Q2 2020 Marathon Oil Corp Earnings Call

[music].

Welcome to the marathon oil second quarter earnings Conference call. My name is your pocket and I'll be your operator for today's call.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session.

During the question answer session. If you have a question. Please press Star then one I never touched on some.

Please note that this conference is being recorded I will now turn the call over at the Guy Baber, Vice President of Investor Relations you may begin Sir.

Thanks, Rebecca and thank you to everyone for joining us this morning on the call.

Yesterday after the close we issued a press release slide presentation, and Investor packet that address our second quarter results. Those documents can be found on our website at marathon oil dot com.

Joining me on todays call, our Lee Tillman, our chairman President and CEO, Dane Whitehead executive VP and CFO.

Wagner executive VP of corporate development strategy, Mitch Little Executive Vice President advisor to the CEO and Mike Henderson SVP 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 are.

Ill 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 his opening remarks, we we'll then open the call to acuity.

Thanks, Guy and good morning to everyone on the call today.

I want to start out by again, extending my thanks to our resilient and dedicated employees and contractors.

Since the very beginning of the co that 19 pandemic. Our field staff has remained hard at work as essential critical infrastructure providers expertly doing their job to keep the U.S. supplied with made in America energy.

Our industry has been a powerful engine of us economic growth the last decade, and the clean affordable energy, we provide will unquestionably be critical empowering our nations and the worlds ongoing economic recovery.

At marathon oil our business continuity and emergency response plants have facilitated uninterrupted field operations and work from home practices that have protected our productivity and execution excellence in a very dynamic period.

Im extremely proud of the marathon oil family and over the last five months have been impressed by their commitment and dedication they have truly rhythm to the challenge.

It goes without saying that the health and safety of our people remains by top priority.

We will continue to manage cobot 19 risks diligently.

And I'm happy to report that our year to date safety performance as measured by total recordable incident rate is the best in our company's history.

Further amidst these uncertain in challenging times, we remain dedicated to partnering with and investing in the communities, where we live and operate.

Whether that is through donating laptops and helping our community partners here in Houston to transition education programs to distance learning distributing in 95 mass to emergency management, and healthcare organizations and our local communities or through the testing of more than 35000 people in Equatorial Guinea for Covidien.

Team.

However, the only real solution for society, and our business is to get the world healthy and back to work.

Regarding the macro environment commodity prices are clearly in a better place today than they were at the time of our last earnings call in all honesty that is not very high bar, but the recent stability in energy markets as a welcome respite from the extreme volatility we had experienced in the second quarter.

Market forces have been at work and global oil demand has improved from the depth of the crisis.

And supply actions have taken barrels out of a saturated market.

Yet despite this improvement global macro uncertainty remains high and the range of potential outcomes for future oil prices remains very wide and difficult to predict.

In the face of this uncertainty DMP industry must remain disciplined today the world simply does not need more of our product, but demand will recover and production decline from lack of investment will exert itself.

It is all too easy to become distracted by external forces, but we can't control the macro we can control how we allocate capital how we manage our cost structure and how we execute.

Actions, we're taking in these controllable areas strongly support our financial goals of protecting liquidity, improving our balance sheet and reducing our enterprise free cash flow breakevens.

That is our focus and second quarter results are evidence that our focus is paying off.

During second quarter, we limited our capex to $137 million with the successful and efficient ramp down of our drilling and completion activity in response to a rapid downward correction in commodity prices fully consistent with our focus on protecting returns and exercising discipline we deliver.

Total company oil production of 197000 barrels of oil per day, a strong result, despite 11000 barrels of oil per day of voluntary curtailments.

We drove us unit production costs down to $4, a nine cents per barrel the lowest level. Since we became an independent MP and a reduction of almost 20% in comparison to the 2019 average.

And we drove average completed well cost per lateral foot down 10% relative to 2019 with line of sight to further reductions in coming quarters.

On the back of this differentiated execution, we're reducing our full year 2020 capital budget and raising our full year old production guidance.

We have taken decisive action in response to this year's macro challenges.

Our response has been thoughtful but swift reducing in high grading our capital expenditure program.

Lowering our cost structure.

And protecting our balance sheet and liquidity.

The result has been a substantial reduction in our corporate breakevens.

We have successfully repositioned our company for significant free cash flow generation at the forward curve, while protecting our operational momentum as we look ahead to 2021.

Next a few words on how we are allocating capital in our updated 2020 program and revised guidance as I noted we have reduced our full year 2020 capital spending guidance from a ceiling of $1.3 billion down to $1.2 billion. This reduction as a result of tremendous innovation and.

Execution from our teams and continued reductions to our completed well costs.

Building on these impressive capital efficiency trends, we expect to drive further improvement over the second half of the year.

Case in 0.2nd half 2020, well cost per lateral foot are expected to be down by more than 20% in comparison to 2019. The result of concentrated capital allocation to the Eagle Ford and Bakken and targeted efforts to continue reducing our costs.

These reductions are due to a combination of specific well design improvements execution efficiency supply chain optimization and commercial leverage we expect the majority of these gains to prove durable through the cycle.

While reducing our full year capital spending guidance. We are also raising our full year total company oil production outlook to 190000 barrels of oil per day at the midpoint of guidance. The result of both strong base and new well performance.

This revised guidance is inclusive of all year to date curtailments, which totaled again approximately 11000 barrels of oil per day, and 17000 Boe per day during second quarter.

As a reminder, the production outlook, we provided last quarter was on an underlying basis exclusive of all production curtailments.

After a paul's and completion and drilling activity during second quarter in July we successfully transition back to work and are currently running three rigs in two frac crews across the Eagle Ford and Bakken with no loss and execution efficiency.

Our capex has been high graded to our most capital efficient cash flow generative opportunities that offer some of the strongest returns across the entire lower 48 landscape.

Though capex will be generally ratable over the second half of 2020, we do expect wells to sales concentrated and for Q.

With the two Q pause in activity and timing of our wells to sales Threeq you will be the trough for our 2020 production profile consistent with what we messaged previously however, our volumes will be on improving trend by the fourth quarter with expected for Q2 thousand eight total company oil production.

In the low 170 KBB range.

We will that's exit 2020 with strong momentum from a core of capital efficient high margin production that will provide us with a solid foundation for success as we enter 2021.

And while we are hitting the pause button on capital investment in the Northern Delaware, Oklahoma and our resource play exploration program those opportunities provide us with important capital allocation optionality and associated returns and an improving commodity price environment.

Specifically, we have completed all planned DNC activity for our reduced 2020 resource play exploration or Rex program, which was primarily focused on the delineation of our contiguous 60000 acre position and the Texas, Delaware oil play.

We have now successfully brought online for Woodford and two Meramec wells since entering the play which have confirmed our reservoir productivity and gas oil ratio expectations. While also validating high oil cut shallow decline profiles and lower water oil ratios.

Cumulative production per lateral foot at 90, and 180 days from these wells compares favorably to industry, Delaware basin benchmarks in the Wolfcamp and bone spring.

Our attention is now focused on analysis of longer dated production trends and continuous improvement in our DNC cost.

Along with resetting and high grading our capital investment we have also successfully reset our cost structure.

Our objective and managing our cost us to further enhance our competitiveness reduce our cash flow breakeven and position our company for such success and a lower more volatile commodity price environment.

For 2020, we have implemented cash cost reduction efforts early in this cycle as previously discussed including employee and contractor workforce reductions and consistent with our first quarter disclosure, we still expect to realize $260 million a total cash cost savings this year.

Inclusive of severance payments that we made during second quarter.

We are driving run rate gionee down 17% from the 2019 average and down 25% from the 2018 average continuing a multiyear trend.

During two Q, we reduce us unit production costs down to an all time record low levels down approximately 20% versus the 2019 average.

With the obvious commodity price challenges during second quarter, we pulled all levers to reduce production cost as quickly and aggressively as possible.

Looking ahead with improved commodity prices, we expect to add back high return worker workover activity and associated expense work.

With higher Workover activity and lower volumes during Threeq Q unit production costs are expected to increase sequentially.

Importantly, however, our full year 2020 unit production cost guidance remains consistent with our original guidance entering the year, despite lower production impacting the denominator a strong accomplishment.

To put our overall cash cost efforts into perspective total annualized reductions taken straight to the bottom line are contributing to about a $5 per barrel improvement and our cash flow breakeven enhancing our resilience to lower prices and our ability to generate free cash flow in any recovery.

The scenario.

The low cost producer wins and any commodity price environment.

Underpinning all of the actions we have taken we are first and foremost prioritizing the financial strength of the enterprise protecting our balance sheet, our liquidity and our cash flow generation total liquidity remains substantial at over three and a half billion dollars at quarter end.

And we remain investment grade at all three credit rating agencies.

Overall, the combination of our high graded capital allocation significant cost reductions and solid execution have successfully repositioned the company for free cash flow generation at prices well below the current forward curve, while also protecting our operational momentum into 2021.

For the second half of 2020.

Our corporate free cash flow breakeven is in the low $30 per barrel range, implying strong free cash flow generation over the back half of the year at current pricing.

And though premature to discuss a specific 2021 business plan, we have defined a benchmark maintenance case that holds 2021 total company oil production in line with for Q 20 exit levels and the low 170 KBB range. This scenario delivers a free cash.

Flow breakeven of approximately $35 per barrel on an unhedged basis and highlights our differentiated capital efficiency and significant free cash flow potential.

With our significant leverage to all prices a $1 per barrel change in Wi Fi translates to about $55 million of annual cash flow generation.

This benchmark maintenance case highlights is significant and improved free cash flow potential of our company.

To reiterate this is not our 2021 business plan, rather it as a benchmark scenario that illustrates how we have repositioned the company. While also affording a more direct comparison of capital efficiency to our peers. It highlights both our resilience and free cash flow potential.

That said it is worth spending some time on how we are thinking about strategy key priorities and capital allocation our framework for success as we come out of this historic downturn and turn our attention to the new normal for our company and for our sector going forward.

Entering 2020, I believe our company has established a hard earned track record of delivering on a well defined framework for capital discipline.

Corporate returns improvement multiple years of sustainable free cash flow generation significant return of capital back to shareholders more specifically over 2018 in 2019, we returned over 20% of our cash flow from operations back to shareholders all fully funded with free cash flow.

