Q2 2022 Marathon Oil Corp Earnings Call

August 4, 2022

Only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press zero one on your Touchtone phone as a reminder, the conference is being recorded I'll now turn the call over to Guy Baber, Vice President Investor Relations. Mr. Baber, you may begin.

Welcome to the Marathon Oil Corporation MRO <unk> 2022 earnings Conference call. My name is Richard and I'll be your operator for today's call.

Thanks, Richard and thank you to everyone for joining us this morning.

Yesterday after the close we issued a press release, a slide presentation and Investor packet that address our second quarter 2022 results. Those documents can be found on our website at marathon oil dot com.

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

During the question and answer session. If you have a question. Please press zero one on your Touchtone phone as a reminder, the conference is being recorded.

Joining me on today's call are Lee Tillman, our chairman President and CEO , Dane Whitehead executive VP and CFO , Pat Wagner executive VP of corporate development and strategy and Mike Henderson Executive VP of operations. As a reminder, today's call will contain forward looking statements subject to <unk>.

I'll now turn the call over to Guy Baber, Vice President Investor Relations. Mr. Baber, you may begin.

Thanks, Richard and thank you to everyone for joining us this morning.

Yesterday after the close we issued a press release slide presentation, and Investor packet that address our second quarter 2022 results. Those documents can be found on our website at marathon oil dot com.

<unk> and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements I'll refer everyone to the cautionary language included in the press release and presentation materials as well as to the risk factors described in our SEC filings.

Joining me on today's call are Lee Tillman, our chairman President and CEO , Dane Whitehead executive VP and CFO , Pat Wagner executive VP of corporate development and strategy and Mike Anderson Executive VP of operations. As a reminder, today's call will contain forward looking statements subject to risks.

We will also reference non-GAAP terms in todays discussion, which have been reconciled and defined in our earnings materials, including reinvestment rate adjusted cash flow and adjusted free cash flow.

And uncertainties that could cause actual results to differ materially from those expressed or implied by such statements I'll refer.

With that said I'll turn the call over to Lee who will provide his opening remarks, we will also hear from Dane in for Mike today before we move to our question and answer session Lee.

For everyone to the cautionary language included in the press release and presentation materials as well as to the risk factors described in our SEC filings.

Thank you Guy and good morning to everyone listening to our call today.

To start I want to once again, thank all of our employees and contractors for their dedication and hard work as well as their commitment to our core values, especially safety and environmental excellence.

Our results driven but equally focused on how we achieve those results.

With that said I'll turn the call over to Lee who will provide his opening remarks, we'll also hear from Dane in for Mike Today, We move to our question and answer session.

While both equity and commodity markets remain characterized by significant day to day volatility a few underlying trends remain well entrenched.

Thank you Guy and good morning to everyone listening to our call today.

Global demand for oil and gas continues to recover from the depths of the pandemic.

While supply of oil and gas remains constrained by multiple years of under investment strained supply chain labor shortages and inconsistent if not outright hostile regulatory policy on a global scale.

We our results driven but equally focused on how we achieve those results.

While both equity and commodity markets remain characterized by significant day to day volatility a few underlying trends remain well entrenched.

Physical commodity markets are tight.

Global inventories are well below historic norms and global spare capacity is limited at best.

Global demand for oil and gas continues to recover from the depths of the pandemic.

The ongoing Russian invasion of the Ukraine, and the associated humanitarian crisis has only exacerbated these underlying trends.

Supply of oil and gas remains constrained by multiple years of Underinvestment strained supply chain labor shortages and inconsistent if not outright hostile regulatory policy on a global scale.

And even in the unlikely event of a near term resolution. The dye has been cast and actions, particularly by European countries are already well underway to move away from Russian oil natural gas and refined products.

Physical commodity markets are tight.

Global inventories are well below historic norms and global spare capacity is limited at best.

Here at home the U S consumer is facing inflationary pressures across the board, including energy.

The ongoing Russian invasion of the Ukraine, and the associated humanitarian crisis has only exacerbated these underlying trends.

The potential for recession looms and American families are suffering.

But the U S energy Renaissance led by the shale Revolution has provided a measure of protection from the forest and more austere measures now being considered in Europe .

We are experiencing firsthand the value of energy security and made in America oil and gas while witnessing the fallout of failed energy policies that have put much of Europe at risk.

Here at home the U S consumer is facing inflationary pressures across the board, including energy.

Must ensure that the U S economy does not fall victim to the same four choices.

The potential for recession looms that American families are suffering.

But the U S energy Renaissance led by the shale Revolution has provided a measure of protection from the forest and more austere measures now being considered in Europe .

So while we are fully aware, we are price takers and remain steadfastly committed to capital discipline, we could be in for an extended period of elevated commodity prices globally, both for oil and natural gas.

We are experiencing firsthand the value of energy security and made in America oil and gas while witnessing the fallout of failed energy policies that have put much of Europe at risk.

All of this underscores the need for an orderly energy transition or more accurately and energy expansion as part of an all of the above strategy to meet the world's growing demand for reliable affordable and responsible energy.

Must ensure that the U S economy does not fall victim to the same four choices.

And it highlights the critical role the U S oil and gas sector must play on a global scale, especially as one of the world's lowest GAC emissions intensity producers.

As I've said before our mandate is clear in it as a statement of marathon oil's corporate purpose to help responsibly meet global energy demand by operating with the highest standards prioritizing all elements of safety environmental social and governance performance, while delivering strong financial returns to our.

And it highlights the critical role the U S oil and gas sector must play on a global scale, especially as one of the world's lowest GAC emissions intensity producers.

Shareholders.

We have conviction, we are pursuing the right strategy for our shareholders and stakeholders alike.

It's best summarized by our framework for success on slide four of our deck strong corporate returns sustainable free cash flow generation and meaningful return of capital to our shareholders through the commodity price cycle all.

As I've said before our mandate is clear and it is a statement of marathon oil's corporate purpose to help responsibly meet global energy demand by operating with the highest standards prioritizing all elements of safety environmental social and governance performance, while delivering strong financial returns to our.

All underpinned by our high quality portfolio of U S. Unconventional resources complemented by global LNG exposure via our EG integrated gas business, a bullet proof balance sheet and a transparent commitment to comprehensive ESG excellence <unk>.

Shareholders.

We have conviction, we are pursuing the right strategy for our shareholders and stakeholders alike.

It is best summarized by our framework for success on slide four of our deck strong corporate return sustainable free cash flow generation and meaningful return of capital to our shareholders through the commodity price cycle all.

Importantly, second quarter once again represented another quarter of comprehensive delivery against the differentiated framework.

Highlighting by record quarterly financial performance.

I would like to focus on a few key takeaways this morning.

First we are building a market leading track record of returning capital to our shareholders.

Returning a significant amount of capital to our shareholders through the commodity price cycle is foundational to our value proposition in the marketplace.

Importantly, second quarter once again represented another quarter of comprehensive delivery against the differentiated framework.

Our return of capital framework is uniquely calibrated to operating cash flow not free cash flow prioritizing our shareholders as the first call on capital instead of the drill bit.

<unk> by record quarterly financial performance.

I'd like to focus on a few key takeaways this morning.

Facing our return of capital framework on a percentage of operating cash flow instead of free cash flow has been an intentional decision.

First we are building a market leading track record of returning capital to our shareholders.

Returning a significant amount of capital to our shareholders through the commodity price cycle is foundational to our value proposition in the marketplace.

It reflects the confidence we have in our high quality asset base and the strength of our commitment to shareholders.

This is an especially important distinction in an inflationary environment, where capital inflation will necessarily reduce the cash available for peer companies to return to investors based on the inherent design of their frameworks it won't for us.

Our return of capital framework is uniquely calibrated to operating cash flow.

