Marathon sets $1.2 billion capex prioritizing free cash flow over production
Updated Feb. 17 with detail, commentary from earnings call.
Marathon Oil Corp., Houston, set a capital expenditure budget of $1.2 billion and a flat production rate for 2022 and does not plan to deviate from the budget in the event of continued strong commodity pricing.
The budget is “consistent with disciplined framework that prioritizes free cash flow generation over production growth,” the company said in a Feb. 16 release.
Further, in a call to investors and analysts, Lee Tillman, chairman, president, and chief executive officer, said while other industry players "may once again be focused on growing their production, we are focused on growing the per share financial metrics that matter most to our equity valuation."
Financial performance must be competitive with other investment opportunities in the market to attract a broader universe of investors, even when commodity prices are much lower, "all the way down to $40 to $50 WTI range," he continued.
At $80/bbl WTI and $4.00/MMbtu Henry Hub, the 2022 program is expected to deliver over $3 billion of free cash flow at a reinvestment rate of less than 30% and allow the company to exceed its commitment to return a minimum of 40% free cash flow to equity investors, assuming an oil price of $60/bbl WTI or higher, the company continued.
The company generated $2.2 billion of free cash flow for the year, including about $898 million in the fourth quarter. In the quarter, the company returned over 70% of cash flow from operations to equity investors through a combination of share repurchases and base dividend.
2022 spend
On the call, Mike Henderson, executive vice-president of operations, said the company expects to spend about 75% of its capital budget in the Eagle Ford and Bakken with the balance going to the Permian basin and Oklahoma.
"Included within our Permian program is the continued disciplined progression of our emerging Texas, Delaware oil fleet with a planned four-well appraisal plan later in the year," he continued.
The full year capital is expected to be slightly weighted to first-half 2022 with about $350 million of capex expected during the year's first quarter.
2021
Financial results
Fourth-quarter 2021 net income was $649 million. Adjusted net income was $592 million. Net operating cash flow was $1.146 billion, or $1.101 billion before changes in working capital. Fourth quarter capital expenditures totaled $251 million.
Full-year 2021 net income was $946 million. Adjusted net income was $1.241 billion. Net operating cash flow was $3.239 billion, or $3.214 billion before changes in working capital.
The company ended the fourth quarter with total liquidity of $3.7 billion, which consisted of an undrawn revolving credit facility of $3.1 billion and $580 million of cash and cash equivalents. The year-end cash balance of $580 million is an increase from the third quarter cash balance of $485 million.
Production
Fourth quarter oil production was 181,000 b/d net and oil-equivalent production was 353,000 boe/d net.
US production averaged 304,000 boe/d net for fourth-quarter 2021. Oil production averaged 172,000 b/d net.
During the quarter, the company brought a total of 47 gross company-operated wells to sales. In the Eagle Ford, Marathon Oil's fourth quarter production averaged 93,000 boe/d net, including oil production of 60,000 b/d net, with 18 gross company-operated wells to sales. In the Bakken, production averaged 124,000 boe/d net, including oil production of 81,000 b/d net, with 25 gross company-operated wells to sales. Oklahoma production averaged 56,000 boe/d net, including oil production of 13,000 b/d net, with 4 gross company-operated wells to sales. The Permian basin's northern Delaware production averaged 22,000 boe/d net, including oil production of 12,000 b/d.
Equatorial Guinea production averaged 49,000 boe/d net for the quarter, including oil production of 9,000 b/d net.
Full-year 2021 oil production was 173,000 b/d net and oil-equivalent production was 348,000 boe/d net.
ESG
Marathon Oil achieved a 30% GHG intensity reduction target and improved total company gas capture to 98.8%.
Mikaila Adams | Managing Editor - News
Mikaila Adams has 20 years of experience as an editor, most of which has been centered on the oil and gas industry. She enjoyed 12 years focused on the business/finance side of the industry as an editor for Oil & Gas Journal's sister publication, Oil & Gas Financial Journal (OGFJ). After OGFJ ceased publication in 2017, she joined Oil & Gas Journal and was named Managing Editor - News in 2019. She holds a degree from Texas Tech University.