Corresponding to an average reinvestment rate of just under 80%.

Looking ahead, our core priorities won't change, but the environment has therefore, we must deliver the same outcomes corporate returns improvement sustainable free cash flow and return of capital to shareholders and a lower and more volatile commodity price world. This will demand and even greater focus on free.

Cash flow generation through more moderate reinvestment rates and a relentless focus on capital efficiency balance sheet strength cost reduction and based production optimization.

While 2020 is clearly a transitional year.

Year in which we have leveraged to supply demand crisis to further repositioned the company for success.

We expect our forward capital reinvestment to trend below 80% of our cash flow generation at much lower mid cycle oil pricing.

Even in a $40 per barrel oil case, our reinvestment rate would likely trend no higher than 80% at prices north of $40 per barrel, our reinvestment rates would be well below 80% and that incremental free cash flow would be taken to the bottom line.

This reinvestment framework will pave the way for clear line of sight to significant free cash flow that can be used for shareholder friendly purposes, prioritizing debt reduction and distributions back to our shareholders.

With the governor of reinvestment rate production volumes will remain an outcome not an input.

In summary, second quarter was another remarkable execution story for our company, while navigating a very challenging macro environment with the backdrop of an unprecedented demand shock our underlying business model and framework for success remain intact, but we must now deliver in a more volatile and lower commodity.

Reprice reality.

Our reinvestment rate approach so successfully deployed in 2018 in 2019 will enhance our transparency and resilience going forward.

Our focus on those elements of the business. We control has delivered dramatic and lasting results. We further reduced our full year 2020 capital spending budget and we raised our 2020 oil production guidance.

We have high graded our capital program successfully managed our cost structure and protected our liquidity and balance sheet strength.

And our 2021 benchmark maintenance scenario with a corporate breakeven of $35 per barrel serves as a compelling proof point for our differentiated capital efficiency.

Collectively these actions have repositioned our company for success in the current environment and for the uncertainty of the normal ahead.

Thank you and I'll now hand over to the operator to begin our QNX session.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one and you touched on song.

What should be removed from the Q. Please press the palm sign on to Heskey.

We are using the speaker phone you may need to pick up the handset first before passing the numbers. Once again, if you have a question. Please press Star then one.

In our first question is from I Rune from JP Morgan Chase Your line is open.

Yes, good morning lead to you in your team.

Good morning.

Yes.

Wanted to start.

Regarding 21 2021, you left to some bread crumbs on how to think about next year.

Under a maintenance capex scenario.

Under our math, if you're going to sustain the fourq to 20 oil exit rate in the low to 17 translated into about 63 million barrels of oil the current strip Lee.

For 21 is just under $45 44 70.

You talked about the cash flow breakeven of 35, so that would suggest.

The us.

Well north of $500 million in free cash flow.

So my first question is I wondered if you could give us.

Some thoughts on the area code that we're estimating for free cash flow under this maintenance scenario and what would be the priorities for using that to free cash flow. If that you called that 44 four for $45 trip.

Proves the correct.

Yes. Thank thank you room for the question and I'll, maybe take the first part of that and I might and lift some support from Dane in terms of priorities, but first and foremost I want to confirm that that your number is absolutely in the right ZIP code for the current strip. It is as I said my opening remarks around you know itself.

Little premature to talk about a 2021 business plan, but for this very well defying the benchmark case that we have laid out fitted in fact holds production in line with for Q 20 exit levels.

That does have a very.

Differentiated breakeven at at $35 sand and when you do the math and certainly this again as a reminder is kind of an unhedged basis.

Your your number is pretty much in the correct ZIP code I would also just remind everyone. As I said in my opening remarks that we also have an extreme amount of leverage to oil pricing and obviously that is evident in your number but just as a reminder, for every dollar bear dollar per barrel change and and WT.

We're looking at an incremental $55 million so in operating cash flow. So so with that as a little bit of a scene set for 2021.

Like our biggest challenge is just recognizing when when do we see that stability in the market and we can count on those free cash flows coming in the door. Because we certainly have built a model that can deliver that but assuming that were successful.

And that the macro cooperates we are left with the challenge of how do we prioritize the uses.

Of that free cash flow going forward and so maybe I'll, let dangerous share a few thoughts on our priorities there yeah, thanks, and good morning, a room.

I'd say or top priorities for using free cash flow right now or reducing debt.

And returning.

Capital back to shareholders assume a very near term the first call on free cash flow will probably be to further strengthen the balance sheet.

We've talked about for a while low leverage target in the medium term of sort of one to one and a half times net debt to EBITDA.

Mid cycle price environment.

I don't think we need to get there all at once.

But tacking in that direction is something that makes sense to us.

And as we referenced you know certainly compared to where we were in Q2 commodity prices look great.

And the actually getting contango in the forward curve is kind of nice to dream about but we'd like to have some confidence in the stability of that before we returned to a programmatic return of capital to shareholders. That's super important to US as you know, we we have done that.

Over the past couple of years foot to the tune of about $1.3 billion.

Return on free cash flow that we've generated to shareholders.

And we're committed to getting back to that I think most likely way to start that would be to reestablish a competitive.

Hello.

Based dividend.

And then.

Look at other alternatives beyond that with some of our peers are talking about things like variable dividend. That's certainly on the table for discussion point for US we're thinking about that but first things first just return to sort of a base case dividend makes sense.

And then if we do get into sort of a consistent mid cycle pricing environment I think it's important to to no we don't view.

Deleveraging or returning capital to shareholders as an EU or proposition, we think there's enough room and flexibility to do both of those things in a more mid cycle price environment and thats, what we'd be focused on.

Great. Thanks for the answer and my follow up lead it's been obviously a bit of a tougher year in EG just given weaker.

LNG prices global gas prices methanol prices.

I was wondering if you could maybe help us look forward to 2021.

Thinking about strip.

You are going to get some incremental volumes from from from LM from noble, but help us think about E. G next year, which is honest a bit of a black box to the investment community because there's a lot of moving pieces.

On that on the.

The energy.

Yes, maybe I'll start off and then ask Mitch to perhaps perhaps jump in as as well you are right in the sense that we did experience obviously, some some downtime you know earlier in the year that was impactful.

To E G, but yes, I just want to remind everyone about the value proposition in AG. This is a long life low decline asset.

Clearly just like all assets its exposed to the vagaries of commodity pricing and you went through those are rune. The both on the LNG side, the methanol side condensate side et cetera, but.

It is a strong free cash flow generative asset from the sense that.

It really requires de Minimis reinvestment.

And then of course as we look to further leverage and utilize this world class infrastructure that we have there the gas plant the methanol plant the LNG plant and all the associated Kipp. There there is an opportunity certainly even with a declining equity production to protect our and.

Stabilize our cash flows going forward and thats, where opportunities like a lynn really come into play. The good news is that Olin is is on schedule and we're looking forward to that.

But maybe I'll just ask Mitch to chime in with with any other thoughts from his perspective.

Yes, sure good morning room.

Just to add a little bit I guess to your question comments and lease.

Beyond the two Q trough in commodity prices really across the board.

We also had a very significant turnaround at the ampco methanol facility this year, which impacted equity earnings.

As we head into third quarter here, we're obviously seeing good recovery and prices.

All fronts across all commodities.

Case in point Theres, some really strong tailwinds.

At the beginning of Q3 with us Gulf coast spot prices up about 60%.

On methanol over other lows in Q2, so so we look forward at the commodity curves the.

Full year of 2021 without major.

Turnaround expenditures.

And the OLED volumes coming on.

Lot of signals pointing to positive we expect.

As we've said before.

On a normalized price basis equity earnings in 21 to be more comparable to what they were in 2019.

With the current forward curve, if those prices hold we would expect them to see a return to dividends from some of the equity companies before the end of this year and then.

Of course with the current forward curve that just strengthening into 2021.

That's helpful. Thanks Gents.

Thank you room.

Our next question is from Gennine from Barclays. Your line is open.

Hi, good morning, everyone.

Good morning today more than good morning. My first question is on.

Updated timing on maintenance commentary and the breakeven of 35 I think the prior commentary with less than 40. So we just wanted to attack. The updated number is more horrify men or we suspect that there's something else going on that maybe you can more specifically talk about what the primary driver is for the new improvement.

And the capital efficiency outlook compared to what you thought last quarter.

Yes Janine.

Well certainly it does reflect.

Climate I mean each day.

We learn more and more about our capital efficiency trends.

Excuse me across all basins, and I think that first and foremost.

At that less than 40 number really reflected the level of definition that we had on that scenario at the time. Since then we have obviously gain to more confidence in our delivery against our capital efficiency expectations, coupled with a lot more certainty around what that maintenance scenario might look like at all.

All of those things have contributed to giving us a high level of confidence now and talking about a $35 kind of all in unhedged number for 2021.

Okay, great. Thank you.

My second question is on the portfolio.

You've talked in the past about a portfolio approach to enhancing the resource base and I guess, just given marathon significant improvement in capital efficiency that you're now discussing and is there a case to be made in the current oil price environment that marathon is now in a better positioned to add scale their existing assets or is the focus.

Really going to be more on balance sheet restarting the dividend and focusing on this 80% reinvestment rate and to enhance shareholder return. Thank you.

Yes, yes, thanks shooting.

First of all as I as I've said in the past running our business model is not predicated on M&A or large scale consolidation and and as you rightly stage in our primary focus certainly and and this kind of transitional period of 2020. During this downturn has been really on the aspects of.

Our business that that we can't control and it was very important for us to aggressively pull the appropriate levers and and really get us prepared for being able to deliver that differentiated capital efficiency that you now see highlighted in this maintenance scenario for 2021, having said that.

We have to be aware of the market and the environment and the opportunities around us and and we certainly fully acknowledge and recognize the value of scale, we see the power of that already in our portfolio today, but when it when it comes to thinking about.

M&A or consolidation, whether that's large or small we have a very specific and well defined criteria and we don't intend to budge from that criteria.

It's any any type of opportunity that we would consider in that context would would obviously have to be accretive to our financial metrics, including free cash flow. It would not obviously harm our balance sheet. It would have to present, some semblance of industrial logic and of course bring some.