Free cash flow prioritizing our shareholders is the first call on capital instead of the drill bit.

Making our return on capital framework on a percentage of operating cash flow instead of free cash flow has been an intentional decision.

While frameworks and commitments are important.

We continue to believe that establishing a consistent track record of delivery.

It reflects the confidence we have in our high quality asset base and the strength of our commitment to shareholders.

Order in and quarter out.

Is key to building and maintaining trust and credibility in the market.

We are in the process of building one of the strongest return of capital track record and the entire S&P 500.

Since achieving our leverage objective in October of 2021 through significant gross debt reduction, we have returned $2 $5 billion of capital to our shareholders.

While frameworks and commitments are important.

Over the trailing three quarters, we've returned approximately 55% of our CFO equating to approximately 75% of our free cash flow.

We continue to believe that establishing a consistent track record of delivering quarter in and quarter out.

Is key to building and maintaining trust and credibility in the market.

This includes $2 3 billion of share repurchases driving a 15% reduction to our outstanding share count and just 10 months.

We are in the process of building one of the strongest return of capital track Records and the entire S&P 500.

Since achieving our leverage objective in October of 2021 through significant gross debt reduction we have returned $2 5 billion of capital to our shareholders.

And contributing to significant underlying growth and all of the per share financial metrics that matter most to our equity valuation.

Over the trailing three quarters, we've returned approximately 55% of our CFO equating to approximately 75% of our free cash flow.

My second key point we.

We are delivering financial outcomes that are not only at the top of our E&P peer group, but at the very top of the S&P 500.

This includes $2 $3 billion of share repurchases driving a 15% reduction to our outstanding share count and just 10 months.

We must compete with investment alternatives across the broader market.

As I already mentioned second quarter represented a record financial quarter for our company in many respects and all time high for adjusted earnings free cash flow and shareholder distributions. The full year outlook is just as strong.

And contributing to significant underlying growth and all of the per share financial metrics that matter most to our equity valuation.

My second key point we.

We expect to generate around $4 $5 billion of free cash flow for the full year, assuming $100 <unk> and $6 Henry hub consistent with guidance provided last quarter.

We are delivering financial outcomes that are not only at the top of our E&P peer group, but at the very top of the S&P 500.

We must compete with investment alternatives across the broader market.

That's good for a free cash flow yield north of 25% not only one of the best yields in the large cap E&P space, but the second highest free cash flow yield and the entire S&P 500.

For full year 2022, we expect to continue returning at least 50% of our operating cash flow to our shareholders significantly outperforming the minimum 40% of CFO commitment per our framework.

We expect to generate around $4 $5 billion of free cash flow for the full year, assuming $100 <unk>.

$6 Henry hub, consistent with guidance provided last quarter.

That translates to an annualized shareholder distribution yield of around 20% one of the strongest return on capital profile and the S&P 500.

That's good for a free cash flow yield north of 25% not only one of the best yields in the large cap E&P space, but the second highest free cash flow yield and the entire S&P 500.

Market, leading free cash flow yield and return on capital all at an attractive valuation with our shares trading at an EV to EBITDA multiple among the most attractive and the entire S&P.

For full year 2022, we expect to continue returning at least 50% of our operating cash flow to our shareholders.

<unk> outperforming the minimum 40% of CFO commitment per our framework.

My third key point is perhaps the most important it is that these market leading financial results I just highlighted are all sustainable or.

That translates to an annualized shareholder distribution yield of around 20%.

Our continued financial delivery is supported by a high quality U S unconventional portfolio with over a decade of high return inventory and a track record of superior capital efficiency and execution excellence.

One of the strongest return of capital profile and the S&P 500.

Market, leading free cash flow yield and return on capital all at an attractive valuation with our shares trading at an EV to EBITDA multiple among the most attractive and the entire S&P.

A world class integrated gas business in EG with differentiated exposure to the global LNG market.

My third key point is perhaps the most important it is that these market leading financial results I just highlighted are all sustainable.

A transparent disciplined reinvestment rate capital allocation business model and our unique operating cash flow linked to return of capital framework.

Our five and 10 year benchmark maintenance scenarios that highlight our confidence in continuing to deliver pure leading financial outcomes.

And finally by our commitment to comprehensive ESG excellence, including our objectives to deliver top quartile safety performance, while driving pure leading ghd and methane intensity reductions by 2030 that are consistent with the trajectory called for by the Paris climate agreement.

A world class integrated gas business in EG with.

<unk> exposure to the global LNG market.

Transparent disciplined reinvestment rate capital allocation business model and a unique operating cash flow linked to return of capital framework.

I will now pass it off the Dang, who will provide a financial update.

Our five and 10 year benchmark maintenance scenarios that highlight our confidence in continuing to deliver pure leading financial outcomes.

And good morning all.

As we mentioned in the second quarter was highlighted by record financial results for our company since becoming an independent E&P company.

Finally by our commitment to comprehensive ESG excellence, including our objectives to deliver top quartile safety performance, while driving peer leading ghd and methane intensity reductions by 2030 that are consistent with the trajectory called for by the Paris climate agreement.

This includes adjusted net income of $934 million for $1 42 per share and adjusted free cash flow of more than $1 2 billion.

24% reinvestment rate <unk>.

<unk> strong financial delivery and maybe when we can.

I will now pass it off today.

Deliver.

Market, leading return of capital to our shareholders.

A financial update.

Turning to slide nine I'll briefly cover our return on capital track record and outlook.

And good morning all.

As we mentioned in the second quarter was highlighted by record financial results for our company since becoming an independent E&P company.

Our cash flow driven returning capital framework remains unchanged and in these uncertain times, we believe the market will reward that commitment clarity and consistent delivery.

Adjusted net income of $934 million for $1 32 per share and adjusted free cash flow of more than $1 2 billion.

We built a hard earned reputation for execution excellence and we're just as focused on establishing the same credit bill will be when it comes to consistently returning capital to our shareholders.

24% reinvestment rate.

The strong financial delivery is enabling us to win market, leading return of capital to our shareholders.

The overall objectives of our framework are to maintain capital return leadership versus peers.

Turning to slide nine I'll briefly cover our return on capital track record and outlook.

500, and to maximize our equity valuation and reduce downside equity volatility providing clear capital return commitments tied to specific commodity price environments.

Our cash flow driven returning capital framework remains unchanged and in these uncertain times, we're going to the market will reward that commitment clarity.

Consistent delivery.

As a reminder, our framework calls for delivering a minimum of 40% of cash flow from operations to our equity holders when W of Ti is at or above $60 a barrel.

We built a hard earned reputation for execution excellence and we're just as focused on establishing the same critical when it comes to consistently returning capital to our shareholders.

During <unk>, we returned $816 million of capital equity holders, including $760 million of share repurchases.

The overall objectives of our framework are to maintain capital return leadership versus peers, and the S&P 500 and to maximize our equity valuation and reduce downside equity volatility providing clear capital return commitments tied to specific commodity price environments.

That represents 51% of our adjusted CFO , and then annualized shareholder distribution yield almost 20% one of the strongest capital return profiles in the entire S&P 500.

As a reminder, our framework calls for delivering a minimum of 40% of cash flow from operations to our equity holders <unk> at or above $60 a barrel.

In addition, we further enhanced our financial position by adding around 500 million cash to the balance sheet.

During <unk>, we returned $816 million of capital equity holders, including $760 million of share repurchases.

As long as we're comfortably meeting our shareholder return objectives, we like the idea of modestly building some cash on the balance sheet in the current volatile commodity price environment to provide optionality for future debt maturities.

That represents 51% of our adjusted CFO and an annualized shareholder distribution yield of almost 20% and the strongest capital return profiles in the entire S&P 500.

And small opportunistic bolt on acquisitions that are accretive long term.

