Q4 2022 Marathon Oil Corp Earnings Call
In our peer group, a full 10 percentage points below the S&P 500 average.
And one of the lowest capital intensity fall indicators of our now well established capital and operating efficiency advantage relative to our high performing peer group.
Second we're returning significant capital back to our shareholders through our cash flow driven return of capital framework.
Our framework is transparent, it's differentiated and prioritizes our investors is the first call on capital and.
And it uniquely protect shareholder distributions from capital inflation.
During 2022, we've returned 55% of our adjusted free cash flow from operations or $3 billion to shareholders.
And for those keeping score relative to the free cash flow based models of our peers that equates to about 75% of free cash flow.
I would also translate to a 17% shareholder distribution yield the highest distribution yield of our E&P peer space and one of the top 10 distribution yields and the entire S&P 500.
We remain steadfast in our commitment to the powerful combination of a competitive and sustainable base dividend. In addition to consistent share repurchases.
That consistency paid off with $2 8 billion of accretive share repurchases that reduced our share count by 15% driving significant growth on a per share basis.
We winding all the way back to the start of this most recent share repurchase program in October of 2021, we have reduced our share count by 20% again, leading the peer group.
And we raised our base dividend three times during 2022, bringing our track record to seven increases in the last eight quarters.
Third we successfully closed on the Ensign acquisition before year end materially strengthening our portfolio and enhancing our Eagle Ford scale.
The Ensign acquisition makes us a stronger company checking every box of our disciplined acquisition criteria.
Accretive to key financial metrics, it's accretive to our return of capital framework.
It's accretive to our high quality inventory life.
And it offers compelling industrial logic and the core of a basin, we know well.
Pat will provide additional details later in the call, but in short integration efforts are progressing well and initial 2023 results have outperformed our expectations.
Finally, while 2022 was certainly a banner year.
As excited about our potential in 2023 and beyond.
Really consistent with our disciplined capital allocation framework, our 2023 budget prioritizes significant free cash flow generation and return of capital to shareholders.
I referenced commodity prices of $80 <unk> $3, Henry hub and $20 TTS, we expect to generate $2 6 billion of adjusted free cash flow and we expect to return a minimum of $1 8 billion to our shareholders, providing clear visibility to a double.
Digits shareholder distribution yield.
And recognizing the ongoing volatility in commodity prices, particularly natural gas.
It is important to note that a 50 btu change in Henry hub only impacts our annual cash flow by just over $100 million.
The only dollar change in <unk> <unk> cash flow by about $70 million, reflecting continued leverage to oil pricing and our balanced portfolio.
Once again, we fully expect to lead our peer group and the broader S&P 500, when it comes to the financial and operation metrics that matter, most free cash flow generation capital and operating efficiency and shareholder distributions.
And while our 2023 outlook is compelling we're even better positioned for 2024 as our unique integrated gas business and <unk> will benefit from an increase to global LNG price exposure.
Just as a reminder, the current Henry hub index contract for our equity Alba gas through EG LNG expires at the end of 2023, and we will move to a market based global LNG linkage.
With the current and significant arbitrage between Henry hub and global LNG prices. We expect this to translate into an uplift to 2020 for EBITDA of 500 million to potentially more than $1 billion relative to 2023.
With that I'll turn it over to Dave who will provide more detail around our return of capital performance and outlook.
Thank you Lee good morning, all.
We get the return on capital high points, given the importance of the topic.
Or elaborate on our framework, our execution and our outlook.
As we've stated before returning a significant amount of capital to shareholders.
Cycle remains foundational to our value proposition in the marketplace.
When it comes to shareholder distributions track record matters. We're building a track record, we're really proud of and that investors can trust. During 2022, we've returned 55% of our CFO to shareholders.
Significantly exceeding our 40% of CFO framework commitment totals.
Total shareholder distributions amounting to $3 billion.
Good for total shareholder distribution yield of 17%, that's the highest in our peer space and one of the top distribution yields in the S&P 500.
That includes $2 $8 billion of accretive share repurchases during the year.
We continue to believe that buying back our stock as an excellent use of capital due to the value we see with our shares trading at a free cash flow yield in the upper teens.
Just as a value accretive a very efficient means to drive per share growth and are synergistic to growing our base dividend.
During 2022, we reduced our share count by 15% and since initiating our share repurchase program in October of 2021, we've reduced our share count by more than 20% by far the most significant share count reduction in our peer space.
On the bottom right graphic on slide seven.
Another benefit of our buyback program as the capacity it creates for ongoing growth in our per share base dividend.
We recently raised our quarterly base dividend by 11% to <unk> 10 per share.
The seventh increase in the trailing eight quarters.
Well its most recent increase is more than fully funded by incremental cash flow from the insight acquisition ongoing share count reductions from our buyback program create clear potential for further dividend increases in the future.
Our operating cash flow driven framework is differentiated and it protects distributions from the effects of capital inflation.
Netting inflation has on us.
We believe this makes for a stronger commitment to our investors as our investors will truly get the first call on cash flow.
For 2023.