Card credit synergies along with it so I think as we look through that lens clearly as we compare that to our organic portfolio. The bar is is very high in that criteria is very exacting, but we're certainly.

Aware of the market and aware of the impact that scale can have.

Thank you very much Don.

Our next question from Neal Dingmann from CIS Securities. Your line is open.

Morning leave my question is learning please.

Does the recent positive does that dapple decision leads you to consider any near term change users strategy for activity in the play given our solid your economics on the Bakken.

Well first of all NII I want to acknowledge this you're exactly right. The backend economics are extremely resilient.

From an economic standpoint, the offering some of the top returns in our portfolio. The ruling that was just released yesterday, we see as a net net positive we're still obviously digesting that completely but in essence the circuit court there Baker.

Aided the district court's order for an immediate shut down or a relatively quick shut down of dapple. So we view that as as a positive maybe just as a reminder, though that.

In the Bakken, we have always had a diversity of marketing outlets therein and direct barrels riding on the data on the Apple for us or right around 10000 net.

Oh, Pete deeper barrels oil per day, so from a direct impact standpoint, even if.

That has progressed.

To that more challenging scenario, our direct exposure was was relatively limited now indirect clearly the impact across the basin and on basin differentials. When you take that level of capacity out of the system would have forced everyone to be looking for alternatives.

Including rail, which likely win which that kind of the marginal.

Barrel out of the Bakken. So we view the ruling again as net net positive I mean, this is an operating pipeline.

Thats been operating with.

Good environmental performance strong integrity.

We would see it as a very dangerous precedent to have an operating a pipeline with this type of track record to have that be taken out of service by legal action, particularly after going through the permitting process. So.

We are we're encouraged by the ruling we're watching it closely today.

You know it it has really no impact on our investment direction in in the Bakken.

Very good and then leads my second to some of your peers have put together what I'd call like a minimal total return that includes production growth and shareholder returns such as dividends, which we'll think about establishing something like this where you have up sort of minimum basin.

I'm just I guess my second part that if you would how would you think about sort of the growth versus the shareholder return aspect. Thank you.

Yes on that point nailing I think what you'll see from US is really looking first and foremost to achieve corporate returns and sustainable free cash flow and I think applying our our reinvestment framework that served us so well in 18 and 19, when we returned as Dave said 1.31 0.4.

$1 billion back to our shareholders.

Thats really more of the frame. We're looking for is what percent of our operating cash flow are we really getting back in putting to work for the shareholder and we'd like that a bit better I mean with with equities moving all over the place right now in the volatility yields to us or interesting, but not particularly in format.

I think a framework, where you're looking at you know certainly sub 80%, 70% to 80% reinvestment rates, where your ensuring that you have the ability to generate that sustainable free cash flow at mid cycle pricing.

To me is probably a better framework and then then really your your challenges.

Deciding how you want to deliver.

That whatever that percent of operating cash flow is back to your shareholder and I think Dane already touched upon that is initially we'd be looking to prioritize a bit of debt reduction as we then look to ease back into a base dividend structure and then in excess of that there are a lot of other vehicles that we kick in.

Set or the variable dividend as one, but certainly even share repurchases as another I mean, nothing would be off the table that thats. That's really the framework that you should expect us to work from Neil.

Good thank you.

Next question is from Johnson from capital One your line is open.

Hey, guys. Thanks, just to clarify maintenance program for 21, I'm guessing it assumes some sort of an increase to your current.

Program of three rigs in two crews at some point either later this year or early next year. So any details you can share in terms of what is assumed for activity would be helpful. Thanks.

Yes, Philip again, I I live.

I want to remind everyone that this is just a benchmark scenario, it's not it's not meant to be our business plan, but in that that benchmark scenario.

Filipino activity levels would not be dissimilar to what we're seeing in and for Q really where we would have.

Multiple rigs running in the Eagle Ford in the Bakken, coupled with likely a couple of Frac crews as well to drive that maintenance program similar to this year, we would be leaning obviously very heavily and the maintenance scenario on the Eagle Ford in the Bakken I will just say too though that that.

Even that that kind of nominal billion dollars of Capex, we've talked about for that scenario does also include.

The somewhat modest commitments that we have in the Rex program as well. So all of that is baked in to that 1 billion dollar number that we've talked about.

Okay, Great and I guess, maybe.

Speaking of the rest program.

And then the Louisiana Austin Chalk isn't really front line in this environment, but I wanted to see if you guys can share an update on that accrual low.

Ladies that you guys highlighted on the fourth quarter call. It seems like the monthly numbers are going to lease somewhat encouraging.

Yeah.

Al I'll, maybe say, a few things and flip over to Pat to address Crowell I think.

First of all I, just want to remind everyone that the Rex program. This year by design was focused on the Texas oil Delaware play and so and that work has now run its course, Stan and I mentioned some highlights from that.

In my opening comments.

So there really hasn't been new activity generated within the Louisiana, Austin chalk play, but I'll, let Pat maybe just provide a bit of an update on the CRO well itself.

Surely.

So is as we've talked about at the we've been focused on on the West, Texas play and because of the downturn in oil prices, we paused any activity in the Louisiana Austin chalk as we conserve capital through the rest of the year that well as we talked about previously has strong oil delivered.

Building in the early months.

Currently the will shut in due to facilities issue and we'll be bringing it back on the in a month or two.

Okay, great. Thank you guys.

Thank you Phil.

Your next questions from.

Newton Kumar from Wells Fargo. Your line is open.

Good morning, Lee and the team there.

Good morning My question.

I guess first off I want to start off when the hedging philosophy as we talked earlier in the call.

Strip for 2021.

As a lot better than what it was three months ago.

I saw that you really don't have that many hedges right now for 2021 is that by design or is that an opportunity to maybe solidify some cash flows.

Yes, it will and again on bypasses to chime in and just a moment, but.

First of all you know, we we feel that one of our advantages of the company is obviously, our our oil leverage and the impact that oil prices can have on us. That's a that's a huge upside driver for us. The reality is is there hasn't been a lot of joy to look at and 2021 and we work.

Really all that excited about hedging into kind of a low 40 or $40 kind of hedge program and even with a $35 breakeven that wasn't very exciting for us. So we do look too.

Take advantage of market opportunities to put.

More aspirational hedges on to underpin some element of our cash flow, but it's a much more defensive strategy one that still seeks to.

Protect that upside leverage to oil and obviously with the strength of our balance sheet and low breakeven that also affords us some opportunity to take a little bit more commodity risk as well going into 2021, but maybe Pat if you want to talk about the most recent hedges and kind of our hedge view in general.

Thanks, Let me just covered a lot of it already but I would just say we have a team that looks at this every single day.

And we were not.

Anxious to Russian to some hedges as we saw the downturn because we did not like what we're seeing particularly for 21. So we've been very opportunistic in how we've looked at the market and what we see an opportunity to to lock in our breakeven on the put and still protect some upside on the call that we'll do that so we did that recently taken a little bit of 35.

But 50 to two ways.

Over the last few days and we'll continue to look at that.

[music].

We're just going to we're just going to be prudent in the way we approach. This in the not jump into things quickly.

Got it create tanks the answer there guys and then.

For my follow up I, just wanted to do.

Within the framework off the 80% of cash flow for the reinvestment.

Earlier, you had talked about the risks program accounting for about 10% of capital.

Beyond 2021 is that how we should look at so what am I guess, what I'm asking is.

Is the risks program included in that 80% threshold going forward or is that an alternative use of free cash flow.

No no great Great question, and it's one that we do need to bring some clarity around.

That that that Rex program has to compete within that broader capital allocation discussion. So you should think about it being in that that reinvestment percentage that we're talking about end and again I want to emphasize that that 80% reinvestment is really at the the kind of top end of.

Patients Thats still gives you the ability to to essentially have 20% of operating cash flow available for other uses but the Rex program is absolutely part of that reinvestment rate.

Thanks Lee.

You bet thinking.

Yes.

Our next question, it's from Paul Cheng from Scotiabank. Your line is open.

Thank you Lori.

Please turn.

Our refined the 80% or new best they use on the mid cycle. So when I read that when prices are much higher you have set that it's going to be low when did that percentage and how you determine what percentage will within what we investment is that some of your p. It that we say okay on the we're going to Max out the ceiling low.

Only puts us in goliat little more than five it's growing and so.

What their budgets that cap ex the if it's much lower than.

As 70% that would be the consensus. So can you help to understand the appeals to things and the thought process in a much higher commodity prices, how you'd be palm and then set.

Petsense with less than that.

Yes, no no great question, you're right as as commodity prices strengthen on the same program, obviously that reinvestment rate.

Well, we will trend lower which then gives you optionality to consider reinvestment back.

Into DMC and production volumes.

Ultimately the controlling factor on that will be that we came into the here if you recall Paul talking about.

Already somewhat kind of mid single digit growth, 5% was what we had in our original.

Budget and I believe that does set up a bit of an expectation that even with incremental cash flow as that reinvestment rate comes down with commodity price, we certainly don't see the need to grow.

In excess kind of those single digits going forward I mean, it's not a good choice for the macro and I think for us being focused more on financial outcomes as opposed to volume metric outcomes. We believe that's the right course of action so we'd be looking.

To to obviously moderate growth even in a higher commodity price scenario.

Thank you and the second question within the US put then you'll opponents it pockets a one one does not permit.

Well that's.

Very high multiples, but on data him different seems like increasing the high end higher volatility and we have seen in this downturn.

Thats a lease on the building so on the funds you end up that coupled with dividends and all that so.

So we content in the mid cycle a much lower.

Most people on York that Russo so thats when should we get coupons and look for long term, we will have tend to be off the balance sheet. That's why food. This phone with how we they have to do just last week.

Measurement might cut to the full on the Capex and.

The discipline Olympic offerings.

Yes, hi, Paul Thanks for that.

Yes.

I agree with your sentiment that lowered that is better.

At home in at work.

Okay.

In one to one and half times, we feel like represents a reasonable mirrored on sort of medium term target for us.

Getting below that level of we have the luxury of.

Those levels of cash flows and we can kind of take chunks of maturities out overtime with cash certainly is something I.

Support and you're right. It does insulate you from the.