But rest assured that returning cash to shareholders at levels that meet or exceed our framework remains our top priority for use of cash.

In addition, we further enhanced our financial position by adding around 500 million cash to the balance sheet.

Track record back spin out.

Those were comfortably meeting our shareholder return objectives, we like the idea of modest rebuilding some cash on the balance sheet and the firm.

So it's achieving our leverage Jackson blast October we've consistently outperformed our minimum congrats on returning approximately 55% of our CFO back to equity holders over the trailing three quarters.

And volatile commodity price environment to provide optionality for future debt maturities.

And small opportunistic bolt on acquisitions that are accretive long term.

In total since last October we returned $2 $5 billion of capital.

But rest assured that returning cash to shareholders at levels that meet or exceed our framework remains our top priority for use of cash.

We repurchased $2 $3 billion with reverse stock at an average price of $20 51 per share.

Reducing our outstanding share count by 15% revenue to truly differentiate <unk> per share growth.

Track record that's been up.

As shown on the graphic at the bottom right of slide eight.

We've also raised our base dividend by 167% since the beginning of last year.

In total since last October we returned $2 $5 billion of capital.

While we believe our base dividend is competitive with the S&P 500, and similarly sized industrial companies and certainly sustainable at conservative commodity pricing.

We repurchased $2 $3 billion with reverse stock at an average price of $20 51.

<unk> per share produced.

Still a clear opportunity to drive further base dividend growth over time, especially considering the important synergies between the base dividend and our share repurchase program.

Reducing our outstanding share count by 15% revenue to truly differentiate <unk> per share growth.

As shown on the graphic at the bottom right of slide eight.

Turning to the full year 'twenty two outlook 2020 to outlook on slide nine we expect to continue to outperform our forte.

We've also raised our base dividend by 167% since the beginning of last year.

40% minimum CFO commitments, we're targeting to return at least 50%.

While we believe our base dividend is competitive with the S&P 500, and similarly sized industrial companies and certainly sustainable at conservative commodity pricing.

Our adjusted CFO for total shareholder return of at least $3 billion with upside potential to that number.

Still a clear opportunity to drive further base dividend growth overtime, especially considering the important synergies between the base dividend and our share repurchase program.

We're trading at a free cash flow yield more than 25% and one of the lowest trading multiples in the entire S&P 500.

Turning to the full year 2002 outlook 2020 to outlook on slide nine we expect to continue to outperform our forte.

You need to believe in our equity equity is fundamentally mispriced.

Long as that's the case, we'll aggressively repurchase our own stock as I've said before it's the best acquisition, we can make.

40% minimum CFO commitments, we're targeting to return at least 50%.

Now I'll pass it over to Mike for a brief operational overview.

Our adjusted CFO for total shareholder return of at least $3 billion with upside potential to that number.

Thanks, Dean similar.

Similar to last quarter my key messages today.

Is it the priorities for our capital program remain unchanged.

We're trading at a free cash flow yield north of 25%.

We are seeing discipline, we're prioritizing free cash flow generation and we are.

One of the lowest trading multiples in the entire S&P 500.

Protecting our execution excellence and we still expect to deliver free cash flow capital efficiency and operating efficiency at the very top of our peer group.

Do you need to believe in our equity equity is fundamentally mispriced and as long as that's the case, we'll aggressively repurchase our own stock.

I've said before it's the best acquisition, we can make.

More specifically, our free cash flow guidance of $4 $5 billion at.

Now I'll pass it over to Mike for a brief operational overview.

Thanks, Dean similar.

But our reinvestment rate approximately 20% remains unchanged.

Similar to last quarter my key message.

This is the priorities for our capital program remain unchanged.

Our full year capital and production guidance ranges.

We are seeing discipline, we are prioritizing free cash flow generation.

While we've increased our U S production expense guidance by 25 cents per barrel at the end.

Our execution excellence.

Earnings and cash flow is more than offset by a 25 cent per borrowing reduction.

And we still expect to deliver free cash flow capital efficiency and operating efficiency at the very tall, our peer group.

DD&A guidance on a $40 million increase our EG equity income items.

More specifically, our free cash flow guidance of $4 5 billion.

With respect to the near term outlook for production and capital, we expect third quarter oil production to increase sequentially from 167 closing bonds per day to over 172000 barrels.

On our reinvestment rate approximately 20% remains unchanged.

Our full year capital on production guidance ranges.

While we've increased our U S production expense guidance by 25 cents per bottle.

Driven by the timing of our wellness program.

Earnings and cash flow is more than offset by a <unk> 25 per barrel reduction our USB D&A guidance on $40 million increase our EG equity income items.

Total oil equivalent production is expected to be relatively flat quarter on quarter due to a modest decline in EG.

Year to date capital spending has been fully consistent with our expectations.

With respect to the near term outlook for production and capital, we expect third quarter oil production to increase sequentially from 167000 barrels per day to over 172000 barrels.

With our guidance for first half weighted program.

We spent 56%.

Our full year budget versus prior guidance of 55% to 60%.

Driven by the timing of our wells.

Third quarter Capex is expected to be similar to the second quarter level.

Yes.

Total oil equivalent production is expected to be relatively flat.

I think some shift in capital spend from second quarter to third quarter.

Order due to a modest decline in EG.

On a working interest uptake.

Year to date capital spending has been fully consistent with our expectations.

While it's premature to provide detailed 2023 guidance, we are part of our optimizing our 2023 execution plans a little earlier than normal we are taking a disciplined and thoughtful approach to our contracting strategy.

And with our guidance for first half weighted program.

We spent 56%.

Our full year budget versus prior guidance of 55% to 60%.

Our top priority is to continue protecting our execution confidence and access to high quality service providers and equipment in order to continue delivering peer leading free cash flow generation.

Third quarter Capex is expected to be similar to the second quarter level.

Likely some shifts in capital spend from second quarter to third quarter.

On a working interest uptick.

On return of capital.

With that I will.

Turn it back over to week to close this out.

Thanks, Mike.

Before we move to our question and answer session I want to provide a few preliminary comments on the 2023 outlook and then put the financial results. We are currently delivering and the context.

Our top priority is to continue protecting our execution confidence and access to high quality service providers and equipment in order to continue delivering peer leading free cash flow generation.

System with Mike's remarks, it's far too early to offer up any detailed 2023 capital spending guidance largely due to macro uncertainties that can materially impact the outlook for inflation.

On return of capital.

With that I will.

But I can give you confidence that Maryland, <unk> key priority will remain unchanged regardless of the environment. Our objective will be to continue delivering peer leading and market leading free cash flow generation and return of capital to shareholders. This durability is supported by our peer leading capital efficiency balanced.

Turn it back over to wheat to close this out.

Thanks, Mike.

Before we move to our question and answer session I want to provide a few preliminary comments on the 2023 outlook and then put the financial results. We are currently delivering and the context.

Assistant with Mike's remarks, it's far too early to offer up any detailed 2023 capital spending guidance largely due to macro uncertainties that could materially impact the outlook for inflation.

<unk> investment grade balance sheet, and low free cash flow breakeven up less than $35 per barrel.

Our case to be for 2023 will be a maintenance program that hold production flat in order to deliver maximum free cash flow peer leading return of capital and significant per share growth.

But I can't give you confidence that marathon oil's key priority will remain unchanged regardless of the environment. Our objective will be to continue delivering peer leading and market, leading free cash flow generation and return of capital to shareholders.

For years now I have reiterated my view that for our company and for our sector to attract increased investor sponsorship, we must deliver competitive financial performance with other investment opportunities in the market as measured by free cash flow generation and return of capital more S&P less E&P. This is.

Durability is supported by our peer leading capital efficiency balanced portfolio investment grade balance sheet, and low free cash flow breakeven up less than $35 per barrel.

