Marathon’s return to Basin encouraging

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Having returned to activity in the Permian Basin last year, Marathon Oil Corp. reports that production here is already rivaling that of the Bakken and Eagle Ford formations.

Lee Tillman, who is president, CEO and chairman of the Houston-based company, said in Marathon Oil’s first quarter earnings call that it “continues to strengthen our already investment-grade balance sheet, proving we can both deliver industry-leading shareholder returns and reduce our gross debt.

“It’s not an either-or proposition,” Tillman said. “And operationally, first quarter oil production came in at 186,000 barrels of oil per day, consistent with our guidance.

“We expect an improving oil production trend into the second and third quarters, given our first-half weighted capital program and the associated timing of our wells to sales.”

Tillman cited the quality of Marathon’s assets, the strength of its operational execution and the merits of its disciplined shareholder-friendly capital allocation and return of capital framework.

“While we are focused on executing our 2023 plan that leads our sector, we’re equally focused on continuous portfolio enhancements to further improve our competitive positioning and longer term sustainability,” he said. “We’ve now successfully integrated the highly accretive Ensign acquisition ahead of schedule and we’re realizing excellent results from our initial wells to sales.

“We’re delivering tremendous results in the Permian Basin since our return to activity last year. Today the Permian is effectively competing for capital on a heads-up basis with the best of the Eagle Ford and Bakken in our portfolio, which is a very high bar to clear.”

Tillman referred to Marathon’s $3 billion purchase last November of 130,000 acres from Ensign Natural Resources in Live Oak, Bee, Karnes and Dewitt counties in South Texas.

Executive Vice President-Chief Financial Officer Dane Whitehead reported $334 million of share repurchases and a $63 million base dividend.

“Looking at the full year, we expect to continue adhering to our return on capital framework while also paying down debt,” Whitehead said. “We believe we can do both, maintain our return-of-capital leadership and further enhance our already investment grade balance sheet.

“And we’re off to a great start, paying down $70 million high-coupon debt and remarketing $200 million of tax-exempt bonds at a very favorable rate.”

Whitehead said first quarter free cash flow “was solid at $330 million and we expect our underlying free cash flow and cash flow from operations to strengthen as we progress through the year.”

He said the company didn’t get any cash dividends from its operations at Equatorial Guinea during the first quarter but will start receiving them this quarter including an initial one of $200 million.

“We expect to realize significant improvement in our free cash flow break-even from 2023 to 2024, largely driven by the expected financial uplift in Equatorial Guinea,” he said. “So while our 2023 competitive positioning is strong, it’s even better in 2024.”


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