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Marathon Oil Corp. Second Quarter 2022 Results

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   |    Thursday,August 04,2022

Marathon Oil Corp. reported its second quarter 2022 results.

Highlights:

• Generated record quarterly adjusted free cash flow of over $1.2 billion at 24% reinvestment rate

• Returned $816 million of capital to shareholders during second quarter, including $760 million of share repurchases and $56 million base dividend; represents 51% of second quarter adjusted CFO

• Delivered flat sequential production with second quarter oil-equivalent production of 343,000 net boed; oil production of 167,000 net bopd

• Continue to exceed commitment to return at least 40% of adjusted CFO to equity investors

• Returned $2.5 billion to equity investors through share repurchases and dividends since achieving leverage objective in October 2021; approximately 55% of adjusted CFO (~75% of adjusted free cash flow) over trailing three quarters

• Executed $2.3 billion of share repurchases since October 2021, reducing outstanding share count by 15%; includes over $1.6 billion of share repurchases year-to-date

• Expect $4.5 billion of 2022 free cash flow, assuming $100/bbl WTI and $6/MMBtu Henry Hub

Marathon Oil Chairman and CEO Lee Tillman commented: "Second quarter represents another quarter of comprehensive delivery on our Framework for Success, including strong corporate returns, sustainable free cash flow generation, significant return of capital to shareholders, and ESG excellence. Our commitment to providing investors with the first call on cash flow through our unique percentage of operating cash flow framework is delivering truly compelling results, including generating over $2 billion of adjusted free cash flow and returning over $1.7 billion of capital to shareholders year-to-date, while also driving significant per share growth. Despite ongoing macro and equity market volatility, we remain well positioned to continue delivering financial results that compete with the best companies in the S&P 500."

Financial Overview

Marathon reported second quarter 2022 net income of $966 million, or $1.37 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 $934 million, or $1.32 per diluted share. Net operating cash flow was $1,678 million, or $1,586 million before changes in working capital (adjusted CFO). Free cash flow was $1,323 million, or $1,213 million before changes in working capital and including E.G. distributions (adjusted free cash flow).

Return of Capital

Marathon Oil's percentage of CFO framework provides clear visibility to significant return of capital to equity investors and ensures 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.

During second quarter, Marathon Oil returned 51% of adjusted CFO to equity investors. Second quarter return of capital totaled $816 million, including $760 million of share repurchases and $56 million base dividend.

Since achieving its minimum leverage objective in October 2021 Marathon Oil has returned $2.5 billion of capital to shareholders. This includes over $2.3 billion of share repurchases that have driven a 15% reduction in outstanding share count, contributing to significant growth in per share metrics. Over the trailing three quarters, the Company has consistently outperformed its minimum return of capital objective, as shareholder distributions have accounted for approximately 55% of adjusted CFO (~75% of adjusted free cash flow).

In the current environment, given its strong free cash flow profile and attractive market valuation, Marathon Oil's preferred return of capital approach remains a competitive and sustainable base dividend in addition to significant share repurchases.

2Q22 Financials

Cash Flow and Capex

Net cash provided by operations was $1,678 million during second quarter, or $1,586 million before changes in working capital. Second quarter cash additions to property, plant, and equipment totaled $355 million, while capital expenditures (accrued) totaled $375 million.

Free cash flow was $1,323 million, or $1,213 million of adjusted free cash flow before changes in working capital and including E.G. distributions.

Marathon Oil ended second quarter with $1,162 million in cash and cash equivalents. In July, Marathon Oil extended its revolving credit facility by three years to 2027 and amended the capacity to $2.5 billion.

The adjustments to net income for second quarter reduced net income by $32 million, primarily due to the income impact associated with unrealized gains on derivative instruments.

2Q22 Operations

United States

U.S. production averaged 283,000 net barrels of oil equivalent per day (boed) for second quarter 2022. Oil production averaged 157,000 net barrels of oil per day (bopd). The Company brought a total of 49 gross Company-operated wells to sales during second quarter, consistent with guidance for approximately 50 wells to sales. U.S. unit production costs averaged $5.80 per boe during second quarter.

Marathon Oil's second quarter production in the Eagle Ford averaged 84,000 net boed, including 54,000 net bopd of oil, with 19 gross Company-operated wells to sales. In the Bakken, production averaged 114,000 net boed, including 75,000 net bopd of oil, with 20 gross Company-operated wells to sales. In Oklahoma, production averaged 56,000 net boed, including 14,000 net bopd of oil, with 10 gross Company-operated wells to sales (excluding joint venture wells). Northern Delaware production averaged 20,000 net boed, including 10,000 net bopd of oil.

Equatorial Guinea production averaged 60,000 net boed for second quarter 2022, including 10,000 net bopd of oil. Unit production costs averaged $2.83 per boe. Net income from equity method investees totaled $152 million and total cash distributions from equity method companies amounted to $146 million during second quarter.

For full year 2022, Marathon Oil raised E.G. equity income guidance to a new range of $520 million to $560 million.