Rob White:

Thanks, Dane. As Lee mentioned, under Dane's leadership, our company has built a track record of providing a truly compelling shareholder return proposition, while at the same time continuing to enhance our investment-grade balance sheet. You can expect more of the same going forward with continuity in our long-held capital allocation framework and conservative financial policies.

Turning now to our key financial priorities for this year. Priority 1 is clear:

continuing to return at least 40% of our cash flow from operations to shareholders, consistent with our return of capital framework, which represents one of the strongest shareholder return commitments in our peer space and across the entire S&P 500.

Mike Henderson:

Thanks, Rob. With strong first quarter execution consistent with our plan, we've made no changes to our annual guidance and remain fully on track to deliver our 2024 program [ with ] once again, benchmarks at the top of our sector on metrics that we believe matter most, the combination of free cash flow generation, capital efficiency and shareholder returns.

Lee Tillman:

Thank you, Mike. Shifting to our E.G. operations on Slide 15. With the expiration of our legacy Henry Hub-linked LNG contract at the end of last year, first quarter marked the transition to fully realizing global LNG pricing for Alba Gas.

Operator:

[Operator Instructions] The next question -- the first question comes from Scott Hanold from RBC.

Scott Hanold:

Yes. And I guess maybe the point I was trying to ask is, are these wells like producing like 50 or 100 a day and then they're going to get back to a new well and kind of continue the typical profile that you would see with the new well? That, I guess, that was my specific kind of question.

Scott Hanold:

Okay. And then my follow-up question is the Permian. Obviously, you guys really stood out this quarter with those Lea County wells. And you talked about having like 2 decades, roughly, of inventory but looking to maybe increase that pace.

Lee Tillman:

Yes. Maybe I'll start, Scott, and let see if Mike wants to add any additional color. I think we've been very methodical in our approach to the Permian. I think as we stated in the prepared comments, it's probably one of the more likely developed positions in the basin because we have pace. I mean we have fantastic black oil assets right in the Bakken and the Eagle Ford to deliver superior, top of Tier 1 kind of returns.

Mike Henderson:

I think the only other thing I can say is we've been very thoughtful in terms of both how we reengage with that asset. And I think I described in the prepared comments, we've been doing things at a very disciplined pace. I mean that's -- we've done that for a number of reasons. It certainly allows us to mitigate any potential execution risk in moving too quickly. It also provides us the ability to integrate any learnings into what we're doing.

Lee Tillman:

And the last thing I would maybe add, Scott, is this is also a great demonstration of the strength of the multi-basin portfolio and how we kind of feather these other assets. I mean, today, as you see the dislocation between value between oil and natural gas, obviously, the true black oil areas are very strong, the Eagle Ford and the Bakken.

Operator:

The next question comes from Arun Jayaram from JPMorgan.

Mike Henderson:

Yes. I mean as I mentioned to Scott in the last call, in terms of volume, we're looking at these Bakken and refracs being very comparable to industry new drills. So I think you could tag a number of that, Arun.

Lee Tillman:

Yes. And maybe just to stress around, we're not looking at refrac and redevelopments as necessarily displacing primary development opportunities within our portfolio. But when we benchmark them against where others are drilling today, economic-wise, they're very, very competitive.

Arun Jayaram:

Great. And just my follow-up. I know that some of the accounting in EG will change. This year, you're giving the change in the marketing agreements. We'll have to spend some time with Guy to go through this in terms of our model. But one of the questions that comes in is, does it impact how you're recognizing cash flow from ops versus [ CFI ]? Just wanted to see if there's any changes to how you're -- how this will impact the reporting of cash flow on a go-forward basis?

Rob White:

Arun, this is Rob. Just a quick point there. I think actually, a difference you would see would be a positive difference on a cash flow perspective with more of our business flowing through the consolidated side. It kind of eliminates the timing issue of the dividend.

Arun Jayaram:

Great. Dane, I wanted to thank you for all of your counsel and help over the years, and glad you had a successful act after EPE, but great work. And we'll miss you.

Operator:

The next question comes from Betty Jiang of Barclays.

Lee Tillman:

Yes. No, thanks for the question, Betty. Yes, I think the overall approach in EG has been very comprehensive. We've always talked about EG in terms of a value proposition that consists of the Alba Gas condensate field, but also this world-class infrastructure and how we can maximize taking advantage of that. And so we're always looking to drive more opportunity here.

Wei Jiang:

Got it. That's clear. And then I have another question on the Permian. It's great to see that the 1Q results showcased the strength of the wells that were brought online during the quarter.

Mike Henderson:

Betty, it's Mike here. I'll take that question. Yes. I mean we probably touched on that one a little bit, one of the earlier responses. But when I look at the Permian, we talk about over 20 years of inventory at the current drilling pace. When I look at what we're going to be targeting in the future, again, I'd describe it as it's -- we're going to be targeting proven benches at proven, if not conservative, well spacing sold.

Lee Tillman:

Yes, Betty, I would just reference the fact again that when you look at our acreage position, just because of the way we've developed it, it is one of the more [ lightly ] developed position in the peer group, which I think just underpins what Mike says. We've got a lot of running room there with very high-quality inventory, a big chunk of which will still be subject to extended lateral drilling as well.

Neal Dingmann:

My first question is on capital allocation. Specifically, I was hoping maybe you could just maybe give a broad comment on how you view the current value of your stock versus what you're seeing out there for potential assets in the market. I'm just wondering, I mean, I love how you continue to sort of dig in and keep repurchasing those shares. And I'm just wondering if that's still because of your view on the valuation versus where some of this external assets are at.

Lee Tillman:

Yes. I think when you say expansion, we continue to look at, I would say, gas aggregation in the area, both indigenous gas and EG, but also cross-border opportunities as well, particularly in Cameroon. So yes, I think there is opportunity there to expand our footprint. Now that may not necessarily look like upstream investment. It could look at -- look like maximizing throughput through EG LNG for an extended duration. But we see a lot of opportunity there.

Nitin Kumar:

Lots of good updates this quarter. I just want to focus on the long laterals. Obviously, this quarter, you did, I think, about 8 long laterals in the Eagle Ford and the Bakken and a few less in Permian. Given that your Bakken and Eagle Ford are more developed than your Permian assets, what's the mix of your future inventory when it comes to these 3-mile laterals?

Patrick Wagner:

This is Pat. I'll take that one. I think we've covered our hedging strategy in the past. And we -- as you said, gas is not a big component of our revenue, but we did see a unique opportunity in the market for next year. Maybe seen weakness in the [ crop ] this year. And so we saw some really nice hedges available on a [ 2-way ] collar last [ setting ] at a [ 250 ] floor. So we went ahead and took that.

Operator:

The next question comes from Matt Portillo from TPH.

Mike Henderson:

It's -- Matt, it's Mike here. It's certainly getting it more competitive. But as you know, we've had a pretty successful program there with 11 wells brought online between the fourth quarter of last year, first quarter of this year. We covered it in the prepared comments, over 20% reduction in [ PwC ] per foot savings. And you couple that with the solid initial production, it was very consistent with our expectations.

Matthew Portillo:

Great. And then maybe just a high-level question. Curious, if you might be able to speak to maybe the drilling and completion efficiency gains you've seen this year? I know that was a big theme for you all last year, but it seems like you're continuing to see success on that front, both on the drill bit and on the frac side.

Mike Henderson:

No, you shouldn't expect much of a change in terms of wells to sales. It's really just a phasing within the year, Matt, is how I'd describe it.

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Lee Tillman for closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Guy Baber:

Thank you very much and thanks as well to everyone for joining us on our call this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that address our fourth quarter 2023 results and our full year 2024 outlook. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, our Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, our Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials as well as the risk factors described in our SEC filings. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. So with that, I'll turn the call over to Lee and the rest of the team who will provide prepared remarks. After the completion of their prepared remarks, we'll move to a question-and-answer session. And in the interest of time, we ask that you limit yourselves to one question and a follow-up. Lee?

Dane Whitehead:

Thank you, Lee, and good morning, everybody. As Lee mentioned, in 2023, we continued building on a peer leading track record of returning capital to shareholders as consistent with our differentiated cash flow driven framework that prioritizes our shareholder as the first call on capital. Importantly, we did this while continuing to make progress on our balance sheet objectives through $500 million of gross step reduction. We've built a track record of providing a truly compelling shareholder return proposition, while at the same time continuing to enhance our investment rate balance sheet. We did both in 2023, and that's my expectation again for 2024. More specifically, on our 2023 return of capital delivery, total shareholder returns amounted $1.7 billion, including more than $400 million during the fourth quarter. That translates to 41% of our CFO consistent with our framework, and an annual distribution yield of over 12% on our current market cap, compelling relative to any investment opportunity in the market. The majority of shareholder returns came in the form of share repurchases, which reduced our share count by 9% last year. That's about double the share count reduction of our next closest competitor. For full year 2023, we grew our oil production per share by a peer leading 28% due to our share repurchase program and the integration of the accretive Ensign acquisition. Looking to 2024, we expect to prioritize free cash flow via our disciplined capital allocation framework by holding our top line oil production flat. We also remain focused on driving significant per share growth and fully expect to maintain our long held leadership position in the peer group. While the majority of our capital returns 2023 came in the form of share repurchases, our base dividend remains foundational and we remain committed to paying a competitive and sustainable base dividends to our shareholders. During 2023 we raised our base dividend by 22%, one of the strongest growth rates in our sector. Importantly, we did so with laser focus on sustainability, maintaining one of the lowest post dividend free cash flow break-evens in the peer group. Our consistent and committed approach to shareholder returns over the last three years has positively differentiated our company and our approach in 2024 will remain the same. Priority number one remains consistently delivering returns of at least 40% of our CFO in the form of share of purchases and base dividends. That minimum 40% level translates to about $1.6 billion of expected shareholder distributions at a reference price deck, again providing visibility to a compelling double-digit shareholder distribution yield. With our stock trading in the low $20 per share range and at a free cash flow yield in the mid-teens at strip pricing, repurchases remain highly value accretive. They're also a very efficient means to continue driving our per share growth and are highly synergistic with continuing to grow our per share base dividend without negatively impacting our peer leading free cash flow break-even. To summarize our 2024 return of capital plans, at least 40% of our CFO to shareholders which will be near the top of our sector, driving peer leading per share growth and competitive sustainable growth in our base dividend. We're also committed to further improving our investment grade balance sheet and we plan to direct excess cash flow to continue reducing gross debt. We have tremendous financial strength and flexibility in our capital structure with net debt to EBITDA approximately one times at strip pricing. We have $400 million of tax exempt bonds that mature this year. This is a really unique vehicle in our capital structure and will likely remarket those at an advantaged interest rate relative to taxable debt as we've done previously. We also have plenty of flexibility to manage the 1.2 remaining outstanding on our Ensign term loan due at the end of this year. The markets are wide open for us to potentially refinance a portion of that debt and as a reminder we have $2.1 billion available capacity on our credit facility that matures in 2027. And even if we opt to refinance in total the maturing tax exempt bonds and the term loan, we will retain capacity to payoff at par almost $1.5 billion of commercial paper and bonds which would get us to our medium term gross debt goal of $4 billion. One final comment for me on our '24 outlook before I turn it over to Mike to walk through some of the details of our capital program. Consistent with our prior messaging, our 2024 financial guidance assumes we'll transition to becoming an alternative minimum tax, or AMT, cash taxpayer this year. The AMT tax rate is 15% on our pre-tax U.S. income. Our primary exposure here is domestic as our E.G. income will largely be offset by current year foreign tax credits. The new information we're providing today involves research and development, or R&D, tax credits. We recently completed a study of capital spent in past years on organic enhancement activities that qualified for R&D tax credits. As a result, we expect to apply approximately $150 million of these R&D tax credits this year as a direct offset to a significant portion of our 2024 AMT cash payments. A direct benefit to our free cash flow is most likely not included in any sell-side models at this point. With that, I'll hand over to Mike who will walk us through the final points of our 2024 capital program.

Lee Tillman:

Thank you, Mike. Focusing on slide 15 in our deck with the expiration of our legacy Henry Hub linked LNG contract at the end of last year, our E.G. integrated gas business is now fully realizing global LNG pricing, and in January we lifted our first cargo under these new contractual terms. Consistent with our prior disclosure, the majority of our Alba LNG sales are covered by the five-year sales contract we announced last year. That contract is TTF linked. The balance of our 2024 LNG cargos have now all been contracted, but at a JKM price linkage. This will afford us a nice combination of both TTF and JKM price exposure this year. Although, global LNG pricing has weakened somewhat on warmer winter weather, the arbitrage between global LNG and Henry Hub pricing is still significant and therefore should still drive improved financial performance for our international operations. We're guiding to $550 million to $600 million of E.G. EBITDAX this year, assuming $10 TTF, that's a significant increase from actual 2023 EBITDAX generation of $390 million. Importantly, we don't expect this to be a one year financial uplift. For some time we've been focused on sustaining this improved financial performance by progressing all elements of the E.G. gas mega hub concept supported by the HoA signed with the E.G. government and our partner last year. The five-year E.G. EBITDAX outlook we're providing today is intended to demonstrate the sustainability of our E.G. cash flow generation. Over the next five years, we expect to deliver cumulative E.G. EBITDAX of approximately $2.5 billion, assuming $10 TTF and $80 Brent flat. Beyond realizing global LNG pricing, there are a few drivers of the strong performance over the duration of the five-year period. They include, ongoing methanol volume optimization to maximize higher margin, higher working interest LNG throughput; an Alba infill well program, which will help mitigate Alba decline and maximize the amount of Alba equity gas through the LNG plant in coming years; and further monetization of third-party gas through the Aseng gas cap as we continue to take full advantage of our unique and highly valuable gas monetization infrastructure in one of the most gas prone areas of the world. And while this five-year EBITDAX scenario reflects the life of our recent global LNG sales agreement, we fully expect to extend the life of E.G. LNG beyond the next five years, well into the next decade as we continue to advance the longer term gas mega hub concept. In summary, consistent with our more S&P mandate, for the last three years, we've been delivering financial performance, highly competitive with the most attractive investment alternatives in the market as measured by corporate returns, free cash flow generation and return of capital. I fully expect 2024 to build on this track record. Our compelling investment case is simple, a high quality multi-basin U.S. portfolio and integrated global gas business that delivers peer leading free cash flow, a unique and differentiated return of capital framework that provides our shareholders with the first call on cash flow. The output of which is clear visibility to compelling shareholder distributions across a broad range of commodity prices. Sector leading growth in first share metrics, and a multi-year track record of consistent execution and proven discipline. And perhaps most importantly, everything we're doing is sustainable through the commodity cycle. This is due to the quality and depth of our U.S. multi-basin portfolio where we have over a decade of high return inventory and a disciplined and multifaceted approach to portfolio renewal. It's also due to our differentiated integrated gas business that's now fully realizing global LNG pricing as we continue progressing all elements of the regional gas mega hub concept. Rest assured our commitment to our strategy is unwavering and is built upon our core values, resilience across the commodity cycle and our long-term track record of success. With that, we can open the line for Q&A.

Arun Jayaram:

Good morning, Lee. Lee, I wanted to start off with an M&A, obviously a significant level of industry M&A activity, including a large transaction announced in your Bakken backyard last night. I was wondering if you could provide some perspective on how should we think about M&A for MRO post the Ensign transaction, and I did want to cite a recent example of a low cost Permian producer as a low cost structure such as yourself did announce a deal to get more scale in the Permian, adding more sticks on the map and the multiple appears to rerated it on that deal. So again, just some thoughts on where the M&A landscape and what this means for MRO.

Arun Jayaram:

Great. My follow up is on E.G., Lee. You provided a five-year outlook, which suggests relatively stable earnings profile or EBITDAX relative to your 2024 guide. I was wondering if you could talk about opportunities to extend these financial outcomes in E.G. beyond the five-year threshold. As well as I was wondering if you could address the recent decision by a super major to exit E.G. And does that open up any opportunities for you given that country exit?

Arun Jayaram:

Great. Thanks a lot.

Operator:

Our next question comes from Neal Dingmann with Truist Securities. Please proceed.

Mike Henderson:

Yeah. We all, Neal, I can certainly answer that. So yeah, underlying resource play capital efficiency as we noted is improving in '24. And I highlighted a few things there in my prepared remarks, but I think it probably starts with that consistently strong peer leading well productivity. When I look at our '24 productivity by basin compare it to '23 and Eagle Ford, I would say '24 is looking very comparable to what we delivered in '23. When I look at the Bakken, I would actually say our productivity is up marginally in '24 really on the back of -- we are going to go Bakken, Myrmidon and complete a few wells there. And then the Permian, it looks pretty flat from '23 to '24. So I think that's the first thing I would point to. The second thing, as you noted was the longer laterals we mentioned in the prepared remarks, they're up 5% at a company level. Eagle Ford, they're up about 10% year-on-year. Even Bakken is up just notionally a couple of percentage points. And then you look at the Permian, they're up by 10% as well. And that is a big part of that capital efficiency driver. And then the third part is we are forecasting a little bit of deflation, albeit very modest kind of low single digit numbers there.

Dane Whitehead:

Yeah. Hey, Neal, this is -- good morning. This is Dane. I'll take a first cut at it. So, the bottom line is expect our framework and sort of the mix of return vehicles to remain unchanged in 2024. We've set all along sort of variable dividend is a -- it's a third mechanism that it's on the table, but it's not front and center for us at this point. 40% return to shareholders is a very firm commitment. That's our primary commitment for use of capital. Base dividend, I talked about the sustainability of that base dividend is critically important to us, so dividend increases will probably be driven by the pace of share repurchases as much as anything because that kind of keeps the post dividend break-even flat. And it's -- right now we're peer leading in the low to mid 40s. Share buybacks again at mid-teens free cash flow yield, super efficient vehicle. And as you noted, they drive that per share growth on a pretty significant basis. The second use of CapEx or of cash -- available cash for us, and you saw us do some of it this year, is paydown debt. We paid down $500 million worth of debt last year. Our leverage levels are -- we're comfortable with, they're like one time net at the EBITDA at strip pricing, but I'd like to get them down and we've stated, we've got $5.4 million of gross debt today. We'd like to drive that down to $4 million gross debt, which was the pre-Ensign debt level. And so we will continue to allocate some excess free cash flow in excess of the 40% return to further improving the balance sheet.

Lee Tillman:

Yeah. Maybe I'll just add one thing to that too. I think, the power of a consistent and meaningful share repurchase program, you really see that showing up in the growth and the per share metrics that really matter. If you just look at 2023, we took out 9% of our outstanding shares that was roughly double the next best in our peer group. And, of course, that translated into tremendous value growth on a per share basis for our shareholders. So we still believe in that. I mean, again, we kind of look through the cycle. It's a program that we set in place and let it run we dollar average. And we think it's very powerful. If you rewind all the way back to October of '21 that 9% comes 27% of our shares outstanding that we've retired. So it's been a very powerful program for us and we remain extremely committed. We still have $2.3 billion of outstanding authorization against the repurchase program with our Board of Directors.

Operator:

Our next question comes from Matt Portillo with TPH.

Mike Henderson:

Yeah. I'll answer that one, Matt. In terms of the spacing pattern there, it was in a kind of 5 by 0 spacing, so five wells in the middle Bakken and there's no three forks opportunity down there. And as you probably know, that's kind of down to the southwest of the Hector area where we've been pretty active the last couple of years. What I'd say in terms of maybe a read through probably feels a little bit early, don't have a lot of data to share. Obviously, we've just brought three of the wells online, we've got some early production there. What I'd probably tell you this quarter may well change next quarter. So rest assured thought we'll continue to work our land position there hard and if there are any opportunities to get more extended laterals, you could -- you can expect us to be talking about those in the future.

Mike Henderson:

Matt, I'll maybe provide a little bit of more color there. The first of the wells that we did execute on a TWC per foot basis, we're looking at those be 25%, sorry, below comparable to milers. And I think you couple that with the early production, couple of thousand barrels of oil equivalent a day, 80% oil, the IPs will probably be not as stout as you might expect up in Hector, but I think you'll get that volumes back over the long term. So as Lee pointed out, you take the well productivity with the well costs, I would like to think that that's going to present a pretty compelling case for Ajax in the future.

Pat Wagner:

Matt, this is Pat. I'll take the development piece and maybe I'll let Mike take out the cost piece. Yeah. As you said this -- we moved this project into our development team last year. So it's still longer an exploration project. It is in our development program. As I think you probably know, we have 13 wells that have been online for some time, nine in the Woodford, four in the Merrimack. And they continue to perform this as we expect. Excellent productivity, high oil cut, shallow declines, and low moral ratios. We will be bringing on nine wells this year. Two of those are leasehold wells, and then there's two multi-well pad that will be bringing on. We've gone to longer laterals. We have this 57,000 acre blocking position, so that gives us the ability to drill really long laterals. The wells we're bringing on this year will average around two miles next year, or the wells will be drilling in the future will be up to 13,000 feet. From a development standpoint, we're still looking at four by four spacing in the Woodford and Merrimack. I think I hit it all there maybe.

Lee Tillman:

Yeah. One other thing I'll just mention too, this is a little bit of a subtlety, but the fact that we brought the two asset teams, Permian and Oklahoma together, and now that's under a single leadership structure. And this is one of the areas where we can benefit from learning because of course, Woodford Merrimack drilling and completing in Oklahoma, that's something that we've already kind of cut our teeth in. So we're bringing a lot of those learnings and expertise now into this, if you will, joint asset team. Now that we have this Texas, Delaware play, with the Woodford Merrimack, because it is challenging drilling. I mean, let's be honest. It's deeper, it's hard pressure, it's more challenging, hard rock drilling, but bringing that expertise in from Oklahoma is certainly allowing us to advance up the learning curve a bit more efficiently.

Operator:

Our next question comes from Neil Mehta with Goldman Sachs.

Lee Tillman:

Yeah. Well, it feels like we're just now releasing 2024. So jumping hit 2025 is a bit of a leap. But first of all, let me just say Neil, we feel very good about our, I'll say, underlying well productivity. I think it's actually pretty remarkable when you think about the fact that we operated to, of what the market uses very mature basins, and we're still very much holding the line on productivity that is already at the top of the peer space. So I think you have to keep all of this in the proper context. And certainly as we do our longer term modeling, clearly Permian will start competing for a bit more capital, but we believe that from a productivity as well as a capital efficiency standpoint, certainly as we look out over the horizon, we see ways to continue to hold the line and certainly hold the line if not improve on some metrics. And again, we can have a lot of tools available to us, right? I mean, there's some of the things that Mike talk about. There's the fundamental, well designed, longer laterals, better completions, there's execution efficiency, stages per day. Our rate of penetration on the drilling side, we're just talking about the Woodford hard rock drilling. There's supply chain optimization. We continue to work on how best to integrate and manage our supply chain. And then finally, there's just the sheer commercial leverage. You can kind of put that in the deflation/inflation bucket, but all of those things give us an opportunity to continue to work on overarching capital efficiency as we move forward in time. Even though we may be moving to different parts, different geology, we certainly see a path to continue to protect our peer leading capital efficiency that we've worked very hard for.

Lee Tillman:

Yeah. I think Mike was pretty clear in describing the capital program that, that our program for '24 already reflects the reality of where natural gas pricing sits today. So not surprisingly, we're driving capital allocation to our three kind of black oil basins, Eagle Ford, Bakken and the Permian. Thus, a combination play essentially like Oklahoma is struggling obviously to compete for capital because of where we are on the commodity cycle, right? Doesn't mean that it won't compete in the future, but today because of the multi-basin model, we're able to take a hard look. I mean, I think Mike said, it's value over volumes and even though we're taking a little bit of a downtick on OEVs, that's by design, we're driven by returns and value optimization, which is making our oil program very efficient in 2024, and very much our focus given where gas pricing sits today in North America.

Operator:

Our next question comes from Doug Leggate with Bank of America.