The recently completed and signed acquisition makes our framework, even more shareholder friendly and in close to 20, 20% to our pre acquisition operating cash flow and therefore, adding 20% to our shareholder distribution capacity.
In addition, with the 2022 financial actual financial results in hand, along with the December close at Ensign, We anticipate we'll be able to defer U S cash alternative minimum taxes to 2024.
Our objective for 2023 is to firmly adhere to our return of capital framework continuing to return at least 40% of CFO , while also paying down including some of the ensign related acquisition financing.
We believe it can be both mainly.
Maintaining our return of capital leadership in this space, which is the top priority.
And continue to enhance our already investment grade balance sheet grew gross debt reduction all supported by our financial strength and flexibility.
On the balance sheet, we have about $200 million of high coupon <unk> debt maturing and we play we plan to pay that off with cash on hand to reduce gross debt and interest expense.
We also have $200 million of the low cost tax exempt bonds maturing in 2023.
Tax exempt bonds were unique and very flexible component of our capital structure.
We plan to leverage the cost advantage or tax exempt credit capacity to refinance those bonds in 2023, and we have the optionality to do the same with future Tam.
Taxes have maturities in 2024 and 2026.
With regard to shareholder returns.
40% return of capital commitment in 2023 provides visibility to one $8 billion.
Of minimum shareholder distributions at a reference price deck.
Double digit return of capital to yield one of the highest in our peer space.
We've been executing share repurchases so far in Q1, 'twenty three and plan to continue to do so consistent with our framework and we have ample capacity in our current board authorization to keep moving.
While 40% represents a good starting point for your models. Our track record has been to exceed that minimum return and we'll look to keep it keep that track record intact in 2023, especially if we benefit from any commodity price support over the balance of the year.
With significantly enhanced both shareholder returns and debt reduction.
Tremendous leverage to commodity price improvement and we will use that to the benefit of our shareholders now I will turn the call over to Pat who will briefly walk us through an update on the insight acquisition.
Thanks, Dave consistent with our market commitment we successfully closed on the inside of the acquisition before the end of the year.
As we've stated this transaction checks all the boxes of our M&A framework.
<unk> financial accretion return of capital accretion consistent with Dave's comments for you.
To inventory life, and quality and industrial logic with enhanced scale.
Maintaining our financial strength and investment grade balance sheet.
And we based our inside valuation on a one rig maintenance program with no credit for potential upside associated with redevelopment re fracs.
Our focus now is on integration and execution.
In terms of integration early efforts have gone exceptionally well we had originally planned for major elements of the transition to take up to four months post close.
We now expect to be substantially complete with operations transmission activities by the end of this month.
It accelerated timeline is in large measure due to the excellent collaboration and cooperation between both organizations and it serves to underscore the execution confidence that comes with an acquisition and an established base and that has a track record of success.
On the execution side as highlighted on slide 11 of the deck early well performance is consistent with our stated view that the acquired inside inventory has the potential to deliver some of the best returns are the highest capital efficiency in the Eagle Ford.
And therefore, the entire lower 48 or.
Our first two pads nine wells in total are outperforming expectations delivering top decile oil productivity in the base.
This year, we plan to bring approximately 40 wells to sales on the acquired acreage accounting for about one third of our total Eagle Ford program.
The inside wells are expected to deliver accretive capital efficiency and financial returns for comparable oil productivity to those of our legacy Eagle Ford program.
I will now hand over to Mike, but more color on our 2023 capital program.
Thanks Pat.
Turning to slide 12 of our deck I'll provide a brief overview the high point of our 2023 capital pool.
As expected consistent with our disciplined capital allocation framework.
More S&P less E&P minded.
We expect to deliver strong free cash flow and significant return of capital to our shareholders across a wide band of commodity prices as the graphics on the right of the slideshow.
The reference price deck, we expect our $1 $90 billion to $2 billion capital budget to deliver $2 6 billion adjusted free cash flow of just over 40% reinvestment.
But we in Gainesville highlighted we expect to return at least $1 8 billion capital to our shareholders.
To deliver these financial outcomes will operate approximately nine rigs and three to four frac crews on average this year.
We expect 2023 capital to be first half weighted with about 60% of our total capital spend concentrated in the first half of the year largely driven by the timing of our activity.
The midpoint of our guidance, we expect to deliver maintenance level oil production approximately 190000 barrels of oil per day.
Relative to 2022 after incorporating in sand volumes.
As is typical for our business there will be some standard quarter to quarter variability throughout the year.
The lower end of our annual guidance range is a good starting point, our first quarter total oil production approximately 185000 barrels of oil per day.
This is largely a reflection of activity timing.
On the associate impact on wealth sales, along with a very modest negative comping over impact from winter storm early concentrated in the Bakken.
With activity on wells to sales weighted to the first two quarters of the year, we expect to see an improving production trend for oil and to the second and third quarters.
Turning to oil equivalent production the midpoint of our guidance is 395000 oil equivalent barrels per day inclusive of our planned second quarter turnarounds in EG that is designed to set us up for a high level uptime in 2020.
Overall, our 2023 plan is disciplined and high confidence program designed to deliver strong financial and operational outcomes.
In the Eagle Ford, we will run a four rig program we.