Our case to be for 2023 will be a maintenance program to hold production flat in order to deliver maximum free cash flow peer leading return of capital and significant per share growth.

Especially true when commodity prices are much lower than they are today.

We believe we have built that type of resilience into our business and.

And when we do experience a constructive commodity price environment. As is currently the case in which could continue to be the case for some time, we must deliver truly outsized free cash flow and return of capital versus the S&P 500.

Slide 12 of our earnings deck illustrates just how strongly we are delivering on this more S&P less E&P mandate.

Especially true when commodity prices are much lower than they are today.

According to consensus estimates, we are delivering the number two free cash flow yield and the entire S&P 500 this year.

We believe we have built that type of resilience into our business.

Driven by our high quality capital efficient U S unconventional portfolio, our world class integrated gas business in EG, featuring unique global LNG exposure and our disciplined approach to capital investment.

Slide 12 of our earnings deck illustrates just how strongly we are delivering on this more S&P less E&P mandate.

Due to the strength of our financial delivery and despite solid year to date equity performance. We are trading at one of the most attractive valuations in the S&P 500, with 2022 consensus EV to EBITDA multiple among the 10 most attractive in the S&P 500.

According to consensus estimates, we are delivering the number two free cash flow yield and the entire S&P 500 this year.

And we are returning the majority of the cash flow, we generate right back to our shareholders building one of the strongest return of capital track records in the entire market, while driving significant per share growth.

Due to the strength of our financial delivery and despite solid year to date equity performance.

So others are now transitioning to a focus on per share growth no peer has delivered more strongly or consistently than us or matched our 15% reduction in outstanding shares and just 10 months.

We're trading at one of the most attractive valuations in the S&P 500, with 2022 consensus EV to EBITDA multiple among the 10 most attractive in the S&P 500.

Close I am proud of how we have positioned our company, we are delivering financial outcomes that at the very top of the S&P 500, and just as important we are supporting the continued responsible development a much needed oil and gas that is absolutely fundamental to furthering global economic progress lifting billions globally out.

And we are returning the majority of the cash flow, we generate right back to our shareholders building one of the strongest return of capital track records and the entire market, while driving significant per share growth.

So others are now transitioning to a focus on per share growth no peer has delivered more strongly or consistently than us or matched our 15% reduction in outstanding shares and just 10 months.

Energy poverty and protecting the standard of living we have all come to enjoy.

With that we can open the line for Q&A.

Thank you we will now begin the question and answer session.

A question. Please press zero one on your Touchtone phone, if you wish to be removed from the queue. Please press zero two if youre using a speakerphone you may need to pick up the handset first before pressing the numbers. We also the last callers to limit their questions to one question and one follow up question once again.

Energy poverty and protecting the standard of living we have all come to enjoy.

If you have a question. Please press zero one on your Touchtone phone and we're standing by for questions.

That we can open the line for Q&A.

Thank you we will now begin the question and answer session.

I have a question. Please press zero one on your Touchtone phone, if you wish to be removed from the queue. Please press zero two if youre using a speakerphone you may need to pick up the handset first before pressing the numbers. We also the last callers to limit their questions to one question and one follow up question once again.

Okay and our first question on line comes from Arun Jerome. Please go ahead.

Good morning, Lee and team.

Lee I did want to maybe start.

With kind of your thoughts on you've released a five year and 10 year kind of maintenance scenario.

If you have a question. Please press zero one on your Touchtone phone and we're standing by for questions.

It's preliminary to talk about 2023, but I did want to just get your preliminary thoughts on how youre thinking about allocating capital next year on slide 20, you highlight kind of your well.

Okay and our first question on line comes from Arun Jerome. Please go ahead.

Activity this year between the four different U S basins.

Good morning, Lee and team.

Lee I did want to maybe start.

And I guess effectively what were thinking about as you're you're doing $1 3 billion in capital this year.

With kind of your thoughts on you've released the five year and 10 year kind of maintenance scenario.

We've seen less inflation in terms of your numbers and your peers.

It's preliminary to talk about 2023, but I did want to just get your preliminary thoughts on how youre thinking about allocating capital next year in slide 20, you highlight kind of your well.

And as you think about it our rigs Frac services and <unk>.

Are you call it head below market rates.

Today, and as we think about 2023.

Activity this year between the four different U S basins.

Would you expect if the industry is.

And I guess effectively what were thinking about as Youre doing $1 3 billion in capital this year.

The Capex trends are up 10 to 15 to be within that range.

Yeah, Yeah. Thanks. Thanks for the question, maybe I'll take a bit of that and then maybe let Mike expand a bit on the inflation question.

We've seen less inflation in terms of your numbers and your peers.

And as you think about it our rigs Frac services and tubular.

And as you stated around we did put out a five and 10 year view that said that is a maintenance you in and that of course the capital programs are all calibrated to the actual commodity price decks. There. So that those two are really linked to one another from a from a capital allocation standpoint as you know.

Are you call it the kids below market rates.

Today, and as we think about 2023.

Would you expect if the industry is.

Capex trends are up 10 to 15 to be within that range.

Yeah, Yeah. Thanks, Thanks Ram for the question, maybe I'll take a bit of that and then maybe let Mike expand a bit on the inflation question.

There was a pretty material shift from.

2021% to 2022, we moved from kind of 90% Eagle Ford and Bakken to about 75% Eagle Ford and Bakken. This year, it's still a bit too early to get into specifics around capital allocation, but needless to say, we see all basins contribute.

As you stated around we did put out a five and 10 year view that had set as a maintenance you in and that of course, the capital programs are all calibrated to the actual commodity price decks there.

So that those two are really linked to one another from a from a capital allocation standpoint, as you know there was a pretty material shift from <unk>.

Dean as we get prepared to go through that exercise and prepare our 2023 program.

Did experience like others inflation this year and in fact, we did raise our capital program.

Budget a bit last quarter.

From the kind of the one two to $1 3 billion.

<unk> been very I would say deliberate about ensuring.

First and foremost that we have the execution capability and capacity to not only execute our 2022 program, but to have us in very good stead. As we look ahead at least for the first half of 2023 that there's maybe a bit of a difference this year and I think Mike mentioned this in his opening comments.

As we get prepared to go through that exercise and prepare our 2023 program.

Did experience like others inflation. This year in fact, we did raise our capital program.

<unk> a bit last quarter.

From the kind of the one two to one 3 billion.

<unk> that we are getting a much earlier start on how we want to secure those services and materials looking ahead to 2023 to.

We have been very I would say deliberate about ensuring.

First and foremost that we have the execution capability and capacity to not only execute our 2022 program, but to have us in very good stead as we look ahead at least for the first half of 2023%.

To the specific question, though around inflation, maybe I'll, let Mike talk a bit about obviously the service side as well as kind of the goods and commodity size everything from from steel to Frac sand, so with that Mike I'll turn it over thanks.

Good morning Arun.

Let me maybe start with 2022, and then I'll swing over to 'twenty three.

Market is still tight across the board, we think is going to stay that way, particularly.

We assumed current prices are sustained.

70 levels, particularly with privates have increased.

Access to labor continues to be a challenge a high degree of volatility, particularly anything commodities related. So you know we're seeing it diesel where we're seeing it in steel.

As a result of that ourselves and others, where we're just continuing to see that tight market for most categories of spend I think you then through and maybe the macro backdrop.

Things are tight they're economy quite supply chain labor market and as we mentioned as I mentioned.

Our focus our priority really is both securing established trusted service providers.

Execution excellence is everything for us this year on and as we get ready for next year.

Maybe just looking at the major execution related elements of the business through the remainder of 'twenty two for us start with rigs I would say the majority of our remaining rig lines in 2020 to be secured on long term contracts and a lot of cases run into 'twenty three.