Lee Tillman:

Yeah. There's a lot in there. So let me maybe try to unpack a little bit of that. First of all, maybe just let me deal with the inventory question. Our team has been very successful at replacing inventory over the last five years, and there's several ways that we're able to do that. One is organic enhancement, and that can include everything from cost reductions in places where we operate, extending laterals, refrac and redevelopment work like we have ongoing in places like the Eagle Ford, so that's helpful. We do small bolt-ons and even trades. One of the reasons that we're now having a primarily two-mile-plus program in Delaware is because of all the good work around small acquisition, small trades there to allow us to get a more contiguous kind of position there. And then we just talked about the migration of the Delaware, I'm sorry, the Texas, Delaware play from kind of exploration into the development program. And then finally there is large scale -- larger scale M&A like we do with Ensign. You've got these four avenues to continue to replenish and in some cycles you lean on one more than another, but typically you need to see all four of those to have a sustainable replenishment model. And that's really what we've been able to prosecute over the last five years and hold that 10-plus-decade plus of inventory relatively constant over that period of time. So you should expect us to use that same playbook going forward. I mean, every year is not going to have a large scale M&A, but certainly every year we're investing in things like organic enhancement. We're investing and still trying to progress some of our exploration place. So those things are just part and parcel of how we address inventory replenishment. At a basin level, we allocate capital at an enterprise level, so when we look at our inventory, we're looking at it from a holistic standpoint. And that's why, for instance, today you see Permian starting to compete for more capital allocation. And so, when we think through that 10-plus-year inventory, we think through it with a mindset of managing it at an enterprise level with basins coming in and out and receiving capital allocation based on the highest return and the best fit for us to continue to generate sustainable free cash flow generation.

Lee Tillman:

Well, first of all, it goes to $30. We're going to be very happy. But there is a bit of linearity there though. And one of the reasons that -- and I think I mentioned this my open comments, we've provided some sensitivities at an enterprise level for all of the key products. So you can see how E.G. factors into the overall enterprise delivery, but certainly the data that we've included in the deck, you should be able to test those sensitivities because it is a commercial framework, it's a linked to global LNG pricing. So the extent that we're delivering, same level of volumes under the same cost structure, then that should be a pretty linear relationship with commodity pricing.

Lee Tillman:

I want to make that $30 as a prediction too, by the way.

Paul Cheng:

Thank you. Good morning, guys.

Paul Cheng:

Maybe this is, for both Lee and Dane. You guys are changing a bit on the accounting in E.G. shifting the transfer price. Just curious that -- with that other than say the shift on earning between the equity affinity and fully owned operation, but see in any way that changed the way how your decision making for that operation level. That's the first question. The second question that I want to -- maybe go back to the consolidation, in your operating region, because of that, we are going to see some bigger payer, do you foresee that going to change the landscape in terms of the service supply, in terms of all that, because of the consolidation, people become more rational. So you actually think that the pricing on the survey will become better for the rest of the payer. So just curious then, I mean, what you view on the competitive landscape that may have changed, if any, due to that consolidation in the operating regions that you are in.

Dane Whitehead:

No, I agree completely, Lee. I would just add the guidance that we provided on page 15 of the slide deck, it's really sort of at an -- holistic E.G. business unit level $550 million to $600 million EBITDA in 2024, assuming $10 TTF and we gave price sensitivity. So you can dial that how you want. But I will say that's the best way to look at the business is the aggregate EBITDA generation. That's how we think about it. So it doesn't really -- to echo Lee's point, I don't think it drives our decision making which entity, whether it's consolidated or an equity affiliate where that earning is coming from. We like it all. The other thing is that guidance is quite a bit stronger than what we previously provided for '24 and now we've actually gone out five years and given you a five-year average. So this business is very strong and it's improving with the infill opportunities and bringing the same gas into the system. I mean, there's a lot of running room here and a lot that's not fully baked into the future model yet. So we're pretty bullish on E.G.

Paul Cheng:

Thank you.

Scott Gruber:

Yes. Thanks for squeezing me in and just have one question here. Lee, I think your M&A framework is certainly a very prudent approach. But obviously there does seem to be an industry rush here to secure good rock and scale up. So the question we get from investors is, do you worry about the opportunity set for acquisitions shrinking and the quality of the opportunity set fading? And does that warrant a tweak to your M&A strategy? I guess ultimately the question is, are you comfortable with the longer term outlook for adding quality resource, whether that's organic or inorganic within the construct of your M&A approach or -- and in the context of this hyper consolidation phase?

Scott Gruber:

I appreciate the color. Thanks, Lee.

Operator:

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over Lee Tillman for any closing remarks.

Lee Tillman:

Thank you for your interest in Marathon Oil. And I'd like to close by again thanking all of our dedicated employees and contractors for their commitment to safely and responsibly delivering the energy the world needs now more than ever, cannot be proud of what they achieve each and every day. Thank you. And that concludes our call.

Guy Baber:

Thank you, Danielle, and thank you as well to everyone for joining us on the call this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that address our third quarter 2023 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials as well as the risk factors described in our SEC filings. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. So with that intro, I'll turn the call over to Lee and the rest of the team who will provide prepared remarks today. After the completion of those remarks, we'll move to a question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee, and good morning to all on the call today. As Lee mentioned, the third quarter was an exceptional financial quarter for us, highlighted by $718 million for adjusted free cash flow, a reinvestment rate of just 38% and $476 million of capital return back to shareholders. Importantly, we expect even stronger free cash flow generation during the fourth quarter as our capital spending continues to moderate. It should go without saying by now, but we continue to believe that returning significant capital back to our shareholders is foundational to our value proposition in the marketplace. We're successfully building a long-term track record of consistent shareholder returns through the cycle that can be measured in years, not just quarters. We're now two years into that journey and the bottom-line results of our program is delivered are both compelling and differentiated. Over the trailing eight quarters, we've now returned $5.1 billion back to our shareholders. That's over 30% of our current market capitalization. We've repurchased $4.6 billion of our stock and attractive levels, driving a 26% reduction to our standing share count contributing to peer leading growth on our per share metrics. The commitment and the consistency of our approach is paid off, and we remain committed to this powerful combination of material share repurchases along with the competitive and sustainable based dividend. To that end, we raised our base dividend by 10% this quarter, that's the ninth increase in the last 13 quarters. This increase was fully funded by share count reduction from our buyback program, protecting our free cashflow breakeven, which is the lowest in our peer group. Additionally, we've increased our outstanding share repurchase authorization to $2.5 billion, which gives us plenty of runway to continue buying stock. As I've said over the last few quarters, our plan is to maintain this return on capital leadership, while also further improving our already investment grade balance sheet through gross debt reduction. We can do both and that's exactly what we're demonstrating. We've now paid down $450 million of gross debt year-to-date, including $250 million of term loan that we paid down in October. Looking into fourth quarter specifically, we aim to continue paying down the term loan. At current prices, we expect to be able to pay down $400 million to $500 million in the fourth quarter, and that's inclusive of the $250 million reduction already executed in October. With the variable interest rate, that the term loan carries, aggressively reducing outstanding principal of free cash flow will make a meaningful dent in our annual cash interest expense, and we expect to continue to hit our minimum 40% of CFO shareholder return opportunity. Our balance sheet is very strong, firmly in investment grade territory. Yet we'd like to be even stronger. Our current leverage at prevailing commodity prices it's around one time debt to EBITDA. Over the medium-term, our objective is to reduce current gross debt of $5.5 billion down to around $4 billion. That would translate to one time debt to EBITDA, assuming a $50 to $60 WTI price environment. Turn our gross debt level back to where it was before the Ensign acquisition. With that financial summary, I'll turn it over to Mike.

Lee Tillman:

Thank you, Mike. For years now, I have reiterated that for our company and for our sector to attract increased investor sponsorship. We must deliver financial performance competitive with other investment alternatives in the market as measured by corporate returns, free cash flow generation, and return of capital. More S&P, less ENT. We've delivered exactly that type of performance over the last two years and counting, and not just competitive, but at the very top tier group. And looking ahead to 2024, I don't expect anything to change. To close, I would be remiss if I didn't address the competitive landscape for our sector. We've obviously seen significant consolidation in our peer space recently. While every transaction is unique with its own set of facts and circumstances, a common takeaway is clear, low cost, high quality traditional oil and gas assets will have a critical role to play in helping meet global energy demand for decades to come. And within the oil and gas space, the short cycle, U.S. shell opportunities where there advantage, risk adjusted returns and potential for further innovation will continue to be highly valued and critical to meeting that long-term demand. Recently, you may have seen articles speculating on Marathon's involvement in M&A. While I won't address any specific market rumors or speculation on today's call, I will reiterate that it's our duty to always explore avenues to further enhance the long-term value for our shareholders. Whether those opportunities are organic or inorganic, that's always been our objective and our responsibility to our shareholders and nothing has changed. For Marathon oil, our approach to M&A, small or large has been consistent and will not be compromised. As exemplified by the inside transaction, which ticked all the boxes of our well-established criteria. It is about making our company better, not just bigger and enhancing the delivery against our framework for success. Any transaction must meet or tried and true principles of financial and return of cash accretion, industrial logic within our existing basins, inventory life extension and no harm to our investment grade balance sheet. Our paradigm needs to shift from that of an energy transition to one of an energy expansion. And I continue to believe that elite group of high-quality U.S. EMP companies are necessary to drive that energy expansion to deliver strong financial results for shareholders, while also collectively defending U.S. energy security, playing our role in lifting billions out of energy, poverty, and protecting the standard of living we've all come to enjoy. Marathon Oil is well positioned to be one of those significant few companies, with over a decade of high return U.S. unconventional inventory and a differentiated EG integrated gas business with unique and growing global L&G exposure. I'm proud of how our company is delivering for our shareholders. Our financial and operational leadership speaks for itself, and you can have confidence that our strategic framework will continue to guide all of our decisions by prioritizing strong corporate returns, sustainable free cash flow generation, significant return of capital to our shareholders, and ongoing resource base enhancement, and all while protecting our investment grade balance sheet. With that, we can open the line for Q&A.

Arun Jayaram:

I wanted to follow up on your M&A comments and wanted to get your thoughts on how you would view transactions that could potentially be viewed as more of an MOE for Marathon. And just maybe if you could address, we got numerous buy-side pings and an 8-K filing from MRO last week that was filed under M&A or an asset disposition or under Reg FD. Looks like you had an amendment earlier this week, but just wanted to see if you could touch upon what the deal was with that 8-K filing as well?

Arun Jayaram:

My follow-up is on EG. Lee, you mentioned in your press release earlier in October. You had a long-term sales agreement by Glencore. Can you talk about why they were the right partner for you? And maybe you could talk about, the new wrinkle, which is the ability to shift maybe some volumes from Methanol to back to LNG, some thoughts on what the implications of that could be? And perhaps, as well, you could outline kind of your development program, at Alba later in 2024?

Operator:

The next question comes from Scott Gruber of Citi.

Lee Tillman:

Well, first of all, I would just say that the till count, there's a positive story in there, which is around execution efficiency. And obviously, we don't want to pump the brakes on that. When we're achieving that kind of efficiency that Mike talked about on both the drilling and completion side, we want to continue, that momentum. And so you saw that, again, that wells to sales count being a bit higher. It's still probably a little premature to talk specifically about the 2024 program, but I will tell you, even with, a bit of capital, say, from some long lead kit in EG, we expect the capital program to essentially the flattish year-over-year. And so I think the subtext to that would be that we would, on a, if you kind of move from maybe gross wells to net wells, we would expect, on a net well basis, to generally be in alignment with where we have been this year. And a lot of that, quite frankly, is driven by the productivity that we have machine, that underlying productivity that was in the deck, which really shows you that as we move from 2022 to 2023, there was really no downshift in productivity, and as we've just started our early planning for 2024, we believe that's a trend that we're going to be able to support, even moving into next year. So we feel very good about the capital efficiency that we're going to be able to deliver in 2024. We set a pretty high bar this year, but we believe that we can continue that trend and that momentum going into 2024.

Mike Henderson:

Yes, Scott, it's Mike here. I'll take that one. So still feels a little bit early to make any definitive call on 2024 Service cost. I mean, that said, I think we're likely to trending towards that kind of low single digit year-on-year deflation in ‘24. But again, I think ultimately, it's going to be dependent on what commodity prices do, and probably more importantly, what kind of industry activity levels look like. I think for us, looking at ‘24 largest contribution to any deflation is likely going to be around steel and hydraulic horsepower. Maybe the counter to that categories that have significant labor, any labor costs feel pretty sticky. So don't see much movement there. And when you think about B&C services, that's a big part of that is labor. So maybe an area where we don't see as much deflation, certainly absent any kind of material move in the commodities. Maybe just providing a little bit more detail in the various areas for us steel costs, they are trending down, as I've said from kind of first half eyes in 2023. We're kind of thinking about 20% there. And that's pretty consistent. Lower raw materials, milk capacity has opened up and just a bit of decreased demand as well. Similar story in the frack space. Hydraulic horsepower softened, spot rates have come down. We're kind of looking at off at 25% from those highs. Now, what I would note is we were never contracted at those levels, so that's more just about an industry perspective. Similarly, high spec rig market availability has definitely improved. Again, pricing's kind of trended down your at 20% of peaks there. And again, we weren't contracted at those levels. And as I mentioned, anything that has got a labor components or things like directional drilling, cement, coil, wire line, hauling, all of those kinds of costs are probably going to be a little bit stickier and it's worth recognizing that is not an insignificant component of your total well costs. And then maybe the last area is diesel. And that is a bit of a wild card. Supply demand fundamentals still feel pretty tight there.

Umang Choudhary:

On EG, appreciate all of your response to Arun's questions. I guess one more, any update you can provide us on the progress on capturing the third party as saying volumes?

Umang Choudhary:

And then on Slide 12, you've highlighted strong productivity and efficiency gains across your U.S. asset base. When you look across your assets, which ADAS are moving up from a return perspective and are probably going to likely demand more capital deployment over time? And then, the housekeeping question which I have for you is that implied 4Q guidance, oil guidance, it's calls for a bigger step down versus what we were expecting if you plan to keep, if you plan to hit the midpoint of your FY guidance. So any color you can provide there?

Operator:

The next question comes from Josh Silverstein of UBS.

Lee Tillman:

Yes. I'll maybe say a few things and let maybe Pat jump in as well. Our philosophy has been that we obviously want to protect the upside and the linkage to TPF are investors. We have an investment grade balance sheet. We have the lowest enterprise breakeven in the peer group. We have a very balanced portfolio from a product mix standpoint. And so when you couple all that together, we feel that we can Hold some of that upside and not hedge that away for our investors. Taking as a little bit different, maybe not quite as liquid as some of the other markers as well. But we believe, because of the way we position this asset within a broader portfolio, That with the TTF linkage, that's going to give us the market based upside, that's going to give us the biggest valve. Pat, do you want to add anything?

Josh Silverstein:

And then thanks for the commentary on the thoughts around spending as well and the 190 for next year. Can you talk about how much runway you guys see to kind of hold that level of oil and total production of around a similar couple of billion-dollar CapEx level?

Operator:

The next question comes from Doug Leggate from Bank of America.

Lee Tillman:

Yes. Well, Doug, maybe I'll start it off then I'll get Dane to jump in here. First of all, this for us -- this is not an either or proposition. I mean, we are consistently delivering our minimum a 40% CFO back to our shareholders while also continuing to work against that gross debt kind of midterm gross debt target. And I'll let Dane talk about that a little bit more. But on your -- on the stock repurchase question, keep in mind that, we're trying to look through the cycle. I mean, this is a different business model today. I mean, we're not trying to time the market or be opportunistic. We're putting TD programs in place, we're getting dollar averaging, we're consistently doing free cashflow yield on our shares is still well into the double digits, which means that program is devastatingly efficient. And so, because we can do both, that's what we in essence are doing. So we don't have to make that choice today. And we still believe, when you look at some of the numbers that Dane shared on just how much dilution we have taken out of the share repurchase program, we've done that at a very attractive price point on our shares as well. So as long as we continue to have that free cash flow yield efficiency in our shares, it's still very competitive for us to focus on that per share metric and drive that. Dane, you want to say anything a little bit more about kind of how we're approaching the gross debt?

Doug Leggate:

That's very clear, thanks guys. On how you think about this. I guess my follow up is, if you don't mind on EG, I think, we all recognize the capacity, the potential of the legacy plant. And clearly, you're the only game in town, so I think, it's inevitable that you find opportunities, I guess to help frame the current situation though. I wonder if you could just share with us, with what you have today, how long do you keep the plant full, in other words to try and kind of risk what the future opportunity needs to be. If nothing else happened, what do you have today in terms of plant longevity?

Operator:

The next question comes from Neal Dingmann from Truist.

Lee Tillman:

Yes. I think, naturally, there's going to be some ebb and flow from a capital allocation standpoint. First of all, I just want to recognize the Bakken team had a tremendous third quarter and that was a, as usual, that was a combination of things. We brought on some fantastic wells. Execution efficiency was strong, which we've already talked about, so we're getting more wells to sell today. The team did an amazing job of keeping our facilities, up and running. I mean, our most profitable barrels are the ones that we've already invested in. Keeping it online, doing things like very aggressive workover programs. All of these things are contributing to that very strong performance that you saw in the Bakken. But again, we're going to balance, capital allocation across. That's one of the beauties of the multi basin model, and we're going to move that capital and take advantage of the efficiency that we have across all the bases. I don't know, Mike, if you wanted to add anything else.

Neal Dingmann:

And then, Lee, just a follow-up. I'm just wondering, how does the broad M&A market look today in terms of just potential deals or quality of deals out there versus, it's interesting. I would say versus exactly a year ago today when you announced the Ensign deal?

Operator:

The next question comes from Phillips Johnston from Capital One.

Lee Tillman:

Well, I think you probably can be pretty well informed just by looking at what we have done in the past. If you go back and you kind of look at how we have trended, even from '22 to '23, that's probably a good indicator. I know Ensign may have muddied the waters a little bit, this year, early in the year. But if you get down to the underlying legacy business, That profile, where we come in probably a little bit lighter, like I said, if you just look at 2023, we're at 186,000, 189,000. Now we're at 198,000 probably trending toward the high 180,000 in the fourth quarter. That kind of profile, because of the way that we laid our capital, directionally, that's what you should expect to see in 2024. And again, we'll give a lot more color and granularity on that in February, but that shape and that concentration of capital in the first half, that's going to feel very familiar relative to this year.

Phillips Johnston :

Okay, great. And then just one more follow up on EG, I guess. I think in the past you guys have talked about sort of an 8% to 10% natural PDP decline rate there, so I wanted to check to see if that's still a good number. And then, obviously you're still evaluating the two infill wells, but if you were to drill those, how might they impact your production trajectory in EG just over the next couple of years? I guess the question is will those wells more than offset those declines and they keep production relatively flat or just offset some of the declines?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Lee Tillman for closing remarks.

Operator:

Thanks. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Guy Baber:

Thank you, Danielle, and thank you as well to everyone for joining us on the call this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that address our second quarter 2023 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials as well as the risk factors described in our SEC filings. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. So with that, I'll turn the call over to Lee and the rest of the team who will provide prepared remarks today. After the completion of these remarks, we'll move to a question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee, and good morning, everyone. As we mentioned, second quarter was a tremendous financial quarter for us as we generated $531 million of adjusted free cash flow and returned $434 million of capital back to shareholders. That's a 10% increase in shareholder distributions relative to the first quarter. Importantly, we expect our financial delivery to improve even further over the second half of the year. On a price normalized basis, we expect our free cash flow generation to improve across the third and fourth quarters relative to the second quarter's already meaningful level, driven by higher expected production and lower capital spending consistent with the phasing of our 2023 program. Returning significant capital back to our shareholders remains foundational to our value proposition in the marketplace. We're focused on building a long-term track record of consistent shareholder returns through the cycle that can be measured in years, not just quarters, and the first half of 2023 represents another successful step in that journey. Through the first 2 quarters of the year, we returned over $830 million to shareholders, representing 40% of our adjusted CFO. First half return of capital translates to a double-digit shareholder distribution yield on an annualized basis, and that's the highest in our peer group. Over the trailing 7 quarters, we've now returned approximately $4.6 billion back to shareholders. That's almost 30% of our current market capitalization that we've returned in less than 2 years. We repurchased $4.2 billion of our stock at attractive levels, driving a 24% reduction in our outstanding share count, contributing to pure leading growth in our per share metrics. We remain confident. Our cash flow-driven return of capital framework is uniquely advantaged versus peers, providing investors with first call on cash flow and offering them a differentiated shareholder return profile. Our framework is sector-leading and transparent, providing clear visibility to one of the strongest shareholder distribution yields in the entire S&P 500. For the full year, we expect to continue to deliver against our framework, returning a minimum of 40% of our top line CFO to shareholders. We're committed to the powerful combination of a competitive and sustainable base dividend and material share repurchases. More or less our base dividend unchanged this quarter. Keep in mind that we've raised it basically last 11 quarters, and we're well positioned for another dividend raise later this year, with the increase expected to be fully funded by the share count reduction from our buyback program. This is consistent with our focus on sustainability and our objective to maintain one of the lowest post-dividend free cash flow breakevens in the peer space. Additionally, we have ample capacity to continue buying back a significant amount of our stock with $1.8 billion of share repurchase authorization outstanding. Our plan is to maintain our return of capital leadership and improve our already investment-grade balance sheet through gross debt reduction. We can do both, and that's exactly what we're demonstrating. We paid down $200 million of high-coupon U.S. debt so far this year and remarketed $200 million of tax in bonds at a favorable interest rate. The strength and durability of our shareholder return and balance sheet enhancement initiatives are underpinned by the quality of our assets, our disciplined capital allocation framework, our peer-leading capital efficiency and our strong free cash flow generation. This is proven out by our leadership position when it comes to the most important metrics for our sector. For full year 2023, we expect to deliver the best free cash flow yield in the high-quality E&P space, the lowest reinvestment rate and among the best capital efficiency, all while maintaining the lowest enterprise free cash flow breakeven on a pre- and post-dividend basis. With that summary, I'll turn it over to Mike to provide a brief update of our 2023 execution that's delivering the sector-leading outcomes.

Lee Tillman:

Thank you, Mike. For years now, I have reiterated that for our company and for our sector to attract increased investor sponsorship, we must deliver financial performance competitive with other investment alternatives in the market. As measured by corporate returns, free cash flow generation and return of capital, more S&P, less E&P. We've delivered exactly that type of performance over the last 2 years and not just competitive, but at the very top. Our one-line investment thesis is this

Arun Jayaram:

Lee, Dan and Mike, you mentioned how your free cash flow should inflect in the second half of this year, just given the, call it, $450 million decline in higher output in oil prices. So I wanted to get your thoughts on how you balance cash return in the second half between equity holders, debt reduction and perhaps building up the cash balance. You've been operating around $200 million in cash for this year. So just thoughts on balancing those 3 items.

Arun Jayaram:

That's helpful. My follow-up maybe is for Mike, is kind of maybe a 2-parter. Mike, your updated TIL guidance is about 17 TIL is higher, 230 versus 213. Does that impacting any production from from the higher TILs, that was a question from the buy side. And then maybe I'd love to see if you could describe the positive variance in the Eagle Ford this quarter and maybe a little bit light in the Northern Delaware, a couple of those variances in 2Q.

Lee Tillman:

Yes. I just think one, Arun, just on Permian to, you'd asked a little bit about why we saw a little bit of a step down sequentially there. That was generally speaking to a little bit of lag in our workover program, and we are on top of a couple of large producers that went down. We had to get a workover rig on them. And then finally, we had some midstream gas takeaway that was a little bit delayed on one of our new pads in the quarter. All that's been resolved now. So really just a question of timing, no well performance issues whatsoever.

Joshua Silverstein:

You had some comments before on the -- some of the EG infilling opportunities there. Can you also talk about just the product scope of some of the other field developments, the time line for investments? Are these a couple of hundred million dollar products over 3 or 4 years? Just a little bit more about the scope of the opportunity there?

Joshua Silverstein:

Got it. That's helpful. And then obviously, there's a lot of upside to come as the contract rolls off, but we've also seen a lot of volatility in TTF and international pricing. Is there anything you guys can do to take some of that volatility out? Are there -- is there a hedging liquidity? Are there contracts you can sign. Just anything that you can provide there, given we've seen as much volatility there as we have here.

Operator:

The next question comes from Scott Hanold from RBC Capital Markets.

Lee Tillman:

Yes. I would just say, first of all, this is a competitive process, Scott, that we're in. And from a milestone standpoint, we're right on track in terms of the commercial milestones that we laid out. And so I want to be absolutely clear. There's no question that we'll be receiving global LNG pricing come January 1. Right now, we're in a competitive process with multiple buyers to, again, drive that competitive tension and deliver what we think will be the most value from whoever that counterparty will ultimately be. But that's an active ongoing competitive process right now, Scott.