The volatility that we've seen and hopefully we don't see the kind of volatility that we've had 2020.

Anytime soon but even if you go back a few years. We've we are in a much more volatile feels like longer term environment and lower leverage is a good thing. So yes trending toward wondering one to one of the happen and once we get to that milestone I don't think we necessarily stop.

Thanks, just lucky in that they.

Maybe one last question on 2021, let me looking at your Capex and cash flow should we look at you think that will turn to one a positive free cash flow.

Sorry, I lost the question just a little bit there Paul could you on the lease that book for next year should we look at the hoagland, such that will which one to one yet so that you will generate positive free cash flow.

Oh, yes, absolutely yes in fact.

The view is that that is the focus and priority of the program is one to generate corporate level returns and to to get us back on a sustainable free cash flow path very similar to where we were in 18 and 19 before we had the kind of correction this year our intent.

And our design is to get right back on to that trajectory and Thats why weve been so focused on capital efficiency because our view is in a.

No growth to low growth environment capital efficiency is going to be the differentiator.

That along with operating costs and so that's why you see us so heavily focused on really driving that capital efficiency to ensure across a broad range of pricing, including we've used the term mid cycle pricing quite a bit today and we have to think about it our view of mid cycle pricing is.

Very different today than it was in 2018 2019 that certainly has moved lower from that 50 to 55 kind of viewpoint and as we start thinking about our planning basis for 2021, my expectation is that that mid cycle pricing will look so.

Somewhat consistent with what we're currently seeing in the forward strip for 21, So I do believe that bringing that mid cycle planning basis down also affords us some of that flexibility that you were just challenging us on relative to the balance sheet.

Thank you.

Your next question from Doug locate from Bank of America. Your line is open.

Thanks, Good morning, everyone hope everyone's doing as well as there.

We go to questions. If I may one loan consolidation them one on your.

The value proposition, usually though this morning.

If it was simple guys. So I want to fleet bias to you.

What you what you basically just told US your sensitivity is 55 million gold for Boulder, you'll slots at 35 total Dolby tea.

On your spending a billion goals with $160 million dividends.

Im means is on.

$50.

January $1 billion with free cash flow.

You thought in the 10% annuity. This assuming you can hold it flat forever and drill cost of debt.

And your stock is trading with us right today $60 oil.

So my question is what is the value proposition it sounds like it's really about costs because all the other folks who look at your valuation that's how I think about it how do you address that.

Although the above is doing what you said, but it's also assuming $50 oil.

Yes, I think first of all done of course, obviously, none of us can predict if oil is going to be flat up or down and so there. We would expect that that oil prices will continue to move constructively, which I think applies some implies some upside to that.

I do think though the model that that generates you know material free cash flow and whether you want to measure that as a percentage of of those CF I mean at a at 20% of Euroseas, if you're basically returning a full years cash flow and a five year period back to your shareholders and some shape or form and we believe that's still a value occur.

Creative model, even in a even in a low growth.

Kind of scenario.

And certainly if you wanted to even translate that into yields I think it becomes certainly its competitive at mid cycle pricing and would be I would say outperforming from a say an S&P standpoint at higher pricing. So we believe that that is.

And investable thesis from from that standpoint.

So anyway, that's Paul stop there.

I think I mean, my follow up is released I do want to reaffirm your to Absolutly right because if I was completely bounced about this.

$60 oil you are sold levels. So it really gets to the point you made about preserving we will leverage and I was going to want to ask you about your cost plans. So you've talked about you're going to great job controlling costs and protecting the oil leverage.

This is sodium energy is about lowering the cost saves consolidation has to be part of the discussion. So I'll just looks to get your thoughts on that.

If I may be very specific asked this question the clinical as well did you look at mobile through the process because youve arguably more overlap there isn't just about anybody else in industry.

Yeah, maybe I'll, maybe I'll think take the the last part of your question first and obviously I don't want to comment specifically on the Chevron noble combination, but I will reference you back to my comments about our criteria and what we look for in.

Consolidation or M&A, regardless of the size, whether it would be at emo, we are a smaller acquisition and under that set of scenario or the under that set of criteria. Obviously noble for us struggled to meet some of that particularly with respect to the quantum of debt as well as.

To the concentration risk in their portfolio and so from that standpoint that would be how we would have viewed noble would have been through that lens I do agree with you that as we move more toward a capital efficiency operational and execution efficiency model.

So.

As opposed to a high growth in a de model.

Scale is going to be exceptionally important.

I do think today that.

Through our multi basin model, we do have that scale, it's more of a collective scale in that sense.

And were going up clearly stay in tune with what's occurring within the market.

We recognize that consolidation could in fact be a factor, but we also equally recognize that we want to have a business that.

Is resilient from an organic standpoint, as well into the extent that we deliver on that if consolidation were to occur we would be in a very strong position for our shareholder.

I appreciate you taking my questions. Thanks, a lot we.

Thank you Doug.

[music].

Our next question is from Bryan singer from Goldman Sachs Renews open.

Thank you good morning.

One follow up on just the discussion that you were just speaking here about with regards to consolidation and you mentioned scale.

I wondered if we exclude the potential benefits of DNA synergies do you see the potential that consolidation or adding additional acreage in your existing plays could lower your supply cost of your base businesses or do you think the scale you achieved.

In in your major plays is insufficient are unlikely to be impacted ex CNV I consolidation.

Yes, I think X gene a consolidation there theres still industrial logic in synergies at a basin level that can be taken advantage of.

I would just argue Brian there would have to be acreage, though that make sense from a from a value standpoint in the actually competes with the portfolio. We have today, which as you stated in our core basins is of relatively high bar certainly what we don't want to do is get get.

Larger just to just to gain scale I mean, it would have to compete also on a quality and returns basis or in fact, all you are really doing as yes, you're gaining scale, but you're also diluting your overall corporate returns and so there is a balance there right. We certainly want to see that scale synergy in our key.

Or basins, but we also want to be mindful of doing something that would be diluted to the overall value proposition in the corporate returns were generating.

Great. Thank you and then my follow up and I may have been discussed earlier in which case my apologies, but yes. If there is down the road in the Bakken unfavorable news with regards to pipeline that would make the differentials the realized prices less.

Less returns enhancing.

How would you react to that philosophically would that be it just potentially lower the capital budget and.

Allocate capital to.

Don't allocate capital elsewhere, or what basins would receive greater capital allocation, if that whereas situation.

Yeah, all maybe I'll start and then I'll I'll flip over to pad if he wants to make some comments on the marketing and transportation side, but.

In general.

Brian I would say first and foremost we have very few barrels that would be directly impacted it would have to be a broader as you say differential challenge that that would that would manifest itself before we would start seeing concerns there the bottom line, though is that our Bakken inventory.

Remains very resilient in it it's very much a top tier performer for us so.

Barring some very agree just blow out and differentials, we would still see those opportunity opportunities competing very strongly for capital I think the likelihood of that given the diversity.

Of outlets for Bakken crude is likely low I also think with the ruling yesterday, which I think as net net a positive for the continuing operation of Dapple I think that risk is is fading a little bit, but maybe I'll, let Pat just jump in and talk a little bit about our marketing strategy and how we protect our current barrel.

Because that's exactly how we would basically protect our future barrels.

Hi, Brian I think lead covered some of this earlier, but right now we move about 10000 barrels a day on the Apple. So those those barrels would be directly impacted but we'd have to swing into a different market, but from a big picture perspective, we have a diversified approach in the Bakken. In addition to Dep always we ship owners.

Real pricing, we ship on Pony express to Cushing and that we sell into the Clearbrook market.

So the event of a have a shutdown we believe the majority of barrels wouldn't be that affected obviously, you'll see a little bit of softening maybe in the clearbrook market, but it's not directly tied to in basin and then we'd see a little bit of softening of course in the.

In the basin itself and we'd see a few dollars there on the dips, but we don't see it is a big impact on this at this point.

Maybe just to maybe close this win out.

It's luckily today, we have a little bit more perspective on the likelihood of that and then at least in the in the near term, but I do want to stress that in the Bakken, we really do have.

<unk> industry, leading capital efficiency there.

No kind of throughout the DAC and even within the earnings release.

We talked a lot about the completed well costs now are headed down toward $450 per lateral foot. I mean, these are some extremely capital efficient investment opportunities and I think we would have to see pretty dramatic shifts there before those would lose their ability to compete.

For for capital allocation.

Thank you.

And our last question is from have all you from Lehman James Your line is open.

Thanks This is.

How much will only have to them O'connell. Thank you for moving the questions.

So only one from me can you talk about how you're EG operations and change in response to endemic specifically, whether the loss Townsend imposed by the government near has had an impact and have companies I think distancing at their assets there. Thank you.

Hey, Mark this is Mitch.

Lost a little bit of your question, but I think.

Got most of it.

Thank you.

Fair to say you know we've worked really closely with the EG governments in.

Ensuring that they've got the capability to do adequate testing they've been very proactive in sort of limiting.

Flow of people in and out of the country.

Requiring negative test for those coming in et cetera.

We have.

A compound called Kuta Europa, where all of our.

Thanks, Pat employees stay and we've got onsite.

Clinic and medical facilities were doing active testing, we have modified our rotational schedule a little bit in response to kind of a changes to the travel patterns and flight patterns et cetera, but.

Operations have run very steady and the workforce as.

You know adapted to the change there and really team's done an outstanding job.

Along with the government in ensuring kind of minimal impact.

Last comment I'd make is lead touched on this early on in his comments the Olin project, which is expected to bring third party gas to the EG LNG facility.

Next year remains on track they've been able to work through all those same issues very effectively and so you know a little bit a change to the sort of rotational pattern, but business as usual due to the outstanding response from the team there.

Thats helpful. Thank you.

We have no further questions at this time can call back over 10, Lee Tillman for closing remarks.

I could not be more proud of the dedication of our people that have adapted to these largely uncharted waters. We're navigating they continue to fulfill our mission of delivering affordable reliable accessible energy the world needs today and that it will need when the economy gets back to work. Thank you for your interest in marathon oil and stay.

Healthy.

Thank you ladies and gentlemen, just conclude today's conference. Thank you for participating you may now disconnect.

[noise].

[music].

[music].