We've also had quite a bit of success farming out some of our operational rig. So so maybe rather than lose the iron and crews that we like working with us allowed us to take a bit of a break in a program and then get them back to us when we need them Sim.

Similar type story in the pressure pumping remain mainly.

The majority of the remaining of the year.

Hi, Gary.

When I think about the rigs basically pressure pumping space I do think it's worth mentioning that we are term longer term the company's nimble working with at the moment so.

We've got established relationships they do an excellent job for US and then real quickly saw and again most of our at need secure through remainder of the year and similar similar with steel we have the capacity.

Maybe just walk you through some open pricing at the moment.

With regard Scott certainly recognize a lot of volatility in 2022, but 1.3 remains the budget and that's what we're looking to deliver with regards quick one 'twenty three we mentioned.

Pretty early to address that in any detail very dynamic market.

Our case to meet next year's maintenance program and really that's how we're thinking about.

The things that we're doing at the moment. It really is taking steps to ensure that we can deliver on that program one of the things that we've done.

<unk> is how to look at our execution plans for trying to minimize spot work wherever we can so being able to offer that consistent extended program, obviously, a safety benefits execution benefits.

Commercial benefits and maybe just a little bit more on the contracting strategy I would describe it describe it in the comments, we're taking a disciplined and thoughtful approach.

Work in the first half of 2023.

Our priority I'd see we've secured much of our Reg pressure pumping stance on still needs some of the pricing remains.

We've had a little bit of success with index linked pricing mechanisms. We've used on the pressure pumping Stan breakdown chemical space.

And then on the second half of 'twenty, three I'd say, we're being a little bit more patient there.

We feel good about our ability to maybe access to providers of equipment, we need but just given the uncertainty around the macro environment.

We're probably just taking their time when it comes to locking in prices and just being a little bit more thoughtful in that side of things.

Okay.

My follow up is maybe for Dan Dan I was wondering if you could give.

US a little bit of a teach in of your understanding of the a M. T or mentioned tax proposal. Obviously you guys had earned the favorable U S tax cash tax position.

Today I do know that there is a three year average book income provision of $1 billion I don't think it would affect your until 2024, but I was wondering if you could maybe provide some thoughts on what this means.

For your U S cash tax position and how does your EDI earnings how could those be taxed under the new proposal, which isn't a lot of course.

They pay a room before maybe flipping it over two to date on that specific item its probably worth just a little bit of commentary around the <unk>.

The inflation reduction act of 2022, I want to stress that first and foremost this proposed legislation.

Is just that its proposed and that we're continuing to really.

Digests the potential impacts on a lot of the details that come along with it.

Second I would just say the purported legislative objective is to reduce inflation, but as validated by non polyp partisan policy Center, a nonpartisan internal congressional agency as far as we can tell it will have no measurable effect on inflation.

From a legislative standpoint, it does seem to be a little poorly conceived from the get go and and certainly the proposed actions look like theyre going to add some cost and complexity to businesses, specifically manufacturing and oil and gas in the form of taxes and regulation that that ultimately are going to be <unk>.

<unk> onto the U S consumer and negatively I think impact future investment.

Beyond some of those fundamental flaws in the fact that it has zero impact on inflation. There are a couple of provisions and you've mentioned one of them that caused us particular concern one is kind of the approach to methane fees and taxes and then of course. This this corporate A&P issue as well.

On the methane tax I think we need clarification around certain elements.

<unk> onto the U S consumer and negatively I think impact future investment.

Including measurement methodology, there still remains a high degree of uncertainty around proposal, but the bottom line is we don't need legislation to incentivize us to reduce our methane footprints, we're already doing exactly that and we've got a great track record of significant reductions in some of the most aggressive targets in the industry.

As I mentioned earlier fully consistent with the trajectory of the Paris climate agreement, so even though we support reasonable regulation regulation of methane is already happening and so anything that this act as its going to be somewhat duplicative and certainly without any discernible policy benefit so with that little bit of an overview, let me flip it over.

On the methane tax I think we need clarification around certain elements.

Including measurement methodology, there still remains a high degree of uncertainty around proposal, but the bottom line is we don't need legislation to incentivize us to reduce our methane footprint, we're already doing exactly that and we've got a great track record of significant reductions in some of the most aggressive targets in the industry.

Today to share a few thoughts on your specific question around the tax provision.

Yes, good morning Arun.

First of all let me say that under current tax law not this proposed change for current tax law, we have substantial NOL and foreign tax credit positions that we have.

Highly confident will shield us from cash taxes.

U S cash taxes until the second half of the decade, even if high prevailing commodity prices. So there's no change in that outlook at this time.

Today to share a few thoughts on your specific question around the tax provision.

With the mansion Schumer proposal.

Yes, good morning Arun.

First of all let me say that under current tax law not this proposed change for current tax law, we have substantial NOL and foreign tax credit positions that we have.

It proposing the implemented alternative minimum tax based on 15% of GAAP pre tax income.

The legislative process, I'll say, it's ongoing and contentious to say the least timeline for getting something done before.

Highly confident will shield us from cash taxes.

U S cash taxes until the second half of the decade, even if high prevailing commodity prices. So there's no change in that outlook at this time.

Before mid terms really ramp up extremely tight so I think outcome of this proposal remains.

Uncertain, whether it gets done at all or what shape it gets done in and out.

With the mansion Schumer proposal.

That's an important point to keep in mind that the structure there.

It proposing the implemented alternative minimum tax based on 15% GAAP pre tax income.

A couple of major issues.

With the alternative the A&P proposal.

That I think are pretty significant two of them standout to me.

The legislative process, I'll say, it's ongoing and contentious to say the least.

One.

Online for getting something done before.

It significantly reduces the investment incentives for capital intensive industries.

Before mid terms really ramp up extremely tight so I think outcome of this proposal remains.

Were those incentives currently reside in the tax code and this goes around those.

Uncertainty, whether it gets done at all or what shape it gets done in.

By using GAAP pre tax income as the basis for taxes. It allows accounting rules to drive tax policy, which effectively puts taxation authority in the hands of the likes of the FASB and the SEC.

That's an important point to keep in mind that this structure.

There are a couple of major issues.

With the alternative the A&P proposal.

I think a pretty significant two of them standout to me.

And I think we've learned recently that Congress shouldnt be delegating.

One.

It significantly reduces the investment incentives for capital intensive industries.

The powered attacks to.

To those bodies.

Were those incentives currently reside in the tax code and this goes around those.

There are a number of counterproposals emerging that could potentially address these and other shortcomings.

By using GAAP pre tax income as the basis for taxes. It allows accounting rules to drive tax policy, which effectively puts taxation authority in the hands of the likes of the FASB and the SEC.

Most of you look at the SaaS most of the companies that are going to be impacted by this our industrial.

Manufacturers essentially.

And so I expect a very spirited challenge to be mounted it actually has been adopted by that constituency and we will see how it.

And I think we've learned recently that Congress shouldnt be delegating.

We'll see how that plays out.

We will see a straight up minimum tax like the one proposed could accelerate our cash tax ability.

The powered attacks to.

To those bodies.

There are a number of counterproposals emerging that could potentially address these and other shortcomings.

It's really too soon.

Uncertainty in how the rule is going to play out for us to really be Super definitive for you right now a room.

Most of you look at the SaaS most of the companies theyre going to be impacted by this our industrial.

But even in the scenario of the street minimum tax on book earnings.

Manufacturers essentially.

Our historical tax attributes, our Nols and foreign tax credit positions remained very valuable.

And so I expect a very spirited challenge to be mounted it actually has been adopted by that constituency and we will see how it.

We'll realize the value of those.

We'll see how that plays out.

Important to note that about the proposal in its current form.

We will see a straight up minimum tax like the one proposed could accelerate our cash tax ability.

