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Marathon Oil Cuts Spending 14% for 2021; 190 Wells TIL, Oil Production Flat

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   |    Tuesday,February 23,2021

Marathon Oil Corp. reported its Q4 and full year 2020 results, as well as its 2021 capital budget.

2021 Plan

- 2021 Capex: $1.0 billion - down 14% from 2020 spending of $1.16B

  • 90% ($900 million) allocated to Bakken / Eagle Ford ops

- Production: Approximately 330-350 MBOEPD - down 11% from 2020's average

  • Oil production for 2021 is expected to be approximately flat with the fourth quarter 2020 exit rate of 172,000 net bopd

- D&C Plans: 165-215 wells TIL

  • Bakken: 60-80 wells TIL
  • Eagle Ford: 100-130 wells TIL
  • Oklahoma: 5 DUCs TIL in 2H21

- Rigs / Frac Crews: 5-6 rigs / 2 frac crews

Assuming $50/bbl WTI and $3.00/MMBtu Henry Hub, the 2021 program is expected to deliver approximately $1.0 billion of free cash flow at a reinvestment rate of 50%. If commodity prices remain higher than $50/bbl, the Company plans no deviation from its maintenance capital budget.

CEO Lee Tillman said: "For 2021, we have set a maintenance capital budget that prioritizes corporate returns and free cash flow generation over production growth. Consistent with our commitment to capital discipline, we won't raise our level of spending even if recent commodity price strength persists. We will simply generate more free cash flow.

"Our 2021 budget and our newly disclosed 5 Year Benchmark Maintenance Scenario are both evidence of our high quality portfolio, advantaged capital efficiency, and the sustainability of our strong financial performance. We believe we are well positioned to compete effectively with the broader S&P 500, and to continue executing on our transparent capital allocation framework that prioritizes free cash flow generation, balance sheet strength, and return of capital to investors. Further, we have taken important steps to improve alignment between our management team and investors through proactive compensation changes and are committed to continuing to reduce our GHG emissions intensity."

5 Year Benchmark Maintenance Capital Scenario

  • 5 Year Benchmark Maintenance Scenario underscores portfolio strength and free cash flow sustainability
    • Cumulative potential FCF of ~$5 billion at flat $50/bbl WTI from 2021 to 20253
    • Expected FCF breakeven below $35/bbl WTI2 throughout period
    • $1.0 to $1.1 billion of capex per year with flat total Company oil production

To highlight the strength of Marathon Oil's portfolio and the sustainability of its financial performance, the Company has disclosed a 5 Year Benchmark Maintenance Capital Scenario designed to hold fourth quarter 2020 total Company oil production flat through 2025. This 5 year scenario includes total capital spending of approximately $1.0 billion to $1.1 billion per year and an enterprise free cash flow breakeven below $35/bbl WTI2 throughout the period. Assuming flat $50/bbl WTI oil and $3.00/MMBtu gas, the maintenance scenario would deliver approximately $5.0 billion of cumulative free cash flow at a reinvestment rate of around 50%. Assuming flat $45/bbl WTI oil and $2.50/MMBtu gas, the maintenance scenario would deliver approximately $3.0 billion of cumulative free cash flow at a reinvestment rate well below 70%3. The Benchmark Scenario includes capital allocation across Marathon Oil's multi-basin portfolio and includes approximately $100 million of cumulative investment to assist the Company in achieving its previously disclosed goal to reduce 2025 greenhouse gas (GHG) emissions intensity by at least 50%.

Q4 / Full Year 2020 Results

Marathon reported a fourth quarter 2020 net loss of $338 million, or $0.43 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 loss was $98 million, or $0.12 per diluted share. Net operating cash flow was $418 million, or $428 million before changes in working capital.

Marathon Oil reported full year 2020 net loss of $1,451 million, or $1.83 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 loss was $919 million, or $1.16 per diluted share. Net operating cash flow was $1,473 million, or $1,416 million before changes in working capital.