Lee Tillman:

Yes. I'll go back to my comment around reliability and security of supply. So certainly, duration is an important element that is in. Of course, the terms that we're currently discussing. But until we kind of complete that competitive discussion, I don't want to get too far into some of the commercial details. Suffice to say though, Scott, that we do believe that we'll be able to provide a very solid runway of LNG cargoes for those counterparties. And so it will be -- certainly, we're looking at a longer-term kind of contractual relationship.

Lee Tillman:

Yes. Well, of course, it's a bit early to start forecasting into 2024. But let me, first of all, just share a few thoughts. The case to be for us remains a maintenance oil production level, that means we're going to be back targeting kind of that notional 10,000 barrels of oil per day. So no real surprises there. And in fact, even at a capital allocation level, I wouldn't expect a sea change in terms of the mix amongst even our assets as we look ahead to 2024. I do believe, and I think Mike hit upon this in the comments that market trends continue to, I think, give us an opportunity to see some downward pressure in pricing I think we're well positioned to take advantage of that in the second half of the year. But I don't think from a materiality standpoint, those deflationary impacts are really not going to take root until 2024. Now that's all going to be subject to the market kind of staying where it is. I mean on the service side, it continues to be a supply and demand market for them as well. So do I see an encouraging trend there? Yes. Am I going to give you a quantification of that right now. It's just a bit too early to go there.

Neal Dingmann:

My question is on the D&C specifically, like a number of your peers continue to sort of push the limits and see the benefits of going to larger wells, such as the 3 milers and talking about the upside that they see on returns from this versus the 2 milers and 1. I'm just wondering do you all agree with this assessment? And if so, what type of opportunities in your plays do you have for this?

Neal Dingmann:

Very good. That's great to hear. And then my second question, just on sort of the regional oil production. I know you guys don't specifically guide on in each of the regions, but there's definitely continues to be a pretty nice notably pick up in the Bakken. And I'm just wondering, I guess, almost simultaneously, it seemed like the perm fell a little bit more than we were anticipating. I'm just wondering for each of those, or anything to read into that? Or is it just more timing of the D&C plan?

Operator:

The next question comes from Doug Leggate of Bank of America Merrill Lynch.

Dane Whitehead:

Yes, maybe not quantify that as specifically but let me just tell you what's happening. So we have in a non-AMT world sufficient tax attributes not to taxable U.S. Federal Income tax taxable until late 2025, when this new rule of inflation reduction act in the AMT that came in with it impose being a 15% alternative minimum tax if you are not paying taxes if you meet certain criteria the primary criteria is your 3 year average pre-tax book income was a $1 billion or more. In 2023, we are below that $1 billion threshold, in 2024 we expect to be above that. There was a big loss, here a pandemic loss in the current three year average number that would roll off when we get to 2024. So we expect we are going to be AMT taxable at a 15% rate starting in 2024 and we expect that should continue at that rate for about a decade. In the background the conventional NOLs and tax attributes will be conferred to AMT credits and so we will end up sort of capping our tax rate to 15% in the U.S. for that period of time. At 15% it will only to U.S. income, we pay a 25% rate [indiscernible] and that generates its own foreign tax credit so it won't get doubled [ph] by the AMT tax rate as well. Hopefully that you can apply that kind of math to any price outcome you are looking at and quantify it.

Dane Whitehead:

Yes, well let me start and then I may ask support from Pat as well. Now the portfolio development side we really look at this kind of as a multi-element approach when we talk about resource replenishment, inventory replenishment. On one end of the spectrum you have large acquisition like the Ensign acquisition which as you say was a tremendous win for our shareholder. I think the other avenue that we have are smaller bolt-ons and trades and I think Mike actually mentioned that some of the trade work in the Permian is giving us some access to some more extended laterals and then you have I would say our internal kind of self-help which is can be some of the redevelopment activities but also the REX program as well and so we look across all those dimensions we talk about resourced replenishment and how do we continue to build a resource base since we are an extractive industry we have to stay on top of that. But maybe I will let Pat talk a little bit about our program particularly maybe focused on the Texas Delaware program and how that's now kind of progressed from what we would have originally called a REX program now more into developmental program.

Michael Henderson:

I was just going to say I think its -- we really are now focused on this Woodford and NERAMAC play really looking at how do we get up the learning curve to get D&C cost down as low as practical. So it really has moved more into a development project they have to compete for capital allocation and that's exactly what we want to see is that output from the REX program is moving that stuff and to development mode. I did want to come back to your question to just around M&A though real quickly. I think you mentioned of course the very successful Ensign acquisition, if anything I would say that actually raised the bar for us from an M&A perspective and we are not going to compromise obviously on our criteria along those lines. We would be making sure that something is absolutely accretive from a financial metric standpoint, it would have to be accretive from our return of capital standpoint. It would have to be accretive to our overall sustainability meaning inventory kind of resourced like accretive. They got to be industrial logic there meaning it needs to be in one of the basins where we have high executive confidence and then finally we wouldn't want to do anything that would damage the financial flexibility in the balance sheet that we worked so hard to establish. That's a very tough filter and I will tell you today as we look into the market we just don't see anything today that really hits all of that criteria and that's what we saw in Ensign, it really did check all of the boxes and that's why I think that's been such a successful addition to our portfolio.

Lee Tillman:

We probably say based on Pat, kind of doing a nominal 4x4 spacing recognizing obviously that there is some variability across the play but its generally a continuous 55,000 acre position. So we are thinking several 100 locations right now and we will get more specific on that as we get up that learning curve on D&C and to really integrate it into the rest of our enterprise level inventory.

Matt Portillo:

Just a follow up around the shift in the tilt [ph] count for the year. We noticed that the Oklahoma assets are slight down shift in your expected in the JV. I was curious if that was operationally driven or if just given the low commodity prices some of those wells are sliding in 2024 and more broadly speaking how do you think about the return profile in Oklahoma relative to the rest of the portfolio?

Lee Tillman:

No, I don't think there's anything. I mean I think we guided 15 to 20 wells there earlier, Matt. I think I just think we're going to be at the whole end of the range. I don't think there's anything to read through into that.

Patrick Wagner:

This is Pat again. I think what our approach on JVs to date is to keep them very small and targeted to achieve certain strategic objectives. We're not doing large multiyear operated programs. We're just trying to satisfy lease commitments or protect operatorship, things like that. So we'll continue to view them through that lens. And as you see an opportunity you got people go ahead and do very small ones. Most of the inventory that we consume in these JVs is not our top-tier inventory to keep that, and we will go ahead and drill that. But if there's lesser quality inventory that doesn't compete for capital in the current next few years, and we need to execute on it to retain a lease, then we'll bring in a JV partner to help us see that.

Paul Cheng:

I have to apologize is that I joined late, so if my question has already been addressed, please let me know, I will look at the transcript. We -- just curious that some of your competitors is talking about the refrac and redevelopment opportunity in Eagle Ford. Have you guys do more detail and notes on that. I assume that currently, your inventory backlog that you mentioned, say, 10 to 12 years, that's not including that -- So if we're including those that -- how big is that opportunity for you? And what kind of oil and gas price you need in order for those that to be economic? That's the first question.

Michael Henderson:

Yes, Paul. No, you hit the nail in the head there. I mean, our approach with refracs is as we're pulling together a fun development, we're looking at our primary infill -- we'll have a look at the section, and we'll determine that the team is determined then, is there a potential refrac candidate or refrac candidates in the section. And quite frankly, those opportunities have to compete for capital on a heads-up basis with all of the other opportunities. So rest assured, we're doing refracs. They are profitable and they are competing with infill opportunities. I mean to give you a kind of idea for the scale in any given year, I think we're probably doing less. We're probably in the 10 to 15 new fracs this year, and that's kind of how we think about it. It's not a targeted program what we will call and do a bunch of refracs exactly to Lee's point, I think we've got enough primary and sole opportunities that we just don't to do that. I think probably answered most of your questions there. The pricing, they've got to compete on a heads-up basis the other capital that we're deploying.

Paul Cheng:

The second question is I want to go back into the EG commercial renegotiation on the post 2023, is it necessary for you that you have 100% of the volume under long-term contract or from a portfolio management standpoint, better off for you to reserve a fairly sizable amount on the spot market so that you can take the opportunity of the trading and maybe other tranche opportunities. And also that I know you already have a large exposure starting next year on the international gas market, but does it make sense for you to further diversify your maybe that when we argue that is financial engineering on your U.S. natural gas exposure to also linked to the international market by signing some supply agreement that with the U.S. Gulf to LNG operator, I know some of your peers have done?

Paul Cheng:

Pat, can I just want to clarify that from a company intention, what will be the ideal mix for the EG contract, do you have a number you might say 70% lock-in on contract and 30% spot or something bigger, something smaller? Any number that you can share?

Operator:

Seeing that there are no further questions at this time. I would like to turn the call back over to Lee Tillman for closing remarks.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Guy Baber:

Thanks, Jamie, and thank you as well to everyone for joining us on the call this morning. Yesterday, after the close, we issued a press release, a slide presentation, and investor packet that address our first quarter 2023 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President, and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, our Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials, as well as the risk factors described in our SEC filings. We'll also reference certain non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials. With that, I will turn the call over to Lee and the rest of the team, who'll provide prepared remarks. After the completion of those remarks, we'll move to a question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee, and good morning, everybody. Full year 2022 data shows that we performed at the very top of a high-quality E&P peer group last year, as well as the broader market, consistent with the charts on Slide 7 of our deck. An analysis of 2023 guidance indicates that our business plan again benchmarks at the very top of our sector and all the metrics that we believe matter most. I'll start with a recap of our 2023 return of capital outlook summarized on Slide 8 of our slide deck. As I've stated many times on our earnings calls, returning significant capital to shareholders through the cycle remains foundational to our value proposition. We're focused on building -- excuse me, a long-term track record of consistent shareholder returns that can be measured in years, not just quarters, and 1Q was another step on that journey. We again exceeded our commitment to return a minimum of 40% of our CFO, returning 42% to shareholders, including $334 million of share repurchases and our $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, including some of the Ensign-related finance. 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, beating our 40% of CFO target in 1Q, while paying down $70 million high-coupon USX debt and remarketing $200 million of tax exempt bonds at a very favorable rate. We'll take down our remaining $130 million of USX debt in July and maturity. We continue to believe our cash flow driven return of capital framework is uniquely advantaged versus peers, truly providing investors with the first call on cash flow and insulating shareholder returns from the effects of capital inflation. Offsetting inflation is on ops, not the shareholder. Even at our minimum 40% of the CFO commitment, our return of capital framework is sector-leading. It provides clear visibility to a double-digit distribution yield across a broad range of commodity prices as shown on the top-right graphic on Slide 8, and it benchmarks the very top of our peer group with a total shareholder yield about double the peer average. In terms of our preferred vehicle for shareholder returns, there's no change to our approach. We'll pay a competitive sustainable base dividend with the lion's share of shareholder returns coming through share repurchases. We currently have $2 billion of buyback authorization outstanding, which gives us plenty of room to keep executing. With our free cash flow yield in the high-teens, buybacks remain significantly value-accretive, a very efficient means to drive per-share growth, and highly synergistic withdrawing our base dividends, which we've raised eight out of last 10 quarters without compromising sustainability. Though peers have now migrated to our model, we were an early proponent of share repurchases and our dollar-cost averaging approach since October 2021 has delivered a peer-leading 22% reduction in our shares outstanding. The strength and durability of our shareholder return profile underpinned by strong free cash flow generation and capital efficiency. While first quarter free cash flow was solid at $330 million, we expect both our underlying free cash flow and cash flow from operations to strengthen as we progress through the year. There are a number of factors driving this trend. As we mentioned, we didn't receive any E.G. cash dividends during 1Q. We expect to start receiving those distributions in the second quarter, beginning with a larger-than-normal dividend of more than $200 million. Additionally, our CapEx is front-end loaded with 2Q capital spend expected to be comparable to first quarter consistent with our outlook for about 60% of our full-year capital to be concentrated in the first half of the year. And the timing of this spend will drive oil production growth from 1Q levels, improving our cash flow generation capacity as we move through the year. Therefore, operationally and financially, we remain fully on track with the assumptions that underpinned our initial full-year free cash flow outlook provided earlier this year. And our 2023 outlook very clearly benchmarks at the top of our peer space as illustrated on Page 9 of the deck. We continue to trade at one of the most attractive free cash flow yields in the entire S&P 500, as the top-left graphic shows. While this meeting free cash flow yields is in part due to attractive valuation, it's also a function of our peer-leading free cash flow efficiency. The top right graphic shows our free cash flow margins well above the peer average. For every barrel we produce, we're delivering 30% more free cash flow than the average high-quality E&P. Similarly, our reinvestment rate, a direct measure of capital invested versus cash flow generated, a true cash flow efficiency metric as it considers both capital and operating expenditures, is the lowest in the peer space, a full 10 percentage points below average. Further, our capital intensity is measured by CapEx per barrel of production, is more than 20% better than the peer average. This strong performance is a testament to not only the quality of our asset base but the strength of our operational execution and the discipline inherent in our capital allocation framework. Our focus remains on maximizing the free cash flow and corporate returns on every dollar we spend. Turning to Slide 10, we benchmarked ourselves on one of the most important metrics for our sector, our free cash flow breakeven or the WTI oil price necessary to achieve free cash flow neutrality, a metric so important that we've hardwired it into our short-term incentive scorecard. Through disciplined capital allocation, ongoing cost structure optimization and a relentless focus on our capital and operating efficiency, our objective is to maintain the lowest sustainable free cash flow breakeven level. This is crucial to maintaining business model resilience and ensuring we're positioned to deliver compelling free cash flow across a broad range of commodity prices. When commodity prices are healthy, we expect to materially outperform the S&P 500 in free cash flow generation. When commodity prices are challenged, we expect to remain competitive with the S&P 500. And we can only do this by maintaining a low free cash flow breakeven. And Slide 10 shows we have the lowest 2023 pre-dividend free cash flow breakeven among high-quality peers at around $40 per barrel WTI. Additionally, we expect to realize significant improvement in our free cash flow breakeven from 2023 to 2024, largely driven by the expected financial uplift in E.G. So while our 2023 competitive positioning is strong, it's even better in 2024. Finally, our free cash flow breakeven is also the lowest on a post-dividend basis. While we've raised our base dividend in eight of the last 10 quarters, we stay focused on base dividend sustainability and the synergies that exist between share buybacks and sustainable dividend growth. Whereas certain peers now have base dividends that add $10 or even $15 per barrel to their breakeven, our base dividend adds a more modest $3 to $4 a barrel, underscoring a sustainability and our headroom for longer-term growth as long as we continue to reduce our share count. Turning to Slide 11. While we've been a leading proponent of a capital allocation framework that strongly prioritizes corporate returns and free cash flow generation over production growth, the reality is that we're leading the peer group in growth on a per-share basis. 2021 to 2023, we expect to grow our production per share by more than 40%. In 2023 alone, we expect to grow production per share by approximately 30% year-over-year. Absolute production growth is not the objective, but we do see value in significantly growing our underlying per-share metrics. Two primary factors are driving our exceptional per-share growth profile. First, a consistent and disciplined approach to shareholder returns with a strong emphasis on buybacks. Through our buyback program, we've reduced our share count by 22% in the last six quarters. Our peers have moved toward our model, but we're definitely enjoying a first-mover advantage. And second, the highly accretive Ensign acquisition, which increased our maintenance of oil production by approximately 12% with no increase in share count. So with that summary of our 2023 business plan and competitiveness, I'll turn it over to Mike to provide a brief update on Ensign and our recent outstanding performance in the Permian.

Lee Tillman:

Thank you, Mike. As highlighted on Slide 14, we recently completed a significant planned E.G. turnaround and the asset is now back to normal operations. While the downtime reduced our second quarter E.G. production by about 12,000 oil equivalent barrels per day, it's intended to contribute to stronger uptime for both the winter of 2023, as well as next year and beyond when we'll benefit for more attractive pricing for our Alba equity gas. The turnaround impact is fully contemplated in our full-year production numbers. We are reducing our full-year E.G. equity income guidance by about $50 million, strictly due to lower assumed natural gas prices. However, we expect our E.G. cash flows to prove more resilient. E.G. cash distribution should actually exceed equity income this year, starting in second quarter, illustrating the strong cash flow nature of the assets plus a bit of catch-up in dividends from prior quarters. Looking ahead to 2024, we continue to expect to realize significant earnings and cash flow improvement on the back of an increase in our global LNG price exposure. While we're still working through contractual specifics, the bottom line is, the beginning January 1, 2024, Alba sourced LNG will no longer be sold at a Henry Hub linkage. It will be sold into the global LNG market, which is expected to drive a significant financial uplift for our company, given the material arbitrage between Henry Hub and global LNG pricing. Yet, it's not just about capturing commercial uplift in E.G. We're equally focused on the longer-term outlook and fully leveraging the value of our unique infrastructure in one of the most gas prone areas of West Africa to enhance our multiyear free cash flow capacity. That's exactly what our recently-signed HOA summarized on Slide 15 as intended to accomplish. A few elements of the recently-announced HOA are worth highlighting. For clarity, Phase 1 of the E.G. Regional Gas Mega Hub is already completed and delivering value via the processing of third-party gas on a toll plus profit share basis from the Alen Field. Phase 2 of the Gas Mega Hub involves the expected 2024 cash flow uplift I just discussed, processing our equity Alba gas molecules under new contractual terms as of January 1, 2024, with linkage to the global LNG market. The HOA aligns all the critical parties on the necessary commercial principles to that end. Under Phase 2, we're also analyzing the potential for infill drilling on our Alba block, giving -- given our alignment across the value chain for equity Alba molecules. Recall that we have a 64% working interest in the upstream Alba Unit and a 56% working interest in the downstream E.G. LNG facility and are the operator of both. More specifically, we're assessing up to a two-well program targeting high confidence, low-execution risks, shorter-cycle opportunity that could mitigate Alba base decline and maximize flow of Alba equity molecules through the LNG plant under more attractive global LNG-linked terms. These opportunities are expected to compete with the risk-based returns generated from our U.S. resource plays. Phase 3 highlights the next step in the development of the Regional Gas Mega Hub. The intent to process third-party Aseng gas at our facilities once capacity at the LNG plant begins to open up. The Aseng gas cap blowdown can access the same upsized pipeline that was funded and constructed by the Alen partners. This is fully consistent with our long-stated objective to extract maximum value from our world-class E.G. infrastructure by keeping the LNG facility as full as possible or as long as possible. Phase 3 will effectively extend the life of the E.G. LNG facility into the next decade, enhancing our long-term free cash flow capacity. Beyond Phase 3, we'll continue to assess additional opportunities with the same objective in mind. There is a lot of discovered undeveloped gas in the area and the path to monetization runs through our infrastructure. A recent cross-border agreement between E.G. and Cameroon opens the door to additional fast track opportunities in addition to other regional discoveries. Turning now to Slide 16. I'll close our call on the same slide we've used to conclude our remarks in recent quarters. For years now, I've reiterated that for our company and for our sector to attract increased investor sponsorship, we must deliver financial performance competitive with other investment alternatives in the market, as measured by corporate returns, free cash flow generation and return of capital or S&P, less E&P. We've delivered exactly that type of performance over the last two years and not just competitive, but at the very top. Our one line investment thesis, top-tier sustainable free cash flow yield at an attractive valuation with an advantaged return of capital profile, centered on per-share growth. And as our detailed 2023 competitive benchmarking slide show today, we're well positioned to again lead both our peer group and the S&P 500 on the metrics that matter most. This peer-leading financial and operational delivery is not a one-year phenomenon. It's a continuation of a multiyear trend. It's sustainable, underpinned by our high quality and oil-weighted U.S. unconventional portfolio, recently strengthened by the Ensign acquisition that is complemented by our unique fully-integrated global gas business in E.G. To close, I want to iterate -- reiterate how proud I am of the way we positioned our company. We are results-driven, but it is also about how we deliver those results, staying true to our core values and responsibly delivering the oil and gas the world needs. And the world needs more energy, not less. The energy transition is really an energy expansion and oil and gas is uniquely positioned to drive global economic progress, defend U.S. energy security, lift billions out of energy property and protect the standard of living we have all come to enjoy. With that, we can open the line for Q&A.

Arun Jayaram:

Yes, good morning. Lee, I wanted to get maybe a few more insights on the dividend expectations for 2Q out of E.G. and wanted to run some math by you. In the first half of the year, you -- including 1Q actuals, you would expect to generate about $115 million of equity income based and on that $200 million dividend, that would suggest maybe an $85 million tailwind to cash flow relative to your equity income guide. So wanted to run that math by to see if that made sense to you.

Arun Jayaram:

Great. And just my follow-up, Lee, I wanted to go back to E.G. again. Looking at the 10-K, gross sales out of Alba we're about 2 million tons per annum at the 3.7 million ton per annum facility. I know that the Alen volumes bring you closer to nameplate, but as you know, Lee, one of the bare thesis on the stock has been the fact that Alba volumes are declining, call it, at a 10% to 15% annum clip. And so, wanted to get your thoughts on how Phase 1, Phase 2, Phase 3 of your strategy on Slide 15 can help keep the plant full. The duration that you see from these opportunities and just broader thoughts on your -- on Marathon continuing this capital-light strategy with third-party volumes or wanting to get more operating volumes through that facility.

Arun Jayaram:

Great. Thanks a lot, Lee.

Scott Hanold:

Yes, thanks. Just turning to the Permian, the results looked pretty impressive. And my question would be -- is, can you talk about the depth of inventory and the sustainability of those extended laterals? And how do you kind of look at this play going forward? I mean it seemed like it was complementary to kind of the overall asset base, but it does seem like now it's got the ability to really step up and be a bigger part of the portfolio. So is -- what's the depth of that inventory look like? And are you guys looking at opportunities to add to that acreage position?

Lee Tillman:

Yes. And if I -- maybe if I could just jump in for a minute as well, one thing I want to highlight is that, in the Permian numbers now, we have fully integrated what we refer to as the Texas Delaware oil play, the Woodford-Meramec oil play and it's been very successful for us. It has now migrated for more of an exploration play into really part of our base capital allocation within the Permian Basin. And so that's another tranche of inventory that has now moved in to that asset team. And that's unique in the sense that, I'll just remind everyone that our Permian and Oklahoma teams, they are integrated teams. And so it makes absolute natural sense for that Woodford-Meramec play to migrate into a team that already has such broad experience in how to develop those two zones. To your other question around acreage addition, what I would say to that is that our M&A framework remains unchanged. And if anything, the addition of Ensign probably rates that are even further. We still look at everything within our core basins. But I would just tell you that today, we don't see anything in the market that really satisfies what is a very demanding M&A criteria.

Mike Henderson:

Pretty much, Scott. There's maybe -- it maybe tails off to the back end, but predominantly extended laterals. And quite frankly, the team have been very active converting some of those smaller SLs to XLs. So maybe some of those SLs that are at the back end of the portfolio at the moment. Expectation is that we'd be looking to convert those to longer laterals over time.

Pat Wagner:

Hi, Scott, this is Pat. I'll take that one. Yes, obviously, we're getting ready to market on January 1, 2024. We will be going to market shortly with an RFP for global LNG providers. And that will be, as Lee has said, linked to global LNG prices, what marker is still to be determined, but we'll have a big process through that and expect to tie up those contracts probably in Q3.

Lee Tillman:

And I -- Scott, there's still details to be worked out there, but we believe that there will be competitive tension in the market for such an advantaged set of LNG cargoes that are proximal to the European market.

Lee Tillman:

Well, I think we look at it through the lens of kind of how does that look relative to where we stand today. And when you think about the movement -- the bulk movement from a Henry Hub link to a global LNG link, I mean, the torque there, regardless of where absolute gas pricing goes is going to be pretty significant. I mean you're going to be talking about 2x or 3x kind of uplift as you move to a more index -- global index contract..

Lee Tillman:

Thanks, Scott.

Unidentified Analyst:

Hi, good morning, guys. This is actually [Clay] on for Doug. I've got a couple of follow-ups on E.G. First one, can you discuss what your decline rate is and what the infill drilling opportunity could do to stem that decline? And secondly, you guys highlighted that there will be a turnaround or a turnaround has been completed and that's going to improve the uptime. What does that mean for volumes in '24? And does that simply means less downtime? Can you qualify what that downtime is that we've avoid it? And I'll leave it there. Thanks.

