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Marathon Oil First Quarter 2021 Results

Share Print Bookmark    |    Thursday,May 06,2021

Marathon Oil Corp. reported its Q1 2021 results.

Marathon reported first quarter 2021 net income of $97 million, or $0.12 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 $166 million, or $0.21 per diluted share. Net operating cash flow was $622 million, or $637 million before changes in working capital.

Highlights:

• Strong financial and operational delivery with differentiated execution across all elements of business
• First quarter free cash flow of $443 million
• First quarter capital expenditures of $184 million; committed to capital discipline with no change to $1 billion 2021 capital expenditure budget
• Minimal production impact from Winter Storm Uri due to strong operational performance; first quarter oil production of 172,000 net bopd and first quarter oil-equivalent production of 345,000 net boed with no change to 2021 production guidance
• Acceleration of balance sheet enhancement and return of capital to investors
• Achieved initial gross debt reduction target of $500 million; now targeting at least $500 million of additional gross debt reduction, bringing total debt reduction target to at least $1 billion in 2021
• Raised quarterly base dividend over 30% from 3 cents per share to 4 cents per share
• Continued focus on ESG excellence
• Strong first quarter safety performance as measured by a Total Recordable Incident Rate (TRIR) of 0.23¹
• Reduced 2020 GHG emissions intensity² by approximately 25% vs. 2019
• Appointed Holli Ladhani to the Board in March, the second new Director added this year; Board composition reflects continued commitment to refreshment, independence, and diversity

CEO Lee Tillman said: "First quarter was once again characterized by differentiated execution across all elements of our business, despite challenging operating conditions associated with Winter Storm Uri and the ongoing COVID-19 pandemic. I am especially proud of the commitment and dedication of our employees, as well as our strong safety performance to start the year. Our differentiated execution culminated in just under $450 million of free cash flow, with year-to-date free cash flow largely funding $500 million of gross debt reduction. Due to the strength and sustainability of our financial and operational performance, we are targeting additional gross debt reduction of at least $500 million this year and have also raised our quarterly base dividend. Our actions are fully consistent with our objective to return more than 30% of our operating cash flow to investors, as we successfully progress both balance sheet enhancement and direct return of capital. We believe that our commitment to ESG excellence and our transparent capital allocation framework that prioritizes free cash flow generation, a low enterprise free cash flow breakeven oil price, balance sheet improvement, and return of capital to investors is a recipe for success relative to both our E&P peer group and the broader S&P 500."

ESG Excellence

SAFETY: Marathon Oil views safety as a core value and key component of its ESG performance. During the first quarter of 2021, the Company achieved an excellent start to the year for safety performance, as measured by a TRIR of 0.23.

ENVIRONMENTAL: During 2020 the Company made significant progress in improving its environmental performance, achieving an estimated 25% reduction to its GHG emissions intensity in comparison to the prior year, based on final calculations. This represents an improvement over preliminary estimates that had indicated an approximate 20% GHG emissions intensity reduction was achieved in 2020. The Company continues to work toward achieving its 2021 GHG intensity reduction target of at least 30% and its 2025 GHG intensity reduction goal of at least 50%, both relative to 2019.

GOVERNANCE: In March, the Marathon Oil Board of Directors appointed Holli C. Ladhani to the Board. Ms. Ladhani most recently served as President and CEO of Select Energy, a provider of end-to-end water management solutions for energy producers. Ms. Ladhani is the second Director added to the Board this year, following the previously announced appointment of Brent Smolik. Following the 2021 Annual Meeting of Stockholders, Marcela Donadio, Director since 2014, is expected to serve as Independent Lead Director. Marathon Oil continues to prioritize strong Board of Director refreshment, independence, and diversity. Of the 8 Directors standing for election this year, 7 are independent, 3 are female, and 2 self-identify as an ethnicity other than Caucasian/White. Average Director tenure is below the S&P 500 average while maintaining a diverse mix of short and longer-tenured Directors that reflects a balance of Company experience and new perspectives.

United States (U.S.)

U.S. production averaged 276,000 net barrels of oil equivalent per day (boed) for first quarter 2021. Oil production averaged 160,000 net barrels of oil per day (bopd). U.S. unit production costs were $4.46 per boe for first quarter.

During first quarter, the Company brought a total of 28 gross Company-operated wells to sales. In the Eagle Ford, Marathon Oil's first quarter production averaged 77,000 net boed. Oil production averaged 51,000 net bopd on 25 gross Company-operated wells to sales. In the Bakken, production averaged 112,000 net boed, including oil production of 77,000 net bopd. The Company brought just 3 gross Company-operated wells to sales in the Bakken. Oklahoma production averaged 53,000 net boed, including oil production of 12,000 net bopd. Northern Delaware production averaged 26,000 net boed, including oil production of 15,000 net bopd.

International

Equatorial Guinea production averaged 69,000 net boed for first quarter 2021, including 12,000 net bopd of oil. First quarter sales totaled 66,000 net boed, including 9,000 net bopd of oil. Unit production costs averaged $1.68 per boe. First gas was achieved from the 3rd party Alen project in February. Marathon Oil's equity method investees process Alen gas under a combination of a tolling and profit-sharing agreement, the benefits of which are included in the Company's share of net income from equity method investees.

Corporate

CASH FLOW AND CAPEX: Net cash provided by operations was $622 million during first quarter 2021, or $637 million before changes in working capital. First quarter capital expenditures totaled $184 million. The company's $1.0 billion capital expenditure budget for 2021 remains unchanged.

BALANCE SHEET AND RETURN OF CAPITAL: Marathon Oil ended first quarter with total liquidity of $4.1 billion, which consisted of an undrawn revolving credit facility of $3.0 billion and $1.1 billion in cash and cash equivalents. The Company continues to maintain an investment grade credit rating at all three primary rating agencies, with Moody's recently upgrading their rating outlook to stable.

Subsequent to the end of first quarter, the Company achieved its initial 2021 gross debt reduction target by redeeming its $500 million aggregate principal amount of 2.8% Senior Notes Due 2022. The transaction will reduce annual cash interest expense by $14 million and fully retires the Company's next significant debt maturity. Having achieved its initial 2021 gross debt reduction target, the Company is now targeting at least $500 million of additional gross debt reduction, bringing its total debt reduction target to at least $1 billion in 2021. Subsequent to the end of first quarter the Company also raised its quarterly base dividend from 3 cents per share to 4 cents per share. These actions are fully consistent with Marathon Oil's objective to return more than 30% of its cash flow from operations to investors, as the Company successfully progresses both balance sheet enhancement and direct return of capital.

ADJUSTMENTS TO NET INCOME: The adjustments to net income for first quarter 2021 totaled $69 million, primarily due to the income impact associated with unrealized losses on derivative instruments, gain recorded in respect of forward starting interest rate swaps, corporate aircraft lease termination expense, and severance expenses associated with a workforce reduction.