Welcome to the marathon oil stuck in a quarter earnings conference call. My name is your back up and I will be your operator for today's call.

This time all participants are in listen only mode. Later, we will conduct a question and answer session. During the question answer session. If you have a question. Please press Star then one I never touched on.

Please note that this conference is being recorded I will now turn the call over the Guy Baber, Vice President of Investor Relations you may begin answer.

Thanks, Rebecca and thank you to everyone for joining us this morning on the call.

Yesterday after the close we issued a press release slide presentation, and Investor packet that address our second quarter results. Those documents can be found on our website at marathon oil dot com.

Joining me on todays call, our Lee Tillman, our chairman President and CEO, Dane Whitehead executive VP and CFO, Pat Wagner Executive VP of corporate development strategy, Mitch Little Executive Vice President adviser to the CEO and Mike Henderson SVP 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'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 his opening remarks, we'll then open the call to Q and a.

Thanks, Guy and good morning to everyone on the call today.

I want to start out by again, extending my thanks to our resilient and dedicated employees and contractors.

Since the very beginning of the co that 19 pandemic. Our field staff has remained hard at work as a central critical infrastructure providers expertly doing their job to keep the U.S. applied with made in America energy.

Our industry has been a powerful engine of U.S. economic growth the last decade, and the clean affordable energy, we provide will unquestionably be critical empowering our nations and the worlds ongoing economic recovery.

At Miracle at all our business continuity and emergency response plants have facilitated on interrupted field operations and work from home practices that have protected our productivity and execution excellence in a very dynamic period.

I'm extremely proud of the marathon all family and over the last five months I've been impressed by their commitment and dedication they have truly rhythm to the challenge.

It goes without saying that the health and safety of our people remains by top priority.

We will continue to manage Kobin 19 risk diligently.

And I'm happy to report that our year to date safety performance as measured by total recordable incident rate is the best in our company's history.

Further amidst these uncertain and challenging times, we remain dedicated to partnering where that investing in the communities, where we live and operate.

Whether that is through donating laptops and helping our community partners here in Houston to transition education programs to distance learning distributing in 95 mass to emergency management in health care organizations, and our local communities or through the testing of more than 35000 people in Equatorial Guinea for coated.

Key.

However, the only real solution for society, and our business is to get the won't healthy and back to work.

Regarding the macro environment commodity prices are clearly in a better place today than they were at the time of our last earnings call in all honesty that is not very high bar, but the recent stability and energy markets as a welcome respite from the extreme volatility we had experienced in the second quarter.

Market forces have been at work and global oil demand has improved from the depth of the crisis and supply actions have taken barrels out of a saturated market.

Yet despite this improvement global macro uncertainty remains high and the range of potential outcomes for future oil prices remains very wide and difficult to predict.

In the face of this uncertainty the M.P. industry must remain disciplined.

Today, the world separately does not need more of our product, but demand will recover and production decline from lack of investment will exert itself.

It is all too easy to become distracted by external forces, but we can't control the macro we can't control, how we allocate capital how we manage our cost structure and how we execute.

Actions, we're taking in these controllable areas strongly support our financial goals of protecting liquidity, improving our balance sheet and reducing our enterprise free cash flow breakeven.

That is our focus and second quarter results are evidence that our focus is paying off.

During second quarter, we limited our capex to $137 million with the successful and efficient ramp down of our drilling and completion activity in response to a rapid downward correction in commodity prices fully consistent with our focus on protecting returns and exercising discipline we did.

Our total company oil production of 197000 barrels of oil per day, a strong result, despite 11000 barrels of oil per day, a voluntary curtailments.

We drove U.S. unit production costs down to $4, a nine cents per barrel the lowest level. Since we became an independent S&P and a reduction of almost 20% in comparison to the 2019 average.

And we drove average completed well cost per lateral foot down 10% relative to 2019.

With line of sight to further reductions in coming quarters.

On the back of the differentiated execution, we're reducing our full year 2020 capital budget and raising our full year old production guidance.

We have taken decisive action in response to this year's macro challenges.

Our response has been thoughtful, but swift reducing on high grading our capital expenditure program.

Lowering our cost structure.

And protecting our balance sheet and liquidity.

The result has been a substantial reduction in our corporate breakevens.

We have successfully repositioned our company for significant free cash flow generation at the forward curve, while protecting our operational momentum as we look ahead to 2021.

Next a few words of how we're allocating capital on our updated 2020 program and revised guidance as I noted we have reduced our full year 2020 capital spending guidance from a ceiling of $1.3 billion down to $1.2 billion. This reduction as a result of tremendous innovation and.

Mcewen from our teams and continued reductions to our completed well costs.

Building on these impressive capital efficiency trends, we expect to drive further improvement over the second half of the year.

Case in 0.2nd half 2020, well cost per lateral foot are expected to be down by more than 20% in comparison to 2019. The results of concentrated capital allocation to the Eagle Ford in Bakken and targeted efforts to continue reducing our costs.

These reductions are due to a combination of specific well design improvements execution efficiency supply chain optimization and commercial leverage we expect the majority of these gains to prove durable through the cycle.

While reducing our full year capital spending guidance. We are also raising our full year total company oil production outlook to 190000 barrels of oil per day at the midpoint of guidance.

Results for both strong base and new well performance.

This revised guidance is inclusive of all year to date curtailments, which totaled again approximately 11000 barrels of oil per day, and 17000 Boe per day during second quarter.

As a reminder, that production outlook, we provided last quarter was on an underlying basis exclusive of all production curtailments.

After a pause and completion on drilling activity during second quarter in July we successfully transition back to work and are currently running three rigs and two frac crews across the Eagle Ford and Bakken with no loss and execution efficiency.

Our capex has been high graded to our most capital efficient cash flow generative opportunities that offer some of the strongest returns across the entire lower 48 landscape.

So capex will be generally ratable over the second half of 2020, we do expect wells to sales concentrated and for Q.

With the Twoq, you pause and activity and timing of our wells to sales Threeq you will be the trough for our 2020 production profile consistent with what we message previously however, our volumes will be on an improving trend by the fourth quarter with expected for Q2 thousand eight total company all production.

In the low 170 KBB range.

Well, that's exit 2020 with strong momentum from a core of capital efficient high margin production that will provide us with a solid foundation for success as we enter 2021.

And while we are hitting the pause button on capital investment in the Northern Delaware, Oklahoma and our resource play exploration program those opportunities provide us with important capital allocation optionality and associated returns and an improving commodity price environment.

Specifically, we have completed all planned DNC activity for our reduced 2020 resource play exploration or Rex program, which was primarily focused on the delineation of our contiguous 60000 acre position and the Texas, Delaware oil play.

We have now successfully brought online for Woodford and two Merrimack wells since entering the play which have confirmed our reservoir productivity and gas oil ratio expectations. While also validating high oil cut shallow decline profiles and lower water oil ratios.

Cumulative production per lateral foot at 90, and 180 days from these wells compares favorably to industry, Delaware basin benchmarks in the Wolfcamp and bone spring.

Our attention is now focused on analysis of longer dated production trends and continuous improvement and our DNC cost.

Along with resetting and high grading our capital investment we have also successfully reset our cost structure.

Our objective in managing our cost us to further enhance our competitiveness reduced our cash flow breakeven and position our company for such success and a lower more volatile commodity price environment.

For 2020, we have implemented cash cost reduction efforts early in the cycle as previously discussed including employee and contractor workforce reductions and consistent with our first quarter disclosure, we still expect to realize $260 million of total cash cost savings this year.

Inclusive of severance payments that we made during second quarter.

We are driving run rate DNA down 17% from the 2019 average and down 25% from the 2018 average continuing a multiyear trend.

During two Q, we reduce us unit production costs down to an all time record low levels down approximately 20% versus the 2019 average.

With the obvious commodity price challenges during second quarter, we pull all levers to reduce production cost as quickly and aggressively as possible.

Looking ahead with improved commodity prices, we expect to add back high return worker workover activity and associated expense work.

With higher Workover activity and lower volumes during Threeq Q unit production costs are expected to increase sequentially.

Importantly, however, our full year 2020 unit production cost guidance remains consistent with our original guidance entering the year, despite lower production impacting the denominator a strong accomplishment.

To put our overall cash cost efforts into perspective total annualized reductions taken straight to the bottom line are contributing to about a $5 per barrel improvement and our cash flow breakeven enhancing our resilience to lower prices and our ability to generate free cash flow in any recover.

Any scenario.

The low cost producer wins and any commodity price environment.

Underpinning all of the actions we have taken we are first and foremost prioritizing the financial strength of the enterprise protecting our balance sheet, our liquidity and our cash flow generation total liquidity remains substantial at over three and a half billion dollars at quarter end.

And we remain investment grade at all three credit rating agencies.

Overall, the combination of our high graded capital allocation significant cost reductions and solid execution have successfully repositioned the company for free cash flow generation at prices well below the current forward curve, while also protecting our operational momentum into 2021.

For the second half of 2020.

Our corporate free cash flow breakeven as in the low $30 per barrel range, implying strong free cash flow generation over the back half of the year at current pricing.

And though premature to discuss a specific 2021 business plan, we have defined a benchmark maintenance case that holds 2021 total company oil production in line with for Q2 thousand exit levels and the low 170 KBB range. This scenario delivers a free cash flow.

So breakeven of approximately $35 per barrel on an unhedged basis and highlights our differentiated capital efficiency and significant free cash flow potential.

With our significant leverage to all prices a $1 per barrel change in Wi Fi translates to about $55 million of annual cash flow generation.

This benchmark maintenance case highlights is significant and improved free cash flow potential of our company.

To reiterate this is not our 2021 business plan, rather it as a benchmark scenario that illustrates how we have repositioned the company. While also affording a more direct comparison of capital efficiency to our peers. It highlights both our resilience and free cash flow potential.

That said it is worth spending some time on how we are thinking about strategy key priorities and capital allocation our framework for success as we come out of this historic downturn and turn our attention to the new normal for our company and for our sector going forward.

Entering 2020, I believe our company has established a hard earned track record of delivering on a well defined framework for capital discipline.