2020 Highlights:
  • Strong fourth quarter and full year 2020 financial and operational results
    • Fourth quarter free cash flow of $162 million; full year 2020 free cash flow of $277 million
    • Reinstated base dividend in fourth quarter; returned ~$250 million to investors in 2020, including ~$150 million of dividends and share repurchases and $100 million gross debt reduction
    • Full year total capital expenditures of $1.16 billion, below guidance of $1.2 billion
    • Reduced both production and general and administrative costs by more than 20% vs. prior year
    • Fourth quarter and full year total Company oil production of 172,000 net bopd and 190,000 net bopd, both at guidance midpoint
  • $3.7 billion of liquidity at year-end, including $3.0 billion undrawn revolving credit facility and $0.7 billion of cash and cash equivalents; investment grade credit rating at all three primary rating agencies
  • CEO and Board compensation reduced 25%4 and compensation framework improved to further enhance alignment with investors
  • Expect 2020 GHG emissions intensity reduction of approximately 20%5 vs. 2019; improved total Company gas capture to 98.5% for fourth quarter 2020
  • Added 2021 GHG emissions intensity target representing an approximate 30% reduction vs. 2019; announced medium-term goal to reduce GHG emissions intensity by at least 50% by 2025 vs. 2019

CEO Lee Tillman said: "While 2020 was a challenging year for our industry, I am proud of our many accomplishments, especially our record setting safety performance as we successfully managed through the ongoing COVID-19 pandemic as critical essential infrastructure providers. In addition, we reduced our cash costs by more than 20%, protected our investment grade balance sheet, reduced our gross debt, meaningfully improved our GHG emissions intensity, and ultimately generated about $280 million of free cash flow."

Continued Cash Cost Reduction Initiatives

During 2020, Marathon Oil took aggressive and decisive action in response to a challenging commodity price and business environment, realizing a reduction of over 20% to both production and general and administrative costs in comparison to the prior year. General and administrative costs specifically were down 23% from 2019. Cost saving measures included temporary base salary reductions for the Board and certain corporate officers, as well as employee and contractor workforce reductions.

Consistent with its focus to continually optimize its cost structure, Marathon Oil expects to drive further cash cost reductions in 2021 and beyond. More specifically, the Company has taken additional action in 2021 to achieve an approximate 30% reduction to its combined production and general and administrative costs relative to 2019. The Company expects to realize the majority of these savings on a run-rate basis by the end of 2021. These reductions represent the continuation of a multi-year trend of ongoing cost structure optimization, expected to result in a total reduction to production and general administrative costs of approximately 40% in comparison to 2018. Newly enacted cost saving measures include an expected 25% reduction to CEO and Board compensation, a 10% to 20% compensation reduction for other corporate officers, an employee and contractor workforce reduction to better align organizational capacity with expected future activity levels, and a reduction to aviation, real estate, project, and various other costs.

Ops Update

United States (U.S.)

U.S. production averaged 280,000 net barrels of oil equivalent per day (boed) for fourth quarter 2020. Oil production averaged 159,000 net barrels of oil per day (bopd). U.S. unit production costs were $4.62 per boe for fourth quarter, and $4.42 per boe for the full year. 2020 represented a record year for unit production costs.

During fourth quarter, the Company brought a total of 49 gross Company-operated wells to sales and delivered an average completed well cost per lateral foot reduction of more than 35% in comparison to the 2019 average. This significant reduction was driven by a combination of optimized capital allocation to the Company's lowest cost Basins, continued strong execution performance, and longer average lateral lengths across the Company's portfolio.

In the Eagle Ford, Marathon Oil's fourth quarter 2020 production averaged 82,000 net boed. Oil production averaged 51,000 net bopd on 20 gross Company-operated wells to sales. In the Bakken, production averaged 110,000 net boed, including oil production of 78,000 net bopd. The Company brought 23 gross Company-operated wells to sales during fourth quarter in the Bakken. Oklahoma production averaged 58,000 net boed in the fourth quarter 2020, including oil production of 15,000 net bopd. Northern Delaware production averaged 21,000 net boed in the fourth quarter 2020, while oil production averaged 12,000 net bopd on 6 gross Company-operated wells to sales.