Mike Henderson:

Yes, Clay, I'll speak about a little bit more color. We're looking at 99% plus uptime there from the facilities in E.G. So as we pointed out, it's really about protecting that uptime as we get into next year specifically.

Operator:

Our next question comes from Neal Dingmann from Truist. Please go ahead with your question.

Mike Henderson:

I mean, obviously, super, super happy with how the integration's gone, ahead of schedule, no surprises, everything's positive. You saw the well results that we put at, I think it's in Slide 12 of the deck. Top- decile performance there on oil basis within the basin. I think it's a little bit too early to say in terms of a view of what that does from a capital allocation perspective. But I think first impression is very, very positive, and if we are going to be doing anything from a capital perspective, it feels like we may be allocating more in the future, but a little bit early just to get too definitive on that.

Mike Henderson:

Yes, I'll take that one again, Neal, maybe just start with a reminder. Our 2023 guidance, we did incorporate about 10% to 15% inflation compared to 2022. And what we were assuming was the cost environment through 2023 would be comparable to the fourth quarter of 2022. We didn't assume any deflation over the second half of the year. We did assume a little bit of moderation in steel pricing, which we're actually starting to see. What I'd say we're seeing at the moment is maybe a general flattening or plateauing of service costs. What we are definitely seeing is the access side. That has definitely improved. And that could potentially lead to maybe some improved pricing later in the year. As I look at the specific or the larger areas of spend, start with maybe rigs, I think we've all seen the softer guidance and activity that the publics have come out within the second quarter again, could lead to some modest softening in the rig rates later in the year. Pressure pumping market access certainly improved, but I still think it's a little bit early to make the call on where rates potentially go in the second half of the year. And as I mentioned, steel pricing is definitely trending lower there, and that's pretty consistent with just the general softness that we're seeing in all of the commodities. One point I would make is with the improving market access situation and the contracting flexibility that we've got in the second half of the year, we've actually already been able to hybrid in a few areas of the business. So for example, we get more experienced crews, we're getting better equipment. That was something that couldn't happen five, six months ago. So I'm pro with painting a somewhat positive trend there. I would just caution, it does feel a little bit too early to be counting in deflation in the second half of the year. I think, particularly just when you think about the volatility of the backdrop that we face at the moment.

Neal Dingmann:

That's great detail. Thanks, guy.

Matt Portillo:

Good morning, all. Maybe just starting out in the Permian, you turned in line an additional four wells in the Texas Delaware. Looking at the state data over the last few years, that's been an area that's been quite surprising in terms of well performance. Curious if you could give us any color on the early time performance from these wells, and also just updated thoughts on the spacing design. I know you guys are working on some tests, but may be a bit too early to infer anything, but just curious how you all are thinking about the spacing design going forward.

Lee Tillman:

Maybe if I could just add too, Matt, we were really a first mover in this kind of combination Woodford-Meramec oil window and we were able to essentially amass a 55,000 net acre continuous position at relatively low cost at 100% working interest. And of course, now we see other operators are starting to get more active in both the Woodford and the Meramec. And I think that all is constructive and supportive of kind of what we've been saying all along. And we believe that that this asset can compete for capital allocations. One of the key reasons we've now integrated it in with the Permian is we believe we're out of the exploration phase and really moving into that developmental phase.

Lee Tillman:

Maybe let me jump in on that one, Matt. I think as Mike mentioned in his opening comments, we expected first quarter to be right where we landed at, the 186,000. Our guidance for second quarter is right around the midpoint of the full-year guidance. But we do see second and third quarter being an increasing, if you will, oil production trend moving forward, which is really reflective of the capital program. Having said that, our full-year guidance remains intact and -- on both the oil and OEB basis. And so that profile will, in fact, generate those midpoints that we provided. And we also are very mindful, of course, of making sure that we maintain momentum as we start thinking ahead to 2024 as well.

Operator:

Our next question comes from Scott Gruber from Citigroup. Please go ahead with your question.

Lee Tillman:

Yes, well, certainly, as we look at the complete inventory in all of our basins, dry gas today is at a bit of a disadvantage, both pricing and as you say cost, as you get into some of these areas of these plays, the drilling and completion costs will get quite high. We also have, of course, dry gas optionality within our Oklahoma position as well. And that's a good example. I think, Oklahoma, we put in place a JV structure in Oklahoma that allows us to protect our acreage, keep our crews operating, and in general, be prepared if we do find that we see a more favorable environment for gas production and these combo plays that do rely a bit more heavily on both gas as well as NGLs. But the JV program is a good example of how we're really keeping everything warm and ready to go. So I don't think that gas question is necessarily limited to the Eagle Ford. I think it could apply to Oklahoma as well. And we just need to be ready with opportunities when that makes sense. It's all going to be done based on return and capital. I mean, I won't say we're completely agnostic on commodity. But at the end of the day, it's going to be driven by economics.

Lee Tillman:

Yes. Well, I think you're right in the sense that there's, certainly, there is more gas optionality. Even though we're getting a lot of oil production from Ensign, it also brings significant gas with it as well, particularly in this very strong condensate window. But there are dry gas opportunities within Ensign as well that we could certainly look to exploit in the future. I do think, though, if you just step back, Scott, when you think about our portfolio today, we're generally kind of a 50% oil, 50% gas and NGL company. And we like that balance and we like that commodity price exposure. So we want to be very mindful of just, again, at an enterprise level, keeping that balanced exposure to the kind of the full commodity price. And that even includes our E.G. assets, which, of course, have a different kind of commodity price exposure and that they're exposed to both Brent on the condensate side, and then right now, clearly linked into global LNG. And in the future, that linkage is even getting stronger.

Lee Tillman:

Thanks, Scott.

Umang Choudhary:

Hi, good morning and thank you for taking my question.

Umang Choudhary:

Hi. My first question is on just on the international gas price outlook. Clearly, the arb between international gas and Henry Hub is very attractive today. But would love your thoughts, if you see any risk to those arbs with the sharp build out in LNG capacity through 2027?

Umang Choudhary:

Got it. Very helpful. Thank you. And then just given the weakness in natural gas prices today, as we think through your plan, I was wondering if there's any flexibility to shift more towards any liquids-rich drilling away from a more-gassier areas.

Umang Choudhary:

Thank you. Thanks for taking my questions.

Lee Tillman:

Well, thank you for your interest in Marathon Oil. And I'd like to close by again thanking all our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs now more than ever. Cannot be prouder of what they achieve each and every day. Thank you. And that concludes our call.

Guy Baber:

Thank you, Anita. And thank you as well to everyone for joining us on the call this morning. Yesterday after the close, we issued a press release, a slide presentation and investor packet that addressed our fourth quarter and full year 2022 results, as well as our 2023 outlook. These documents can be found on our website @marathonoil.com. Joining me on today’s call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, our Executive VP and CFO; Pat Wagner, our Executive VP of Corporate Development and Strategy; and Mike Henderson, our Executive VP of Operations. As a reminder, today’s call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. As always I will refer everyone to the cautionary language included in the press release and presentation materials, as well as to the risk factors described in our SEC filings. We will also reference certain non-GAAP terms in today’s discussion, which have been reconciled and defined in our earnings materials. With that, I will turn the call over to Lee and the rest of the team, who will provide prepared remarks. After the completion of these remarks, we will move to question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee. Good morning, all. Lee [has referred] (ph) capital high points, but giving you importance of the topic, I'll further elaborate on our framework, our execution and our outlook. As we've stated before, returning a significant amount of capital to shareholders, through this cycle, remains foundational to our value proposition in the marketplace. And when it comes to shareholder distributions, track record matters. We're building a track record we're really proud of and that investors can trust. During 2022 we’ve returned 55% of our CFO to shareholders, significantly exceeding our 40% of CFO framework commitment. Total shareholder distributions amounted to $3 billion, good for a total shareholder distribution yield of 17%. That's the highest in our peer space and one of the top distribution yields in the S&P 500. That includes $2.8 billion of accretive share repurchases during the year. We continue to believe that buying back our stock is an excellent use of capital due to the value we see with our shares, trading at a free cash flow yield in the upper teens. Repurchases are value accretive, a very efficient means to drive per share growth and are synergistic to grow in our base dividends. During 2022, we reduced our share count by 15%. And since reinitiating our share repurchase program in October 2021, we've reduced our share count by more than 20%, by far, the most significant share count reduction in our peer space as shown on the bottom right graphic on Slide seven. Another benefit of our buyback program, is the capacity it creates for ongoing growth in our per share base dividend. We recently raised our quarterly base dividend by 11% to $0.10 per share. The seventh increase in the trailing eight quarters. While its most recent increases more than fully funded by incremental cash flow from the Ensign acquisition, ongoing share count reductions from our buyback program create clear potential for further base dividend increases in the future. Our operating cash flow driven framework is differentiated and it protects distributions from the effects of capital inflation, offsetting inflation is on us. We believe this makes for a stronger commitment to our investors, as our investors will truly get the first call on cash flow. For 2023, the recently completed Ensign acquisition makes our framework even more shareholder friendly adding close to 20% to our pre-acquisition operating cash flow, and therefore adding 20% to our shareholder distribution capacity. In addition, with the 2022 financial -- actual financial results in hand, along with the December close at Ensign, we anticipate will be able to defer U.S. cash alternative minimum taxes to 2024. Our objective for 2023 is to firmly adhere to our return to capital framework, continuing to return at least 40% of CFO while also paying [Indiscernible] including some of the Ensign related acquisition financing. We believe we can do both, maintaining our return of capital leadership in this peer space, which is the top priority, and continue to enhance our already investment grade balance sheet through gross debt reduction, all supported by our financial strength and flexibility. On the balance sheet, we have about $200 million of high coupon U.S.X debt maturing and replaced. We plan to pay that off with cash on hand to reduce gross debt and interest expense. We also have $200 million of low cost tax exempt bonds maturing in 2023. These tax exempt bonds are unique and very flexible component of our capital structure. We plan to leverage the cost advantage or tax exempt credit capacity to refinance those bonds in 2023. And we have the optionality to do the same with future tax exempt maturities in 2024 and 2026. With regard to shareholder returns, our 40% return on capital commitment in 2023 provides visibility to $1.8 billion of minimum shareholder distributions at our reference price deck as a double digit return of capital yield, one of the highest in our peer space. We have been executing share repurchases so far in Q1 ‘23. And plan to continue to do so consistent with our framework. And we have ample capacity in our current Board authorization to keep moving. While 40% represents a good starting point for your models, our track record has been to exceed that minimum return, and we'll look to keep that track record intact in 2023. Especially if we benefit from any commodity price support over the balance of the year, which would significantly enhance both shareholder returns and debt reduction. They have tremendous leverage to commodity price improvement. And we'll use that to the benefit of our shareholders. Now I'll turn the call over to Pat, who’ll briefly walk us through an update on the Ensign acquisition.

Michael Henderson:

Thanks, Pat. Turning to Slide 12 of our deck. I'll provide a brief overview of the high points of our 2023 capital pool. As expected, consistent with our disciplined capital allocation framework and our more S&P less E&P mandate, we expect to deliver strong free cash flow and significant return capital to our shareholders across a wide band of commodity prices as the graphics on the right of the slide show. At our reference price deck, we expect our $1.9 billion to $2 billion capital budget to deliver $2.6 billion adjusted free cash flow at just over a 40% reinvestment paid. As Lee and Dane both highlighted, we expect to return at least $1.8 billion of capital to our shareholders. To deliver these financial outcomes, we'll operate approximately nine rigs and 3 to 4 frac crews on average this year. We expect 2023 capital to be first half weighted, with about 60% of our total capital spend concentrated in the first half of the year largely driven by the timing of our activity. At the midpoint of our guidance, we expect to deliver maintenance level oil production of approximately 190,000 barrels of oil per day, flat relative to 2022 after incorporating Ensign volumes. As is typical for our business, there will be some standard quarter-to-quarter variability throughout the year. The lower end of our annual guidance range is a good starting point for our first quarter total oil production, approximately 185,000 barrels of oil per day. This is largely a reflection of activity timing and the associated impact on well sales, along with a very modest negative carryover impact from winter storm Ellie, concentrated in the Bakken. With activity and wells to sales weighted to the first two quarters of the year, we expect to see an improving production trend for oil into the second and third quarters. Turning to oil equivalent production. The midpoint of our guidance is 395,000 oil equivalent barrels per day, inclusive of a planned second quarter turnaround in EG that is designed to set us up for a high level of uptime in 2024. Overall, our 2023 plan is a disciplined and high confidence program designed to deliver strong financial and operational outcomes. In the Eagle Ford, we run a 4-rig program. We expect an improving well productivity trend in 2023 from an already strong 2022, due in part to Ensign contributions. In the Bakken, we will run 3 rigs in average again, focusing our activity in our high-quality hectare area of the play, where the average well pays out and licensed six months at current commodity prices. In the Permian, we expect to continue improving our capital efficiency by increasing on average lateral lines to 10,000 feet this year, an increase of over 25% in 2022. While our headline Permian wells sales guidance looks similar to last year, the strong well productivity and competitive drilling and completion performance that we've delivered is getting back to work over the second half of 2022 supports a higher level of capital allocation. We, therefore, plan to spud between 25 and 30 wells this year inclusive of at least one multi-well pad in our Texas Delaware, Meramac Woodford fleet, which will support a higher level of well to sales in early 2024. Our Texas Delaware position is no longer an exploration play. The asset is now fully integrated into our Permian asset development team where it will compete for capital on a heads-up basis with all the other assets. So our Oklahoma asset continues to provide us valuable optionality to a fundamental strengthening of the gas and NGL price environment. We aren't exposing much capital to the asset this year. Rather, near-term activity is limited to a 1.5 rig joint venture program that will allow us to efficiently defend our acreage position and delineate some lower priority acreage limited scope and capital. With that, I'll turn it over to Lee, who will provide an update on our Integrated Gas business in Equatorial Guinea.

Operator:

[Operator Instructions] The first question today comes from Jeanine Wai with Barclays. Please go ahead.

Michael Henderson:

Thanks, Jeanine, it's Mike here. I'll take that call. So to maybe answer part of your question. Yes, I think it is safe to assume that the Eagle Ford is in maintenance mode -- all maintenance mode this year. And I think it's also correct. You're also correct in that the legacy position, we are holding volumes flat on a lower well to sales count in 2023, which is obviously a positive thing. A couple of elements that I would say go into that. The first one being the timing of when we bring wells online in the year. We are going to be bringing close to 60% of our legacy wells to sales in the first half of '23. And that definitely helps the annualized volumes. I think the second element and probably the more important one from my perspective is well productivity and a lot goes into well productivity. But one of the things that the team has been doing is really continuing to optimize our completion design. That has resulted in an uplift in our well performance. And you see that factored into this year's business plan and the ultimate volumetric outlook. So we were already setting up for a strong year in Eagle Ford with the legacy business. I think the addition of the Ensign acreage only reinforces our position, as Pat mentioned. I think we're particularly encouraged with the performance of the first 9 wells from the 2 pads that we brought online in the condensate window, very strong productivity, top decile and oil, really fully consistent with our belief that this is some of the highest capital efficiency inventory in the Eagle Ford. And that only adds to what was already a highly capital-efficient business. So very, very excited about the opportunities that the acquisition brings us this year and even beyond.

Dane Whitehead:

Good morning, Jeanine, yes, definitely. Let me kind of go back to our return on capital commitment framework for a second, and then I'll work my way to how we're thinking about paying down acquisition debt and timing of that. One, as I stated, we're firmly committed to our [return on] (ph) capital framework, a minimum of 40% of operating cash flow to shareholders as long as WTI is about $60 and obviously, we're well above that right now. In '22, we significantly exceeded that. We hit 55%, $3 billion back to shareholders, $2.8 billion of that was share repurchases. So significant return to in the form of share repurchases, and that's how we're thinking about 2023 as well. The Ensign acquisition really enhances our shareholder return capability added about 20% both our pre-acquisition operating cash flow and our shareholder distribution capacity. So another way to think about that is a 40% minimum shareholder return post Ensign [Indiscernible] 50% pre-Ensign. So at a minimum, we're pretty close to what we actually delivered last year, but we like having a track record not only of meeting our goal, meeting our minimum target but exceeding it, and that's what we've done so far and we intend to continue that. Too soon to give you more guidance to model on that, but that's our bias. With respect to how do we pay back acquisition debt in the context of that return framework, I think we really have the capacity to do both, even at today's commodity price, as I look at this, I see the capability to not only meet and exceed our shareholder return goals but to start to meaningfully chip away at the acquisition debt and get that interest expense and just that gross debt out of the system. From your lips to God's ears on higher oil price, we have a tremendous amount of leverage to strong commodity prices, especially oil, and that would just increase our return capacity. You did note our balance sheet is really strong. Rating agencies have given us positive feedback around that. So we're not in a mad rush to delever. But my base case is to get that taken down at $1.5 billion 2-year term loan paid off within that window. And we can prepay it without penalty so we can just start kind of slicing chunks off as we go through. And I think we'll probably just assess that periodically as we go through the year based on how our cash generation is. But once again, restated our primary goal, our number 1 goal is return to shareholders, and that will not take a back seat to paying down the debt. While I'm here, let me just talk a second about the flexibility we have in our capital structure. I noted in my prepared comments, we have $200 million of high coupon legacy USX debt that’s going to be -- it's like 8.5% to 9% coupon. So it'd be really nice to get that out of the system. It's not a big quantum, so we're just going to pay that off of cash on hand. Aside from that, and the acquisition term loan that I already referenced, the only other maturities we have between now and 2027 are in aggregate $1 billion in tax exempt bonds that mature somewhat ratably over '23, '24 and '26. And under that tax exempt bond arrangement, we can refinance fees, as they come due in any tenor all the way out to 2037. So a ton of flexibility there. They're very interest rate advantaged to taxable debt. Even in this crazy interest rate environment, they're quite a bit advantaged and the things normalize as we go forward here a little bit from an interest rate perspective, they're -- the coupon on this one we're retiring now is 2%, and that's kind of [Indiscernible] companies. So we really like that flexibility. And the last thing I'll say is we extended recently our $2.5 billion credit facility out to July of 2027. So kind of flexibility there. Bottom line, shareholder returns first, pay back debt second. We have capacity to do both. I'm not going to give you a break line formula how we're thinking about it. But that's our commitment. And that's how we're going to proceed.

Operator:

Next question comes from Neal Dingmann, Truist Securities. Please go ahead.

Michael Henderson:

Yes. Go ahead, Dane.

Lee Tillman:

Yes. I think, Neal, if you look at the aggregate efficiency of our share repurchase program, it really has been a differentiating, I think, feature for us since we started that program back in October of '21. I mean to be talking about a 20% -- over 20% reduction in shares outstanding and the dramatic impact that, that has on per share metrics it's pretty notable. And as Dane noted, not only is that a very efficient mechanism for getting that cash back to shareholders. But the synergy effect that it has with the base dividend is also pretty remarkable. So that -- those mechanisms, we believe, are still the case to be as we look ahead into 2023.

Lee Tillman:

Yes. Maybe I'll just provide a couple of comments and then hand over to Mike to perhaps get into some of the details of how we're really working to mitigate those pressures in time. But when you think about cost overall, we have to bear in mind that 2022 was kind of a tale of 2 halves of the year. The first half of the year was -- certainly didn't see the level of inflationary impacts that we saw in the second half. So some of the pressure that I think we're feeling not only the company but as a sector, in 2023 is the fact that we have the full year impact of those inflationary pressures. And our $1.9 billion to $2 billion number fully contemplates that full year impact of those inflationary pressures. I think the team has done an outstanding job being very disciplined about how we lock in both capacity and costs from our service providers. And maybe I'll let Mike just expand a little bit on that point.

Lee Tillman:

Yes. And maybe one just kind of closing comment as well, Neal. I know we spend a lot of time talking about inflationary pressures on the CapEx side of our business. I don't want us to forget that our operating expenses are also a critical element of our business model. And if you look at our guidance, particularly for the U.S. business this year, the U.S. unit production expense is actually going down by circa 10% year-over-year. A lot -- obviously, a lot of great work by the team, but also it reflects some of the implicit efficiency that we're gaining through the scale and the performance from the Ensign acquisition. So I just don't want to focus all of our time just on CapEx, OpEx is still a very key element of delivery of our financial metrics. And so I just wanted to highlight that before we let these questions.

Operator:

The next question comes from Doug Leggate with Bank of America. Please go ahead.

Lee Tillman:

Yes. No. Thank you, Doug. Well, first of all, I appreciate you pointing out the inventory life because I do think this is an important topic. This is third-party data. This is -- that we showed in the pack. It's also kind of sub-$50 WTI breakeven data. So you just have to keep in mind that this is a very specific slice of inventory life. To me, one of the key takeaways is that we're clustered in with 4 or 5 other companies that are really sitting in that 12- to 15-year inventory life. And so we're in a very good ZIP code there. So I want to start with that as a premise. We're not disadvantaged in any form or fashion when it comes to quality inventory like with exceptionally low breakeven. Getting beyond that and talking about inventory life for the portfolio, but also at a basin level. You're right in the sense that Ensign has been very accretive specifically to the Eagle Ford. But as you know, capital allocation and consumption rates ultimately sits the inventory life calculation, that's why we tend to look at it at a portfolio level as opposed to a basin level. But you can take comfort in the fact that when we look across our basins, in aggregate, they are all at that kind of 10-year or better inventory like when we look at that from an internal perspective. We said, well, how do you think about growing that inventory life moving forward. Well, I think right now, we're just wanting to integrate and digest the Ensign acquisition, which, to us, was very much representative of the type of acquisition that makes sense for a company like Marathon, right? If you -- we talked extensively about the criteria we would use to evaluate any acquisition. And it was obviously financial accretion. It was obviously industrial logic. But a big component of that was to look for assets or opportunities that would also have a net positive effect on inventory life. And not just long-dated inventory, but inventory that can compete right now today, and that's exactly what we're seeing from the Ensign acquisition. So to the extent that we continue to screen and look at opportunities here in the U.S. And they -- and we find some that meet that criteria. I will take a very hard look at that Pat and his team are constantly looking at the opportunities within our core basins. But if anything, Ensign has actually raised that bar and raise and elevated that criteria because it was so accretive to the overall enterprise and specifically the Eagle Ford metrics.

Lee Tillman:

Yes. Well, I think the -- first of all, on the decline rate, on the equity Alba gas time and safe, we're kind of 8% to 10% annual decline rate. So that's kind of the decline rate that we would typically experience within that asset. In terms of future opportunities, let me describe it like this. First of all, as I said in my opening comments, we have this world-class very unique infrastructure sitting in 1 of the most gas prone areas of West Africa. And quite frankly, those molecules will not get monetized unless they probably flow through EG LNG. We are the route to monetization. And we've already demonstrated success in that. If you look at the Alen project, which, as you said, if you will, another molecule, a non-equity project. But with that, we were able to participate both from a tolling as well as a percentage of proceeds on the profit sharing side of that. Not only that, but when you talk about capital, we had more infrastructure built out on someone else's capital, i.e., the Alen pipeline. And that was obviously critical for the Alen project but it also subsequently now connects us to additional discovered undeveloped gas that we know ultimately will come to market. Remember, we're in the Atlantic Basin, where transportation and geographically advantaged to European markets. There is no other monetization route for those molecules. So I have a very high confidence that between third-party opportunities as well as the fact that we continue to assess both on-block Alba and off block opportunities ourselves. Now there could be some capital requirements there. But for third-party molecules, those are going to come to us, and we're going to be able to participate in the upside, just like we have in the Alen project. So in aggregate, when I think about all of those opportunities, when I think about our already demonstrated success at Alen, we have commercial framework that works and that framework can be replicated. The fact that these molecules have to find a home or they're going to be stranded gas. I have a lot of confidence that we've got a very strong trajectory for EG LNG out to 2030 and beyond.

Lee Tillman:

Anita, maybe we can do on question per analyst to try to make our way through remaining a key there.

Matthew Portillo:

Just a follow-up to Doug's question. Great to see the Texas Delaware making its way into the development program. Just curious if you can give us an update on the delineation plan for this year? What you've learned so far? And how this might impact kind of your inventory views for the Permian kind of moving forward?

