Marathon

Marathon’s CEO told analysts the company chose to focus on returns to investors over increasing production 

Marathon’s CEO boasted “Our cash flow-driven return of capital framework uniquely prioritizes our shareholders as the first call on cash flow generation, not the drill bit.” “Lee Tillman — Chairman, President, and Chief Executive Officer: There are a few key messages I want to highlight today. First, after accelerating our balance sheet objectives through gross debt reduction, fourth quarter transitioned to a focus on returning a compelling amount of capital to our equity investors. Our cash flow-driven return of capital framework uniquely prioritizes our shareholders as the first call on cash flow generation, not the drill bit. And our recent actions underscore both our commitment to prioritizing our shareholders and the power of our portfolio in a constructive price environment. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CEO touted its returns to investors: “While others in our space may once again be focused on growing their production, we are focused on growing the per share financial metrics that matter most to our equity valuation, our cash flow per share and our free cash flow per share. ““Lee Tillman — Chairman, President, and Chief Executive Officer: The outcomes speak for themselves. During the fourth quarter, we returned over 70% of our cash from operations or more than $800 million to our equity investors, significantly exceeding our minimum 40% commitment. To clarify, that 70% of our cash flow from operations, not our free cash flow. That $800 million actually equates to around 90% of our free cash flow during the fourth quarter. In total, we have now executed $1 billion of share repurchases since October, driving an 8% reduction to our outstanding share count in just four and a half months. While others in our space may once again be focused on growing their production, we are focused on growing the per share financial metrics that matter most to our equity valuation, our cash flow per share and our free cash flow per share. Further, we continue to believe buybacks remain an excellent use of capital. Dane will discuss our perspective in more detail, but to summarize, we see good value in our shares. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CEO implied high oil prices were a reason to funnel even more money to investors: “we must deliver truly outsized free cash flow and return of capital versus the S&P 500 when we experienced constructive commodity price support as we are seeing today.” “Lee Tillman — Chairman, President, and Chief Executive Officer: As I’ve said before, for our company and for our sector to attract a broader universe of investors, we must deliver competitive financial performance with other investment opportunities in the market as measured by free cash flow generation and return of capital even when commodity prices are much lower than they are today, all the way down to $40 to $50 WTI range. We believe we have built that type of resilience into our business. And we must deliver truly outsized free cash flow and return of capital versus the S&P 500 when we experienced constructive commodity price support as we are seeing today. Our 2021 results are a strong testament to this mandate. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon Oil executives cited the company’s “disciplined capital allocation framework” the limited production growth

Marathon’s CEO: “Our $1.2 billion 2022 capital program is fully consistent with our disciplined capital allocation framework that prioritizes sustainable free cash flow generation and per share accretion over production growth.”“Lee Tillman — Chairman, President, and Chief Executive Officer: My third key message today is that this peer-leading financial and operational performance we have been delivering is sustainable. Our $1.2 billion 2022 capital program is fully consistent with our disciplined capital allocation framework that prioritizes sustainable free cash flow generation and per share accretion over production growth. We expect to deliver over $3 billion of free cash flow at a reinvestment rate of less than 30%, assuming $80 WTI and $4 Henry Hub prices at a discount to the current forward curve. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

A Marathon executive emphasized “our disciplined capital allocation framework that prioritizes corporate returns and free cash flow generation over production model.”“Mike Henderson — Executive Vice President of Operations: Thanks, Dane. In 2022, we fully expect to once again deliver peer-leading financial and operating results. Our $1.2 billion capital program with details summarized on Slide 13, is fully consistent with our disciplined capital allocation framework that prioritizes corporate returns and free cash flow generation over production model. We expect our 2022 program to deliver over $3 billion of free cash flow at a reinvestment rate of less than 30%, assuming $80 WTI and $4 Henry Hub. As Dane just mentioned, by staying disciplined and maintaining a low reinvestment rate, we expect to exceed our minimum return of capital commitment of 40% of cash flow from operations. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon CEO said “we don’t expect to pay U.S. federal cash income taxes until the second half of the decade, an advantaged outlook versus most peers.’ “Lee Tillman — Chairman, President, and Chief Executive Officer: Our focus will remain on free cash flow generation, return of capital and per share financial metrics. Second, we have an attractive hedge book that preserves our cash flow upside. And third, we don’t expect to pay U.S. federal cash income taxes until the second half of the decade, an advantaged outlook versus most peers. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon Oil repeatedly said their top priority was sending as much cash to to its shareholders as possible 

