PR Newswire | Aug 4, 2021 04:16PM EDT

08/04 15:15 CDT

Marathon Oil Reports Second Quarter 2021 ResultsAccelerating Gross Debt Reduction and Increasing Base Dividend HOUSTON, Aug. 4, 2021

HOUSTON, Aug. 4, 2021 /PRNewswire/ -- Marathon Oil Corporation (NYSE: MRO) reported second quarter 2021 net income of $16 million, or $0.02 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. The adjusted net income was $173 million, or $0.22 per diluted share. Net operating cash flow was $655 million, or $701 million before changes in working capital.

Highlights

* Strong financial performance highlighted by $420 million of second quarter free cash flow generation; $863 million of free cash flow generation through first half of 2021 * Committed to capital discipline with no change to $1 billion 2021 capital expenditure budget; second quarter capital expenditures of $289 million and first half 2021 capital expenditures of $473 million * Second quarter oil-equivalent production of 348,000 net boed; raising 2021 full year oil-equivalent production guidance by 5,000 net boed * Second quarter oil production of 170,000 net bopd; no change to full year 2021 oil production guidance * Raised quarterly base dividend by 25% to 5 cents per share * Full redemption of $900 million 2025 maturity in September accelerates $4.0 billion gross debt objective and increases total 2021 gross debt reduction to $1.4 billion; shifting return of capital focus to equity holders and retiring future debt at maturity * Raising return of capital target to at least 40% of cash flow from operations to equity holders in a $60/bbl WTI or higher price environment

"I am once again proud of the commitment and dedication of our employees and contractors to deliver outstanding operational results while also achieving top quartile safety performance," said Chairman, President, and CEO Lee Tillman. "The combination of our high-quality multi-basin portfolio, our consistent operational execution, and our commitment to capital discipline has resulted in exceptional financial results, highlighted by over $850 million of free cash flow generation through just the first half of this year. Supported by such strong outcomes, we are raising our quarterly base dividend for the second time this year, accelerating our balance sheet improvement initiatives, and enhancing our return of capital framework. We are increasing our return of capital target to at least 40% of our cash flow from operations, assuming an oil price of $60/bbl WTI or higher, and expect to shift that return to equity holders given the strength of our balance sheet. We continue to believe that our commitment to a transparent and disciplined capital allocation model, ESG excellence, sustainable free cash flow generation, and meaningful return of capital is the best approach to maximizing shareholder value in our industry."

United States (U.S.)

U.S. production averaged 283,000 net barrels of oil equivalent per day (boed) for second quarter 2021. Oil production averaged 159,000 net barrels of oil per day (bopd). U.S. unit production costs were $4.41 per boe for second quarter.

During second quarter, the Company brought a total of 61 gross Company-operated wells to sales in comparison to guidance of approximately 70 wells to sales. In the Eagle Ford, Marathon Oil's second quarter production averaged 91,000 net boed. Oil production averaged 59,000 net bopd on 45 gross Company-operated wells to sales. In the Bakken, production averaged 107,000 net boed, including oil production of 70,000 net bopd. The Company brought 16 gross Company-operated wells to sales in the Bakken. Oklahoma production averaged 54,000 net boed, including oil production of 12,000 net bopd. Northern Delaware production averaged 24,000 net boed, including oil production of 13,000 net bopd.

International

Equatorial Guinea production averaged 65,000 net boed for second quarter 2021, including 11,000 net bopd of oil. Second quarter sales totaled 65,000 net boed, including 12,000 net bopd of oil. Unit production costs averaged $2.17 per boe. Net income from equity method investees totaled $49 million during second quarter.

Guidance

Marathon Oil's 2021 capital expenditure guidance of $1 billion remains unchanged.

The Company is raising the midpoint of its 2021 full year U.S. oil-equivalent production guidance by 5,000 net boed. All other full year 2021 production guidance remains unchanged.

Due primarily to continued commodity price strength, the Company is raising its 2021 E.G. equity method income guidance to $180 million to $200 million, an increase of over 70% at the midpoint.

Corporate

CASH FLOW AND CAPEX: Net cash provided by operations was $655 million during second quarter 2021, or $701 million before changes in working capital. Second quarter capital expenditures totaled $289 million.

FREE CASH FLOW: Marathon Oil generated $420 million of free cash flow during second quarter and $863 million of free cash flow through the first half of 2021.