Operator:

[Operator Instructions] The next question comes from Subhasish Chandra with Benchmark Company.

Lee Tillman:

Yes, Subhasish, this is Lee. Just in terms of gas views, we're not in the business of predicting pricing. We're a price taker. We do have, though, however, a very natural hedge by virtue of our portfolio. I want to keep in mind that our portfolio is about 50% oil, about 50% gas and NGL. So even though prices will inevitably exhibit volatility. We've seen that on the gas side, we don't anticipate radical changes within our capital allocation program for this year. Could we see some small optimization here and there, well absolutely? But again, we're not going to try to predict or chase pricing because inherently, we have a very balanced portfolio that gives us a very broad exposure across the whole commodity deck. So we feel very good about that. We talked about some of the sensitivities within our portfolio. We still are very leveraged to oil. We like that. We think that, that is -- I'm very constructive on oil now and in the future. And I like the fact that for every dollar change in WTI, that's a $70 million uplift in cash flow for us. So I don't anticipate any major shifts in capital allocation as a result of gas volume. On your other question just around the Bakken, obviously, typically, as we have moved into the Hector area, et cetera, we will see some natural variation in GOR. But again, we're driven by profitability. I won't say we're fully agnostic to commodities. But again, we're going to be driven by economics.

Lee Tillman:

Yes. And that's been a conscious investment on our part to improve that gas capture to capture that value in the field as well as obviously the emissions benefits that come with that.

Nitin Kumar:

Hi, good morning. And thanks for taking my question. I'll limit myself to one question, one-part question. Can you talk a little bit about how do you see capital allocation amongst your four key U.S. resource base going forward? As you did pointed out, you had fewer wells in the Eagle Ford, but you're also doing a few more in the Bakken than we expected for 2023. So just how should we think about the allocation of capital between the 4 plays?

Michael Henderson:

It's Mike here. Yes, just a little bit more detail on '23. We provided the reg splits and the wells to sales in the deck. So 9 to 10 rigs in total, that's excluding the JV activity, 4 rigs in the Eagle Ford, and I'll be 1 on the Ensign acreage with 3 in Bakken and then 2.5 in the Permian then 1.5 JV rigs in Oklahoma. I think Lee mentioned that roughly 80% of the capital is going to Eagle Ford and market Eagle Ford is acute capital asset with the addition of Ensign. And maybe a little bit surprised well, maybe not, it was Permian just grabbing the majority of the remaining capital. And really, that's driven by the excellent results that we've had in Permian last year. That asset is now effectively competing for capital against the Eagle Ford and the Bakken, which is no small mean feat, making a strong case for even more capital in 2024. And a couple of elements to that well productivity is a big part of it, seen some very, very strong results there in aggregate. The 19 wells that we brought online last year averaged IP30s of over 2,200 barrels of oil equivalent per day and a 70% oil cut. Extended production history in the county is looking really good as well. One of the Thunderbird 4H well in Red Hills, that achieved an IP 120 over 2,100 barrels of oil per day. And I think you then couple that with the team. We've seen the teams really excel in their completion activities, we're probably pumping for over 19 hours a day. I think you can combine all of that together and you see the capital efficiency, a lot to like about 2022 performance then. Just paint great job that the teams have done as well with acreage trades and kind of adding to our average lateral length, it just causes that asset to become even more capital efficient. Yes, that's probably.

Operator:

Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.

Lee Tillman:

Well, I think that there's no doubt that the rate of change on inflation is certainly slow. And we -- as Mike said earlier, what we have embedded in this year's budget to $1.9 billion to $2 billion is basically the inflation levels that we saw as we exited 2022. So from our perspective, to the extent that we see inflation and commodities like diesel, et cetera, start to moderate. We would expect that to be basically a tailwind for us relative to not only our capital program, but also obviously our operating cost as well. Mike, I don't know if you want to say anything else on that?

Operator:

This concludes our question-and-answer session. I would now like to turn the conference back over to Lee Tillman for any closing remarks.

Operator:

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Guy Baber:

Thank you, Sheryl. Thank you as well to everyone for joining us on the call this morning. Yesterday after the close, we issued a press release, slide presentation and investor packet that addressed our third quarter 2022 results. Alongside those standard earnings materials, we also issued a separate press release and slide deck, addressing our acquisition of the Ensign Natural Resources’ Eagle Ford assets. All of those documents can be found on our website at marathonoil.com. Joining me on today’s call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Michael Henderson, Executive VP of Operations. As a reminder, today’s call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I will refer everyone to the cautionary language included in the press release and the presentation materials, as well as to the risk factors described in our SEC filings. We will also reference certain non-GAAP terms in today’s discussion, which have been reconciled and defined in our earnings materials. With that, I will turn the call over to Lee and the rest of the team, who will provide prepared remarks. After the completion of the remarks, we will move to question-and-answer session. So in the interest of time we ask that you limit yourselves to one question with a follow-up. Lee?

Dane Whitehead:

Thank you, Lee and good morning, everybody. We returned a significant amount of capital to our shareholders through the cycle, the foundational element of our value proposition in the marketplace. As we have consistently highlighted, we believe our return of capital framework is differentiated in our peer space, uniquely calibrated to operating cash flow, not free cash flow, prioritizing our shareholders’ first call on our cash generation. This is especially important in a market characterized by inflationary headwinds and represents a strong commitment to our shareholders. And during the third quarter, I am pleased to announce we further built on our return of capital leadership by setting a new quarterly shareholder distribution record for our company corresponding to over 80% of our CFO and essentially 100% of our free cash flow to equity holders. Total third quarter shareholder distributions amounted to $1.2 billion, translating to an annual distribution yield of around 24%, a yield that’s not just at the top of the E&P peer space, but at the very top of the S&P 500. While we had guided third quarter return of capital to at least 50% of our CFO, due to strong operating and financial performance, our financial strength, including our replenished cash balance and favorable market conditions, including clear value in our stock price, we saw an opportunity to materially step-up the pace of repurchases. We bought back $1.1 billion of stock during the third quarter. The timing of our decision proved beneficial as third quarter buybacks were executed at an average price of around $24 a share, well below current trading levels. While our commitment to an operating cash flow driven, return on capital model remains differentiated, so is our commitment to significant ongoing share repurchases and the cumulative benefit of this approach has become pretty hard to ignore. Since kicking off our share buyback program last October, we repurchased $3.4 billion of our stock, driving a 20% reduction to our outstanding share count in just 13 months, contributing to significant underlying growth in all of our per share metrics. We continue to believe buying back stock is a good use of capital at current market conditions and consistent with this belief, our Board has again topped up our outstanding buyback authorization to $2.5 billion. Looking ahead, to the fourth quarter, we expect to execute around $300 million of share repurchases and we will ensure we fully meet our commitments to the market to return at least 50% our full year 2022 CFO to equity holders. This will represent a peer leading 2022 annual distribution yield. Dialing back the pace of buybacks a bit at the end of the year will allow us to build some additional cash in the fourth quarter, enabling us to increase the cash funding portion of the Ensign acquisition, which as you will hear in a minute will contribute to a higher level of shareholder distributions in 2023 and beyond. In addition to increasing our buyback authorization, our Board has also approved another increase to our base dividend, demonstrating the important synergies that exist between our base dividend and accretive buybacks. The increase of the dividend was entirely funded through year-to-date share repurchases. To summarize, we have been clear about our commitment to return significant capital to shareholders. We believe our operating cash flow driven framework is a strong commitment to our shareholders protecting distributions from the impact of capital inflation. Our consistent execution of accretive buybacks has driven peer leading per share growth of 20%. We have built one of the strongest return on capital track records in the entire S&P 500 over the trailing four quarters and we are fully committed to extending this leadership with our 2023 distribution profile further enhanced by the highly accretive Ensign acquisition. I will now turn the call over to, Mike, who will briefly walk us through our third performance and outlook. Mike?

Lee Tillman:

Thank you, Mike. Hopefully, you have all had a chance to review our dedicated Eagle Ford acquisition press release and associated slide deck. I am especially excited to talk to you today about the strategic rationale for this transaction, as this satisfies each and every element of the exacting acquisition criteria, as you have heard me and the rest of the team talk about on these earning calls. While we have assessed each and every opportunity that has come to market in recent years in our core basins, we truly believe this asset offers a superior risk adjusted return profile, especially given our experience and knowledge in the Eagle Ford, while striking the right balance between immediate free cash flow accretion and future high quality development opportunity. This is a truly unique asset. Going back to our M&A framework, this transaction checks all the boxes, immediate financial accretion, return of capital accretion, accretion to inventory life and quality, and industrial logic with enhanced scale, all while maintaining our financial strength, conservative balance sheet and shareholder return commitments. I will personally walk through each of these key points. First, this deal is immediately and significantly accretive, expected to drive double-digit accretion to all key financial metrics. More specifically, we are modeling an approximate 17% increase to our 2023 operating cash flow and a 15% increase to our 2023 free cash flow. Accretion is even stronger on a per share basis and will only improve as the additional cash flow generation will support a higher level of share repurchases, further reducing our share count and driving incremental per share growth. It’s also accretive on a debt adjusted per share basis. The cash consideration paid for the asset is attractive at just 3.4 times 2023 EBITDA with a 17% 2023 free cash flow yield, highly accretive relative to Marathon Oil’s standalone metrics at the same price stack. Second, this transaction is accretive to our return of capital profile, as the additional cash flow generation will go straight to our shareholders, consistent with our unique and transparent operating cash flow driven framework. Simply put, we remain committed to returning at least 40% of our CFO to shareholders in 2023 and beyond at prices above $60 WTI. But we will now be delivering this return of cash from a higher base of CFO. Therefore, the 17% cash-flow accretion I just discussed will translate to an increase in our shareholder distribution capacity by an equivalent 17%. Additionally, we plan to raise our quarterly base dividend by another 11% post-transaction close to $0.10 per share, taking full advantage of the cash flow accretive nature of the deal. Third, this transaction offers compelling industrial logic and is accretive to our inventory life with locations that immediately compete for capital, enhancing our cash flow sustainability. We are adding 130,000 high working interest, operated net acres adjacent to our legacy position, fully leveraging our knowledge, experience and operating streams, and a high confidence capital-efficient basin, where we have a demonstrated track record of execution excellence. We are acquiring more than 600 undrilled locations, representing an inventory life greater than 15 years, with locations that immediately compete for capital in the Marathon Oil portfolio, not an easy bar to clear by any means. Finally, we are executing this deal while maintaining our investment grade balance sheet with our net debt-to-EBITDA are expected to remain below 1 and our financial strength firmly intact. Importantly our valuation was based on a nominal one rig maintenance program, no assumed synergy credits and no redevelopment refrac upside. With that overview of the strategic rationale, I will turn it over to Pat to discuss the inventory depth and quality of this asset, which we believe is an especially critical and differentiating element of this deal.

Dane Whitehead:

Thanks, Pat. I will be short and sweet. My key point is that we are executing on this accretive transaction, while maintaining our financial strength, our investment grade balance sheet and conservative leverage profile, while continuing to deliver our return of capital commitments to equity holders. Who says, you can’t have it all. We plan to fund this acquisition with a combination of cash on hand, our credit facility and new pre-payable debt. Financing approach will give us the optionality to pay off the acquisition debt quickly without incurring additional costs. Importantly, with the incremental debt we expect our net debt-to-EBITDA ratio to remain below 1 times at the forward curve and even testing our leverage against more conservative price deck, $50 per barrel WTI to $60 per barrel WTI, we remained in the zip code of 1.5 times leverage by the end of 2023. We have received constructed -- constructive feedback about the deal from the ratings agencies, given the improvement to our scale and sustainability, coupled with the limited impact to our leverage profile. We also believe that tangible assets acquired in this transaction are eligible for full expensing in 2022, contributing to our income tax optimization efforts, another positive aspect of this deal that could differ our exposure to AMT. Bottomline our balance sheet remains rock solid, giving us the financial flexibility to do an attractive deal like this and pay down our acquisition debt in short order while simultaneously enhancing our return of capital to equity holders. Additionally, as we have already stated, our commitment to return of capital framework remains steadfast. In 2023 and beyond our objective remains return at least 40% of our CFO to equity holders and potentially more if market conditions are supportive, all driven by a higher base of cash flow consistent with the financial accretion of the Ensign deal. Back to Lee for wrap-up.

Operator:

Thank you. [Operator Instructions] Our first question comes from Neal Dingman from Truist Securities. Your line is now open.

Lee Tillman:

Yeah. I think just on the value component Neal, when we think about the valuation, I would say in general, we would kind of put in almost in that 50-50 between PDP and future undrilled development opportunities. I think that was one of the unique aspects of this deal was that it really hit the sweet spot between immediate and significant cash flow accretion, with inventory life accretion, with Inventory that competes immediately for capital. So that really stood out to us and made this deal quite unique. In terms of how we view it, I mean, obviously, we are still in the midst going through our detailed budget for 2023. We model this from a valuation perspective, as a maintenance program that would layer on top of an enterprise maintenance program that we are thinking about for 2023. We believe that the bulk of these locations and Ensign compete for capital in today’s portfolio and so that’s just going to be part of the detailed allocation process that we are going through today. But for us the case to beat remains maintenance capital and Ensign would in essence be layering on top of the enterprise.

Michael Henderson:

Yeah. Neal, so I will take a run at that. I think they the results that we have seen this year have been impressive, 30 wells to sales, and obviously, in the Florida another five or so coming on in the fourth quarter. And most of those wells that we are bringing online this year 1.5 miles, 2 milers. I was pretty excited, as we look-forward to next year 2023. We are probably only going to bring in on two milers. So when you look at the third quarter 2022 and very strong well performance and execution from the team, I think we mentioned it in the deck. The 13 wells to sales, eight were 2-mile laterals. I think that’s mentioned more representative of go-forward program. And again, as we touched those wells averaged over 2,700 barrels of oil equivalent per day. Over the first 30 days, that was at 73% oil cut. And then, probably, most exciting were the three [inaudible] wells that we brought online. Those were latest design up space, largely completions and look to be some of the best Delaware Basins that we brought on this year, IP 30, 100 barrels of oil per day. So I tried to share all of that and I think you teased it out well for next year. And we are probably going to be similar next year in terms of about 70-30 split on capital with 30% of the capital going to Permian, but I think it teased it up well for next year. And the team got back, hit the ground running. So we are pretty excited about what future brands spend more in the Delaware for us.

Neal Dingman:

Great details guys and again congrats on the deal, sort of looks positive.

Operator:

Thank you. Our next question comes from Scott Hanold from RBC Capital Markets. Your line is now open.

Lee Tillman:

Yeah. No. All great questions, Scott. Let me start a little bit on, if you will, the product mix of Ensign. First and foremost, we are driven by returns and economics and the Ensign inventory is extremely competitive within our portfolio. In terms of delivering economic returns, which in essence translate into our sustainable free cash flow and return of cash model. So its best with that -- those locations will underpin for us. So I wouldn’t say we are agnostic to product mix, but we are much more focused on the economic returns and the competitiveness of these locations. So the -- if you will, the one-third, one-third, one-third mix that we see at Ensign, that to us in and of itself is it’s a bit arbitrary and we are more focused again on returns. When we think about maintenance going forward, certainly, oil is still what we are flattening on. I mean we still, when we talked about maintenance we are referring to oil production. And the positive there is that, Ensign will contribute to continuing to hold that maintenance level of oil production, but now at a higher level. And just to maybe even step back, when you think about even Ensign coming into the enterprise portfolio, we still loss of maintenance are around 50% oil. I mean we may drop down a little bit with Ensign in the mix, but at the enterprise level we still have balance between nominally 50% oil, nominally 50% gas and NGLs now. At Eagle Ford, at a basin level, we will be getting a little bit more gassy, but the reality is it’s we are still 50% plus oil in the Eagle Ford, even with bringing the Ensign asset into play.

Dane Whitehead:

Hey, Scott. This is Dane. I will take the first cut at that. Thank you for acknowledging the fact that we believe the doors off shares repurchases are 82% of CFO, well, I like the share repurchases in the quarter and that was certainly a high watermark for us. Historically that I think really demonstrates our commitment to driving that high return when we have the capacity to do it. We also re-mooted the share repurchase authorization in the quarter, the Board did at $2.5 billion, which should be a strong signal that post Ensign we are going to continue with that kind of a very aggressive share repurchase strategy. The acquisition itself is 17% accretive, so the -- to our CFO. So the quantum of cash available to return to shareholders is greater. Think about it as pre-Ensign 50% return equals a post-Ensign 40% return. So it’s a significant increase the quantum of cash that we can allocate to shareholders. We certainly are going to be meeting our minimum 40% return to shareholder threshold. That’s our minimum. We have shown the ability to exceed that up to this point pretty consistently and we would look to do that opportunistically going forward. The debt that we are going to be taking on is not -- our leverage is going to be in pretty good shape post-close and I think our ability to service that debt is going to be -- we will have lots of flexibility around that and that’s why we are using new pre-payable debt and credit facility so that we can really have a lot of flexibility at a pace that we repay that. The priority obviously we are going to pay back the debt in an appropriate timeframe, but the priority in our framework given our strong balance sheet is going to be returns to shareholders. So we are going to stay focused on that. You might have asked one other hedging question in there. Pat, did you want to take that?

Lee Tillman:

Yeah. I think it’s very important that because of our leverage profile and where it sits that, future debt retirement and achieving our capital return to shareholders, those are not mutually exclusive. We are going to be doing both of those things. How we gauge those, will obviously be dependent a bit on commodity price, but the way we have modeled it is that we are doing both of those over time. And as Dane stated, with the 17% uplift in CFO by virtue of the Ensign transaction, the 40% minimum is kind of now 50%. In other words 40% is the new 50%, if you will. So we are seeing that accretion and our ability to give return back to shareholders.

Operator:

Thank you. Our next question comes from Jeanine Wai from Barclays. Your line is now open.

Lee Tillman:

Good morning, Jeanine.

Dane Whitehead:

Yeah. So I think -- I would think about the cash versus debt split to be cash roughly 45% of the funding and the balance from a mix of revolver borrowings and new pre-payable debt, which should be terms loans or go to debt capital markets to get that. We are still assessing the most advantageous approach there. I am sorry, what was the…

Lee Tillman:

Cash count.

Jeanine Wai:

Okay. Great. Thank you for all that detail. Maybe pivoting to another asset in the portfolio here in EG, there is certainly upside to EG income starting in 2024 relating to striking the new contractors, you mentioned in your prepared remarks. In terms of other upside, I think that, LNG plant was originally meant to have a footprint, so that it could be twinned. And just wondering if that’s on the horizon anywhere on your radar maybe in the medium or longer term? Thank you.

Jeanine Wai:

Great. Thank you.

Doug Leggate:

Thanks, everyone. Thanks for getting me on. Dane, I wonder if I could ask you a question on cash tax. There is an interesting footnote or comment on the acquisition slide deck about the -- I am not going to get this description exactly right, but it looks like some of the acquisition cost can help your cash tax position. So I wonder if you could just walk us through, how has that evolved with the AMT and how does Ensign help you? How should we think about cash tax?

Doug Leggate:

Yeah.

Doug Leggate:

Yes. That’s really helpful. I guess that’s kind of what I was trying to get at is how much you can shield your tax from this transaction. So thank you for that. I guess my follow-up, there’s so many things we could try and address today, but I want to try and hit the comment about the Shell marketing agreement on LNG. Obviously, there’s been -- there’s a lot of moving parts, when you go from equity gas to a land gas and then this transaction, I guess, so the legacy contract rolls over at the end of 2023. How should we think about the delta, if all things were equal on LNG pricing, let’s say, flat, no change in the commodity. How would your exposure shift on January 1, 2024, versus where it is today, given the mix of all of those things? I will leave it there. Thanks.

Doug Leggate:

Presumably you quantify at that time. Lee, would that be fair?

Doug Leggate:

That’s terrific. Thanks fellas. Appreciate it.

Dane Whitehead:

Thank you.

Paul Cheng:

Hey, guys. Good morning.

Dane Whitehead:

Good morning.

Dane Whitehead:

I think that the pace of the debt reduction, our -- sort of our base case, we model this out and just used to sort of aggregate the forward curve, we feel very comfortable for us to pay this over say a 24 month period. That will be incremental debt. If we get a tailwind on commodity prices or help on AMT, things like that, it’s going to give us much more flexibility to both deal with the debt in a more expeditious fashion if we want to or increase shareholder distributions and in a perfect world book. So there’s quite a bit of flexibility with revolver borrowings. I guess, technically they aren’t due until 2027. That’s when the bulk revolver has been extended to. So we have a lot of flexibility in there. But my bias -- I guess, my personal bias is to get the debt and the interest cash payments out of the system as quickly as possible without stressing something else like the distributions.

Lee Tillman:

Yeah. And if I could add just to maybe amplify that, I want to emphasize again that we have taken no credit and that inventory count or the potential upside that exists in redevelopment and refracking the 700 existing wells. And I think it was probably Jeanine that also pointed out that the teaser that had come out on Ensign recorded 1,200 wells and so we are taking a very conservative approach and really putting our own technical view on that inventory. So we feel very confident in the 600 -- over 600 undrilled locations that we probably we believe that to be conservative. It was a strong basis for the valuation that continues to protect potential upside for us as well in the future.

Lee Tillman:

Yeah. I will maybe say a couple of things and let Mike jump in. Right now, we included none of that fall into the valuation equation. But our expectation is that our excellent Eagle Ford asset team is going to find ways to drive even more value with this acquisition and so contiguous to our legacy position, we believe those savings will come. And Mike you may want to talk a little bit about kind of the unit kind of cash cost that we think we are bringing in with Ensign and how that looks relative to the Eagle Ford, and quite frankly, the rest of the enterprise.

Paul Cheng:

So thank you on that. I will follow-up. Hope I am sure we will be talking more about that in the future.

Operator:

Thank you. We have no further questions at this time. I’d like to turn the call back to Lee Tillman for closing comments.

Operator:

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.

Guy Baber:

Thanks, Richard, and thank you to everyone for joining us this morning. Yesterday, after the close, we issued a press release, a slide presentation and investor packet that addressed our second quarter 2022 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and presentation materials as well as to the risk factors described in our SEC filings. We will also reference non-GAAP terms in today's discussion, which have been reconciled and defined in our earnings materials, including reinvestment rate, adjusted cash flow and adjusted free cash flow. With that said, I'll turn the call over to Lee, who will provide his opening remarks. We'll also hear from Dane and from Mike today before we move to our question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee, and good morning all. As Lee mentioned, second quarter was highlighted by record financial results for our company since becoming an independent E&P company. This includes adjusted net income of $934 million or $1.32 per share and adjusted free cash flow of more than $1.2 billion and a 24% reinvestment rate. Such strong financial delivery is enabling us to deliver market-leading return of capital to our shareholders. Turning to Slide 8 and 9. I'll briefly cover our return on capital track record and outlook. Our cash flow driven return on capital framework remains unchanged. And in these uncertain times, we believe the market will reward that commitment, clarity and consistent delivery. We've built a hard-earned reputation for execution excellence, and we're just as focused on establishing the same credibility when it comes to consistently returning capital to our shareholders. The overall objectives of our framework are to maintain capital return leadership versus peers and the S&P 500 and to maximize our equity valuation and reduce downside equity volatility providing clear capital return commitments tied to specific commodity price environments. As a reminder, our framework calls for delivering a minimum of 40% of cash flow from operations to our equity holders when WTI is at or above $60 a barrel. During 2Q, we returned $816 million of capital to equity holders, including $760 million of share repurchases. That represents 51% of our adjusted CFO and an annualized shareholder distribution yield of almost 20%, one of the strongest capital return profiles in the entire S&P 500. In addition, we further enhanced our financial position by adding around $500 million cash to the balance sheet. As long as we're conformably meeting our shareholder return objectives, we like the idea of modestly building some cash on the balance sheet in the current volatile commodity price environment to provide optionality for future debt maturities and small opportunistic bolt-on acquisitions that are accretive long term. But rest assured that returning cash to shareholders at levels that meet or exceed our framework remains our top priority for use of cash and our track record of back stand out. Since achieving our leverage object in last October, we've consistently outperformed our minimum commitment, returning approximately 55% of our CFO back to equity holders over the trailing 3 quarters. In total, since last October, we returned $2.5 billion of capital. We've repurchased $2.3 billion worth of our stock at an average price of $20.51 per share, producing outstanding share count by 15%, driving truly differentiated per share growth, as shown on the graph at the bottom right of Slide 8. We've also raised our base dividend by 167% since the beginning of last year. While we believe our base dividend is competitive with the S&P 500 and similarly sized industrial companies and certainly sustainable at conservative commodity pricing, there is still a clear opportunity to drive further base dividend growth over time, especially considering the important synergies between the base dividend and our share repurchase program. Turning to the full year '22 outlook, 2022 outlook on Slide 9. We expect to continue to outperform our 40% minimum CFO commitment. We're targeting to return at least 50% of our adjusted CFO for total shareholder return of at least $3 billion with upside potential to that number. We're trading at a free cash flow yield more than 25%, one of the lowest trading multiples in the entire S&P 500. We continue to believe that our equity is fundamentally mispriced. And as long as that's the case, we'll aggressively repurchase around stock. As I've said before, it's the best acquisition we can make. Now I'll pass it over to Mike for a brief operational overview.