<unk> exposure marathon might have due to the proposed DMT is limited domestic income.

It's really too soon.

Uncertainty in how the rule is going to play out for us to really be definitive for you right now our room.

<unk> income would largely be offset by foreign tax credits. So we wouldn't expect the A&P proposal the impact taxes in EG.

But even in the scenario of the street minimum tax on book earnings.

Our historical tax attributes, our Nols and foreign tax credit positions remained very valuable.

Yes, Thanks, a lot maybe just.

Yes, maybe just to wrap up our range is definitely clear to us that kind of the bad idea factory in Washington, DC and is in overdrive and in essence.

We'll realize the value of those also important to note that about the proposal in its current form NH.

This proposed legislation will elevate taxes and costs at a time of high inflation and as Dave said, its going to negatively impact much needed investment in both the manufacturing and oil and gas sectors. So thanks for the question all right. Thanks.

<unk> exposure marathon might have due to the proposed DMT is limited domestic income.

<unk> income would largely be offset by foreign tax credits.

We wouldn't expect the AMC proposal impact taxes in EG.

Thanks, a lot guys.

Yes, Thanks, a lot maybe just.

Thank you. Our next question on line comes from Phillips Johnston. Please go ahead.

Yes, maybe just to wrap up a room is definitely clear to us that kind of a bad idea factory in Washington, DC is in overdrive and in essence.

Hey, guys. Thanks, just a follow up question for Mike on the Capex guidance for the third quarter.

It seems to imply a fairly large drop in the fourth quarter from the first three quarters.

This proposed legislation will elevate taxes and costs at a time of high inflation and as Zane said, it's going to negatively impact much needed investment in both the manufacturing and oil and gas sectors. So thanks for the question.

Thank you mentioned some shift in spending from Q2 into Q3 and you expect.

Working interest to tick up.

Also it looks like you are turned in line well count in both the Bakken and Eagle Ford for the remainder of the year.

Thanks, a lot guys.

Thank you. Our next question on line comes from Phillips Johnston. Please go ahead.

Is very much weighted to Q3, so I just wanted to confirm that's also coming into play.

Hey, guys. Thanks, just a follow up question for Mike on the Capex guidance for the third quarter.

Generally see what kind of confidence you guys have in that fourth quarter number coming down.

It seems to imply a fairly large drop in the fourth quarter from the first three quarters.

Yes.

It's Mike it's Mike.

I think you mentioned some shift in spending from Q2 into Q3 and you expect.

As I mentioned on the call.

Working interest to tick up.

First half capital fully consistent with our guidance, where we spent 56% of the full year.

Also it looks like you are turned in line well count in both the Bakken and Eagle Ford for the remainder of the year.

But you had sort of program that was in line with the guidance we supply.

Is very much weighted to Q3, so I just wanted to confirm that's also coming into play.

It also mentioned that the program was front end weighted so we do expect.

Generally see what kind of confidence you guys have in that fourth quarter number coming down.

Third quarter expense to be similar to the second quarter before a bit of a decline and to the fourth quarter. As you touched on there. We did took some capital shift from second quarter into third quarter and the uptick in market interest.

Yes.

It's Mike.

Mike.

As I mentioned on the call.

First half capital fully consistent with our guidance, where we spent 56% of the full year.

Again, as I mentioned, just a minute ago.

The one three budget.

But you had sort of a program that was dumped in line with the guidance we supplied.

<unk>.

It remains the number that we're looking to deliver.

We'd also mentioned that the program was front end weighted so we do expect.

In terms of maybe the the wells to sales cadence, what I'd say third quarter, we're guiding to.

Third quarter expense to be similar to the second quarter before a bit of a decline and to the fourth quarter. As you touched on there. We did talk some capital shift from second quarter and third quarter.

60 wells to sales.

Fourth quarter will be our low quarter from a wells to sales perspective on also the working interest drops so maybe that helps explain why we're seeing.

Order an uptick in market interest.

Again as I mentioned, just managing all the.

Important capital being the low point of the year.

One three budget.

<unk>.

Yes.

It remains the number that we're looking to deliver.

Yes.

Okay great.

In terms of maybe the.

That's it thank you.

Wealth sales cadence, what I would say third quarter, we're guiding to.

Thank you. Our next question online comes from Doug Leggate. Please go ahead.

60 wells to sales.

Hey, good morning, everyone.

Third quarter will be our low quarter from a wealth sales perspective on also the working interest dropped so maybe that helps explain why we're seeing the.

Thanks for taking my questions.

And then I apologize for beating up on the A&P question again, but I just wonder if you could potentially quantify.

Working capital.

This stumped minimum tax was put in place what would it do to the timing.

The whole point of the year.

Yes.

Our opinion of when you would expect to become a cash taxpayer if you can frame.

Okay great.

That's it thank you.

Thank you. Our next question online comes from Doug Leggate. Please go ahead.

Not with any certainty.

Yes.

My comments earlier were really meant to convey that theres just so much.

Hello, Good morning, everyone.

Thanks for taking my questions, then I apologize for beating up on the A&P question again, but I just wonder if you could potentially quantify.

Uncertainty around the final shape.

These rules that are.

Coming out and giving you some.

Really specific outlook like that I think is just.

This stomp minimum tax was put in place what would it do to the timing.

It's premature to do that.

Certainly.

And European of when you would expect to become a cash taxpayer. If you can confirm that with any certainty.

If the AMD construct could accelerate to some extent some cash taxes.

Modifying at this point I guess is too too early I did note in my earlier response to a room, though that it would be.

Yes.

My comments earlier were really meant to convey that theres just so much.

Probably less.

Certainly around the final shape of.

Not impactful on EG earnings wishes.

These rules, but.

Interesting.

Coming out and giving you some.

Important data point as well.

Really specific outlook like that I think is just.

Yes.

Yes, I'm, sorry, I, just wanted to try and push on that again, because its so what I'm trying to figure this out so thanks for your thoughts on it.

It's premature to do that.

Certainly.

If the AMD construct could accelerate to some extent some cash taxes quantifying at this point I guess, it's too early I did note in my earlier response to a room, though that it would be.

Lee you have done an extraordinary job on capital discipline, you led the market on.

Your commitment to stable production.

I will spend in your cash flow and returning cash.

Probably less not impactful on EG earnings wishes.

This last year with.

A lot of commodity leverage, obviously and tremendous cash flow potential.

Interesting.

Important data point as well.

Thank you.

On the environment, where it seems with a lot of assets coming for sale pretty much in your backyard to the list goes from the Bakken to the Eagle Ford.

Yes, I'm, sorry, I, just wanted to try and push one again because it so what I'm trying to figure this out so thanks for your thoughts on it.

Lee you have done an extraordinary job on capital discipline, you led the market.

Of course, the EG with Chevron's assets I'm, just curious how you see the role of M&A.

Your commitment to stable production.

A framework, which is obviously very disciplined on shareholder returns, but you've also got to look headroom.

No time spend and your cash flow and returning cash.

For potential acquisitions, if you choose to how are you thinking about that.

This left you with.

A lot of commodity leverage, obviously and tremendous cash flow potential.

Yeah. Thanks, Thanks for the question, Doug and good morning.

Obviously, I can't comment on any specific or hypothetical M&A transactions, but.

What I will say is that we're always assessing and evaluating bolt on opportunities in basins, where we have a competitive advantage and can generate value for our shareholders.

Clearly as you stated we have.

A tremendous amount of confidence in organic case, which delivers market, leading free cash flow and return on capital and.

That is the lens that we're going to SaaS.

All opportunity so the bar is quite high and whatever we do it's going to have to be accretive to that organic case and so the same discipline that we show.

In our business.

Is the same discipline, we will show in assessing and organic opportunities.

To be clear.

We like the assets in our corn portfolio and we're always looking to further improve our core positions.