ADJUSTMENTS TO NET INCOME: The adjustments to net income for second quarter 2021 totaled $157 million, primarily due to the income impact associated with unrealized losses on derivative instruments, miscellaneous asset impairments, and make-whole premium associated with early debt retirement.

Accelerating Balance Sheet Improvement

Marathon Oil ended second quarter with total liquidity of $4.1 billion, which consisted of an undrawn revolving credit facility of $3.1 billion and $1.0 billion in cash and cash equivalents. The revolving credit facility was recently extended from May 2023 to June 2024. The Company continues to maintain an investment grade credit rating at all three primary rating agencies and recently received an outlook upgrade from stable to positive from Fitch.

In light of continued strong financial performance and significant free cash flow generation, the Company has given irrevocable notice of its intention to fully redeem its $900 million 3.85% Senior Notes Due 2025 with final settlement expected in September of 2021. This transaction will reduce gross debt by $900 million and accelerates the realization of Marathon Oil's previously disclosed absolute gross debt objective of approximately $4.0 billion. The transaction will bring total 2021 gross debt reduction to $1.4 billion and contributes to approximately $50 million of annualized cash interest expense savings. Going forward, the company expects to retire future debt at maturity.

Base Dividend Increase and Enhanced Return of Capital Framework

Subsequent to the end of second quarter, the Company raised its quarterly base dividend, from 4 cents per share to 5 cents per share, the second consecutive quarterly increase to the base dividend.

The Company also updated and enhanced its return of capital framework. Marathon Oil now expects to return at least 40% of its cash flow from operations, assuming a WTI oil price of $60/bbl or higher, and is shifting its return of capital focus to equity holders given the strength of its balance sheet. The company has $1.3 billion of share repurchase authorization outstanding.

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, August 4. On Thursday, August 5, at 9:00 a.m. ET, the Company will conduct a question and answer webcast/call, which will include forward-looking information. The live webcast, replay and all related materials will be available at https://ir.marathonoil.com/.

Non-GAAP Measures

In analyzing and planning for its business, Marathon Oil supplements its use of GAAP financial measures with non-GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) per share, free cash flow, net cash provided by operations before changes in working capital and total capital expenditures.

Our presentation of adjusted net income (loss) and adjusted net income (loss) per share is a non-GAAP measure. Adjusted net income (loss) is defined as net income (loss) adjusted for gains/losses on dispositions, impairments of proved and certain unproved properties, goodwill and equity method investments, certain exploration expenses relating to a strategic decision to exit conventional exploration, unrealized derivative gain/loss on commodity and interest rate derivative instruments, effects of pension settlements and curtailments and other items that could be considered "non-operating" or "non-core" in nature. Management believes this is useful to investors as another tool to meaningfully represent our operating performance and to compare Marathon to certain competitors. Adjusted net income (loss) and adjusted net income (loss) per share should not be considered in isolation or as an alternative to, or more meaningful than, net income (loss) or net income (loss) per share as determined in accordance with U.S. GAAP.

Our presentation of free cash flow is a non-GAAP measure. Free cash flow before dividend ("free cash flow") is defined as net cash provided by operating activities adjusted for working capital, capital expenditures, and EG return of capital and other. Management believes this is useful to investors as a measure of Marathon's ability to fund its capital expenditure programs, service debt, and fund other distributions to stockholders. Free cash flow should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of net cash provided by operations before changes in operating working capital is defined as net cash provided by operating activities adjusted for operating working capital and is a non-GAAP measure. Management believes this is useful to investors as an indicator of Marathon's ability to generate cash quarterly or year-to-date by eliminating differences caused by the timing of certain working capital items. Net cash provided by operations before changes in working capital should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of total capital expenditures is a non-GAAP measure. Total capital expenditures is defined as cash additions to property, plant and equipment adjusted for the change in working capital associated with property, plant and equipment and additions to other assets. Management believes this is useful to investors as an indicator of Marathon's commitment to capital expenditure discipline by eliminating differences caused by the timing of certain working capital and other items. Total capital expenditures should not be considered in isolation or as an alternative to, or more meaningful than, cash additions to property, plant and equipment as determined in accordance with U.S. GAAP.

