer session. Participants are asked to limit themselves to one question and a follow-up. CEO Lee Tillman thanks everyone for joining the call.

The speaker begins by thanking employees and contractors for their hard work and commitment to core values. They achieved a record safety year, reduced natural gas flaring, and achieved their GHG intensity reduction goal two years ahead of schedule. The company has a history of delivering results and the speaker reflects on their success in their "more S&P less E&P" journey.

The company's challenge was to compete with the best companies in their sector and the S&P 500 on key metrics such as sustainable free cash flow, return of capital, and efficiency. They have successfully executed their strategy for the past three years, prioritizing corporate returns, generating high levels of free cash flow, and returning a significant amount of capital to shareholders. This has differentiated the company in the marketplace, as seen in their strong financial performance compared to their peers and the S&P 500.

The company takes pride in its efficient capital and operating practices, demonstrated by its low reinvestment rate and high well-level capital efficiency. In 2023, the company delivered strong results, including high free cash flow, shareholder distributions, share repurchases, debt reduction, and production growth. The company plans to continue executing its strategy and returning capital to shareholders, and expects to outperform the S&P 500. The company acknowledges the impact of commodity price volatility on its financial outcomes and plans to maintain discipline in its capital allocation.

The company is committed to returning capital to shareholders and has provided cash flow sensitivities for key commodities to help model expectations. They plan to maintain a double-digit shareholder distribution yield and improve capital efficiency. The company's results are sustainable, especially in their integrated gas business, which now has no Henry Hub exposure. The company is also focused on fortifying their investment grade balance sheet while returning capital to shareholders. They have reduced their debt by $500 million in 2023.

In 2023, the company provided a strong return on investment for shareholders while also improving their investment rate balance sheet. This was achieved through a combination of share repurchases and dividend payments, resulting in a 41% return on cash flow and a 12% annual distribution yield. The company plans to continue prioritizing free cash flow and maintaining their leadership position in the peer group in 2024, while also remaining committed to paying a sustainable dividend. Their consistent and committed approach to shareholder returns has set them apart in the industry.

The company's top priority is to consistently deliver returns of at least 40% of their CFO to shareholders through share purchases and base dividends. This translates to about $1.6 billion in expected shareholder distributions and a double-digit yield. The company plans to continue growing their per share base dividend without negatively impacting their free cash flow break-even. They also plan to reduce their gross debt and have the financial strength and flexibility to do so. The company has $400 million of tax exempt bonds maturing this year and may refinance a portion of their Ensign term loan. They also have $2.1 billion in available capacity on their credit facility.

In 2024, the company plans to refinance their maturing tax-exempt bonds and term loan while still retaining the ability to pay off $1.5 billion of commercial paper and bonds. They also expect to become an alternative minimum tax cash taxpayer and will use research and development tax credits to offset a significant portion of their AMT cash payments. The company's capital program is expected to deliver $1.9 billion of free cash flow with a low reinvestment rate and high shareholder returns. This is expected to benchmark at the top of their peer group.

The company plans to operate nine rigs and four frac crews this year, with 60% of their capital expenditure in the first half of the year. They expect flat total company oil production of 190,000 barrels per day, but anticipate continued growth in oil production on a per share basis. They will focus on value over volume and prioritize the oiliest areas for investment. There may be some quarter-to-quarter variability in production, with the first quarter being the lowest due to weather-related outages. The company plans to deliver flat oil production with fewer net wells to sales compared to last year.

The company plans to improve capital efficiency through increased lateral lengths, modest deflation recapture, and a focus on the Eagle Ford and Bakken programs. They have a track record of leading performance in these basins and will also increase activity and investment in the Permian. Non-developing capital will be higher this year due to environmental and regulatory spending.

The company expects their non-D&C capital to decrease in 2025 and many of their emissions-related projects will improve reliability and uptime performance. They have recently lifted their first cargo under new contractual terms and have a significant increase in E.G. EBITDAX this year. They expect sustained financial performance over the next five years and anticipate cumulative E.G. EBITDAX of $2.5 billion.

The strong performance of the company over the past five years can be attributed to several factors, including optimizing methanol volume, implementing an infill well program, and monetizing third-party gas. The company expects to continue this success in the future by extending the life of their LNG sales agreement and advancing their gas mega hub concept. The company has a strong investment case, with a high-quality U.S. portfolio and a unique return of capital framework that prioritizes shareholder distributions. The company also has a track record of consistent execution and sustainability throughout the commodity cycle.

The speaker discusses the company's multi-basin portfolio and its commitment to its strategy. They also mention the recent industry M&A activity and how the company will approach potential consolidation opportunities. The company's framework for assessing M&A remains unchanged and the bar is even higher now after the successful addition of the Ensign asset.

The speaker reminds Arun that there are five key elements to their acquisition criteria, including financial metrics, return of capital, inventory life, industrial logic, and maintaining a strong balance sheet. They are patient and discerning in their acquisitions, and the recent acquisition of Ensign met all their criteria. When asked about their outlook for E.G., the speaker clarifies that the five-year projection is based on a specific LNG sales agreement and does not represent the entire life of the project. They also mention that a recent exit by a major company in E.G. could potentially open up opportunities for them.