We expect an improving well productivity trend in 2023.
On an already strong 2022 June arent.
Ensign contributions.
In the Bakken.
We will run three rigs and outreach again, focusing our activity and our high quality Hector area of the play where the average well pays out and licensed six months at current commodity prices.
The Permian.
To continue improving our capital efficiency by increasing on average lateral lengths to 10000 feet. This year, an increase of over 25% in 2022.
While our headline timing well sales guidance look similar to last year strong well productivity and competitive drilling completion performance that we've delivered since getting back to work over the second half of 2022.
Towards a higher level of capital allocation.
Therefore planned to spud between 25, and 30 wells this year inclusive of at least one multi well pad in our Texas, Delaware, Meramec, Woodford fleet, which will support a higher level of wells to sales in early 2024.
Our Texas, Delaware position is no longer an exploration fleet. The asset is now fully integrated and for our Permian asset development team.
Pizza capital on a heads up basis with all the other assets.
So our Oklahoma asset continues to provide us vulnerable optionality to fundamental strengthening of the gas and NGL price environment.
We arent exposing much counsel to the answer this year, rather near term activity is limited to a one five rig joint venture program that will allow us to efficiently defend our acreage position on the lineage more priority acreage limited scope and capital.
With that I.
I'll turn it over to Lee, who will provide an update on our integrated gas business in Equatorial Guinea.
Thank you Mike 2022 was an exceptional year for our unique world class integrated gas business in EG.
We delivered over $600 million of equity income more than double our guidance at the beginning of the year.
And we generated approximately $900 million of EBITDA.
Our results were driven by solid operational performance as well as higher than expected commodity pricing, especially for Henry hub and European natural gas.
Our 2023, we expect equity income and EBITDA to decline largely due to assumed significantly lower commodity prices, especially for natural gas and the already referenced planned turnarounds during the second quarter.
The outlook beyond 2023, however, as robust as we expect to realize significant <unk> earnings and cash flow improvement in 2024 on the back of an increase in our global LNG price exposure.
I'll lay a background.
In addition to our 64% interest in the operated Alba gas condensate field, which produced approximately 60000 oil equivalent barrels per day on a net basis. In 2022. We also have a 56% interest and then equity accounted three seven MTP a facelift LNG facilities.
This LNG facility currently processes equity gas from our operated Alba field that is sold on a legacy energy hub linked contract and third party of Linde gas volumes on a toll plus profit sharing basis.
The alma Henry hub linked contract expires at the end of 2023.
While we're still working through contractual and commercial details. The Bottomline is that beginning January one 2020 for Alba source LNG I will no longer be sold at a Henry hub linkage.
It will be sold into the global LNG market, which is expected to drive a significant financial uplift of our company given the material arbitrage between Henry hub and global LNG pricing.
More specifically at pricing generally consistent with the forward curve or $20 per <unk> TTM, we're positioned to realize an approximate $500 million EBITDA uplift in comparison to 2023.
And there is a wide range of potential global LNG price outcomes. In 2024. We've also provided a high side sensitivity to help you better appreciate the leverage will have in 2024 to global LNG prices.
Assuming an upside case of $40 per <unk> in 2024, or a price consistent with the average of the trailing 12 months the.
The potential EBITDA uplift could be in excess of $1 billion.
And beyond the significant financial uplift expected in 2024, we remain equally focused on further maximizing the long term value our unique EG gas assets by leveraging available elledge through EG LNG.
This world class infrastructure is well positioned and one of the most gas prone areas of West Africa and is a natural aggregation point to monetize both indigenous EG gas as well as discovered undeveloped cross border opportunities.
In summary for years now I've reiterated my view for our company and for our sector to attract increased investor sponsorship, we must deliver financial performance competitive with other investment alternatives in the market as measured by corporate returns free cash flow.
Asian and return of capital.
More S&P less E&P.
We delivered exactly that type of performance over the last two years and not just competitive but at the very top.
And as I've said before our challenge now is to prove that our results are sustainable.
And quarter out year end and year out.
We believe they are were up for the challenge and I believe our outlook is as strong as it has ever been.
Our compelling investment cases simple.
We offer a unique and differentiated a return of capital framework that provides shareholders first call on cash flow and protect distributions from capital inflation.
For 2023 are providing clear visibility to double digit shareholder distributions.
We have an established track record of market, leading free cash flow yield and shareholder distributions at an attractive valuation.
And offer investors, a free cash flow and return of capital profile that competes with any sector <unk> company in the S&P 500 across a wide range of commodity prices.
We have delivered per share growth across all the metrics that matter via consistent share repurchase program that leads our peers. In addition to a durable and competitive base dividend.
We believe this pure leading financial delivery is sustainable underpinned by our high quality U S unconventional portfolio with over a decade of high return inventory and a track record of sector, leading capital efficiency recently strengthened by the insight acquisition.
Our portfolio provides commodity leverage with strong oil weighting, coupled with a unique and increasing exposure to global LNG prices that will drive material financial uplift in 2024 and beyond.
All underpinned by an investment grade balance sheet and finally our.
Delivering these results to help meet global oil and gas demand.