Marathon’s CFO stressed “our shareholders will get the first call on cash generation.” “Dane Whitehead — Executive Vice President and Chief Financial Officer: 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. 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 on 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. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CFO: “By staying disciplined and by maintaining a low reinvestment rate, we protect a significant percentage of our CFO for shareholder distributions.“ “Dane Whitehead — Executive Vice President and Chief Financial Officer: Additionally, it’s consistent with our reinvestment rate-driven approach to capital spending. By staying disciplined and by maintaining a low reinvestment rate, we protect a significant percentage of our CFO for shareholder distributions. While 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 multiyear track record of returning significant capital to our shareholders and are especially proud of our accomplishments in 2021. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CFO predicted they will “continue to repurchase shares through the cycle, including when we experienced commodity price pullbacks.” “Dane Whitehead — Executive Vice President and Chief Financial Officer: We also believe the disciplined 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. We also offer clear synergies with our base dividend as the reduction in shares outstanding creates capacity, incremental base dividend growth without raising our free cash flow breakeven. And given the tremendous downside resilience we’ve built into our business, we can continue to repurchase shares through the cycle, including when we experienced commodity price pullbacks, and that’s a very different dynamic than during past cycles. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon executives stressed they would not raise production in response to high oil prices

Marathon executive: “We are not allocating any production growth capital in 2022 and expect our total company oil and oil equivalent production to be flat with the 2021 full year averages.”“Mike Henderson — Executive Vice President of Operations: Included within our Permian program is the continued disciplined progression of our emerging Texas Delaware oil fleet with a planned four-well appraisal plan later in the year. I’m excited about the restart of a more steady activity level in both Permian and Oklahoma and the strong economics associated with these opportunities. We are not allocating any production growth capital in 2022 and expect our total company oil and oil equivalent production to be flat with the 2021 full year averages. Yet, while we aren’t growing absolute production levels, the 8% reduction to our share count we’ve already achieved is driving significant growth to our production per share cash flow per share and free cash flow per share. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon: “While we expect our full year 2022 average production for both oil and oil equivalent to be flat versus the prior year.” “Mike Henderson — Executive Vice President of Operations: Metrics we believe are highly correlated with shareholder volume. While we expect our full year 2022 average production for both oil and oil equivalent to be flat versus the prior year. There will be some natural variability from one quarter to the next, largely a result of well timing that is typical for our short-cycle business. For any given quarter, it is reasonable to expect a plus or minus 5% variance around the midpoint of our full year production guidance. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon executive: “I want to make clear that should commodity prices continue to surprise to the upside, we will remain disciplined and have no plans to allocate production growth capital.” “Mike Henderson — Executive Vice President of Operations: I want to make clear that should commodity prices continue to surprise to the upside, we will remain disciplined and have no plans to allocate production growth capital. With a balanced exposure to oil, natural gas and NGLs, our company retains significant leverage to commodity price upside with a $1 per barrel increase in oil price, translating to around $60 million incremental free cash flow. We believe preserving this upside is important for our investors. The resilience of our 2022 program is underscored by a free cash flow breakeven well below $35 per barrel WTI, assuming conservative gas and NGL prices. A hedge book that preserves our upside commodity exposure and an advantaged U.S. cash tax position with no U.S. federal cash income taxes expected until the second half of the decade. I will now turn it over to Lee, who will provide an ESG update, and we’ll close out our prepared remarks. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CEO bragged that executive compensation was no longer tied to production targets, but was now connected tp “free cash flow performance” to align with “shareholder value” “Lee Tillman — Chairman, President, and Chief Executive Officer: 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. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CEO: “If commodity prices continue to outperform, we won’t introduce production growth capital into our budget…When it comes to growth, our focus is not on growing production.” “Lee Tillman — Chairman, President, and Chief Executive Officer: 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. ” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon’s CEO: “we’re price takers, not price predictors… our strategy is predicated on really generating outsized free cash flow when we are in a constructive pricing environment.” “Lee Tillman — Chairman, President, and Chief Executive Officer: Yeah. 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 are 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.” (Marathon Oil Q4 2021 Earnings Call, 2/17/2022)

Marathon executives repeatedly emphasized the billions it showered on investors thanks to massive profits