The speaker is discussing the company's recent five-year TTF linked LNG sales agreement and how it aligns with their long-term plans. They also mention the potential for future growth through methanol volume optimization, Alba infill drilling, and third-party molecules like Aseng. They clarify that the recent exit of super majors from E.G. is a unique situation and that they will continue to evaluate opportunities through their established criteria. The speaker also highlights the company's ability to replicate their successful third-party framework in the future. The next question is directed to Mike, who is asked to provide more detail on the company's leading operational efficiencies.

Mike Henderson, when asked about the key drivers behind the remarkable upside in the company, points to consistently strong peer leading well productivity, longer laterals, and a modest deflation forecast. In terms of capital allocation, Lee and Dane are focused on the active buyback program and continue to see growth in per share value as a result.

In summary, the company expects their framework and mix of return vehicles to remain unchanged in 2024. A variable dividend is an option but not a priority. Their main commitment is a 40% return to shareholders, achieved through a base dividend and share buybacks. They also plan to pay down debt and improve their balance sheet. The consistent and meaningful share repurchase program has resulted in significant value growth for shareholders.

The speaker discusses the company's belief in their program of repurchasing shares and its success so far. They also mention their remaining authorization for the program. The speaker then moves on to answer a question about their Bakken acreage and the success of their Ajax well. They mention the spacing design and their plans for future development. They caution that it is still early and things may change in the future.

Lee Tillman and Mike Henderson discuss the progress of their company's operations in the Texas, Delaware play. They are waiting for more production data to declare success, but are pleased with the cost savings they have already achieved. The first wells executed have been 25% cheaper than comparable ones, and have had early production of a couple thousand barrels of oil equivalent a day. The Texas, Delaware play is expected to make up about a third of their program in 2024. They are still working on delineating the resource and improving costs in this area.

The speaker explains that the project has moved from exploration to development and that they have 13 wells in production with good results. They plan to bring on nine more wells this year, with longer laterals and a 57,000 acre position. They are still looking at four by four spacing and costs are in line with expectations, with potential for improvement. The speaker also mentions the bringing together of two asset teams under a single leadership structure.

The speaker discusses the benefits of combining their experience drilling and completing in Oklahoma with their new joint asset team in the Texas Delaware play. They mention the challenges of drilling in the Woodford Merrimack formation, but believe their expertise will help them improve efficiency. When asked about capital efficiency in the future, the speaker notes their strong underlying well productivity and believes they can continue to hold the line or even improve on metrics in the long term. They acknowledge that the Permian will compete for more capital, but are confident in their ability to maintain efficiency.

The speaker discusses various tools and strategies that the company has in place to improve efficiency and reduce costs, such as longer laterals, better completions, supply chain optimization, and commercial leverage. They also mention that their current capital program for 2024 reflects the current low natural gas prices, and they are prioritizing their investments in the Eagle Ford, Bakken, and Permian basins over other areas.

The speaker discusses how the company has been successful in replacing inventory over the past five years through organic enhancement, small bolt-ons and trades. They also mention the migration of the Texas, Delaware play from exploration to development.

The company uses four avenues to replenish their inventory, including large scale M&A like Ensign. They have been able to hold their 10-plus-decade inventory relatively constant over the last five years. They plan to continue using this playbook, with a focus on organic enhancement and exploration. They manage their inventory at an enterprise level, with basins receiving capital allocation based on the highest return. In an extreme scenario where prices reach $30 per MMBtu, the company would be very happy and there would likely be linearity in their earnings.

The speaker discusses the changes in accounting for E.G. and how it may affect decision-making. They also address the potential impact of consolidation in the operating regions on the competitive landscape.

The speaker agrees that under the new contractual structure, some profitability will be shifted from equity companies to consolidated reporting and this will bring more transparency and limit timing dislocation. They also state that this change will not affect their decision making as they are aligned across the value chain. The guidance provided on page 15 of the slide deck is the best way to look at the business and the speaker does not believe it will drive their decision making.

The speaker discusses the strong guidance provided for the next five years and the potential for growth in the business due to infill opportunities. They also address the competitive landscape, particularly in mature basins, and the challenges of balancing PDP production with forward inventory. The speaker emphasizes the importance of high quality assets and operators in these areas and their own position in this category. The speaker also mentions their conservative approach to M&A and the industry trend towards securing good rock and scaling up.

The speaker is addressing concerns from investors about the shrinking opportunity for acquisitions and the quality of those opportunities. They assure investors that they are not willing to compromise their criteria for M&A and that they have a track record of success in this area. They also mention that even if transactions occur, the assets will still be available and the best assets will eventually end up in the hands of the best operators. The speaker concludes by thanking a questioner and turning the conference back over to Lee Tillman for any final remarks.

Lee Tillman thanks the audience for their interest in Marathon Oil and expresses gratitude to the company's employees and contractors for their dedication to safely and responsibly providing energy. He concludes the call and the operator thanks everyone for attending.

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