<unk> all elements of our ESG performance.
To close I want to again reiterate how proud I am of the way we position our company.
We our results driven but it is also about how we deliver those results.
True to our core values and responsibly, delivering the oil and gas the world needs the.
The oil and gas that is critical to furthering global economic progress defending U S energy security lending billions out of energy poverty and protecting the standard of living we have all come to enjoy.
With that we can open the line for Q&A.
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The first question today comes from Jeanine Wai with Barclays. Please go ahead.
Hi, good morning, everyone. Thanks for taking our questions.
Hi, good morning.
Good morning.
First question, maybe just starting with the 'twenty three outlook for Lee Mike.
One of the things that really stood out to us and the outlook was actually the number of Eagle Ford Wells to sales in the plan, which was decently the lora forecast and it's about I think 20% lower year on year on an adjusted basis.
In maintenance mode, and then you add the 40 and 10 wells from the number of Wells you did last year and we saw your comments about higher aggregate year over year, while productivity in Eagle Ford in 'twenty, three and we were just wondering if you could share any further details about the implied improved capital efficiency in the Eagle Ford because it seems to be.
Pretty meaningful so for example, Eagle Ford is the Eagle Ford actually in maintenance mode. This year on adjusted basis and are there any other factors out there that would be affecting the wells this year.
Whether it be mix working interest or anything else. Thank you.
Hey, Jeanine, it's Mike here I'll take that call. So maybe answer part of your question yes.
Yes, I think it is safe to assume that.
The Eagle Ford edge in maintenance mode oil maintenance mode. This year.
I think it's also correct Youre also correct.
The legacy position, we are holding volumes flat on a lower wealth sales.
In 2023, which is which is obviously a positive thing.
A couple of elements that I would say Glenn to that the first one being the timing of when we bring wells online in the year, we are going to be bringing close to 60% of our legacy wells to sales in the first half of 'twenty, three and that definitely helps the annualized volumes.
I think the second element and probably the more important one from my perspective, as well productivity and long because then well productivity, but one of the things that.
The team has been doing is really continuing to optimize our completion design.
That has resulted in an uplift in our well performance on you see that factored in.
Business plan and the ultimate.
Volumetric outlook. So we were already setting up for a strong year in Eagle Ford West with the legacy business I think.
The addition of the Ensign acreage only reinforces our position as Tom mentioned.
We are particularly encouraged with the performance in the first nine wells through two pods that we brought online in the condensate window very strong productivity top decile in all oil.
We fully consistent with our belief that this is some of the highest capital efficiency inventory in the Eagle Ford.
Not only adds to what was already a highly capital efficient business. So.
Very very excited about the opportunities that the acquisition brings especially here.
Even beyond.
Okay, great. Thanks for touching on lithium is always a good thing. Thank you for that detail, maybe Dan turning to you on just the shareholder returns versus debt Paydown.
Committed to returning at least 40% of CFO . This year the balance sheet is in a really comfortable place at least at Barclays. Our house forecast calls for meaningfully higher crude prices and $80. This year and assuming our prices go up.
How should we think about the allocation of capital in this scenario between buybacks and early debt pay down we heard your prepared remarks, where you talked about your track record is to actually exceed the original target percent return.
In the past, you've given kind of different percent targets at different commodity prices, but this time around you have got the new ensign debt in the next and so at what point do you really start chipping away at the enzyme that is it is as simple as if oil is 85% or 90 start going after that more can you provide any more color. Thank you.
Good morning Jeanine.
Currently.
Let me kind of go back to our return of capital commitment framework for a second and then I'll work my way through.
We are thinking about paying down acquisition debt and timing of that.
One as I stated, we are firmly committed to our capital.
Capital framework minimum of 40% of operating cash flow to shareholders as long as <unk> is about $60 and obviously, we're well above that right now in 'twenty, two we significantly exceeded that we had 55%.
$3 billion back to shareholders $2 8 billion of that with share repurchases. So significant return in the form of share repurchases and that's how we're thinking about 2023 as well.
Good.
Ensign acquisition really enhances our our shareholder return capability.
Added about 20%, both our pre acquisition operating cash flow and our shareholder distribution capacity.
So another way to think about that as a 40% minimum shareholder return post enzyme would have equaled 50% premium side.
So at a minimum we're pretty close to what we actually delivered last year, but we like having a good track record not only meeting our goal meeting our minimum target, but exceeding it and that's what we've done so far and we intend to continue that.
Too soon to.
To give you more guidance to model on that but thats our bias.
With respect to how do we pay back acquisition that in the context of that return framework I think we really have the capacity to do both even at today's commodity prices I look at bids.
The capability not only meet and exceed our shareholder return goals, but to start to meaningfully chip away at the acquisition debt and get that interest expense and just that gross debt out of the system.
From your lips to God's ears on higher oil price, we have a tremendous amount of leverage to strong commodity prices, especially oil and that will just increase our return on capacity.
You did note our balance sheet is really strong ratings agencies have given us positive feedback.
Around that so we're not in a mad rush to Delever.
But my base case is to get that taken down that path.
One $5 billion two year term loan.