Corporate returns improvement multiple years of sustainable free cash flow generation significant return of capital back to shareholders more specifically over 2018 in 2019, we returned to over 20% of our cash flow from operations back to shareholders all fully funded with free cash flow.

Corresponding to an average reinvestment rate of just under 80%.

Looking ahead, our core priorities won't change, but the environment has therefore, we must deliver these same outcomes corporate returns improvement sustainable free cash flow and return of capital to shareholders and a lower and more volatile commodity price world. This will demand an even greater folks.

Yes on free cash flow generation through more moderate reinvestment rates and a relentless focus on capital efficiency balance sheet strength cost reduction and base production optimization.

While 2020 is clearly a transitional year.

Year in which we have leveraged to supply demand crisis to further repositioned the company for success.

We expect our forward capital reinvestment to trend below 80% of our cash flow generation at much lower mid cycle oil pricing.

Even in a $40 per barrel oil case, our reinvestment rate would likely trend no higher than 80% at prices north of $40 per barrel, our reinvestment rates would be well below 80% and that incremental free cash flow would be taken to the bottom line.

This reinvestment framework will pave the way for clear line of sight to significant free cash flow that can be used for shareholder friendly purposes, prioritizing debt reduction and distributions back to our shareholders.

With the governor of reinvestment rate production volumes will remain an outcome not an input.

In summary, second quarter with another remarkable execution story for our company, while navigating a very challenging macro environment, where the backdrop of an unprecedented demand shock our underlying business model and framework for success remain intact, but we must now deliver in a more volatile and.

Reprice reality.

Our reinvestment rate approach so successfully deployed in 2018, and 2019 will enhance our transparency and resilience going forward.

Our focus on those elements of the business. We control has delivered dramatic and lasting results. We further reduced our full year 2020 capital spending budget and we raised our 2020 oil production guidance.

We have high graded our capital program successfully managed our cost structure and protected our liquidity and balance sheet strength.

And our 2021 benchmark maintenance scenario with a corporate breakeven up $35 per barrel serves as a compelling proof point for our differentiated capital efficiency.

Collectively these actions have repositioned our company for success in the current environment and for the uncertainty of than the normal ahead.

Thank you and I'll now hand over to the operator to begin our QNX session.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then one and you just shown song if you wish you'd be removed from the Q. Please press the Tom sign or the Heskey.

We are using the speaker phone you may need to pick up the handset first before passing the numbers. Once again, if you have a question. Please press Star then one.

And our first crash question is from our own from JP Morgan Chase. Your line is open.

Yes, good morning lead to you and your team.

Good morning.

Yes.

Wanted to start.

Regarding 21 2021.

You left us some bread crumbs on how to think about next year under a maintenance capex scenario.

Under our math, if you're going to sustain the for Q 20 oil exit rate in the low to seventies translated into about 63 million barrels of oil the current strip Lee.

For 21 is just under $45 44, 70, you talked about the cash flow breakeven of 35, so that would suggest.

To us.

Well north of.

$500 million in free cash flow.

So my first question is I wondered if you could give us.

Some thoughts on the area code that we're estimating for free cash flow under this maintenance scenario and what would be the priorities for using that free cash flow. If that you called up 44, four from $45 trip.

Proves the correct.

Yes. Thank thank you room for the question and I'll, maybe take the first part of that and I might and led some support from Dane in terms of priorities, but first and foremost I want to confirm that that your number is absolutely in the right ZIP code for the current strip. It is as I said my opening remarks around you know its.

Little premature to talk about a 2021 business plan, but for this very well defined the benchmark case that we have laid out that in fact holds production in line with for Q 20 exit levels.

That does have a very.

Differentiated breakeven at at $35 sand and when you do the math and certainly this again as a reminder is kind of an unhedged basis.

Your your number is pretty much in the correct ZIP code I would also just remind everyone. As I said in my opening remarks that we also have an extreme amount of leverage to oil pricing and obviously that is evident in your number but just as a reminder, for every dollar barrel dollar per barrel change and and diabetes.

Hi, Yes, we're looking at an incremental 55 million or so and operating cash flow. So so with that as a little bit of a same set for 2021.

I think our biggest challenge is just recognizing when.

When do we see that stability in the market and we can count on those free cash flows coming in the door. Because we certainly have built a model that can deliver that but assuming that were successful.

And that the macro cooperates we are left with the challenge of how do we prioritize the uses.

Of that free cash flow going forward and so maybe I'll, let David just share a few thoughts on our priorities there, yes, thanks and good morning, a room.

I'd say, our top priorities for using free cash flow right now or reducing debt.

And returning.

Capital back to shareholders, let's say in the very near term the first call on free cash flow will probably be to further strengthen the balance sheet, we've talked about for a while low leverage target in the medium term of sort of one to one of the half times net debt to EBITDA in a mid cycle pricing.

Environment.

I don't think we need to get there all at once.

But tacking in that direction is something that makes sense to us.

And as Lee referenced you know certainly compared to where we were in Q2 commodity prices look great.

And the actually getting contango in the forward curve is kind of nice to dream about but we'd like to have some confidence in the stability of that.

Forward were turned to a programmatic return of capital to shareholders. That's super important to US as you know, we we have done that.

Over the past couple of years to the tune of about $1.3 billion.

Return of free cash flow that we've generated to shareholders.

And we're committed to getting back to that.

Most likely way to start that would be to reestablish a competitive.

So.

Based dividend.

And then.

Look at other alternatives beyond that with some of our peers are talking about things like variable dividend Thats certainly on the table for a discussion point for us for thinking about that but first things first just returned to sort of a base case dividend makes sense.

And then if we do get into sort of a consistent mid cycle pricing environment I think it's important to.

No we don't view.

Deleveraging or returning capital to shareholders as you or proposition, we think theres enough room enough flexibility to both of those things in a more mid cycle price environment and thats, what we'd be focused on.

Great. Thanks for that the answer and my follow up.

It's been obviously a bit of a tougher year in EG just given weaker.

LNG prices global gas prices methanol prices.

Was wondering if you could maybe help us look forward to 2021.

The thinking about strep.

Youre going to get some incremental volumes from from from LM from noble, but help us think about.

Oh Gee next year, which is on a bit of a black box to the investment community because there's a lot of moving pieces.

On that on the.

The energy.

Yes, maybe I'll start off and then ask Mitch to perhaps perhaps jump in as as well you are right in the sense that we did experience obviously, some some downtime earlier in the year that was impactful.

To E G, but I just want to remind everyone about the value proposition in AG. This is a long life low decline asset clearly just like all assets is exposed to the vagaries of commodity pricing and you went through those around the both on the LNG side, the methanol side condoms.

Stateside et cetera, but.

It is a strong free cash flow generative asset from the sense that.

It really requires de Minimis reinvestment.

And then of course as we look to further leverage and utilize this world class infrastructure that we have there the gas plant the methanol plant the LNG plant and all the associated kept there there is an opportunity certainly even with a declining equity production to protect our and stay.

Label lies our cash flows going forward and Thats, where opportunities like 11 really come into play. The good news is that a land is is on schedule and we're looking forward to that.

But but maybe I'll just ask Mitch to chime in with with any other thoughts from his perspective.

Sure Good morning room.

Just to add a little bit I guess to your question comments and lease.

Beyond the two Q trough in commodity prices really across the board.

We also had a very significant turnaround at the Amco methanol facility this year, which impacted equity earnings.

As we head into third quarter here, we're obviously seeing good recovery and prices.

Fronts across all commodities.

Case in point Theres, some really strong tailwinds.

At the beginning of Q3 with us Gulf coast spot prices up about 60%.

On methanol over the lows in Q2, so so we look forward at the commodity curves the.

Full year of 2021 without major.

Turnaround expenditures.

And the OLED volumes coming on.

Lot of signals pointing to positive we expect.

As we've said before.

On a normalized price basis equity earnings in 21 to be more comparable to what they were in 2019.

Whether the current forward curve, if those prices hold we would expect them to see a return to dividends from some of the equity companies before the end of this year and then.

Of course with the current forward curve that just strengthening into 2021.

That's helpful. Thanks Jets.

Thank you Ron.

And our next question is from Gennine from Barclays. Your line is open.

Hi, good morning, everyone.

Morning today more than good morning. My first question is on the updated timing on maintenance commentary.

The breakeven of 35, I think the prior commentary with less than 40. So we just wanted attack if the updated number is more horrify men or we suspect that there's something else going on that maybe you can more specifically talk about what the primary driver is for the new improvement and the capital efficiency outlook compared to what you thought last quarter.

Yes Janine.

Well certainly it does reflect climate I mean each day.

We learn more and more about our capital efficiency trends.

As me across all basins, and I think that first and foremost.

That that less than 40 number really reflected the level of definition that we had on that scenario at the time. Since then we have obviously gained more confidence in our delivery I guess, our capital efficiency expectations, coupled with a lot more certainty around what that maintenance scenario might look like.

All of those things have contributed to giving us a high level of confidence now and talking about a 35 dollar kind of all in unhedged number for 2021.

Okay, great. Thank you.

My second question is on the portfolio.

You've talked in the past about a portfolio approach to enhancing the resource base and I guess, just given marathon significant improvement in capital efficiency that you're now discussing.

Case to be made in the current oil price environment that marathon is now in a better position to add scale.

Assets or is the focus really going to be more on balance sheet, restoring the dividend and focusing on this 80% reinvestment rate and.

And shareholder return thank you.

Yes, Thanks Jane.

First of all as I as I've said in the past running our business model is not predicated on M&A, our large scale consolidation and as you rightly stage in our primary focus certainly and and this kind of transitional period of 2020. During this downturn has been really on the aspects.

Of our business that we can't control and it was very important for us to aggressively pull the appropriate levers and and really get us prepared.

For being able to deliver that differentiated capital efficiency that you now see highlighted in this maintenance scenario for 2021, having said that we have to be aware of the market and the environment and the opportunities around us and and we certainly fully acknowledge and recognize the value of.

Scale, we see the power that already in our portfolio today, but when it when it comes to thinking about.

M&A or consolidation, whether that's a large or small we have a very specific and well defined criteria and we don't intend to tbas from that criteria.

Any any type of opportunity that we would consider in that context would would obviously have to be accretive to our financial metrics, including free cash flow. It would not obviously harm our balance sheet. It would have to present, some semblance of industrial logic and of course bring some high.