These non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with GAAP results may provide a more complete understanding of factors and trends affecting the business and are a useful tool to help management and investors make informed decisions about Marathon Oil's financial and operating performance. These measures should not be considered in isolation or as an alternative to their most directly comparable GAAP financial measures. A reconciliation to their most directly comparable GAAP financial measures can be found in our investor package on our website at https://ir.marathonoil.com/ and in the tables below.Marathon Oil strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

Forward-looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, including without limitation statements regarding the Company's future capital budgets and allocations, future performance, expected free cash flow, future debt reduction and the timing thereof, balance sheet enhancement, returns of capital to investors (and the focus of such returns), business strategy, asset quality, drilling plans, production guidance, E.G. equity method income guidance and other plans and objectives for future operations, are forward-looking statements. Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "future," "guidance," "intend," "may," "outlook," "plan," "positioned," "project," "seek," "should," "target," "will," "would," or similar words may be used to identify forward-looking statements; however, the absence of these words does not mean that the statements are not forward-looking. While the Company believes its assumptions concerning future events are reasonable, a number of factors could cause actual results to differ materially from those projected, including, but not limited to: conditions in the oil and gas industry, including supply/demand levels for crude oil and condensate, NGLs and natural gas and the resulting impact on price; changes in expected reserve or production levels; changes in political or economic conditions in the U.S. and Equatorial Guinea, including changes in foreign currency exchange rates, interest rates, inflation rates; actions taken by the members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia affecting the production and pricing of crude oil; and other global and domestic political, economic or diplomatic developments; capital available for exploration and development; risks related to the Company's hedging activities; voluntary or involuntary curtailments, delays or cancellations of certain drilling activities; well production timing; liability resulting from litigation; drilling and operating risks; lack of, or disruption in, access to storage capacity, pipelines or other transportation methods; availability of drilling rigs, materials and labor, including the costs associated therewith; difficulty in obtaining necessary approvals and permits; non-performance by third parties of contractual or legal obligations, including due to bankruptcy; changes in our credit ratings; hazards such as weather conditions, a health pandemic (including COVID-19), acts of war or terrorist acts and the government or military response thereto; security threats, including cybersecurity threats and disruptions to our business and operations from breaches of our information technology systems, or breaches of the information technology systems, facilities and infrastructure of third parties with which we transact business; changes in safety, health, environmental, tax and other regulations, requirements or initiatives, including initiatives addressing the impact of global climate change, air emissions, or water management; other geological, operating and economic considerations; and the risk factors, forward-looking statements and challenges and uncertainties described in the Company's 2020 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases, available at https://ir.marathonoil.com/. Except as required by law, the Company undertakes no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

Media Relations Contact:Rebecca Skiba: 713-296-2584

Investor Relations Contacts:Guy Baber: 713-296-1892John Reid: 713-296-4380

Consolidated Statements of Income (Unaudited) Three Months Ended

June 30 Mar. 31 June 30

(In millions, except per share data) 2021 2021 2020

Revenues and other income:

Revenues from contracts with customers $1,254$1,177$490

Net gain (loss) on commodity derivatives (166) (153) (70)

Income (loss) from equity method investments 49 44 (152)

Net gain (loss) on disposal of assets 1 - (2)

Other income 5 3 6

Total revenues and other income 1,143 1,071 272

Costs and expenses:

Production 126 121 129

Shipping, handling and other operating 167 152 105

Exploration 25 21 26

Depreciation, depletion and amortization 532 496 597

Impairments 46 1 -

Taxes other than income 74 74 30

General and administrative 68 89 88

Total costs and expenses 1,038 954 975

Income (loss) from operations 105 117 (703)

Net interest and other (59) (13) (69)

Other net periodic benefit (costs) credits (1) 3 7

Loss on early extinguishment of debt (19) - -

Income (loss) before income taxes 26 107 (765)

Provision (benefit) for income taxes 10 10 (15)

Net income (loss) $16 $97 $(750)



Adjusted Net Income (Loss)

Net income (loss) $16 $97 $(750)

Adjustments for special items (pre-tax):

Net (gain) loss on disposal of assets (1) - 2

Proved property impairments 46 1 -

Exploratory dry well costs, unproved property impairments and other7 - -

Pension settlement 5 - 14

Pension curtailment - - (17)

Unrealized (gain) loss on derivative instruments 75 82 96

Unrealized (gain) on interest rate swaps (8) (41) -

Reduction in workforce 1 11 13

Impairment of equity method investment - - 152

Loss on early extinguishment of debt 19 - -

Other 13 16 13

Adjustments for special items 157 69 273

Adjusted net income (loss) (a) $173 $166 $(477)

Per diluted share:

Net income (loss) $0.02 $0.12 $(0.95)

Adjusted net income (loss) (a) $0.22 $0.21 $(0.60)

Weighted average diluted shares 789 789 790

(a) Non-GAAP financial measure. See "Non-GAAP Measures" above for further discussion.