Paid off within that window, and we can prepay without penalty. So we can just start kind of slicing chunks off as we go through and I think we'll probably just assess that periodically as we go through the year based on how our cash generation is.
But.
Once again restated.
Our primary goal or our number one goal is return to shareholders and that will not.
Take a back seat to paying down the debt.
While I'm here, let me just talk a second about the flexibility we have in our capital structure.
I noted in my prepared comments, we have $200 million of high coupon legacy U S ex debt that's.
It's going to be.
Eight 5% to 9% coupon so it would be really nice to get that out of the system, it's not a big deal.
So we're just going to pay that off with cash on hand.
Aside from that.
And the acquisition term loan that I already referenced the only other maturities we have between now and 2027.
In aggregate $1 billion in tax exempt bonds immature somewhat ratably over 'twenty three 'twenty four 'twenty six.
That tax exempt bond arrangement.
We can refinance fees.
As they come due and any churn or all the way out to 2037, a ton of flexibility there.
Three interest rate advantaged to tax taxable debt.
Even in this crazy interest rate environment for quite a bit advantaged and.
Things normalized.
Go forward here, a little bit from an interest rate perspective there.
On this one a retiree announced 2% that's cut our proportionate.
So we really like that flexibility.
Last thing I'll say is we extended recently, our $2 $5 million credit facility out to July of 2027, so kind of flexibility there bottomline shareholder returns first payback debt second we have capacity to do both I am not going to give you a breakpoint formula how we're thinking about it but.
That's our commitment.
Yes.
That's how we're going to proceed.
Great. Thank you Darren.
Okay.
The next question comes from Neal Dingmann curious Securities. Please go ahead.
Good morning, Lee My first question for your data on capital allocation specifically.
I definitely appreciate and really support the buyback focus I'm just curious if.
Youll have changed the way you think about.
Dividend stock valuation is the Sabres the dividend payout just wondering I mean youll.
Think about some mid cycle prices used when looking at the metrics or is there any other details year to date to provide on kind of how youre looking at the buyback versus the desk.
Yes.
Yeah go ahead I'll take a cut at Neal, yes, so from a base dividend perspective, we want that to be competitive and sustainable.
And sustainability, you just kind of the governor there.
Look at it sort of conservative mid cycle pricing.
$50 W Ti world and trend not get too far.
Say, 10% of operating cash flow on that base dividend.
And so that's a bit of a governor now we have the synergy with the share repurchases.
Surprisingly surprising how quickly you can buy back enough stock to pay for another penny increase and we will definitely be in that window again.
Yes.
Time this year.
So that's how we think about about the dividend share repurchases, obviously youre going to Goldman.
Sure.
Our return of capital program and I would expect that to continue as long as our free cash flow yield is indicative of a really efficient way to buyback.
Buyback buyback stock.
Yes, I think Neal if you look at the aggregate efficiency of our share repurchase programs. It really has been a differentiating feature for us.
Since we started that program back in October of 'twenty, one to be talking about a 20% over 20% reduction in shares outstanding and the dramatic impact that that has on per share metrics.
It's pretty notable and as they noted not only is that a very efficient mechanism.
We're getting that cash back to.
To shareholders that the synergy effect that it has with the base dividend is also pretty remarkable so.
That those mechanisms. We believe are still the case to be as we look ahead into 2023.
Yes, I love love that per share growth. It really stands out and then my second question is just on cost specifically.
Incremental cost expectations for the next few quarters seem to be now the most topical once again just curious on how volatile you all believe these costs.
Say for the next two to three maybe even four quarters, we'll continue to be.
And can you continue it seems like you've done a pretty good job in the past locking in a good piece of those I know, we're talking to Mike and the team. So just wondering when you guys look at that how youre thinking about costs here for the what's called the nearer term and lock it in.
Yeah, maybe I'll just provide a couple of comments and hand over to Mike, perhaps getting into some of the details of how we're really working to mitigate.
Those pressures in time, but when you when you think about cost overall.
We have to bear in mind that 2022 was kind of a tale of two halves of the year. The first half of the year was certainly didn't see the level of inflationary impacts that we saw in the second half. So some of the pressure that I think we're feeling not only the company, but as a sector. In 2023 is the fact that we have the full year.
The impact of those inflationary pressures and our one $9 billion to $2 billion number fully contemplate that full year impact of those inflationary pressures I think the team has done an outstanding job of.
Being very disciplined about how we lock in both capacity and cost from our service providers and maybe I'll, let Mike just expand a little bit on that point, yes. Thanks. Thanks, Mike.
Sure Neal.
Maybe a couple of things I would maybe characterize 23 at a high level, we've kind of assumes similar service costs about fourth quarter environment. So thats, probably a good starting point for you.
And maybe consistent with what we've highlighted previously and we touched on this a little bit worse than at 10, 50% inflation that is built into our 2023 budget relative to 2022.
As we mentioned in the past we've been working this one hard really.
Our objective was to <unk>.
So really base load the maintenance program kind of really try to minimize the need for Gannett.
<unk> was ballpark.
A lot of benefits in doing that from safety execution on commercial.
This week.
We've taken what I'd describe as a disciplined thoughtful approach.