Our credit synergies along with it so I think we as we look through that lens clearly as we compare that to our organic portfolio. The bar is is very high in that criteria is very exacting, but we're certainly aware of the market and aware of the impact that scale can have.

Okay. Thank you very much gentlemen.

Our next question from Neal Dingmann from CIS Securities. Your line is open.

Morning late my question is learning please.

Does the recent positive does that dapple decision leads you to consider any near term changed users strategy for activity in the play given our solid your economics on the Bakken.

Well first of all NII I want to acknowledge this you're exactly right. The backend economics are extremely resilient.

From an economic standpoint, the offering some of the top returns in our portfolio. The ruling that was just released yesterday, we see as a net net positive we're still obviously digesting that completely but in essence the circuit court there bake.

Aided the district court's order for an immediate shut down or a relatively quick shutdown of dapple. So we view that as I as a positive maybe just as a reminder, though that.

And the backend we have always had a diversity of marketing outlets therein and direct to barrels riding on the data on dapple for us or right around 10000 net.

Oh, Pete deeper barrels oil per day, so from a direct impact standpoint, even if.

That had progressed.

To that more challenging scenario, our direct exposure was was relatively limited now indirect clearly the impact across the basin and on basin differentials. When you take that level of capacity out of the system would have forced everyone to be looking for alternatives.

Including rail, which likely when was that kind of the marginal.

Barrel out of the Bakken. So we view the ruling again as net net positive I mean, this is an operating pipeline.

That's been operating with.

Good environmental performance strong integrity.

We would see it has a very dangerous precedent to have an operating pipeline with this type of track record to have that be taken out of service by legal action, particularly after going through the permitting process. So.

Where we're encouraged by the ruling we're watching it closely today.

You know it it has really no impact on our investment direction in in the Bakken.

Very good and then lead just my second to some of your peers have put together what I'd call like a minimal total return that includes production growth and shareholder returns such as dividends, which you all think about establishing something like this where you have a sort of minimum basin.

I'm just I guess my second part that if you would how would you think about sort of the growth versus a shareholder return aspect. Thank you.

Yes on that point nailing I think what you'll see from US is really looking first and foremost to achieve corporate returns and sustainable free cash flow and I think applying our our reinvestment framework that served us so well in 18 and 19, when we returned as Dave said 1.31 0.4.

$1 billion back to our shareholders.

Thats really more of the framework are looking for is what percent of our operating cash flow are we really getting back in putting to work for the shareholder and we'd like that a bit better I mean with with equity moving all over the place right now in the volatility yields to us or interesting, but not particularly in warmer.

I think a framework where you're looking at.

Certainly sub 80%, 70% to 80% reinvestment rates, where your ensuring that you have the ability to generate that sustainable free cash flow at mid cycle pricing.

That to me is probably a better framework and then then really your your challenges.

Deciding how he want to deliver.

That whatever that percent of operating cash flow is back to your shareholder and I think Dane already touched upon that its initially we'd be looking to prioritize a bit of debt reduction as we then look to ease back into a base dividend structure and then in excess of that there are a lot of other vehicles that we can.

Set or the variable dividend as one, but certainly even share repurchases as another I mean, nothing with the off the table that Thats. That's really the framework that you should expect us to work from Neil.

Hi, good thank you.

Next question is from Johnson from capital One your line is open.

Hey, guys. Thanks, just to clarify maintenance program to 21, I'm guessing it assumes some sort of an increase to your current.

Program of three rigs in two crews at some point either later this year or early next year. So any details you can share in terms of what is assumed track Jody will be helpful. Thanks.

Yes, Philip again, I I live.

I want to remind everyone that this is just a benchmark scenario, it's not it's not meant to be our business plan, but in that that benchmark scenario fill up activity levels would not be dissimilar to what we're seeing in and for Q really where we would have.

Multiple rigs running in the Eagle Ford in the Bakken, coupled wed likely a couple of Frac crews as well to drive that maintenance program similar to this year, we would be leaning obviously very heavily and the maintenance scenario on the Eagle Ford and the Bakken I will just say too though that the.

Even that that kind of nominal billion dollars of Capex, we've talked about for that scenario does also include.

The somewhat modest commitments that we have in the Rex program as well. So all of that is baked in to that 1 billion dollar number that we've talked about.

Okay, Great and I guess, maybe.

Speaking of the rest program.

And then the Louisiana, Austin chalk isn't really frontline's environment, but I wanted to see if you guys can share an update on that accrual well.

The that you guys highlighted on the fourth quarter recall it seems like the monthly numbers as Emily's somewhat encouraging.

Yeah.

Al I'll make a safety things and flip over to Pat to address scroll I think.

First of all I, just want to remind everyone that the Rex program. This year by design was focused on the Texas oil Delaware play and so and that work has now run its course, Stan and I mentioned some highlights from that.

And my opening comments.

So there really hasnt been new activity generated within the Louisiana, Austin chalk play, but I'll, let Pat maybe just provide a bit of an update on the colwell itself.

Surely.

So is as we talked about it.

We've been focused on on the West, Texas play and because of the downturn in oil prices, we paused any activity in the Louisiana Austin chalk.

As we conserve capital through the rest of the year that well as we talked about previously has strong oil deliverability in the early months.

Currently the well shut in due to facilities issue and we'll be bringing it back on the in a month or two.

Okay, great. Thank you guys.

Thank you Phil.

Next question comes from.

Newton Kumar from Wells Fargo. Your line is open.

Good morning, Lee and the team there.

Good morning My question.

I guess first off I want to start off when the hedging philosophy as we talked earlier in the call.

Strip for 2021.

There's a lot better than what it was three months ago.

I saw that you really don't have that many hedges right now for 2021 is that by design or is that an opportunity to maybe solidify some cash flows.

Yes, it will and again on bypasses the chime in and just a moment, but.

First of all you know, we we feel that one of our advantages as a company is obviously, our our oil leverage and the impact that oil prices can have honest. That's a that's a huge upside driver for us. The reality is is there hasn't been a lot of joy to look at and 2021 and we work.

Really all that excited about hedging into kind of Oh, a low 40 or $40 kind of hedge program and even where the $35 breakeven that wasn't very exciting for us. So we do look too.

Take advantage of market opportunities to put.

More aspirational hedges on to underpin some element of our cash flow, but it's a much more defensive strategy one that still seeks to.

Protect that upside leverage to oil and obviously with the strength of our balance sheet and low breakeven that also affords us some opportunity to take a little bit more commodity risk as well going into 2021, but they've had if you want to talk about the most recent hedges and kind of our hedge view in general.

Thanks, I think you covered a lot of it already but I would just say we have a team that looks at this every single day.

And we were not.

Anxious to Russian to some hedges as we saw the downturn because we did not like what we're seeing particularly for 21. So we've been very opportunistic in how we've looked at the market and when we see an opportunity to to lock in our breakeven on the put and still protect some upside on the call that we'll do that did that recently taken a little bit at 35.

But 50 to two ways.

Over the last few days and we'll continue to look at that.

[music].

We're just going to we're just going to be prudent in the way we approach. This in the not jump into things quickly.

Got it great. Thanks, the answer there guys and then.

For my follow up I, just wanted to do.

Within the framework off the 80% of cash flow for the reinvestment.

Earlier, you had talked about the risks program accounting for about 10% of comparable.

Beyond 2021 is that how we should look at so what I'm not I guess, what I'm asking is.

Is the risks program included in that 80% threshold going forward or is that an alternative use of free cash flow.

No no great Great question, and it's one that we do need to bring some clarity around.

That that that Rex program has to compete within that broader capital allocation discussion. So you should think about it being in that that reinvestment percentage that we're talking about end and again I want to emphasize that that 80% reinvestment is really at the the kind of top end up.

Patients Thats still gives you the ability to to essentially have 20% of operating cash flow available for other uses but the Rex program is absolutely part of that reinvestment rate.

Thanks Lee.

Thank you Dan.

[music].

Our next question is from Paul Cheng from Scotiabank. Your line is open.

Thank you Laurie.

I mean.

Clarify the 80% or move that's they use on the mid cycle. So will lead that when price at a much higher you have set that it's going to be loans that percentage and how you determine.

What percentage or what would investment if that some of your p. It that we sale today I mean, we're going to Max out the ceiling low.

All the puts and Goliat little more than five thats grown and so.

Well that budget that cap is much lower than.

72% that will be the percentage. So can you help to understand the newbuild thing and the thought process in a much higher commodity prices, how you'd be palm and then set that petsense with less than that.

Yeah, No no great question, you're you're right as as commodity prices strengthen on the saying program, obviously that reinvestment rate.

We will trend lower which then gives you optionality to consider reinvestment back.

In two d. and see and production volumes.

Ultimately the controlling factor on that will be that we came into the year. If you recall Paul talking about.

Already somewhat kind of mid single digit growth, 5% was what we had in our original.

Budget and I believe that does set up a bit of an expectation that even with incremental cash flow as that reinvestment rate.

Comes down with commodity price, we certainly don't see the need to grow.

In excess kind of of those single digits going forward I mean, it's not a good choice for the macro and I think for us being focused more on financial outcomes as opposed to volume metric outcomes. We believe that's the right course of action so we'd be looking.

To to obviously moderate growth even in a higher commodity price scenario.

Thank you and the second question I think misquoting, you will balance it pockets a one one does not permit.

That's just not very high multiples, but on the other than different seems like increasingly high end high yield volatility and we have seen in this downturn or are you from that lease on the building sold up on say you end up that coupled with the patents in all of that so.

So we content in them, we cycle a much lower.

Most people on the off that where you sold so thats will ensure we get coupons and look for long term, we will have tend to up the balance sheet. That's a wise booth as Tom without we'd have to do just drastic measures.

Nationally might come to that bill on the Capex and.

If it's an Olympic offerings.

Yes, hi, Paul Thanks for that.

Yeah.

I agree with your sentiment that lowered that is better.

At home in at work.

[music].

And one to one and a half times, we feel like represents a reasonable near mid on sort of medium term target for us.

Getting below that level of we have the luxury of.

Those levels of cash flows and we can kind of take chunks of maturities out overtime with cash certainly is something I.