Marathon’s CEO boasted the company spent $12 billion on stock buybacks in 2022, totaling $17 billion since May 2021. “Mike Hennigan — Chief Executive Officer: MPLX remains a source of durable earnings in the MPC portfolio. And as MPLX grows its free cash flow, we believe we will continue to have the capacity to increase its capital return to unit holders. In 2022, we return nearly $12 billion through share repurchases, bringing the total repurchases to almost $17 billion since May 2021. In addition, we increased MPC’s dividend by 30% to $0.75 per quarter.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon announced another $5 billion in stock buybacks was on the way for investors. “Mike Hennigan — Chief Executive Officer: In addition, we’re focused on growth opportunities in emerging technologies, as well as opportunities enabled by digital transformation. Beyond these three objectives, we’re also returning excess capital through share repurchases to meaningfully lower our share count. In the period from early November through the end of January, we’ve completed nearly $2.4 billion of share repurchases. And today, we announced an incremental $5 billion share repurchase authorization, reinforcing our commitment to strong capital returns.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon’s CFO: “During the quarter, we returned $351 million to shareholders through dividend payments, and repurchased over $1.8 billion of our shares.”  “Maryann Mannen — Chief Financial Officer: This excludes a $176 million LIFO inventory benefit, as well as a $60 million gain related to the Speedway transactions. Adjusted EBITDA was $5.8 billion for the quarter, and cash flow from operations, excluding unfavorable working capital changes, was $4.4 billion. During the quarter, we returned $351 million to shareholders through dividend payments and repurchased over $1.8 billion of our shares. Slide 7 shows the reconciliation between net income and adjusted EBITDA, as well as the sequential change in adjusted EBITDA from the third quarter of 2022 to the fourth quarter of 2022.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon’s CFO: “For the full year, we returned $13.2 billion out of $17.7 billion of our 2022 cash from operations, excluding working capital impacts, representing a 75% payout.” “Maryann Mannen — Chief Financial Officer: For the full year, we returned $13.2 billion out of $17.7 billion of our 2022 cash from operations, excluding working capital impacts, representing a 75% payout. This was partially enabled by our commitment to complete our $15 billion capital return program. The outstanding purchase authorization of $7.6 billion, which includes the incremental $5 billion approval, demonstrates our commitment to returning capital. At the end of the fourth quarter, MPC had approximately $11.8 billion in cash and short-term investments.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon’s CEO predicted their refinery business would remain strong thanks to capacity cuts 

Marathon’s CEO said their “outlook remains bullish for ’23 supported by the nearly 4 million barrels per day of refining capacity that has come offline globally in the last couple of years.” “Mike Hennigan — Chief Executive Officer: Executing our operating, commercial, and financial objectives, combined with a strong macro environment, led to total shareholder returns of 87% for MPC in 2022. Before Maryann goes through the results for the quarter, we wanted to share our outlook on the macro environment and the financial priorities for 2023. Our outlook remains bullish for ’23, supported by the nearly 4 million barrels per day of refining capacity that has come offline globally in the last couple of years. Demand for transportation fuels we manufacture remains robust.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon’s CEO: “we believe that the current supply constraints and growing demand will support strong refining margins in ’23.”  “Mike Hennigan — Chief Executive Officer: We’ve seen a recovery in demand across all our products since coming out of the pandemic. And we anticipate a further recovery in 2023, particularly as we expect consumers to adjust consumption patterns to lower retail fuel prices. Uncertainties remain around the pace and impact of China’s recovery, the magnitude of a potential US or global recession, and the impact of Russian product sanctions. But despite these unknowns, we believe that the current supply constraints and growing demand will support strong refining margins in ’23.” (Marathon Petroleum Q4 2022, 1/31/2023)

Marathon executives repeated that sanctions on Russia were boosting their business

A Marathon executive described sanctions on Russia as “bullish.” “Brian Partee — Senior Vice President, Global Clean Products Value Chain: Yeah, John. This is Brian. I’ll take that. So, just really quick on your question on timeline, we do not expect it to really unfold until the second quarter. So, leading into the sanctions, as you’d expect, we saw a pretty meaningful de-inventorying coming out of Russia getting out of the sanctions, coupled with a inventorying in large parts of Northwest Europe. So, as a result, we’re entering the sanction period of time at really historically high levels of inventory, particularly in Europe. So, we view it as 2Q and beyond the timeline perspective. But, directionally, we see it as bullish for cracks.” (Marathon Petroleum Q4 2022, 1/31/2023)

A Marathon Executive said, “we feel well — very well positioned to take advantage of that” regarding the situation created by sanctions on Russia. “Brian Partee — Senior Vice President, Global Clean Products Value Chain: I think, given the dynamic nature of the situation in Russia, that supply assurance component is really a big unknown, but we feel well — very well positioned to take advantage of that, given our position in the Atlantic basin. As you probably know, we opened an office in London late last year and are very active in that market. The last point of your question, in terms of distribution, without giving too much granular detail, a large portion of them historically have moved into Latin America. We’ve historically exported 250,000 to 350,000 barrels a day depending on turnaround and unplanned downtime activity within our system.” (Marathon Petroleum Q4 2022, 1/31/2023)