Our priority has been to really protect the execution side of the business and trying to get access to the same high quality providers and equipment that we were using in 'twenty two and I can tell you have been successful there and the majority of the folks that we're working and we're working with in 'twenty three RMB and samples we're working with in 'twenty two.
As I think about the year for <unk> for the first half of the year majority of for a rig pressure pumping sand being leads all fully secured most of the prices locked in there's a little bit of open pricing, but not a lot.
Are we counting trying to index linked index linked back to the pricing mechanisms and then maybe for the second half of the year.
We've been a little bit more patient.
Feels like the right coal just given the macro volatility at the moment.
Good about our ability to access high quality providers and equipment, but with maybe being a little bit more thoughtful in terms of how much prices be well Ken.
Potentially that could work to our advantage later in the year, particularly if you see some of this commodity price weakness.
It will be seen recently about persist, especially in the natural gas side of the business that could potentially lead to less drilling completion activity, particularly in some of those higher costs.
<unk> gas please.
And maybe one just kind of closing comment as well I know, we spend a lot of time talking about inflationary pressures on the capex side of our business.
I don't want us our get our operating expenses are also a critical element of our business model and if you look at our guidance, particularly for the U S business. This year.
U S unit production expense is actually going down by circa 10%.
Year over year.
Obviously, a lot of great work by the team, but also it reflects some of the implicit efficiency that we're gaining through the scale and the performance from the Ensign acquisitions. So I just I just don't want to focus all of our.
All of our time just on Capex Opex is still a very key element of delivery of our financial metrics and so I just wanted to highlight that before we left those questions.
It's a great add thanks Lee Thanks, Mike.
Thanks Neil.
Your next question comes from Doug Leggate with Bank of America. Please go ahead.
Hey, good morning, guys. Thanks for getting me on.
So Lee tremendous acquisition in the Eagle Ford.
My question is.
Whether you have line of sight or.
Any thoughts about how you address the balance of the portfolio. Let me frame my question like this.
Slide 20, Youre showing about a 13 year inventory in the lower 48 are you also suggesting the Eagle Ford today.
There is more than 15 years, most about half of production. So I guess I am I.
I'm coming to a conclusion that the rest of the portfolio is probably sub 10.
Wondering if you could give us some thoughts as to whether about sudden reasonable maybe break it down by asset but.
How are you thinking about extending the offset way from those other parts of the portfolio of critical what please.
Yes, yes, no. Thank you Doug well first of all I appreciate you pointing out the inventory life because I do think this is an important topic. This is this is third party data that we showed in the pack. It's also kind of sub $50 <unk> breakeven data. So we just have to keep in mind that this is a very specific slice.
Inventory like to me one of the key takeaways is that were clustered in with four five other companies that are really sitting in that 12 to 15 year inventory life and so we're in a very good ZIP code. There. So I wanted to start with that as a premise we're not disadvantaged in any form or fashion.
When it comes to quality inventory lines with exceptionally low breakeven.
Getting on.
Beyond that in <unk>.
Talking about inventory life for the portfolio, but also at a basin level.
You are right in the sense that ensign has been very accretive specifically to the Eagle Ford, but as you know capital allocation and consumption rates ultimately sets.
Inventory life calculation Thats why we tend to look at it at a portfolio level as opposed to a basin level, but you can take comfort in the fact that when we look across our basins in aggregate they are.
All at that kind of 10 year or better inventory life. When we look at that from an internal perspective.
Okay.
How do you think about growing that inventory line moving forward, while I think right now we're just we're wanting to to integrate and digest, the ensign acquisition, which to us.
Was very much representative of the <unk>.
Type of acquisition that makes sense for a company like marathon right.
We talked extensively about the criteria, we use to evaluate any acquisition and it was obviously financial accretion. It was obviously industrial logic, but a big component of that was to look for assets our opportunity and would also have a net positive effect.
On inventory life, and not just long dated inventory, but the inventory that can compete right now today and that's exactly what we're seeing from the ensign acquisitions. So.
To the extent that we continue to screen and look at opportunities here in the U S and they and we find some that meet that criteria I will take a very hard look at that patent is team are constantly looking at the opportunities within our core basins, but if anything ensign has actually raised.
That bar and raised an elevated that criteria because it was so accretive to the overall enterprise and specifically the Eagle Ford metrics.
I appreciate the answer I mean, good assets in the hands of great management, but a lot of cash.
See what im going with that so thank you for the answer.
Follow up is kind of a similar question on EG.
We've been kind of struggling with us a little bit because I realize that the step change in the 18 year contract is extraordinary.
Problem, we're facing is that on our numbers. So at least on third party Dunkin' in particular.
$900 million of EBITDA more or less.
From the production it looks like is about 600 million gross going through the plant.
Our production looks to decline about 70% over the next five years.
I mean, you don't want the capital associated with the uplift this coming year.
Question is how do you maintain what are the opportunities.
In terms of might require capital.
Or third party.
I'd like to spend capital, which brings questions over what kind of margin you can actually maintain them that so I guess I'm looking for confirmation is not really the decline rate.
And how do you backfill it.