Lee Tillman:

Thanks, Mike. Before we move to our question-and-answer session, I want to provide a few preliminary comments on the 2023 outlook and then put the financial results we are currently delivering into context. Consistent with Mike's remarks, it's far too early to offer up any detailed 2023 capital spending guidance, largely due to macro uncertainties that could materially impact the outlook for inflation. But I can give you confidence that Marathon Oil's key priorities will remain unchanged. Regardless of the environment, our objective will be to continue delivering peer-leading and market-leading free cash flow generation and return of capital to shareholders. This durability is supported by our peer-leading capital efficiency, balanced portfolio, investment-grade balance sheet and low free cash flow breakeven of less than $35 per barrel. Our case to be for 2023 will be a maintenance program that holds production flat in order to deliver maximum free cash flow, peer-leading return of capital and significant per share growth. For years now, I have reiterated my view that for our company and for our sector to attract increased investor sponsorship, we must deliver competitive financial performance with other investment opportunities in the market as measured by free cash flow generation and return of capital, more S&P less E&P. This is especially true when commodity prices are much lower than they are today. We believe we have built that type of resilience into our business. And when we do experience a constructive commodity price environment, as is currently the case in which could continue to be the case for some time, we must deliver truly outsized free cash flow and return of capital versus the S&P 500. Slide 12 of our earnings deck illustrates just how strongly we are delivering on this more S&P less E&P mandate. According to consensus estimates, we are delivering the #2 free cash flow yield in the entire S&P 500 this year, driven by our high-quality capital-efficient U.S. conventional portfolio, our world-class integrated gas business in EG, featuring unique global LNG exposure and our disciplined approach to capital investment. Due to the strength of our financial delivery and despite solid year-to-date equity performance, we are trading at one of the most attractive valuations in the S&P 500 with 2022 consensus EV to EBITDA multiple among the 10 most attractive in the S&P 500. And we are returning the majority of the cash flow we generate right back to our shareholders, building one of the strongest return of capital track records in the entire market while driving significant per share growth. Though others are now transitioning to a focus on per share growth, no peer has delivered more strongly or consistently than us or matched our 15% reduction in outstanding shares in just 10 months. To close, I am proud of how we have positioned our company. We are delivering financial outcomes that are at the very top of the S&P 500. And just as important, we are supporting the continued responsible development of much needed oil and gas that is absolutely fundamental to furthering global economic progress lifting billions globally out of energy poverty and protecting the standard of living we have all come to enjoy. With that, we can open the line for Q&A.

Arun Jayaram:

Lee, I did want to maybe start with kind of your thoughts on -- you've released a 5-year and 10-year kind of maintenance scenario. I know it's preliminary to talk about 2023, but I did want to just get your preliminary thoughts on how you're thinking about allocating capital next year. On Slide 20, you highlight kind of your well activity this year between the 4 different U.S. basins. And I guess, effectively, what we're thinking about is you're doing $1.3 billion in capital this year. We've seen less inflation in terms of your numbers than your peers. And as you think about rigs, Frac services and tubulars, are you, call it, hedged below market rates today? And as we think about 2023, would you expect if the industry is -- CapEx trends are up 10% to 15% to be within that range?

Michael Henderson:

Thanks, Lee. Morning, Arun. Let me maybe start with 2022 and then I'll swing over to '23. Market is still tied across the board. We think it's going to stay that way, particularly, we assume current prices are sustained activity levels, particularly the privates have increased, access to labor continues to be a challenge, a high degree of volatility, particularly anything commodities related. So we're seeing it in diesel, we're seeing it in steel. I think as a result of that, ourselves and others, we're just continuing to see that tight market for most categories of spend. I think you then throw in maybe the macro backdrop, things are tight there, economy quite supply chain labor market. And as Lee mentioned, as I mentioned, -- our focus, our priority really is about securing established and trusted service providers. Execution excellence is everything for us this year and as we get ready for next year. And I think maybe just looking at the major execution-related elements of the business plan through the remainder of '22 for us. Start with rigs, I would say the majority of our remaining rig lines in 2022 have been secured in long-term contracts that, in a lot of cases, run into '23. We've also had quite a bit of success farming out some of our operational rigs. So maybe rather than lose the arm and crews that we like working with. That's allowed us to take a bit of a break in our program and then get them back to us when we need them. Similar type story in the pressure pumping remaining -- sorry, the majority of the remaining scope for the year is tied down and when I think about the rig based -- pressure pumping space, I do think it's worth mentioning that we are termed up longer term that the companies that we're working with at the moment. So we've got established relationships. They do an excellent job for us. And they're real quickly sound. Again, most of our needs secured for the remainder of the year. And similar with steel, we have the capacity maybe just working through some open pricing at the moment with regards to that and certainly recognize a lot of volatility in 2022, but $1.3 billion remains the budget, and that's what we're looking to deliver. With regards to [indiscernible] we mentioned pretty early to address that in any detail, very dynamic market. In our case to beat next year's maintenance program. And really, that's how we're thinking about the things that we're doing at the moment. It really is taking steps to ensure that we can deliver on that program. One of the things that we've done is how to look at our execution plans, we're trying to minimize spot work wherever we can. So being able to offer that consistent extended program, obviously, safety benefits, execution benefits and commercial benefits. Maybe just a little bit more on the contracting strategy. I'd described it in the comments there. We're taking a disciplined and thoughtful approach. Working in the first half of 2023 as a priority. I'd say we've secured much of our rig pressure pumping sand and steel needs. Some of the pricing remains open. We've had a little bit of success with index link pricing mechanisms. We've used that in the pressure pumping sand, rig and chemical space. And then on the second half of '23, I'd say we're being a little bit more patient there. We feel good about our ability to maybe access to providers and equipment we need, but just given the uncertainty around the macro environment. We're probably just taking our time when it comes to locking in prices and just being a little bit more thoughtful in that set of things.

Lee Tillman:

Arun, before maybe flipping it over to Dane on that specific item, it's probably worth just a little bit of commentary around the Inflation Reduction Act of 2022. I want to stress that, first and foremost, this proposed legislation is just that it's proposed and that we're continuing to really digest the potential impacts and a lot of the details that come along with it. Second, I would just say the purported legislative objective is to reduce inflation. But as validated by non -- Bipartisan Policy Center, Non-partisan Internal Congressional Agency. As far as we can tell, it will have no measurable effect on inflation. So from a legislative standpoint, it does seem to be a little poorly conceived from the get go. And certainly, the proposed actions look like they're going to add some costs and complexity to businesses specifically manufacturing in oil and gas in the form of taxes and regulation that ultimately are going to be passed on to the U.S. consumer and negatively, I think, impact future investment. So beyond some of those fundamental flaws and the fact that it has zero impact on inflation, there are a couple of provisions, and you mentioned one of them that caused this particular concern. One is kind of the approach to methane fees and taxes and then, of course, this corporate AMT issue as well. On the methane tax, I think we need clarification around certain elements, including measurement methodology. There still remains a high degree of uncertainty around the proposal. But the bottom line is we don't need legislation to incentivize us to reduce our methane footprint. We're already doing exactly that, and we've got a great track record of significant reductions in some of the most aggressive targets in the industry that, as I mentioned earlier, fully consistent with the trajectory of the Paris Climate Agreement. So even though we support reasonable regulation, regulation of methane is already happening. And so anything that this act does is going to be somewhat duplicative and certainly without any discernible policy benefit. So with that little bit of an overview, let me flip it over to Dane to share a few thoughts on your specific question around the tax provision.

Lee Tillman:

Maybe just -- Yes. Maybe just to wrap up, Arun. It's definitely clear to us that kind of the bad idea factory in Washington D.C. is in overdrive. And in essence, this proposed legislation will elevate taxes and costs at a time of high inflation. And as Dave said, it's going to negatively impact much needed investment in both the manufacturing and oil and gas sectors. So thanks for the question.

Phillips Johnston:

Just a follow-up question for Mike on the CapEx guidance for the third quarter. It seems to imply a fairly large drop in the fourth quarter from the first 3 quarters. I think you mentioned some shift in spending from Q2 into Q3, and you expect working interest to tick up. It also looks like you're turning line well count in both the Bakken and Eagle Ford for the remainder of the year. Is very much weighted to Q3? So I just wanted to confirm that's also coming into play and just generally see what kind of confidence you guys have in that fourth quarter number coming down.

Operator:

Our next question on line comes from Doug Leggate.

Dane Whitehead:

Yes. My comments earlier really meant to convey that there's just so much uncertainty around the final shape of these rules that coming out and giving you some really specific outlook like that, I think it's just -- it's premature to do that. Certainly, at the AMT construct could accelerate to some extent, some cash taxes quantifying at this point, I think it's just too early. I did note in my earlier response to a room though that it would be probably less not impactful on EG earnings, which is an interesting important data point as well.

Lee Tillman:

Yes. Thanks for the question, Doug. Obviously, Doug, I can't comment on any specific or hypothetical M&A transactions. But -- what I will say is that we're always assessing and evaluating bolt-on opportunities in basins where we have a competitive advantage and can generate value for our shareholders. Clearly, as you stated, we have a tremendous amount of confidence in our organic case, which delivers market-leading free cash flow and return of capital. And that is the lens that we're going to assess all opportunities. So the bar is quite high. And whatever we do, it's going to have to be accretive to that organic case. And so the same discipline that we show in our business is the same discipline we'll show in assessing inorganic opportunities. But to be clear, we like the assets in our core portfolio, and we're always looking to further improve our core positions. That's true for all of our core positions, U.S. resource plays as well as EG. And there are a number of reasons why when we think about EG, we do deem that very much one of our core assets, very free cash flow generative, low level of capital reinvestment, competitively advantaged infrastructure that should be the natural aggregator of gas in a very gas-rich portion of the world, differentiated and direct exposure to the global LNG market, which relative to our peers is quite unique. And then, of course, it does have a geographic and cost advantage as a supplier into the European gas market, which, as you know, is very short on gas. So hopefully, that addressed your question, Doug.

Lee Tillman:

Yes. I mean, I think, again, I don't want to get into specific assets in the marketplace. But rest assured, I think, Doug, that to the extent that there are sound opportunities within our core basins that Pat and his team are actively evaluating and assessing those against that criteria that I described.

Neal Dingmann:

Lee, maybe I could just do a follow-up on Doug's just to maybe M&A one different way. I'm just wondering, have your -- I guess what I'm curious on is your requirements for deals have that those requirements change in the recent year or 2, you guys continue to have some fabulous acreage. You do a good job of laying this out in the slides. I'm just where now when you continue to look at deals out there and I guess, given the environment we're in, I'm just wondering if the requirements have changed. And if you can maybe discuss maybe some of those key requirements.

Neal Dingmann:

Great details. And then my second is just on capital allocation. Specifically, you've all been pretty clear about suggesting that the shareholder return will continue to be predominantly buybacks given the intrinsic value. I'm just wondering how do you think about the relative comparisons, I guess, in today's market, even given where oil and given where your share price is, when you think about the comparative comparison between buybacks and dividends?

Operator:

Our next question on line comes from Scott Hanold.

Lee Tillman:

Yes. Maybe I'll offer a comment or 2 and then maybe flip over to Dane. I want to be really clear, Scott. When we talk about the 50% of CFO as a target, that's a minimum. We still have optionality to go beyond. And then from time to time, we have already gone beyond that mark. But I'm not going to be apologetic about the fact that we're delivering still a 20% distribution yield, which leads not only our peers, but the S&P 500. And you can even look at this quarter and just the absolute shareholder distribution was a record for the company. So I do believe that we're delivering strongly against that shareholder commitment and the efficiency of the share repurchase program the facts kind of speak for themselves. I mean, 15% reduction in dilution over a 10-month period, and that really is unrivaled in our peer group. So although I agree that we have optionality there going forward relative to that 50% minimum, I think we're putting a pretty strong case out there today when you look at the relative comparison, not only to the peers, but also to the broader market. And maybe, Dane, do you want to say a little bit about our thinking about just cash on hand and how we consider that.

Lee Tillman:

Yes. And I would even just add to that the work on the balance sheet and liquidity is never ending. And recently, Dane and his team also extended our credit facility as well at favorable terms. And again, it gives us that runway out to 2027 on that instrument as well. So we look at all that holistically, but again, we believe we're leading the field on shareholder distributions, but we're going to continue to challenge ourselves as we go forward. And we're going to have optionality against that minimum commitment.

Michael Henderson:

Yes, it's Mike here. I'll take that one. So, Permian, as you mentioned 10 to 15 Wells to Sales in the third quarter, we've actually got another 4 -- sorry 5 coming online in the fourth quarter, but that excludes the Texas Delaware wells. So 4 those that will come online probably late in the fourth quarter or maybe early first quarter next year. With the extension of the first 5 wells that we've brought to sales this year, the majority of the remaining program, they're all going to be 2-mile laterals. And then by 2023, we pretty much tend to only bringing on 2-mile laterals. I say that because these 2-mile laterals what we're seeing is on a kind of normalized complete CWC per foot basis, they're 30% cheaper than the single mile lateral. So team has done an exceptional job there on the trade front moving away from these SLs to these XLs actually, we're active at the moment, looking to potentially get into some 3-milers as well. Maybe coming back to 2022, I would describe the balance for the year. We're going to be bringing on wells in some of the high confidence here. So Red Hills Upper Wolfcamp and then followed by Malaga Upper Wolfcamp. Probably 60% in Red Hills, 40% in Malaga, the Wells to Sales. Just quite a bit of commentary on the wells that we have brought to sales. They've only been online a few weeks. So still early, but I think we're encouraged by the performance thus far and maybe I'd just highlight the team have definitely taken advantage of the break in activity. And I know I'm pretty excited about potentially what we're going to deliver not only this year, but also next year in the Permian.

Lee Tillman:

Thank you for your interest in Marathon Oil, and I'd like to close by again thanking all of our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs now more than ever. Thank you very much.

Guy Baber:

Thanks Brandon, and thank you to everyone for joining us this morning. Yesterday, after the close, we issued a press release, a slide presentation and an investor packet that address our first quarter 2022 results. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, executive VP and CFO; Pat Wagner, executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and our presentation materials, as well as to the risk factors described in our SEC filings. We will also reference non-GAAP terms in today’s discussion which have been reconciled and defined in our earnings materials including reinvestment rate and adjusted free cash flow generation. Mentions of free cash flow generation today refer to our adjusted free cash flow before working capital and inclusive of EG LNG return capital. With that I’ll turn the call over to Lee who will provide his opening remarks. We'll also hear from Dane and Mike today before we move to our question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee and good morning everyone on the call. I'll speak to slide 7 through 9 of our deck largely focusing my comments on a return of capital accomplishments and outlook. First off, our return on capital framework is summarized on slide 7, and remains unchanged. In these uncertain times. We believe the market will reward consistency, transparency, simplicity, and delivery. Marathon Oil has built a hard earned reputation for execution excellence and delivering on our operational commitments. We've likewise now established the same credibility in return of capital to our shareholders. As a reminder, our framework calls for delivering a minimum of 40% of cash flow from operations to our equity holders when WTI is at or above $60 per barrel. This represents a return of capital commitment at the top of our E&P peer space and is competitive with any sector in the S&P 500. The overall objectives of our framework are to maintain capital return leadership versus peers and the S&P 500, maximize our equity valuation, and reduce downside equity volatility by providing clear minimum capital return commitments tied to specific commodity price environments. We also aim to provide the market with transparency around the return of capital quantum, while preserving flexibility to deliver that return via the most accretive and efficient mechanism in light of prevailing market conditions. Today, that mechanism is a competitive sustainable base dividend and a materials share repurchase program. Importantly, as Lee mentioned, our return of capital targets are based on our cash flow from operations, not our free cash flow. This is purposeful, intended to make clear that our shareholders get the first call on cash generation. It's consistent with our conservative reinvestment rate approach to capital spending. And importantly, it represents a stronger commitment to our shareholders in an inflationary environment. While frameworks and commitments are important, we believe establishing a consistent track record of delivery quarter in quarter out is ultimately key to building and maintaining trust and credibility in the marketplace. Over the trailing two quarters we've returned approximately 60% of our CFO back to equity holders to our base dividend and share repurchases. Since October of last year, so in just over seven months, we bought back over $1.6 billion from our stock and reduced our outstanding share count by 11%, driving truly differentiated per share growth. We've also raised our base dividend five quarters in a row for a cumulative increase of 167% since the beginning of last year, consistent with our objectives to pay a sustainable base dividend that's competitive with our peers, the S&P 500 and similarly sized industrial companies. Turning to the full year 2022 outlook on slide 9, with no material damage to debt maturities this year, and constructive commodity price backdrop, and our commitment to capital discipline and the expected reinvestment rate of just 20%, we expect to continue to meaningfully outperform our minimum 40% CFO commitment. During the first quarter, we returned approximately 50% of CFO, with our pace being somewhat moderated by a negative $200 million working capital impact that accounted for about 15% of our cash flow generation in the quarter. If the current macro Volta, is reasonable to anticipate us returning, at or above this 50% level going forward. But to put this into context, that would represent a total return of capital of at least $3 billion this year, with upside potential. As I stated, we continue to believe that the combination of a competitive and sustainable base dividend along with material share repurchase program makes most sense for our company. Consistent with this view, the Board again reset our outstanding buyback authorization to $2.5 billion, giving us plenty of room to continue to execute confidently in coming quarters. And while our equity value has appreciated since we kicked off our buyback program, our free cash flow yields is actually appreciated even more. We're trading at about a 25% free cash flow yield at $100 oil. Even testing buybacks at our current share price against a longer dated forward curve of $60 to $70 WTI. Our free cash flow yield is in double digit territory. Buybacks remain a very good use of cash, because we believe our equity is fundamentally mispriced. As long as that's the case, we'll continue to aggressively repurchase our own stock, it's the best acquisition we can make. We also continue to believe that discipline share repurchases offer clear strategic advantages. In addition to driving strong underlying for share metrics that are correlated with shareholder value, they also offer clear ship synergies with our base dividend. One final housekeeping topic for me before I turn the call over to Mike, and that's US federal income taxes. My key message here is that consistent with what we've said before, even at prevailing commodity prices, we don't expect to pay cash, federal income taxes until the second half of the decade. However, you probably noticed that in 1Q, we partially reversed the value of -- the valuation allowance we've been carrying on our deferred tax assets, and are now booking US deferred taxes at the statutory rate. By way of background, at year end 2016, we established the valuation allowance for 100% of our net deferred tax asset. At the time, we had built a cumulative three year tax loss, along with -- which along with depressed commodity prices was evidence that we may not realize our deferred tax assets in the future. That's why we've been booking at 0% tax rate in the US since 2017. In 1Q 2022, our three year cumulative tax loss was erased and is now positive. And given the improvement we've recently witnessed in the macro, our strong performance and the fact that we expect to continue earning net income, we made the decision to reverse the lion's share of our valuation allowance in the first quarter. This just means we're now accruing US tax expense, a normal statutory rate 21% federal and 1% state. That's important for modeling purposes because both taxes will have an impact on your EPS estimates. However, they're -- and it is important there's no impact on cash flow. The accrued tax is all deferred, and has no direct bearing on the time they transition to US cash tax paying status. I’ll now turn the call over to Mike who will discuss our 2022 capital program and associated financial outcomes.

Lee Tillman:

Thanks Mike. Before we move to our question-and-answer session, I want to wrap up with a compelling investment case for Marathon Oil. Recent shocks to the global energy market are outside of our control. And we'll test our sector's ability to maintain discipline, while also being part of a long-term solution for the US and our allies. There can't be energy security without a viable US independent E&P sector. And for that to happen as publicly traded entities, we must offer an investable thesis that competes with the broader market. We fully recognize that investors have options, so why MRO? First, we have instituted a transparent capital framework that uniquely prioritizes our shareholders as the first column cash flow generation, our framework is complemented by a track record of delivery 60% of CFO to equity holders over the last two quarters, and it's my expectation that we will lead our peer space and returning capital to shareholders in 2022. Second, when it comes to growth, our focus is not on growing production. It's growing the per share metrics that matter most. And we have already driven underlying per share growth of 11% in the last seven months with more to come. Third, due to our balance production mix, low corporate free cash flow breakeven, attractive hedge book and advantage US federal cash income tax position, our company retains a differentiated upside leverage to commodity outperformance. We will continue to protect the upside for our investors. That is reflected in the $1.5 billion uplift free cash flow guidance for 2022 including a $200 million increase to EG equity income. And finally, we believe the peer leading financial and operating results we're delivering today are sustainable, underpinned by over a decade of high quality, high return inventory by our five and 10 year benchmark maintenance scenarios, and by our commitment to comprehensive, longer term ESG excellence. The continued responsible development of oil and gas is crucial to protecting the standard of living we have all come to enjoy, and quite frankly take for granted. And just as important. It's central to elevating the current standard of living for billions of people around the world, many of whom are in developing countries living in energy poverty. Access to responsible, reliable, affordable energy is the great social equalizer and the foundation upon which the world's modern economy is built. We're quite proud to play our role as a responsible global supplier, while also supporting US energy security, which protects the US consumer and serves as a powerful tool of foreign policy, providing options for both the US and our allies. With that we can open up the line for Q&A.

Arun Jayaram:

Yes, good morning, gentlemen. Lee, I was wondering if you could provide some thoughts on the broader LNG strategy. And how does the company plan to take advantage of what could be a pretty strong LNG cycle in a post the unfortunate Russia-Ukraine situation? I do believe that your EG gas, it today's priced off of Henry Hub, I think that shifts in late ‘23 and late ‘24. And the big question we're getting is what type of operating leverage do you see, you guided to $500 million of equity income this year if you're able to price that gas at a global marker and also thoughts on potentially opportunities that you may have to increase the throughput of that plan obviously the Chevron assets are on the block but love to get some thoughts on EG LNG.

Arun Jayaram:

Great. Okay. And just a follow up, Lee, you have a very -- you've been rewarded I'd say for your cash return strategy. You're returning a lot of cash to shareholders. One of the questions we get from the buy side is whether the cash return strategy is too pro-cyclical, 60%, 70% of CFO and how do you think about balancing cash return with portfolio renewal?