Equatorial Guinea production averaged 72,000 net boed for fourth quarter 2020, including 13,000 net bopd of oil. Unit production costs averaged $2.49 per boe during fourth quarter and $2.12 per boe for the full year 2020. Full year unit production costs represented a record low for the International segment. First gas was recently achieved from the 3rd party Alen project in February. Marathon Oil's equity method investees will process the Alen gas under a combination of a tolling and profit-sharing agreement, the benefits of which will be included in the Company's share of net income from equity method investees.

Assuming $50/WTI and $3/MMBtu Henry Hub, the Company's total equity method net income in 2021 is expected to range from $100 million to $120 million, inclusive of Alen contributions. Marathon Oil's equity income excludes financial contributions from the Alba gas and condensate field under its production sharing contract, the results of which are consolidated in the Company's financial statements.


Net cash provided by operations was $418 million during fourth quarter 2020, or $428 million before changes in working capital. Fourth quarter capital expenditures totaled $270 million, bringing full year 2020 total capital expenditures to $1.16 billion, below Company guidance of $1.2 billion.

Total liquidity as of December 31 was approximately $3.7 billion, which consisted of an undrawn revolving credit facility of $3.0 billion and $0.7 billion in cash and cash equivalents. The Company continues to maintain an investment grade credit rating at all three primary rating agencies.

During the fourth quarter, Marathon Oil reinstated a quarterly dividend at 3 cents per share and completed a cash tender for an aggregate principal amount of $500 million of its then outstanding $1 billion 2.8% Senior Notes due November 2022. The tender resulted in a $100 million gross debt reduction for the year and reduced the Company's next significant debt maturity by half.

Year-end 2020 proved reserves totaled 972 million barrels of oil equivalent (mmboe), with reductions attributable to 2020 production, decreased activity in the 5-year plan, and lower commodity prices, partially offset by cost reductions and performance improvements. Oil accounts for 52% of the Company's year-end 2020 proved reserves.

The adjustments to net loss for fourth quarter 2020 totaled $240 million, primarily due to the income impact associated with exploration and unproved property impairments, unrealized losses on derivative instruments, loss on debt extinguishment, and other non-core expenses.


Marathon Oil is fully committed to best-in-class corporate governance as its foundation for executing its long-term strategy. As announced in January, the Company has reduced executive compensation and modified its framework to enhance alignment with shareholders, incentivize achievement of its core strategic objectives, and encourage the behaviors the Company believes are most likely to maximize long-term shareholder value.

More specifically, the Company is reducing annual Board of Director compensation by 25% with the compensation mix shifted more toward equity. The Company is also reducing CEO total direct compensation by 25%, including a 35% reduction to long-term incentive (LTI) awards. These changes are intended to better align CEO compensation quantum and mix with the broader industry and current business environment.

Marathon Oil's short-term incentive (STI) annual cash bonus scorecard has been restructured to better reflect the Company's financial and ESG framework, with all production and growth metrics removed. Additionally, the Company has revised its LTI compensation framework to mitigate overreliance on relative TSR against direct E&P peers, adding S&P 500 and S&P Energy indices as peer comparators, and has introduced free cash flow as an additional LTI performance metric.

Safety and Environmental

Marathon Oil views safety as a core value and a key component of its ESG performance. Keeping its workforce safe, both employees and contractors, is and always will be a top priority. During 2020, the Company successfully managed through the ongoing COVID-19 pandemic with record setting safety performance, as measured by a total recordable incident rate (TRIR) of 0.247. This was Marathon Oil's second consecutive year of record TRIR performance. Peer leading safety performance will remain a component of the Company's executive compensation scorecard.

Reducing greenhouse gas (GHG) emissions intensity is central to Marathon Oil's strategic goals of minimizing its environmental impact, addressing the risks of climate change, and delivering strong long-term financial performance.

During 2020 the Company made significant progress in improving its environmental performance, achieving an estimated 20% reduction to its GHG emissions intensity relative to 2019 and improving total Company gas capture to approximately 98.5% for fourth quarter 2020.

For 2021, the Company has established a quantitative GHG intensity target, representing a reduction of more than 30% relative to 2019, which has been added to the Company's executive compensation scorecard. Further, Marathon Oil has disclosed a new medium-term goal highlighting the Company's commitment to significant ongoing improvement to its environmental performance. By 2025, the Company's goal is to reduce its GHG intensity by at least 50% relative to 2019.

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