Yeah, well I think in the first of all in the decline rate on the equity.
The equity al <unk> gas condensate field, we're kind of 8% to 10% annual decline rate. So that's that's kind of the decline rate that we would typically experience within that asset.
In terms of future opportunities, let me, let me describe it like this.
First of all as I said in my opening comments, we have this world class very unique infrastructure sitting in one of the most gas prone areas of West Africa and quite frankly.
Those molecules will not get monetize unless they probably flow through EG LNG, we are the route to monetization.
And we've already demonstrated success of that if you look at the <unk> project, which as you said it.
If you will.
And others molecule or non equity project, but with that.
We were able to participate both from a tolling as well as a percentage of proceeds on the profit sharing side of that not only that but when you talk about capital we had more infrastructure built out on someone else's capital I E. The land pipeline and that was obviously critical for the Atlanta project.
But it also subsequently now connects us to additional discovered undeveloped gas that.
That we know ultimately will come to market remember, we're in the Atlantic Basin, where transportation and geographically advantaged to European market. There is no other monetization route for those molecules. So I have a very high competence that between.
Third party opportunities as well as the fact that we continue to assess both on block Alba and off block opportunities ourselves now there could be some some capital requirements there, but for third party molecule those are going to come to us and we're going to be able to participate in the upside just like we have.
In the Atlanta project, so in aggregate when I think about all of those opportunities when I think about our already demonstrated success at a land we have a commercial framework that works and that framework can be replicated. The fact that these molecules have to find a home or theyre going to be stranded gas.
I have a lot of confidence that we've got a very strong trajectory for EG LNG out to 2030 and beyond.
I appreciate the thorough answer Lee thanks, so much.
And that may have been.
Okay needed, maybe we could do one question.
For analysts to try to make our way through the remainder of the key here.
Okay.
And your next question comes from Matt Portillo with Tpa. Please go ahead.
Just a follow up to Doug's question, great to see the Texas, Delaware, making its way into the development program.
Curious if you can give us an update on the delineation plan for this year, what you've learned so far and how this might impact kind of your inventory of used to the Permian kind of moving forward.
So I'll take this morning, Matt This is Pat.
Yes, as you said, we just completed three wells on our most recent pad.
The wells are performing well to date consistent with our pre drill expectations as all three wells have achieved at least 1000 barrels of oil per day on flowback.
Bill earlier, we're still watching the wells, we need some time to look at longer term performance, but.
Early indications.
Are good they are exhibiting high oil cuts showing low water oil ratios.
A lot of low decline some positive outcome there.
Recall that we deliberately down spaced pad in Woodford to check our spacing for development, we collect a lot of fiber data and other data.
Look the optimal spacing, both vertically and horizontally.
The key takeaway so far has been Theres no communications, we've seen between the Woodford and the Meramec, which gives us strong evidence that we can successfully co developed those two reservoirs without any interference.
With regard to future development spacing I'd say early learnings from this pad appear to confirm our original view the optimal Eagle filed to go with a four by four co development.
That will be the most capital efficient way to develop the acreage.
I'll remind you that the previous pad, we had the strongest woodford oil well ever drilled in that well.
It is.
Really strong well.
We now have about 12 wells online across the 55000 acre position that we have the Woodford for the Meramec.
Very confident all of their performance very high oil productivity low water oil ratio on shell decline and we think ultimately this play is going to generate very high returns.
As Mike said in his opening remarks, no longer an exploration play fully integrated into the team it will compete for capital with the rest of the portfolio.
Said, we will drill another multi well pad this year to continue the development and we'll see how that goes.
Thanks, Matt.
As a reminder, please limit yourself to one question. The next question comes from Phil <unk> with benchmark company.
Yeah, Hi, Thanks, just curious on your gas fees yesterday, we might have seen a company that targets <unk>.
Oil and gas derivative and the risks of that strategy given what's happened in the macro world I think in your commentary.
You are more cautious on gas at least the mid con et cetera, but.
Could you talk more specifically to how you might adjust activity at all based on gas prices.
I should follow up no fault Buck Buck.
Bakken is getting gas here and how you kind of look at that going forward.
Yes. So thats. This is high this is this is Lee <unk>.
Just in terms of gas use where we're not in the business of predicting pricing yet.
Or a price taker.
We didn't have though however are very natural hedge by virtue of our portfolio I want to keep in mind that our portfolio is about 50% oil about 50% gas and NGL. So even though prices will inevitably exhibit volatility we've seen that on the gas side, we don't anticipate.
Radical changes within our capital allocation.
Program for this year could we see some small optimization here and there we will absolutely, but again, we're not going to try to predict or chase pricing because inherently.
We have a very balanced portfolio that gives us a very broad exposure our cost of coal.
Commodity deck. So we feel very good about that we talked about some of the sensitivities within our portfolio. We still are very leveraged to oil we.
We like that we think that that is a very constructive on the oil.
Now and in the future and I like the fact that for every dollar change in <unk>, that's a $70 million uplift.
In cash flow for us so I don't anticipate any any major shifts in capital allocation as a result of gas volatility.
On your other question just around the Bakken and Youll obviously.