Dane Whitehead:

Hey, Arun. Good morning. Yes, we obviously like you do monitor what our peer companies are saying about cash return programs. And I feel for you just trying to understand because with all the kaleidoscope of different language, different approaches out there, we've tried to be really clear about ours. And maybe I can just for everyone's benefit, maybe just go through some of that, again, just to make sure it's clear and then get directly to your question around pro-cyclicality. So obviously, we're positioned to generate a significant and sustainable amount of free cash flow, our balance sheet is in great shape. We'll continue to pay down debt as those maturities come along. And our current intent then is returned significant capital to shareholders really want that to be competitive, we have chosen the vehicles of a sustainable and increasing over the last five quarters base dividend, along with significant share repurchases, which we execute ratably and I mean daily ratably and have been doing that over the last seven months now, in a minimum target in a commodity price environment over $60 a barrel is 40%. We've been obviously beating that in the fight price environment that's quite a bit above $60 a barrel, we have built a lot of flexibility as to how we approach this return to shareholders. And so we've really consistently beat that minimum. And we expect to continue to do that. In Q4, 2021, we returned 70% of cash flow to shareholders, we followed up this quarter with 50%. The pace was tempered a little bit in Q1 because we had a working capital beat up if you will, of about $200 million. And that was caused I'm sure everyone experienced it was caused by the significant increase in oil price between February and March and uptick in accounts receivable that turned into cash and April was actually looked like a deduct from cash flow in the first quarter. So last week, we announced our 5th increase in the base dividend. Over the last seven months, we purchased 1.6 billion in stock and taken out 11% of our shares. So to your pro-cyclicality point, we think this is kind of undeniable. The fact that we traded a free cash flow yield of 25% which is should not exist, it's like a vacuum it should not exist in nature that kind of a free cash flow yield. But it does, which means our stock is mispriced in this commodity price environment. And so we feel like it's a very efficient way to return capital to shareholders and drive per share growth, over the really the most important metrics that matter to share price. We'll note that over the past couple of quarters, we've been building a little bit of cash about $100 million a quarter that on one hand provides us flexibility to do things like deal with working capital swings, we funded a small bolt-on in the fourth quarter of last year, in May, we're going to pay down our only debt maturity of the year, it's a little $40 million debt maturity, but we can pay it off with cash easily that's got almost a 10% coupon on it. So good riddance, really happy to get that one out of the portfolio. So what we're, our intent is not to continue to build sizable amounts of cash, our intent is to return cash to shareholders. And through that share repurchase vehicle will be the primary vehicle as long as our share price remains dislocated, as it appears to be in the past. In terms of what you can expect. I'll just make the other point too that we've, I think we're very free cash flow efficient, not just because of our cost structure, but our hedge positions are extremely low drag. So certainly compared to some of our peers, and we don't have any US income taxes for years to come. So we're really in good position to execute this strategy, put a range around the cash return potential for the full year of 2022. We're kind of now assuming $106 price environment. If we return at the 50% level, that can be at least $3 billion of cash returns for the full year. On the more aspirational end, if we go back and we could do this, but we're going to kind of monitor conditions as we go through the year. We repeat what we did in Q4 of 2021, returning 70% of CFO to shareholders that would represent $4.2 billion of returns, or north of 20% of our market cap. So very substantial impact on shareholders and we think stock price as a result of that kind of strategy.

Lee Tillman:

Also, Arun, I think you mentioned as well, kind of balancing against resource opportunities as well. I would probably address that by first of all, just restating that we do have more than a decade of capital efficient high return inventory, at kind of a maintenance pace. And that's really based on a pretty conservative price assumption. And obviously, that inventory would move north of that inventory life I mean north of that under the current pricing environment. And that's even before taking credit for things like our success in the Texas Delaware oil play. We have largely replaced all of the top tier inventory that we've consumed over the last few years through organic enhancement initiatives. And if you recall, we dedicate nominally 10% of our capital program each and every year. So embedded in that $1.3 billion is investment to continue that organic enhancement initiative as well as to continue to progress things like the four well pad that we're doing in the exploration play in the Texas Delaware oil, which is the Woodford, Merrimack play. So we don't view this in an either or proposition. We're looking at continuing to reinvest in organic opportunities but also being very aggressive with our return on capital back to shareholders.

Doug Leggate:

Okay. Thanks everybody. Can you hear me? I just wanted to check my headset, is going to go. Can you hear me, okay?

Doug Leggate:

Oh, excellent. Thanks Lee. Thanks for taking my question. So Lee, I want to have a go at tackling this EG question a different way. I think you know we've been really interested to try and understand the operational leverage as runoffs, but I want to ask the question a little differently. If you've got windfall, the whole industry has got windfall cash right now and seems to us as the logical buyer of the Chevron assets, clearly you mentioned yourself as being a consolidator. It could potentially transform in our opinion, the outlook for that business by really bolstering the backlog of gas for the Alen and the LNG facilities. And so my question is this, while you've not been prepared to talk about the commercial terms of the tolling agreement? If you own that gas organically, would it make a material difference to the free cash flow work? How do you leaving aside the value of the acquisition, potentially, but how do you to own that gas? Would it make a material difference between cash flow would met you or EG?

Doug Leggate:

I know it’s a tricky one to answer. Sorry, let me just get to the root of my question. So it would be positive if you own the asset or no.

Doug Leggate:

Okay, sorry for flogging that one. Now my follow up is -- obviously gas in the US. I'm curious how this changes your thoughts on capital allocation inventory that specifically in the Anadarko? Obviously, we're facing a very different gas environment today than perhaps you have original planning assumptions now. I’ll leave it there. Thanks.

Operator:

From Barclays we have Jeanine Wai.

Dane Whitehead:

Yes, Jeanine, let me take a crack at that. And Lee may want to chime in as well. We are certainly I think part of your question is, are we responsive to macro conditions and business conditions and how we kind of throttle our share repurchase program? And the answer to that is yes, we are, we saw a significant uptick in cash flow in Q4 and felt comfortable taking it all the way up to that 70% level in the first quarter of this year as we guided we kept it at 50%, we did experience that impact of the working capital deduct, if you will. So we kept that in mind. If you look at the pace of repurchases year-to-date is $900 million. And in Q1 proper, it was $592 million that will imply that we've increased the daily pace of purchases in the second quarter in response to operating cash flow improvements and commodity price and other things that are driving that. So we'll be responsive to macro conditions and also other considerations along the way. And that's why we're not being, we try to be pretty formulaic and pretty specific to get you to that 50% guidance. And let you know clearly there's upside to that. But I can't paint a more of a bright line to the 70% and all the considerations. We are very committed to consistent strong returns to shareholders through share repurchases and all. Clear that now, clear and I think we have demonstrated that as we started the Q4.

Jeanine Wai:

Okay, great, thank you. That's really helpful. We love our models, but we can appreciate, it's not that simple in real life. Okay, moving to inflation. In the current environment, there's inflationary headwinds, or supply chain headwinds? Can you provide a little more color on how Marathon is positioned in both of these in particular, like a lot of your peers have given this percent of total well cost that's locked in. You mentioned here 90% of your rigs locked in and bunch of your pressure pumping? So maybe if you have that percentage, it would be helpful for us for comparison? And maybe also, how was your planning process for 2023 different from prior years, we're just trying to figure out implications for next year. Thank you.

Lee Tillman:

I think Jeanine to your question around, well, how are we thinking about it differently? Obviously, we haven't been in an inflationary environment for quite some time. And so kudos to our supply chain team, they have leverage stepping into a little bit of 2023 to help us really secure some of that execution competence and certainty that we need to deliver the 2022 plan. So I think the difference is, we're having to step into 2023, a little bit earlier, kind of with that maintenance activity mindset, and start building upon that and getting ready for what will continue to be a very dynamic market that I think is challenging for anyone to predict right now. So the best thing we can do is get started a bit earlier.

Neal Dingmann:

Thanks again. Good morning, guys. Lee, my first question maybe for your or Dane on hedging. I'm just wondering, given your iron clad balance sheet you all have probably refrained from putting on hedges. However, it's interesting today to see some of the natural gas collars available. Does this cause you to potentially reconsider the plans?

Neal Dingmann:

No, it's great to hear and then just follow up on EG, the asset continues to generate very strong free cash flow, do you all have the abilities to have the capacity or just could you talk about potential upside? Further potential upside in EG?

Operator:

From Benchmark, we have Subhash Chandra.

Lee Tillman:

Yes, no, great question. I think that my starting point would be that first and foremost, obviously, we strongly condemn the Russian aggression that we're witnessing against Ukrainian people and just to be very clear we have no operational exposure or dealings with Russia whatsoever. But to your point, I mean, when we think about our strategy, we think about it more from a long term perspective, the crisis that we're in today is something that clearly is serious. But it is a near term point in time crisis. And if you recall, also, in my comments, I made the statement that there were already supply and demand fundamentals that were tightening the market in the base case, even before we saw some of these geopolitical events unfold. Our strategy is going to remain premise on discipline. And the reason I think that's important is that without that discipline without having an investable thesis, then we're not going to have a domestic E&P business to lean on, whether it's in normal times, or at a high point in the cycle like we're experiencing today. So I think we do have the right strategy, we do have within our framework, and ability to grow up to 5%, if that makes sense from a financial delivery standpoint. But clearly, any action that we would take today would have little or no impact on the market that we're experiencing. I mean, for one thing, I mean, obviously, our volumes are 0.002% of the global volume. So even from a materiality standpoint, they could not move the needle, but also just the practical side of the cycle time, even though we're a short cycle business. If we started investing today, we're still six months to longer out in time. And that investment would be made in a hyperinflationary environment where we can't really count on labor, we can't really count on supply chains to be able to support that. And then I think, finally, I think that we have to recognize that this still is a capital intensive business, I mean, we reinvest more of our cash flow than the S&P 500 average, just to keep our business flat. And I think sometimes that's lost on. So even though there is not growth capital per se, there's an incredible amount of capital that has to be put to work, just to keep the production where it is. I think stepping back beyond just Marathon, I think the positive is that coming out of the pandemic, that there is going to be some natural growth in the US liquid space. And I think that is going to support markets, and ultimately will help with the price side of the equation. But our expectation is that capital discipline still rules. That is the model to be, we're going to be focused on that financial delivery. And by keeping a healthy company and a healthy sector, we are going to deliver that energy security that we've seen really come under threat because of some difficult policy decisions perhaps made both here in the US as well as elsewhere.

Lee Tillman:

All right, thank you for your interest in Marathon Oil. And I'd like to close by again thanking all of our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs now more than ever. Thank you very much.

Guy Baber:

Thank you, Brandon, and thank you to everyone for joining us this morning on our call. Yesterday, after the close, we issued a press release, a slide presentation and an investor packet that address our fourth quarter 2021 results and our 2022 outlook. Those documents can be found on our website at marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President and CEO; and Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations. As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and our presentation materials, as well as to the risk factors described in our SEC filings. With that, I'll turn the call over to Lee, who will provide us with some opening remarks. We'll also hear from Dane and from Mike today before we move to our question-and-answer session. Lee?

Dane Whitehead:

Thank you, Lee. Good morning, everybody. I'll speak to slide 7 to 9 of our deck, largely focusing my comments on our return of capital accomplishments and outlook. Grounding our discussion, our return of capital framework is summarized on slide 7, and that is unchanged. As a reminder, our framework calls for delivering a minimum of 40% cash flow from operations to our equity holders when WTI is at or above $60. This represents a return of capital commitment at the top of our E&P peer space and that is competitive with any sector in the S&P 500. Importantly, as Lee mentioned, our return of capital targets are based on our cash flow from operations and not on our free cash flow. This is purposeful intended to make clear that our shareholders will get the first call on cash generation. Additionally, it's consistent with our reinvestment rate driven approach to capital spending. By staying disciplined and by maintaining a lower reinvestment rate, we protect a significant percentage of our CFO for shareholder distributions. Our frameworks and commitments are important. We believe establishing a consistent track record of delivery, quarter in and quarter out is ultimately key to building and maintaining trust and credibility with the marketplace. We have a multi-year track record returning significant capital to our shareholders and are especially proud of our accomplishments in 2021. We started 2021 with the top priority of balance sheet improvement, accelerating $1.4 billion of gross debt reduction during the first three quarters in the year. After taking our net debt to EBITDA, comfortably below 1 time at Strip and below 1.5 times at our conservative longer term planning basis of $50 WTI. We no longer need to accelerate additional debt reduction, so going forward we plan to simply retire debt as it matures. Our balance sheet repositioning opened the door for us to begin returning a significant amount of capital to equity holders during the fourth quarter and that returns beyond our base dividend. Thanks to stronger commodity prices, higher oil production, declining CapEx and an increase in easy cash distributions 4Q was an exceptionally strong financial quarter, enabling us to return over 70% of CFO for more than $800 million to our equity investors to our base dividend and share repurchases, dramatically exceeding our minimum 40% commitment. Stepping back and looking at full year 2021 demonstrates our commitment to allocating cash flow to shareholder friendly purposes. In total, we directed over 70% of our full year 2021 CFO that's $2.3 billion to debt reduction, share repurchases and our base dividend. That's a peer leading track record of return of capital execution. Slide 9 highlights that we are well positioned to lead the market again and returning significant capital to shareholders in 2022. Since October, we've already executed 1 billion of share repurchases, reducing our outstanding share count by 8% in just 4.5 months, and driving significant growth to our underlying per share metrics. Our current outstanding buyback authorization is 1.7 billion. And we continue to believe that buying back our stock in a disciplined manner is a good use of our capital. Efficiency of a discipline of a readable share repurchase program is really a function of free cash flow generation relative to market value. In other words, your free cash flow yield. And while our equity value has appreciated since we kicked off our buyback program in October, we can continue to trade it free cash flow yield north of 20%. And that's at $80 WTI, which is a discount to the current forward curve. That's roughly four times the free cash flow yield with the S&P 500. And even using a more significant -- more conservative say, $60 WTI price assumption, our free cash flow yield on our current equity value is around 10%. It's still 2.5 times that of the S&P 500. So these are strong indicators that buybacks remain a very good use of cash. We also believe that discipline, share repurchases offer clear strategic advantages. They can drive strong underlying growth in per share metrics that are correlated with shareholder value, including cash flow per share and free cash flow per share. They also offer clear synergies with our base dividend, as a reduction in shares outstanding creates capacity, incremental based dividend growth without raising our free cash flow breakeven. And given a tremendous downside resilience we built into our business, we can continue to repurchase shares through the cycle, including when we experience commodity price pullbacks, and that's a very different dynamic than during past cycles. Paying a competitive and sustainable base dividend also remains a top priority for us, as evidenced by the fact that we have now raised our base dividend four quarters in a row are a cumulus increased 133%. With regard to the 2022 outlook, at an $80 WTI and $4 Henry Hub price deck, our minimum return on capital commitment translates to $1.8 billion, a number that stacks up well against our end peers and even better against the broader market. With no material debt maturities in 2022, our constructed commodity price backdrop, our commitment to capital discipline and expected reinvestment rate of less than 30%. We see potential to meaningfully outperform. Our minimum 40% of CFO commitment, we're on pace to return over 50% of our CFO to equity investors in the first quarter. For the full year, upside potential at the same $80 WTI and $4 Henry Hub deck could be as high as 70% of our CFO, the level at which we executed during the fourth quarter. That would represent a return to equity investors around $3.1 billion or close to 20% of our current market capitalization. With that, I'll turn the call over to Mike who will discuss our 2022 Capital program.

Lee Tillman:

Thank you, Mike. As I've stated before, strong ESG performance is foundational to our framework for success and our long-term value proposition in the marketplace. We believe that we have a clear and much-needed role to play in the longer-term energy landscape. Oil and gas are essential to a thoughtful and orderly transition to a lower carbon future and to protect the standard of living we have all come to enjoy and to which others around the world strive to attain. Access to responsible, reliable and affordable energy is the great social equalizer and is the foundation upon which the world's modern economy is built. We are proud to play our role in supporting US energy security, which protects the US consumer and serves as a powerful tool of foreign policy providing options for both the US and our allies. We must take on the dual challenge of meeting the world's growing energy needs while also prioritizing all elements of our ESG performance, including efforts to address climate change. This is not an either/or proposition and failure on either front is not acceptable. However, our approach must be pragmatic and grounded in the free market, innovation and an all of the above energy approach. We are unfortunately experiencing firsthand the impacts of misguided energy policy and the dramatic role it can play on energy affordability as well as geopolitical stability. Slide 16 provides a comprehensive progress report across each of the elements of ESG. When viewed in totality, the progress our company has made is not only compelling, but is a point of pride for our entire organization. For us, it always starts with safety. I'm therefore, especially proud that we delivered our second best safety performance in our company's history in 2021 as measured by total recordable incident rate for employees and contractors. We realized significant progress against our core environmental objectives, achieving our GHG intensity reduction target of at least 30% relative to our 2019 baseline and improving our total company gas capture to 98.8% for the full year. During the third and fourth quarters of 2021, we achieved a gas capture of approximately 99%, and we expect to perform at or above this level in 2022 and beyond. As we previously announced, we've also recently introduced new quantitative goals for the near, medium and long-term horizon across our core environmental focus areas. GHG intensity, methane intensity and gas capture. These goals complement our existing 2025 GHG intensity reduction objective of 50% versus our 2019 baseline. They represent a pragmatic road map to realizing significant improvement in our environmental performance through the end of this decade, driving significant GHG intensity reductions, consistent with the trajectory called for by the Paris Climate Agreement. Our environmental objectives will promote transparency and accountability, while enhancing the internal alignment and innovation that will be necessary to deliver such strong performance. Importantly, our 2030 GHG and methane intensity objectives represent industry-leading improvement and will contribute to absolute performance that is competitive with the very best oil and gas producers globally. Moving from environmental to our social accomplishments, we invested thoughtfully and strategically in our local areas of operations to build healthier, safer and stronger communities in alignment with core UN sustainable development objectives. And we continue to promote equality, diversity, and inclusion as core values, which has helped contribute to a notable increase in the representation of both females and people of color within our workforce over the last five years. On governance, we believe we have taken a leadership role in aligning executive compensation with the most important drivers of shareholder value. I've covered the comprehensive changes we made for the 2021 compensation cycle previously, including quantum reductions and redesign short-term and long-term incentive programs. So, I won't revisit all of those details today. However, I will remind everyone that we've eliminated production metrics from all scorecards and have included unique free cash flow performance stock units and our executive long-term incentive design. Finally, we have also taken a leadership role in ensuring strong Board of Directors oversight, refreshment, independence and diversity, highlighted by the addition of two new Directors and the appointment of a new lead director in 2021. Before we move to our question-and-answer session, I want to wrap-up with the compelling investment case for Marathon Oil. We fully recognize that investors have options, so why MRO. First, we have instituted a transparent capital framework that uniquely prioritizes our shareholders as the first call on cash flow generation. Our shareholder-friendly framework is complemented by a track record of delivery. And it is my expectation that we will lead our pure space in returning capital to shareholders in 2022. Second, we are committed to capital discipline. If commodity prices continue to outperform, we won't introduce production growth capital into our budget. We will remain focused on free cash flow generation and return of capital. When it comes to growth, our focus is not on growing production. It's on growing the per share metrics that matter most and $1 billion of buybacks in just the last four and a half months, driving 8% underlying per share growth is a strong statement of our commitment. Third, due to our balanced production mix, low corporate free cash flow breakeven, attractive hedge book and advantaged US federal cash income tax position, our company retains differentiated upside leverage to commodity outperformance, and we will protect this upside for our investors. And finally, we believe the peer-leading financial and operating results we are delivering today are sustainable, underpinned by over a decade of high-quality, high-return inventory by our five and 10-year benchmark maintenance scenario and by our commitment to comprehensive longer-term ESG excellence. With that, we can open up the line for Q&A.

Arun Jayaram:

Hey Lee and team, good morning. Lee, we're sitting here in a year in oil and gas prices indeed averaged 80 and 4 or better. Should we expect you to return three plus billion of free cash flow to shareholders. That's the buy-side question of the morning.

Dane Whitehead:

All right. Good morning. Thanks for the question. Yes. With regard to share repurchases, obviously, we just spent 30 minutes talking that impact that we've been aggressively buying back shares, and we think that's good value, but we really move the needle by buying back 8% of the stock. And so we expect us to continue with that kind of program. In terms of how we execute on that, we have -- we use a couple of tools when executing the share repurchase. And I think of it sort of as a base program and that's sort of a top-up program. The base program, we established simple 10b5-1 programs. Most recently, we've sized those around $250 million. And we set those in motion to be purchased ratably over a set period of time, typically 30 days to 45 days. We established those 10b5 -1s when we're not in a blackout period, of course. And then they can execute daily through blackout period. So for example, we're buying back stock today under a 10b5-1, and earnings date is the ultimate definition to day [Technical difficulty]

Dane Whitehead:

Sorry, I'm getting a little beat back here. The ratability of that daily program really helps you in a period of volatility. You're not trying to hunt and peck for low points in the stock price to just ride through in dollar cost average into it. And if we get to the end of a period and our cash flow is sufficient to top up on top of what we've done with these 10b5-1 we can go in with daily purchases under what's called our NBA team. And we can do those in fairly significant size. We can really move a lot of stock in a short period of time under that mechanism if we have the capacity to do it. So I would expect -- you should probably step by step to continue to execute like this with the base load and then we have the ability to adjust based on how commodity prices and other factors in our business contribute to our cash flow.

Arun Jayaram:

Great, great. Appreciate that color. And my follow-up was with Mike. I was wondering if you could provide maybe a little bit more asset level color on the 2022 program, specifically maybe in the Bakken, I'd love to hear about maybe the well mix between Hector and Myrmidon and maybe some thoughts within the Permian as well as in the Mid-Continent, some of the areas that you're targeting as you increase activity from last year's levels?

Arun Jayaram:

Great. Thanks a lot.

Jeanine Wai:

Hi, good morning everyone. Thanks for taking our questions.

Jeanine Wai:

Our first question, we noticed that you reported $47 million of acquisitions during the quarter on the cash flow statement after not doing any for several quarters. Can you just provide a little bit of color on what that acquisition capital was spent on? And maybe a little bit on your perspective on the A&D market for Marathon?

Lee Tillman:

Yeah. That's great, Mike. Thanks. From a broader A&D perspective, Jeanine, I think first and foremost, we're going to view all opportunities -- inorganic opportunities for the lens of really our high confidence organic case, which we obviously have spent a lot of time describing today and the types of financial metrics that's delivering. So needless to say, is that's a relatively high bar for any opportunity that's inorganic in nature. And of course, to pursue something, we're going to have to see it as accretive to that organic case. And again, that's going to be a challenge. We will continue to assess and evaluate those things in the marketplace, particularly those that are around our core areas. But we're going to be very disciplined. The same discipline that you see us applying in our organic business. You should expect that when we look at A&D activities as well. I think the opportunity that Mike described is a great example of an accretive opportunity to bought a little bit of PDP, but generally allowed us to build on a core area and extend our lateral links and improve our capital efficiency. And so those are the type of kind of hand in glove fits that we'll be looking for.

Dane Whitehead:

Yeah. Jeanine, this is Dane. Let me take a cut at that. So really, we've got three choices for returning cash to shareholders. The base dividend, share repurchases or some sort of a variable cash return that people often describe as variable dividends. And kind of here's how we think of each. The base dividend. So our objective there with the base dividend is to have a competitive yield when compared to peer average and the S&P 500. And also in addition to competitive, we needed to be sustainable. And we think of that in the context of a pretty conservative planning basis price deck sort of in a $45 to $50 world, where we know investors can count on that base dividend and partially any circumstance. With our recent fourth consecutive increase in the base dividend, yields competitive with peer average and a little bit better than the S&P 500. So check that box. From a sustainability perspective, we really think about 10% of cash flow from operations has been where we want to target that dividend again in that $45 to $50 world. What keep the enterprise breakeven, free cash flow breakeven after dividend below 40%, we're well below that. So we're in good shape there. The $0.07 again is about right in line with the 10% at that stated price deck. And then keep in mind, there are synergies between the base dividend and share repurchases. As we reduce outstanding shares, we can increase the base dividend further and still stay within that 10% CFO threshold. So we really like that in our play. Share repurchases, we just went through that in quite a bit of detail, but we still -- the value proposition is so strong there. It's just hard to take your eyes off that, as the largest attractor of return of cash to shareholders. We certainly, from a variable dividend perspective, have considered that and it remains a potential tool for us, use in the future to supplement the base dividend and share repurchases. I wouldn't want to do it to the detriment of the yield of the base dividend or share repurchases, especially when the implied free cash flow yield is so high on those repurchases, and the program is so efficient. But we're not closing the door on any techniques that, I do think on your pro-cyclicality question, just keep in mind, when the free cash flow yield is that high, it doesn't feel pro-cyclical as me at all. And because we've really bulletproofed our company were down price cycles, we can keep buying to pretty much any price cycles. So – and that's really kind of our intention.

Operator:

From Wolfe Research, we have Josh Silverstein. Please go ahead.

Dane Whitehead:

Yeah. My base case is pay them off with cash. They're really kind of small bite-sized maturities. There's – we've got like $38 million of U.S. – old USX debt, if you can believe that with an average coupon it's about close to 10%. It will be nice to get that out of the system. The following year or so, there's another 200 million of USX debt like that. And then we get into a couple of maturities that are the muni bond debt that's pretty unique to us. We like that one, because we can buy it back and put it into treasury, if you will and keep it as capacity to reissue in the future and relatively low cost debt compared to taxable debt. So short answer to your question, base case paid it off, with cash, I think there's some good synergies with interest reduction, especially on that higher coupon debt. And – but as we pay off those munis, we'll kind of retain the optionality. And if we need those going forward to tackle a larger maturity tower or for any other circumstances nice to have.