Support and you're right. It does insulate you from.

The volatility that we've seen and hopefully we don't see the kind of volatility that we've had in 2020 anytime soon but even if you go back a few years. We've we are in a much more volatile fuels like longer term environment.

And lower leverage is a good thing so yes trending toward one of them one to one of the happen and once we get to that milestone.

I think we necessarily stall.

Thanks, just leave you with a.

No. There must question on 2021, when you're looking at your Capex and cash flow should we look at it seems that we've talked into one a positive cash flow.

Sorry, I lost the question just a little bit there Paul could you on the lease that book on mix yet. So we look at the Capex program, such that which one to one yet so that deal will generate positive free cash flow.

Oh, yes, absolutely yes in fact.

The view is that that is the focus and priority of the program is one to generate corporate level returns in two to get us back on a sustainable free cash flow path very similar to where we were in 18 and 19 before we had the kind of correction this year, our intent and.

Our design is to get right back onto that trajectory and that's why we've been so focused on capital efficiency because our view is in a no growth to low growth environment.

Capital efficiency is going to be the differentiate.

That along with operating cost and so that's why you see us so heavily focused on really driving that capital efficiency to ensure across a broad range of pricing, including we've used the term midcycle pricing quite a bit today and we have to think about it our view of mid cycle pricing is.

Three different today than it was in 2018 2019 that certainly has moved lower from that 50 to 55.

Kind of viewpoint and as we start thinking about our planning basis for.

2021, my expectation is that that mid cycle pricing will look.

Somewhat consistent with what we're currently seeing in the forward strip for 21, So I do believe that bringing that mid cycle planning basis down also affords us some of that flexibility that you were just challenging us on relative to the balance sheet.

Thank you.

Your next question comes from Doug locate from Bank of America. Your line is open.

Thanks, Good morning, everyone, who everyone's doing so well.

[music].

We go to questions about made one loan consolidation and one on your the value proposition you believe this morning, I'm a relatively simple guys. So I want to sleep box to you.

What you what you basically just told US your sensitivity is $55 million per dollar your slots at 35 total Dolby.

On your spending a billion goals with 160 million goals dividends will now means his thoughts.

C dollar as always.

January billion goals, we cash flow.

You thought on the 10% annuity discount assuming you can hold at slots for number enroll cost of debt.

And your stock is trading witness right today $60 oil.

So my question is what is the value proposition that sounds like it's really about costs because while the other folks who look at your valuation that's how I think about it how do you address that.

Although the above is doing what you said, but it's also assuming $50 oil.

Yes, I think first of all done of course, obviously, none of us can predict if oil is going to be flat up or down and so there. We would expect that that oil prices will continue to move constructively, which I think applies some implies some upside to that.

I do think though the model that that generates you know material free cash flow and whether you want to measure that as a percentage of those CF I mean at a at 20% of Euroseas, if you're basically returning a full years cash flow and a five year period back to your shareholders in some shape or form and we believe that's still a value occur.

First of model, even in a even in a low growth.

Kind of scenario.

And certainly if you wanted to even translate that into yields I think it becomes certainly its competitive at mid cycle pricing and would be I would say outperforming from a say an S&P standpoint at higher pricing. So we believe that that is.

And investable thesis from from that standpoint.

So anyway, that's Paul stop there.

I think I mean, my follow up is released but I do want to reaffirm you would absolutely right because if I was completely bounced about this $60 oil your stock levels. So it really gets to the point you made about preserving we will leverage and that's going to want to ask you about your costs ones.

You've talked about you don't great job controlling costs and protecting our oil leverage with historian energy is about lowering the cost space consolidation has to be part was a discussion. So I'll just look to get your thoughts.

On if I may be very specific asked this question the clinical as well did you look at mobile through the process, because youve arguably Google love them than just about anybody else in the industry.

Yeah, maybe I'll make I think take the the last part of your question first and obviously I don't want to comment specifically on the Chevron noble combination, but I will reference you back to my comments about our criteria and what we look for in.

Consolidation or M&A, regardless of the size, whether it would be a demo we are a smaller acquisition and under that set of scenario or the under that set of criteria, obviously noble for us.

Struggled to meet some of that particularly with respect to the quantum of debt as well as to the concentration risk in their portfolio and so from that standpoint that would be how we would have viewed noble would have been through that lens I do agree with you that as we move.

Moving more toward a capital efficiency operational and execution efficiency model.

As opposed to a high growth in a de model scale is going to be exceptionally important.

I do think today that through our multi basin model, we do have that scale, it's more of a collective scale in that sense.

And were going up clearly stay in tune with what's occurring within the market.

We recognize that consolidation could in fact be a factor, but we also equally recognize that we want to have a business that.

As a resilient from an organic standpoint, as well into the extent that we deliver on that if consolidation were to occur we would be in a very strong position for our shareholder.

I appreciate you taking my questions. Thanks Laurie thank.

Thank you Doug.

[music].

Our next question is from Bryan singer from Goldman Sachs. Your line is open.

Thank you good morning.

One follow up on just the discussion that you are just speaking here about with regards to consolidation and you mentioned scale.

I wondered if we exclude the potential benefits of DNA synergies do you see.

Potential that consolidation or adding additional acreage in your existing plays could lower year supply costs of your base businesses or do you think the scale you achieved.

In in your major plays is is sufficient are unlikely to be impacted ex CNV I consolidation.

Yes, I think X gene a consolidation there they are still industrial logic in synergies at a base and level that can be taken advantage of.

I would just argue Brian there would have to be acreage, though that makes sense from a from a value standpoint in the actually competes with the portfolio. We have today, which as you stated in our core basins is a relatively high bar certainly what we don't want to do is get get.

Larger just to just to gain scale I mean, it would have to compete also on a quality and returns basis or in fact, all you are really doing as yes, you're gaining scale that you're also diluting your overall corporate returns and so there is a balance there right. We certainly want to see that scale synergy and arc.

For basins, but we also want to be mindful of doing something that would be diluted to the overall value proposition and the corporate returns were generating.

Great. Thank you and then my follow up and I may have been discussed earlier in which case my apologies, but.

If there is down the road in the Bakken unfavorable news with regards to pipeline that would.

Make the differential so the realized price is less.

Less returns enhancing.

How would you react to that philosophically would that be it just potentially lower the capital budget and.

Allocate capital Chintan.

Don't allocate capital elsewhere, or what basins would receive greater capital allocation, if that whereas situation.

Yeah, all maybe I'll start and then I'll flip over to pad if he wants to make some some comments on the marketing and transportation side, but.

In general Brian I would say first and foremost we have very few barrels that would be directly impacted it would have to be a broader as you say differential challenge that that would.

That would manifest itself before we would start seeing concerns there the bottom line, though is that our Bakken inventory remains very resilient and that it's very much a top tier performer for us so.

Barring some very agree just blow out and differentials, we would still see those opportunity opportunities competing very strongly for capital I think the likelihood of that given the diversity.

Of outlets for Bakken crude is likely low I also think with the ruling yesterday.

Which I think as net net a positive for the continuing operation of Dapple I think that risk is is fading a little bit, but maybe I'll, let Pat just jump into talk a little bit about our marketing strategy and how we protect our current barrels because that's exactly how we would basically protect our future barrels.

Hi, Brian I think we covered some of this earlier, but right now we move about 10000 barrels a day.

The Apple so those those barrels would be directly impacted but we'd have to swing into a different market, but from a big picture perspective, we have a diversified approach in the Bakken. In addition to the Apple we've we ship on real pricing, we ship on Pony Express to Cushing and that we sell into the Clearbrook market.

So the available.

Have a shut we believe the majority of our barrels wouldn't be that affected obviously, you'll see a little bit of softening maybe in the clearbrook market, but it's not directly tied to in basin and then we'd see a little bit of softening of course in the.

In the basin itself and we'd see a few dollars there on the dips, but we don't see it is a big impact on this at this point.

Maybe just to maybe close this one out.

It's luckily today, we have a little bit more perspective on the likelihood of that and then at least in the in the near term, but I do want to stress that you know in the Bakken, we really do have.

Industry, leading capital efficiency there.

No kind of throughout the DAC and even within the earnings release.

We talked a lot about the completed well costs now are headed down toward $450 per lateral foot. I mean, these are some extremely capital efficient investment opportunities and I think we would have to see pretty dramatic shifts there before those would lose their ability to compete.

For for capital allocation.

Thank you.

And our last question is from Pavel <unk> from Raymond James Your line is open.

[music].

Thanks This is.

How many loans, we have to them O'connor. Thank you within the questions.

So only one from me can you talk about how you're EG operations have change in response to endemic.

Specifically, whether the lockdowns imposed by the government there has had an impact and haven't companies Im missing.

One thing at their assets there. Thank you.

Yes, Hey, Mark this is Mitch.

Lost a little bit of your question, but I think.

Most of it.

I think.

It's fair to say you know we've worked really closely.

The EG governments in.

Ensuring that they've got the capability to do adequate testing they've been very proactive in sort of limiting.

Flow of people in and out of the country.

Requiring negative test for those coming in et cetera.

We have.

A compound called Kuta Europa, where all of our ex Pat employs stay and we've got onsite.

Clinic and medical facilities were doing active testing, we have modified our rotational schedule a little bit in response to kind of a changes to the travel patterns and flied patterns et cetera, but.

Operations have run very steady and the workforce says.

You know adapted to the change there and really team has done an outstanding job along with the governments in mature in kind of minimal impact.

Last comment I'd make is lead touched on this early on in his comments the Olin project, which is expected to bring third party gas to the EG LNG facility next year remains on track they've been able to work through all those same issues very effectively.

So you know a little bit of change to the sort of rotational pattern, but business as usual due to the outstanding response from the team there.

Thats helpful. Thank you.

We have no further questions at this time can call back over 10, Lee Tillman for closing remarks.

I could not be more proud of the dedication of our people that have adapted to these largely uncharted waters. We're navigating they continue to fulfill our mission of delivering affordable reliable accessible energy the world needs today and that it will need when the economy gets back to work. Thank you for your interest in marathon oil and stay.

Healthy.

Thank you ladies and gentlemen, just conclude today's conference. Thank you for participating you may now disconnect.