Typically as we have moved into the Hector area et cetera, we will see some natural variation NGL are but again, we're driven by profitability I won't say we are.
Totally agnostic.
Key.
Two commodities, but again, we're going to be driven by economics.
Yes. Thank you question I'll, just chime in as well in the Bakken what Youre seeing there is maybe just the improving gas drops your situation in the basin as well on for ourselves.
We've progressively each year ago, better and better and expect that to continue so there's probably an element about playing into it as well and that's been that's.
Been a conscious investment on our part to improve that gas capture to capture that value in the field as well as obviously the emissions benefits that come with that.
Thanks <unk>.
Next question comes from Nitin Kumar with Mizuho Securities. Please go ahead.
Hey, good morning, and thanks for taking my question I'll limit myself to one question one part question.
Can you talk a little bit about how do you see capital allocation amongst your four key U S resource plays going forward.
You Didnt pointed out you had fewer wells in the Eagle Ford, but Youre also getting a few more in the Bakken than we expected for 2023. So just how should we think about the allocation of capital between the four plays.
Well, maybe I'll say, a couple things and I'll, let maybe Mike fill in some of the details but.
This year's capital allocation about 80% of the capital allocation is flowing to the Eagle Ford and the Bakken, but we also have an uplift year over year and allocation to the Permian as well based on the outstanding results that we experienced in 2022 and.
So that's what we're looking at this year I would expect that as we move March forward in time.
<unk> in the Bakken are still going to compete very very heavily our capital allocation, but theres no doubt that Permian now coupled not only with our northern Delaware position, but with the Texas, Delaware Woodford Meramec is going to start stepping up and competing more directly for capital.
There are obviously some some other subtleties within each basin in terms of how the capital allocation is falling and maybe I'll, let Mike give a little bit of color on specifically, what's happening at a basin level. Okay.
Hey, Glenn it's Mike here, Yeah just.
A little bit more detail on 'twenty three we provided direct splits.
On the wells to sales in the deck, so 9% to 10 rigs in total that's excluding the JV activities for four rigs in the Eagle Ford and that will be one on the enzyme <unk>.
<unk> got three in Bakken and then two five.
<unk> term and then one five.
<unk> rigs.
In Oklahoma.
I think we mentioned Theyre roughly 80% of the capital is going to Eagle Ford and Bakken Eagle Ford Zone.
Highest capital asset with <unk>.
<unk>.
And then maybe a little bit surprised maybe maybe not with Permian describing the majority of the remaining capital.
And really that's driven by the excellent results that we saw in Permian last year, but assets effectively competing for capital against the Eagle Ford The Bakken, which is.
There is no is no small feat, making a strong case for free even more capital in 2020 for a couple of elements to that well productivity is a big part of it seen some very very strong results. There in aggregate. The 19 wells that we brought online last year averaged.
<unk> of over 2200 barrels of oil equivalent per day, and a 70% oil cut.
Extended production history in Lea County is looking really good as well one of the Thunderbird for each well in Red Hills that achieved an IP 128 over 'twenty 100 barrels of oil per day, and I think it any coupled up with the D&C performance that we've seen the team's really excel in their completion activities, we're probably pumping.
Over 19 hours a day. Thank you combine all of that together and you see the capital efficiency.
<unk> about 2022 performance you then.
Just spiked during the great job that the teams have done as well with acreage trades and kind of adding to our average lateral lengths. It's just crosses that asset to become even more capital efficient.
Yes, that's probably overweight.
Thanks, Anita we will take one more question.
Thank you. Our next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Thanks for sneaking me in here just a quick question on capital.
Efficiency, obviously provided the 23 guide here, but are you seeing any signs of real time.
The second derivative of inflation, improving with diesel coming off chemicals, getting a little bit better just talk about what is sticky.
What might actually be moving back into your direction.
Well I think that there is no doubt that the rate of change on inflation is certainly slow and as Mike said earlier, what we have embedded.
In this year's budget to $1 $92 billion is basically the inflation levels that we saw as we exited 2022, so from our perspective to the extent that we see.
Inflation in commodities.
Like diesel et cetera start to moderate we would expect that to be basically a tailwind for us relative to not only our capital program, but also obviously, our operating cost as well.
I don't know if you want to say anything else on that.
But when you look at look at right Kevin.
Broadly speaking not definitely flattened off so from an activity perspective that should be helpful as well.
I kind of alluded to this and if you want on a previous answer.
With commodity prices, particularly gas be where they are potentially some of the gas basins, maybe in particular start to see activity and tailing off.
That potentially could be too low.
But if a weakening.
And the market as well and I'll, probably start with rigs, but then there is a knock on effect from completion crews and everything else that comes in that field.
Field service sectors. So I think Brian again, I touched on a few minutes ago, when I think about our strategy our approach to the year.
<unk>.
Most of our prices in first half of the year and that flexibility in the second half of the year I think we feel pretty good about that.
Broad macro situations.
Okay.
Thanks Neil.
This concludes our question and answer session I would now like to turn the conference back over to Lee Tillman for any clinical work.
Well. 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.
This conference has now concluded. Thank you for attending today's presentation you may now.