Josh Silverstein:

All right. Thanks, guys. And then the activity is still heavily weighted with this 75-25 split from the Eagle Ford and Bakken. When do you see that – the shift kind of slowly going towards Oklahoma and Delaware? And how does the capital efficiency change as you guys start to do that?

Operator:

From RBC Capital Markets, we have Scott Hanold. Please go ahead.

Lee Tillman:

Yes. I think, you're seeing a little bit of natural variability as we optimize across facilities and developmental areas. So there's not much more of a read through, I think, than that. But in terms of inventory wise, we obviously talk at a corporate level about having more than a decade of high-quality inventory. You need to only look at the Enverus data, which, of course, we included within the appendix of the deck. But beyond that, when you look at each of our individual basins, they each independently also have over a decade of inventory for inventory to exploit. So we feel very good about the outlook, the five-year benchmark case and even the portfolio model work that we've done on the 10-year benchmark continues to show us delivering annualized financial outcomes that look very similar to what we're delivering this year on a price normalized basis. And from a capital efficiency standpoint, we've been the leader of the pack there for quite some time. We'd included, again, a little bit more public available data on that point. But there is no real drop off per se in that capital efficiency as we move amongst the plays. These are still very economic opportunities across the board, both within -- both the Eagle Ford and Bakken, but also within Oklahoma and Delaware, with, obviously, Oklahoma benefiting somewhat from some of the strength in NGL and gas pricing. But quite frankly, that uplifts all of the portfolio. So from our perspective, a very strong runway looking ahead. And when we take that inventory and convert it into financial outcomes, we feel very confident in both the five and the 10-year view.

Lee Tillman:

Yes. I believe right now, our focus, Scott, is really again on per share accretion, whether that be free cash flow, cash flow or even production on a per share basis. We're going to be informed by the macro. But at the end of the day, we're price takers, not price predictors. And there's a wide range of potential outcomes that are going to be driven clearly by events, as well as supply and demand fundamentals. But our strategy is predicated on really generating outsized free cash flow, when we are in a constructive pricing environment. And I don't really see that mantra changing as we move out in time. And I think that the growth in per share metrics for us is the right approach, I think, for a mature business that is trying to attract more of a broad investor universe.

Operator:

From Wells Fargo, we have the Nitin Kumar. Please go ahead.

Dane Whitehead:

Lee, I'll take a shot at that. As I mentioned earlier in an earlier answer, we really are focused on maintaining a competitive yield with that base dividend, and we're right on top of the average for the peer group today and a little bit ahead of the S&P 500. And we have raised that base dividend four quarters up consecutively to point now. We're paying $50 million a quarter to shareholders. We do want to make sure that it passes the sustainability test. So 10% of cash flow from operations, pretty conservative $45 to $50 planning basis, price environment. And when we want to keep the enterprise free cash flow breakeven below $40, and it's well below 40 at this point. So it's probably $35 or less after dividend. The other synergies that I keep pointing to because they're real is as we continue to buy back shares, we create more capacity or that dividend for that base dividend and frankly, as we pay down some of that high-coupon debt, more capacity for the base given name as well. So we're very focused on keeping that competitive, but we also not to be sustainable. We think we've got a flywheel effect going here that's going to be that base dividend, go forward.

Pat Wagner:

Nitin, this is Pat. I'll take that one. Lee covered it in his opening remarks, and you just reiterated that we have significant leverage even to further commodity price strength. And we think it's really important to preserve that strength for our shareholders. That's why we showed the slide 14 showing what our current book looks like in a couple of different prices. We have intentionally structured our crude hedges such that they tie to our return of cash framework. So we've set our floors with $60 and we have high calls so that we can share in that upside. And that helps preserve our ability to return that minimum of 40% of cash flow from operations to investors. And hedging is just one dimension of our commodity risk management approach. I think we've hit on these before, but other dimensions include our strong balance sheet, our low-cost structure, our low corporate free cash flow breakeven, as Dave mentioned, oil $35 a barrel. And then, of course, our diversified portfolio, with our significant balance sheet improvement in 2021 and those low breakevens, we can be patient and take our time in assessing hedging opportunities so that we make sure we preserve the upside. And then lastly, I'd just say that we have a good product diversity mix with 50% of oil. And so we feel comfortable with what we see today.

Operator:

From Truist Securities, we have Neal Dingmann. Please go ahead/

Lee Tillman:

Yes. I think what you're asking there is are we kind of leveraging longer laterals in the portfolio this year. I think Mike had upon a few of those points. But Mike, maybe you want to just talk broadly not only about extended lateral but some of the other things that we're doing from an efficiency standpoint as we look to mitigate some of the inflationary pressures.

Neal Dingmann:

Great. Great added details. I appreciate it guys. And then just a quick follow-up. Really like that Slide 14 that shows your leverage commodity prices. My question is around that, really kind of look like that bottom quarter, does your advantage. And you touched on this earlier, having the no upcoming cash tax for quite some time, unlike most of your peers. Does that maybe change how you think about some of your operational plans, or is it still more capital discipline sort of weighs out that even though you have that benefit, there's really no change because of that?

Neal Dingmann:

Okay. Thanks, Lee.

Doug Leggate:

Thanks. Good morning everyone. Lee, you led the market on this cash return model. So congratulations to you on that. It's obviously working. My question is about the procyclicality I think, we all know that oil prices are suffering a number of issues right now, whether it's geopolitics or gas in Europe or whatever is going on. And we know that there is a forward curve substantially below the spot. So why not build cash and wait on what will inevitably be an opportunity to buy back your stock at a lower level?

Doug Leggate:

Yes. And that's fair. I think, it's really more about what the market is prepared to discount. And if the curve rolls higher, then you're absolutely right. My follow-on is on the inventory question, and you've given a lot of color this morning, so thank you for that. But you've also shown a little bit of sensitivity on the oil price, which is substantially below the high end is still $50 on your slide deck. What does the inventory depth look like at today's curve?

Doug Leggate:

Appreciate the color. Thanks guys.

Scott Gruber:

Yes. Good morning. Thanks for squeezing me in here. So looking at the Bakken activity, your production popped in 4Q, but the point two Tils are going to be down 10 to 20 wells. At that level of activity, should we expect Bakken production to start to trend lower on a year-over-year basis in the second half? And is the expectation to be made up for the second half by the completions in the Permian? And then thinking out into next year, is that the direction of travel we should be thinking about into 2023?

Scott Gruber:

Okay. So, it's flat in the five-year plan is the way to think about it?

Scott Gruber:

Okay. And then, the redevelopment opportunity in the Eagle Ford is interesting. What's the rough breakeven on those redevelopment wells? And at strip, how should we think about the redevelopment cadence over the next couple of years?

Lee Tillman:

Yes. If I could just add in, Scott. Bottom line is that the redevelopment wells compete head-to-head with the rest of the portfolio. They have to compete on a heads-up basis for capital allocation with the rest of the portfolio. So breakevens per se will be not dissimilar to what we see across the rest of the portfolio.

Operator:

Thank you. We're now over time, and we'll now turn it back to Lee Tillman for closing comments.

Operator:

Thank you. And ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.

Guy Baber:

Thank you, Cheryl. And thank you as well to everyone for joining us this morning on the call. Yesterday after the close, we issued a press release, a slide presentation, and an investor package that address our Third Quarter 2021 results. These documents can be found on our website at Marathonoil.com. Joining me on today's call are Lee Tillman, our Chairman, President, and CEO, Dane Whitehead, Executive VP and CFO, Pat Wagner, Executive VP of Corporate Development strategy, and Mike Henderson, Executive VP of Operations. As always, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I refer everyone to the cautionary language included in the press release and presentation materials, as well as to the risk factors described in our SEC filings. With that, I will turn the call over to Lee, who will provide his opening remarks. We'll also hear from Mike, Dave, and Pat before we get to our question-and-answer session. Lee.

Mike Henderson:

Thanks Lee, third quarter operations were against all odds, demonstrating that we remain on track to achieve or outperform all of the key 2021 financial, operational, and ESG related objectives that we established at the beginning of the year. First and foremost, our consistent execution is translating to outside financial outcomes, highlighted by over $2 billion of expected free cash flow, with a material sequential increase expected in the fourth quarter. A full-year 2021 reinvestment rates below 35%, and a full-year corporate free cash flow comfortable breakeven below $35 per barrel WTI. Our gas capture during third quarter also exceeded 99% as we continue to reduce our GHG emissions intensity. There is no change to our $1 billion full year 2021 capital budget. Raising our spending levels this year has never been a consideration consistent with our commitment to capital discipline. There's also no change to the midpoint of our full year Total Company Oil or Total Company Oil Equivalent Production Guidance. We're also raising our full year 2021 EG equity Method Income Guidance for the 2nd consecutive quarter to a new range of $235 million to $255 million due to stronger commodity prices. This is a 30% increase from the guidance we provided last quarter, and 120% increase relative to our initial guidance at the beginning of the year. Our full-year production and EG equity net of income guidance truly contemplate an unplanned outage we experienced in EG late in the third quarter. Looking ahead to fourth quarter, we expect to finish the year strong with our total Company all production increasing to between 176,000 and 180,000 180 thousand barrels of oil per day in comparison to 168 thousand barrels of oil per day during the third quarter. Our quarterly production volumes are always subject to some normal variability associated with barrel framing, but that small, significant sequential increase is due largely to deferred [Indiscernible] production associated with third party midstream outages, [Indiscernible] well performance, and solid base production management. We also expect our fourth quarter total Company oil equivalent production to be similar to the third quarter at 345,000 barrels of oil equivalent per day. With a sequential increase in the U.S. offsetting a sequential decrease in Equatorial Guinea associated with previously referenced outage. I will now turn it over to Dane Whitehead, EVP and CFO, who will discuss how our strong operations are contributing to an improved Balance Sheet and an acceleration in return of capital to equity holders.

Pat Wagner:

Thanks, Dane. We recently completed our 2021 [Indiscernible] drilling program, which is focused on the continued delineation of our contiguous 50,000 net acre position in our Texas Delaware Oil Plant. As a reminder, this is a new play concept for both the Woodford and Bareback that was secured through grassroots leasing, a very low cost of entry and with 100% working interest. It is essentially an exploration bolt-on that is complementary to our already established position in the Northern Delaware. We brought online our first multi-well pads during the third quarter. And while it is still very early, initial production rates in both the Woodford and Merrimack are exceeding our pre -drill expectations. more specifically, one of the Woodford wells achieved an IP 30 of almost 2,100 barrels of oil per day at an oil cut of 66%. This appears to be the strongest Woodford oil well ever drilled in any base. And while we don't yet have 30-day rates for the other two wells, early indicators, including IP 24s, are all very positive. Our primary objective of this 3-well pad was to execute our first spacing testable play. To date, we're seeing no evidence of interference between the Woodford and Merrimack consistent with our expectations due to over 700 feet of vertical separation between the two sales. As I stated, it's still early and we need more production history to draw stronger conclusions, but we're certainly encouraged by the initial results from this first spacing tests, including the record Woodford productivity. The second objective was to continue to progress our learning and cost improvements in completed well costs. We expect to ultimately deliver well costs comparable to those used in the scoop and are aggressively leveraging our substantial experience hopeful how much it's at end. In total, we have now brought our line 9 wells since play entry to the successfully delineated our positions. 6 wells with longer dated production have collectively demonstrated strong long-term well productivity. Oil cuts greater than 60%, lower oil ratios below one, and shallower declines. Looking ahead to 2022, you should expect us to continue to integrate our learnings and progress our understanding of this promising play. However, we will do so in a disciplined manner and within our strict re-investment rate capital allocation framework. I will now turn the call over to Lee, who will wrap this up.

Operator:

Thank you. We will now begin the question and answer session. [Operator instructions]. Our first question comes from Jeanine Way, from Barclays. Your line is now open.

Dane Whitehead:

Morning.

Dane Whitehead:

Great questions. I think there's a couple of different aspects to it. One is a little more tactical about how we execute the share repurchases. So briefly on that, we execute under short, 30 to 60 day -- can be 5-1 programs, so we can set those in motion and execute them over a short period of time. And that -- because of that short duration, it allows us to really calibrate return percentages more on a real-time basis based on what we're seeing in the business, whether it's capital spend levels, commodity prices, other aspects of what's going on. It also gives you the advantage in the can be 5-1 of riding through blackout periods. We view that stepping back a little more context for the decision process about when do you exceed the minimum -- our decisions are always grounded in our financial priorities which we talk about on a regular basis; generate corporate returns, significant sustainable free cash flow, bullet proof Balance Sheet, and then return significant capital to shareholders. We just talked about what we've done year-to-date, generated significant operating and free cash flow. Q4 looks like by far the best quarter yet from a financial perspective. The Balance Sheet is really strong and we retired $900 million debt in September a billion for year-to-date. So we're at $4 billion gross debt target ahead of schedule, and that only opens the door for much more substantial returns to equity holders if the conditions warrant. We also bumped the base dividend for the third time this year. It's up 100% over that period. And fuel's competitively positioned right now and also very sustainable through recycles at the current level. So we turned to the capital return framework that calls for returning a minimum of 40% of operating cash flow to shareholders when WTI is above $60. We look at Q4, not only is WTI well above $60, all the commodity complex is high. Oil volumes should be quite a bit stronger than they were in Q3. We expect an uptick in dividend distributions from EG and lower capex versus Q3, which was the high point of our burn rate for the year on the capital side. So we expect that lots of flexibility to exceed 40%. We also have a desire to continue to add some level of cash to the Balance Sheet. As we go through the year ultimately our plans are to pay off debt -- future debt maturities as they mature. And they aren't significant in the future, but we'd sized have that level of flexibility, and in the process reduce our net debt. So all of this, I think it's a great example of our shareholder return framework and action. It's -- it's based on a minimum percentage of operating cash follow, but we have the ability and latitude to make real-time decisions to exceed those minimums when conditions are right; they sure appear to be in Q4, so there's a little bit of judgment involved. Is it 50% or 55% or whatever that is, but we just need to make a call and over time, we'll have the ability to modulate that accordingly.

Dane Whitehead:

Okay.

Mike Henderson:

Yeah, Jeanine, I'll take that. I'll start with the expectation on the well costs for 2022. Well, it seems we're still working up on our bottoms-up planning and obviously as we noted the macro-environment's pretty dynamic at the moment. To highlight it's Third Quarter being the lowest quarter of the year, turned to CWC for foot costs in both Eagle Ford and Bakken. We're actually year-to-date down 12% from where we were in the 2020 on average. So what I'd see file that's probably going to be our starting point for '22 and similar to what you've seen in '21, we'll continue to progress opportunities to improve our cost structure. I think as we noted, we could improve -- should start to see some inflation in '22. On the inflation question, maybe a little bit more color there. Please start with '21, how it characterize dot inflation very much in check for '21. It's been largely confined into to steel and CTG. We have fully accounted for that and our capital, our $1 billion capital budget. As noted, we're working through '22 at the moment. And it seems reasonable to some modest inflation. I think I wouldn't highlight that. we are looking to take some actions. So for example, we secured some of our Reg frac [Indiscernible] and [Indiscernible] requirements for next year. I think maybe the area where there's quite a bit of uncertainty is labor. But that's probably a broader issue economy-wide. So as we noted, we could see up to 10% inflation. I think that will depend on activity levels. But again, similar to '21, we're going to be working hard to mitigate and offset any of those cost pressures.

Lee Tillman:

Yeah, Jeanine, maybe just around out to just for clarity. As I mentioned in my remarks, when you think about the benchmark case being predicated on really $50 WTI and that capital range that we provided that 1 to 1.1, I think applying that up to 10% to that range is what at least gets you in the correct zip-code

Jeanine Way:

Perfect thank you.

Operator:

Thank you. Our next question comes from Arun Jayaram from JP Morgan. Your line is now open.

Lee Tillman:

Yeah, Rin. This is Lee, I think consistent with how we talked about in the past, we do expect to be increasing our Oklahoma and Permian allocation up to that 20% to 30% range under again, a maintenance scenario. For reference, those two basins accounted for more like 10% of our allocation in 2021 this year. Clearly, all of the commodity prices are moving in a very constructive direction which really has the net effect of really lifting all boats even in our black oil plays of the Bakken and the Eagle Ford. And I think where we're really seeing the benefit of having that strength across the commodity complex is the fact that we have this very balanced portfolio already with about a 50 Percent exposure to oil and a 50% exposure to natural gas and NGL. So there's no -- our thinking hasn't changed. We believe there are extremely strong and competitive opportunities in both Permian and Oklahoma, the strengthening and NGL and gas has only served to elevate those further. But oil has also elevated the returns in our other basins as well. So we feel the strength of the balanced portfolio gives us that great exposure across the commodity complex.

Lee Tillman:

Yeah, Arun. First of all, I would just start off by saying any transaction, any M&A work whether it'd be large or small, we're always going to view that through the lens of our very compelling organic case, our peer-leading financial delivery, and really a strict criteria that's predicated on financial accretion. And so that's really the filter that we are going to view any type of opportunity. The same discipline that we apply to our organic opportunities, we certainly are going to apply in the inorganic space. We believe obviously that the Bakken continues to offer exceptional returns. If you look at some of the material within our earnings deck, you will see that certainly in some of the appendix slides, just how competitive Bakken is relative to the other place here in the U.S. But for us it really, anything that we would look at inorganically would have to offer significant value. It would have to come in and move our full-cycle returns in the right direction. And that quite frankly is a very high margin today. You could argue that the M&A market has become a little bit more of a seller's market today with the commodity prices that we're experiencing. And with over 10 years of extremely strong inventory, we simply don't see the need to do anything dramatic in the market. Certainly not do anything that would be dilutive to our exceptional financial delivery. But however, having said that, our portfolio renewal -- what we have talked about in the past is that, embedded in that capital budget that we talked about each and every year, we have kind of up to about 10% of that dedicated to what we consider to be organic enhancement opportunities that could be things like redevelopment opportunity than the Eagle Ford and the Bakken. It could be things like the Texas Delaware oil play that Pat addressed in the opening remarks. And we want to make sure that we continue those programs on a consistent and sustainable basis. As we look out in those out years and make best attempts to continue to replace and replenish our inventory. I think the Texas Delaware oil play is a great example of some things that we were able to get into for very low entry cost. And now, certainly we see today a very clear path for that to compete for capital allocation. And we still have some work to do in terms of getting some longer dated production information from the spacing tests and we want to drive some learnings into the DMC program. But there's definitely a path there for that asset now to compete head-to-head with some of the best in our current portfolio. So hopefully, I addressed all of your questions, Arun. Did I miss anything?

Pat Wagner:

Hi Arun, this is Pat. There have been some other tests, specifically to the south of us. There have been some Woodford test, but that area's a little bit lower pressure and not as thick. And then on the eastern side of the platform, there's been some Merrimack tests as well, but some of them have been okay. But again, not as good a pressure as ours. We think we absolutely have the best sweetest spot of the play where we have both Woodford and Merrimack stacked with good separation between them and we've had good results to-date, obviously.

Operator:

Thank you. Our next question comes from Scott Hanold of RBC Capital Market. Your line is now open.

Lee Tillman:

Yes. First of all on your first question, Scott. Yes, you should think about our -- a maintenance scenario in 2022 being calibrated to our average 2021 oil production. All of us experienced some variability quarter-to-quarter in our production numbers. It's natural in the short-cycle investments that as you see that natural variability. But again, we'd be looking at a maintenance scenario to drive toward that notional 172,000 barrels of oil per day. Your second question, Scott, around our capital spending number, even in the benchmark case of one-to-one one, That number is all inclusive and includes all of our investments, including Rex as well as any other organic enhancement opportunity. Just as the $1 billion budget did this year. I mean, one of the reason that saw a little bit of peak CapEx in third quarter was the impact of bringing the 3-well pad online in the Texas Delaware Oil Plant. So that is should be looked at as an all in number. There's nothing carved out and put on the side.

Dane Whitehead:

Yeah, Scott, this is Dane. Let me take a first kind of that at least. I think where we sit today, it's happening no - brainer. When you look at the valuation of our stock and the fact that it's yielding in excess of 20% free cash flow that that's the place to go with the excess distribution to shareholders because great value. And if that persists than that will still be the first call on incremental cash above the base dividend. But we haven't said that's the only thing we'll ever do, obviously, over time, than to keep your options open and to manage through this process that the $2.5 billion authorization, they're truly no magic to that number. It was clear to us as of yesterday when that authorization went in place, we had 1.1 billion of remaining authorized capacity. And we would chew through a chunk of that getting through this Fourth Quarter $500 million that we talked about going into the year pretty light so we just asked the board to top that up 2.5 billion as of today and that will give us good running room into next year and if we need to up that authorization over time, we can certainly do that.

Scott Hanold:

Okay, I agree. Thanks for that color.

Doug Leggate:

Good morning, guys. Thanks for getting me on the call this morning. Fellows, I want to ask you about how the inventory view has changed given the backdrop in the commodity. What I'm thinking is given gas in particular, Mid-Continent, does that compete better, does it change the view of capital allocation? And what I'm really trying to get to is going back to your comments, we at the beginning of the year, I think was Mike actually that talked about in the maintenance scenario, you would drill half your high quality inventory in five-years because at the end of the day that's ultimately what's going to dictate how the market perceives your free cash flow yield.

Doug Leggate:

I appreciate that. Maybe this is a quick footnote to that, Lee for Guy perhaps. I think at dynamic inventory, some visibility [Indiscernible] would be really helpful because it would get a lot of [Indiscernible] away from the idea of that there's an inventory challenge [Indiscernible] with the commodity deck, just [Indiscernible] maybe a footnote. But my follow-up real quick is on Slide 7 and I -- you have been early on very clear about your views on the business model. And again, I congratulate you on leading market on that [Indiscernible] complete appears. But nevertheless, on Slide 7 you still talk about in a greater than $60 WTI environment our production grew with cap that underscores the commitment to discipline. The issue is the 5% growth is not part of your rhetoric today. So when do you decide is the right time to go back to growing production?

Doug Leggate:

Thanks so much, Lee

Operator:

Thank you. Our next question comes from Neal Dingmann from tours Securities. Your line is now open.

Lee Tillman:

Yes. Neal, obviously, we have not released our budget for next year. We're still speaking in hypothetical terms around maintenance budget. But when you consider the fact that we will have incremental capital flowing to Oklahoma and Permian, we would expect obviously, that some of that capital would be coming out of Eagle Ford and the Bakken to make room for that. But I would just say stay tuned, we'll get into a lot more detail at an asset level of allocation when we get out to the budget release in February.

Pat Wagner:

Hi, Neal. This is Pat. Our primary objective is this pad has the spacing. And so right now we drilled this at a spacing of more wells per zone. We drilled 2 in the Woodford and 1 at the Bareback. So far we're seeing no interference at all between those. There is the 700 foot thickness between the 2. So we're going to give some more longer-term production on this pad and see how these wells perform. And if so, then we'll 4 by 4 [Indiscernible] development scenario. However, I think we have some opportunities to test that even further. We've obviously drilled 9 wells now, so we've had a lot of learnings on the drilling and [Indiscernible] inside. Hard to give any details on that, but we continue to refine our approach to that. I think we'll continue to drive our costs down as I mentioned in our prepared remarks. So as we go into '22, we'll continue to progress our learning there and see what else we need to do to take this thing ultimately [Indiscernible] call.

Pat Wagner:

Thanks for your remarks.

Scott Gruber:

Yes. Good morning. The key equity income was raised was great to see, expected, but still good to see. Cash dividends from EG was $47 million, but I believe those lagged the booking of income. Can you speak how we should think about cash flow back to Marathon from your equity interest in EG and in the quarters ahead in terms of the pace and magnitude?

Scott Gruber:

I got you. A little bit to your point where cash dividends, at least in the near-term exceed equity income or is it just on a lagged basis? Is there a catch-up here --

Scott Gruber:

And then just thinking about cash taxes, you guys have a large NOL. But can you remind us, do you have U.S. cash taxes ramping up within your five-year outlook, Given better earnings out at the front end, there's the five-year outlook for cash taxes [Indiscernible].

Scott Gruber:

Got it. Appreciate the color.