Supplemental Statistics (Unaudited) Three Months Ended

June 30 Mar. 31 June 30

(In millions) 2021 2021 2020

Segment income (loss)

United States $207 $212 $(365)

International 68 50 (6)

Not allocated to segments (259) (165) (379)

Net income (loss) $16 $97 $(750)

Cash flows

Net cash provided by operating activities $655 $622 $9

Changes in working capital 46 15 77

Net cash provided by operating activities before changes in working capital (a)$701 $637 $86



Free Cash Flow

Net cash provided by operating activities before changes in working capital (a)$701 $637 $86

Adjustments for free cash flow:

Capital expenditures (289) (184) (126)

EG return of capital and other 8 (10) -

Free cash flow (a) $420 $443 $(40)

Capital Expenditures

Cash additions to property, plant and equipment $(274)$(209)$(326)

Change in working capital associated with PP&E (15) 25 187

Additions to other assets - - 13

Total capital expenditures (a) $(289)$(184)$(126)

(a) Non-GAAP financial measure. See "Non-GAAP Measures" above for further discussion.

Supplemental Statistics (Unaudited) Three Months Ended Year Ended

June 30Mar. 31June 30Dec. 31

Net Production 2021 2021 2020 2020

Equivalent Production (mboed)

United States 283 276 307 306

International 65 69 83 77

Total net production 348 345 390 383

Oil Production (mbbld)

United States 159 160 182 177

International 11 12 15 13

Total net production 170 172 197 190

Supplemental Statistics (Unaudited) Three Months Ended

June 30Mar. 31June 30

2021 2021 2020

United States - net sales volumes

Crude oil and condensate (mbbld) 159 159 183

Eagle Ford 60 50 66

Bakken 70 77 81

Oklahoma 12 12 16

Northern Delaware 13 15 16

Other United States (a) 4 5 4

Natural gas liquids (mbbld) 60 53 56

Eagle Ford 14 12 20

Bakken 22 19 12

Oklahoma 17 17 16

Northern Delaware 6 4 7

Other United States (a) 1 1 1

Natural gas (mmcfd) 386 378 413

Eagle Ford 103 91 133

Bakken 90 93 60

Oklahoma 150 145 167

Northern Delaware 32 35 44

Other United States (a) 11 14 9

Total United States (mboed) 283 275 308

International - net sales volumes

Crude oil and condensate (mbbld) 12 9 16

Equatorial Guinea 12 9 16

Natural gas liquids (mbbld) 7 8 9

Equatorial Guinea 7 8 9

Natural gas (mmcfd) 276 295 354

Equatorial Guinea 276 295 354

Total International (mboed) 65 66 84

Total Company - net sales volumes (mboed) 348 341 392

Net sales volumes of equity method investees

LNG (mtd) 3,094 3,766 4,635

Methanol (mtd) 744 1,092 738

Condensate and LPG (boed) 7,892 10,73010,896

(a) Includes sales volumes from the sale of certain non-core proved properties in our United States segment.

Supplemental Statistics (Unaudited) Three Months Ended

June 30 Mar. 31 June 30

2021 2021 2020

United States - average price realizations (a)