That's true for all of our core positions U S resource plays as well as the G and and there are a number of reasons why when we think about <unk>, we do deem that very much one of our core assets.

Free cash flow generative low level of capital reinvestment.

Competitively advantaged infrastructure that that should be the natural aggregator of gas and a very gas rich portion of the world.

<unk> and direct exposure to the global LNG market, which relative to our peers is quite unique and then of course. It does have a geographic and cost advantage as a supplier into the European gas market, which as you know is very short on gas.

So hopefully that addressed your question Doug.

It does I guess I was kind of curious if you have an opinion on Chesapeake tenants within the Eagle Ford.

With your portfolio or prefer not to comment I guess.

Yes, I mean, I think again I don't want to get into specific assets in the marketplace, but rest assured I think Doug.

Debt to the extent that there are sound opportunities within our core basins that Pat and his team are actively evaluating and assessing those against that criteria that I described.

Okay. Thanks Fellows appreciate you taking my questions.

Thank you Doug.

Thank you. Our next question online comes from Neal Dingmann. Please go ahead.

Maybe I can just follow up on that.

Maybe on M&A, one different way I'm just wondering how you are.

I guess, what I'm curious is your requirement for deals.

Those requirements change.

See you guys continue to have some fabulous acreage, we do a good job of laying this out.

So I'm just wondering now when you continue to look at deals out there.

Given the environment, we're in I'm just wondering.

Requirements at Trillium.

Maybe discuss maybe some of those key requirement.

Certainly Neal yeah fundamentally the criteria on which we evaluate.

Any inorganic opportunity has remained constant as I mentioned.

Bar is high I mean, it's going to have to deliver financial accretion is going to have to be leverage neutral to positive.

The offer industrial logic and clear synergies and so we look across all those dimensions to make an assessment and try to determine as well. It does it does it play into the sustainability of our model and also we're not looking to necessarily buy someone's decline curve, we're looking for things that can amplify.

Any inorganic opportunity has remained constant as I mentioned.

The already strong sustainability of our portfolio. So so fundamentally Neal no. It's not different now is the market different absolutely I think in a in a high price environment and a volatile environment like we are I do think youre going to run into instances where.

The bar is high I mean, it's going to have to deliver financial accretion is going to have to be leverage neutral to positive and I have to offer industrial logic and clear synergies and so we look across all those dimensions to make an assessment and try to determine as well. It does it does it play into the sustainability of our mall.

The bid ask spread is going to be difficult to reconcile.

So we're not looking to necessarily buy someone's decline curve, we're looking for things that can amplify.

And.

Given that we just have to be that much more committed to our criteria and ensuring that we're bringing any type of opportunity is bringing true value lasting value into the portfolio.

The already strong sustainability of our portfolio. So fundamentally Neil nowhere, it's not different now is the market different absolutely I think in a in a high price environment and a volatile environment like we are I do think youre going to run into instances where.

Great details and then my second is just on capital allocation.

Great.

You all have been pretty clear about suggesting that.

Shareholder return will continue to be.

The bid ask spread is going to be difficult to reconcile.

Predominantly buybacks given the intrinsic value I'm just wondering how do you think about the relative comparison I guess in today's market.

Given that we just have to be that much more committed to our criteria and ensuring that we're bringing any type of opportunity is bringing true value lasting value into the portfolio.

Given where oil is at given where your share prices when you're thinking about the relative comparison between buybacks and dividends.

Yes, Neil this is Dan I'll just.

Kind of that I mean, I think we've been pretty.

Great details and then my second is just on capital allocation.

Right.

You all have been pretty clear about suggesting that.

Strong and are in our view.

Shareholder return will continue to be.

<unk>.

Predominantly buybacks given the intrinsic value I'm just wondering how do you think about the relative comparison I guess in today's market.

Returning capital to shareholders through B.

Share buybacks structurally changes the company drives per share growth.

Given where oil is given where your share prices. When you think about the relative comparison between buybacks and dividends.

And is synergistic with our ability then to increase our base dividend over time without increasing our cash total cash distributions on the dividend. So we like that especially in light of the fact that the free cash flow yield that our stock is generating right now it's in the 25% that you can get up closer to 30.

Yes, Neil this is Dan I'll just.

Kind of that I mean, I think we've been pretty.

Strong and are in our view.

<unk>.

Returning capital to shareholders through the.

So it's just been.

Questionable value to do that and so it's been very easy for us to allocate capital that way.

Share buybacks structurally changes the company drives per share growth.

We still do that.

The base dividend is a very important part of the return equation.

We have raised the base dividend.

Through the first quarter of this year five consecutive quarters of totaled 167% over.

Over that period of time, we paused this quarter.

Most of it 30 recently, so it's just been.

Questionable value to do that and so it's been very easy for us to allocate capital that way.

I will say, though that.

With the consistent large share repurchase activity that we're doing.

We still do think the base dividend is a very important part of the return equation.

We will definitely be in a position likely this year to reassess that.

We have raised the base dividend.

Because we're just absorbing so much of that outstanding stock.

Through the first quarter of this year five consecutive quarters of totaled 167%.

So I think theres a good synergistic there with.

We like them both.

The variable dividend idea, it's something we it's a tool in the toolkit, but given what I said about how compelling share repurchases are to US right now it's going to just beyond the backbench.

Over that period of time, we paused this quarter.

I will say, though that.

With the consistent large share repurchase activity that we're doing.

I'm glad to hear it thanks.

We will definitely be in a position likely this year to reassess that.

Yeah.

Okay.

Thank you. Our next question on line comes from Scott Hanold. Please go ahead.

Because we're just absorbing so much of that outstanding stock.

Yes. Thanks.

So I think there is a synergistic there with.

If I could ask a question you I think.

We like them both.

We had mentioned that.

The variable dividend idea, it's something we.

You're the equity marathons equities mispriced, and Thats why buybacks makes more sense and I think largely most people agree with that and funding.

It's a tool in the toolkit, but given what I said about how compelling share repurchases are to US right now it's going to just beyond the back bench.

Fundamentally it.

Your discussion also had talked about you are fine with building some cash on the balance sheet and I'm just kind of wondering when you look at that sort of.

I'm glad to hear it thanks, Tim Thanks.

Okay.

Thank you. Our next question on line comes from Scott Hanold. Please go ahead.

Cash build do you think a way to bridge the valuation gap would be to further lean into hard with the buybacks and kind of forced the issue or are there other.

Yes, I think so.

If I could ask a question you I think.

We had mentioned that.

Youre the equity marathons equities mispriced and that is why buybacks makes more sense.

Things you can do with that sort of incremental cash that you think could help bridge the gap with with marathon to some of the peers.

And I think largely most people agree with that and.

Fundamentally.

Yes, maybe I'll offer a comment or two and then maybe flip over to Dan I want to be really clear Scott when we talk about 50% of CFO as a target. That's a minimal we still have optionality to go beyond that and then from time to time, we have already gone beyond that mark, but I'm not going to be apologetic.

Your discussion also talked about you are fine with building some cash on the balance sheet and I'm just kind of wondering when you look at that sort of cash build do you think a way to bridge the valuation gap would be to further lean into hard with the buybacks and kind of forced the issue or are there other.

<unk> about the fact that we are delivering still at 20% distribution yield which leads not only our peers, but the S&P 500, and you can you can even look at this quarter and just the absolute shareholder distribution was a record for the company. So I do believe that we are.

Things you can do with that sort of incremental cash that you think could help bridge the gap with with marathon to some of the peers.

Yes, maybe I'll offer a comment or two and then maybe flip over to Dave I want to be really clear Scott when we talk about 50% of CFO as a target. That's a minimal we still have optionality to go beyond that and then from time to time, we have already gone beyond that mark, but I'm not going to be apologetic.