Crude oil and condensate ($ per bbl) (b) $64.73$55.38$21.65

Eagle Ford 65.51 57.52 23.53

Bakken 64.15 53.65 20.03

Oklahoma 63.77 55.63 22.09

Northern Delaware 65.53 57.06 22.36

Other United States (c) 63.80 54.83 18.31

Natural gas liquids ($ per bbl) $24.17$23.94$7.09

Eagle Ford 25.80 24.43 8.70

Bakken 24.37 23.22 2.56

Oklahoma 23.28 25.08 8.67

Northern Delaware 22.63 22.60 6.24

Other United States (c) 21.19 20.89 9.68

Natural gas ($ per mcf) $2.61 $6.31 $1.44

Eagle Ford 3.09 5.78 1.69

Bakken 2.13 2.96 0.93

Oklahoma 3.01 8.36 1.59

Northern Delaware 1.86 7.85 0.88

Other United States (c) (1.19) 6.81 1.25

International - average price realizations

Crude oil and condensate ($ per bbl) $52.78$44.13$13.79

Equatorial Guinea 52.78 44.13 13.79

Natural gas liquids ($ per bbl) $1.00 $1.00 $1.00

Equatorial Guinea (d) 1.00 1.00 1.00

Natural gas ($ per mcf) $0.24 $0.24 $0.24

Equatorial Guinea (d) 0.24 0.24 0.24

Benchmark

WTI crude oil (per bbl) $66.17$58.14$28.00

Brent (Europe) crude oil (per bbl) (e) $68.83$60.82$29.34

Mont Belvieu NGLs (per bbl) (f) $24.81$23.98$12.25

Henry Hub natural gas (per mmbtu) (g) $2.83 $2.69 $1.72

(a) Excludes gains or losses on commodity derivative instruments.

Inclusion of realized gains (losses) on crude oil derivative instruments(b) would have decreased average price realizations by $5.54 for the second quarter 2021 and by $4.61 for the first quarter 2021 and increased average price realizations by $1.59 for the second quarter 2020.

(c) Includes sales volumes from the sale of certain non-core proved properties in our United States segment.

Represents fixed prices under long-term contracts with Alba Plant LLC, Atlantic Methanol Production Company LLC and/or Equatorial Guinea LNG(d) Holdings Limited, which are equity method investees. The Alba Plant LLC processes the NGLs and then sells secondary condensate, propane, and butane at market prices. Marathon Oil includes its share of income from each of these equity method investees in the International segment.

(e) Average of monthly prices obtained from Energy Information Administration website.

(f) Bloomberg Finance LLP: Y-grade Mix NGL of 55% ethane, 25% propane, 5% butane, 8% isobutane and 7% natural gasoline.

(g) Settlement date average per mmbtu.

Full Year 2021 Oil Production (mbpod)Equivalent Production (mboed) Production Guidance 2Q21 2021 Guidance 2Q21 2021 Guidance

Net production

United States 159 158 - 162 283 275 - 285

International 11 11 - 13 65 60 - 70

Total net production170 169 - 175 348 335 - 355

The following table sets forth outstanding derivative contracts as of August 2, 2021, and the weighted average prices for those contracts:

2021 2022

Third Fourth First Second Third Fourth Quarter Quarter Quarter Quarter QuarterQuarter

Crude Oil

NYMEX WTI Three-Way Collars

Volume (Bbls/day) 40,000 40,000 20,000 20,000 - -

Weighted average price per Bbl:

Ceiling $74.07$78.05$89.46$89.46$- $-

Floor $48.75$50.00$50.00$50.00$- $-

Sold put $38.75$40.00$40.00$40.00$- $-

NYMEX WTI Two-Way Collars

Volume (Bbls/day) 40,000 40,000 - - - -

Weighted average price per Bbl:

Ceiling $59.41$58.92$- $- $- $-

Floor $39.25$39.25$- $- $- $-

NYMEX Roll Basis Swaps

Volume (Bbls/day) - 40,000 45,000 45,000 45,00045,000

Weighted average price per Bbl $- $1.15 $0.56 $0.56 $0.56$0.56

Natural Gas

Henry Hub ("HH") Two-Way Collars

Volume (MMBtu/day) 200,000200,000- - - -

Weighted average price per MMBtu:

Ceiling $3.05 $3.05 $- $- $- $-

Floor $2.50 $2.50 $- $- $- $-

HH Fixed Price Swaps

Volume (MMBtu/day) 50,000 50,000 - - - -

Weighted average price per MMBtu $2.88 $2.88 $- $- $- $-

Three-Way Collars

Volume (MMBtu/day) - - 30,000 - - -

Weighted average price per MMBtu:

Ceiling $- $- $4.50 $- $- $-

Floor $- $- $3.50 $- $- $-

Sold put $- $- $2.50 $- $- $-

NGL

Fixed Price Ethane Swaps ^(a)

Volume (Bbls/day) 5,000 5,000 - - - -

Weighted average price per Bbl $10.92$10.92$- $- $- $-

Fixed Price Propane Swaps ^(b)

Volume (Bbls/day) 5,000 5,000 - - - -

Weighted average price per Bbl $23.19$23.19$- $- $- $-

(a) The fixed price ethane swap is priced at OPIS Mont Belvieu Purity Ethane.

(b) The fixed price propane swap is priced at OPIS Mont Belvieu Non-TET Propane.

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SOURCE Marathon Oil Corporation