Delivering strongly against that shareholder commitment in and the efficiency of the share repurchase program.

The facts speak for themselves I mean, 15%.

<unk> about the fact that we're delivering still a 20% distribution yield which leads not only our peers, but the S&P 500, and you can you can even look at this quarter and just the absolute shareholder distribution was a record for the company. So I do believe that we are.

Reduction in dilution over a 10 month period and that really is unrivaled in our in our peer group so although I.

I agree that we have optionality, there going forward relative to that 50% minimum.

I think we're putting a pretty strong case out there today and when you look at the relative comparison, not only to the peers, but also to the broader market and maybe Dave you, let's say a little bit about our thinking about just cash on hand and help them, how we consider that yeah. So.

Delivering strongly against that shareholder commitment in and the efficiency of the share repurchase program.

The facts speak for themselves I mean, 50%.

Reduction in dilution over a 10 month period and that really is unrivaled in our in our peer group so although.

<unk> I think our commitment to significant returns is there we have almost a 20, 20% annualized distribution yield.

I agree that we have optionality, there going forward relative to that 50% minimum.

The quarter was so strong with realized pricing with the operational and financial execution.

I think we're putting a pretty strong case out there today when you look at the relative comparison, not only to the peers, but also to the broader market and maybe Dave you, let's say a little bit about our thinking about just cash on hand, and how we consider that gap so to you.

Even with those returns we built about $500 million in cash.

My perspective as long as our return objectives are being met modestly building some cash on the balance sheet as a positive thing. We're obviously in a highly volatile commodity price environment.

<unk> I think our commitment to significant returns as their rehab almost a 20, 20% annualized distribution yield.

One thing to keep in mind, but there really aren't any bright lines around the amount of cash in my mind, some buckets that I sort of think of as weak as we manage our cash balance, but first I'd like to have a minimum of $500 million on the balance sheet just to handle intra month working capital swings.

The quarter was so strong with realized pricing with the operational and financial execution.

Even with those returns we built about $500 million in cash.

My perspective is longer return objectives are being met modestly building some cash on the balance sheet as a positive thing. We're obviously in a highly volatile commodity price environment.

We do have a couple of debt maturities coming up in 'twenty, three 'twenty four $400 million in each year, we intend to retire that debt with cash on hand.

So preparing for that time when when prices are strong is a good thing.

And then also it provides us the flexibility to act quickly on.

Accretive bolt on acquisitions that can improve our portfolio the kind of things that we referenced earlier.

And then.

Moving a little more cash.

We do have a couple of debt maturities coming up in 'twenty, three 'twenty four $400 million in each year, we intend to retire that debt with cash on hand.

It's pretty prudent I think given the macro uncertainties the volatility recession risks all the stuff were met with everyday when return, our DVR and even regulatory change, which we're seeing potential for that so.

So preparing for that time when prices are strong it's a good thing.

And then also it provides us the flexibility to act quickly on.

Having a very robust company with strong liquidity I think is a plus.

Accretive bolt on acquisitions that can improve our portfolio the kind of things that we referenced earlier.

I would say that and then I'll also say.

Our return to shareholder commitment is top priority, but also keeping a bullet proof balance sheet and ample liquidity.

And then.

Moving a little more cash.

Alongside that in our Conservative financial model.

And I would even just add to that.

Work on the balance sheet and liquidity.

<unk> is never ending and recently Dana and his team also extended our credit facility as well at favorable terms and again it gives us that runway out to 2027 on that instrument as well. So we look at all that holistically, but.

Having a very robust company with strong liquidity I think is a plus.

I would say that and then I'll also say.

Our return to shareholder commitment is.

Top priority, but also keeping a bullet proof balance sheet and ample liquidity is right alongside of that and our conservative financial model.

Again, we.

We believe we are leading the field on shareholder distributions, but we're going to continue to challenge ourselves as we go forward and we're going to have optionality against that that minimum commitment.

And I would even just add to that.

Work on the balance sheet and liquidity.

<unk> is never ending and recently Dana and his team also extended our credit facility as well at favorable terms and and again it gives us that runway out to 2027 on that instrument as well. So we look at all that holistically, but.

Great. Thanks for that and just as a follow up.

In the Permian.

It's been about a year since you've been.

Ben.

Active with completions and I know this quarter or the third quarter, we're going to be I think 10% to 15 wells and maybe another dozen in the fourth quarter. If you all could provide a little bit of color and context on.

Again, we.

Some of the activity there and what to expect.

In terms of types of formation and are these multi well pads and how we're going to kind of progress with sort of the buildup of the Permian in the second half of this year.

Great. Thanks for that and just as a follow up.

The Permian.

Yes, it's Mike here I'll take that one so Permian as you mentioned 10 to 15 wells to sales in the third quarter, we've actually got another four sorry, five coming online in the fourth quarter.

I think it's been about a year since you've been.

Ben.

The Texas, Delaware Wells is for those that will come online.

Some of the activity there and what to expect.

Fourth quarter, maybe early fourth quarter of next year.

In terms of types of formation and are these multi well pads and how we're going to kind of progress with sort of the buildup of the Permian in the second half of this year.

With the exception of the first five wells that we brought to sales. This year. The majority of the remaining program. They are all going to be two mile laterals.

Yes, Mike here I'll take that one so Permian as you mentioned.

And then by 2023, we're pretty much into only bringing on two mile laterals.

15 wells to sales in the third quarter, we've actually got another four sorry, five coming online in the fourth quarter.

See it up because these two mile laterals what were seeing is on on a kind of normalized compete completely CWC per foot basis, they are 30% cheaper.

The Texas, Delaware Wells is for those that will come online probably late in the fourth quarter, maybe early first quarter of next year.

On the single mile laterals. So team has done an exceptional job there in the trade from moving away from these sales to these these XL wells and actually were active at the moment looking for tanks are against the same three milers as well.

With the exception of the first five wells that we brought the sales. This year. The majority of the remaining program. They are all going to be two mile laterals.

And then by 2023, we're pretty much into only bringing on two mile laterals.

Maybe coming back to 2022, I would describe the bonds of the year, we're going to be bringing on wells and some of the high confidence here is so red Hills Upper will come and then followed by Malaga Upper Wolfcamp between 60% and Red Hills, 40% more wells to sales.

See it up because these two mile laterals what were seeing is on on a kind of normalized.

Completely CWC per foot basis, they are 30% cheaper on the single mile laterals. So team has done an exceptional job there in the trade from moving away from these asset sales to these XL wells actually were active at the moment looking for potential again for some <unk>.

Just a quite bit of commentary on the wells that we have brought sales they've only been online.

So still early but I think we're encouraged by the performance, thus far and maybe I'd just highlight the team have definitely taken advantage of the break in activity.

Holders as well maybe coming back to the 2022 I would describe the balance of the year, we're going to be bringing on wells and some of the high confidence series. So Red Hills Upper will come and then followed by Malaga Upper Wolfcamp between 60% and Red Hills, 40% in Malaga wells.

I know I'm pretty excited about potentially what we're going to deliver not only this year, but also next year in the Permian.

Thanks for that.

<unk>.

Thanks Scott.

She has been quite a bit of commentary on the wells that we have brought sales they've only been online.

We have no further questions at this time I will now turn the call over to Lee Tillman for closing remarks.

So still early but I think we're encouraged by the performance thus far and maybe I'd just highlight the team are definitely taking advantage of the break in activity.

Yeah.

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

I know I'm pretty excited about potentially what we're going to deliver not only this year, but also next year in the Permian.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Thanks for that.

Thanks Scott.

We have no further questions at this time I will now turn the call over to Lee Tillman for closing remarks.

Yeah.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Yes.

[music].

Q2 2022 Marathon Oil Corp Earnings Call

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