Q3 2023 Marathon Oil Corp Earnings Call
In the press release and presentation materials as well as the risk factors described in our SEC filings.
We will also reference certain non-GAAP terms, and todays discussion, which had been reconciled and defined in our earnings materials.
So with that intro I'll turn the call over to Lee and the rest of the team will provide prepared remarks today. After the completion of those remarks, we will move to a question and answer session.
Thank you Guy and good morning to everyone listening to our call today.
First I want to again start our call by expressing my thanks to our employees and contractors for another quarter of comprehensive execution against our framework for success.
Well done on another great quarter, while continuing to stay true to our core values as we responsibly deliver the oil and gas needs.
There are a few key takeaways I want to leave you with this morning.
First the third quarter results, we've continued to build on our track record of consistent operational execution that is translating to peer leading financial results.
Our strong execution culminated in $718 million of adjusted free cash flow at a reinvestment rate of just 38% truly exceptional delivery.
And I expect our free cash flow generation to further improve during the fourth quarter from this already strong level.
The first half weighted nature of our 2023 capital program contributed to a significant increase in our third quarter production above the top end of our full year guidance for capital spending declined.
At the same time, we remain focused on managing our unit cash cost, which declined to the lower end of our annual guidance range down more than 15% from the prior year quarter.
We are well positioned to take advantage of any market based deflation opportunities, but are ensuring that we are driving underlying efficiencies in all aspects of our business both expense and capital.
Second key takeaway this morning.
Powered by this foundation of consistent execution, we continue to lead our peer group and the broader S&P 500, and returning capital to our shareholders through our transparent cash flow driven framework that prioritizes our shareholders as the first call on cash flow.
And importantly, we're delivering on our shareholder return objectives, while continuing to enhance our investment grade balance sheet.
During third quarter, we returned $476 million to shareholders, bringing total return of capital through the first three quarters to more than one 3 billion representing.
Representing 41% of our topline cash flow from operations fully consistent with our framework.
We're offering shareholders, a double digit annualized distribution yield and pure leading her share growth.
Our consistent and committed approach to share repurchases has driven a 26% reduction to our outstanding share count over the trailing eight quarters.
Far in excess of any peer company.
We've also now reduced our gross debt by $450 million this year, including a $250 million October prepayment on our term loan.
We are well on our way to our medium term gross debt objective of about $4 billion that will further enhance our financial flexibility and lower our leverage metrics to less than one times EBITDA at a conservative oil price assumption.
Looking ahead, we remain steadfastly committed to both our return of capital program and further gross debt reduction it is not an either or proposition.
Consistent with that focus our board recently approved a 10% increase to our base dividend and an increase in our outstanding share repurchase authorization to $2 $5 million.
Importantly, this dividend raise is fully funded by the synergy with our repurchase program that also insurers we hold the line on our post dividend free cash flow breakeven price, which is the lowest in the peer group.
My third key takeaway. This morning is that our unique EG integrated gas business is now set to realize a significant financial uplift in 2024, driven by a substantial increase in our global LNG price exposure.
To this end, we recently signed a new TGF linked LNG sales agreement for our equity Alba gas.
This contract marks the conclusion of the legacy Henry hub contract, which expires at the end of this year.
In 2020 for this new contract is expected to contribute to our year on year EBITDA increase of approximately 300 million to 500 million.
Assuming TGF pricing of 15 to $20 per <unk>.
With all contractual agreements necessary to realize this uplift now formalized our focus turns to further enhancing the longer term free cash flow generation capacity in EG by optimizing our integrated gas operations, including diversion of a portion of the methanol feed gas to higher margin LNG and.
Progressing the additional phases of the EG gas Mega hub concept.
Our final key takeaways that we made we remain on track to deliver a 2023 business plan that benchmarks at the top of our high quality E&P peer group on the metrics that matter most free cash flow generation reinvestment rate capital efficiency free cash flow breakeven and production growth per <unk>.
Sure.
These differentiated outcomes are underpinned by our high quality and high return inventory that is demonstrating durable productivity year over year and offers a decade plus of running.
And as I look ahead to 2024 I expect more of the same our framework for success in our core priorities wont change.
Our objective will again be to maximize our sustainable free cash flow generation and objective. We believe is best accomplished by a maintenance all program of 190000 barrels of oil per day.
We will again strive to deliver peer leading return on capital and per share growth.
Fully expect another year of very strong well productivity and operational execution across our high quality multi basin portfolio.
And we will benefit from the added tailwind of our growing exposure to the global LNG market and the associated financial uplift.
With that I'll turn it over to Dave who will provide a brief financial update.
Thank you Lee and good morning to all on the call today is Lee.
You mentioned the third quarter was an exceptional financial.
As highlighted by $718 million of adjusted free cash flow reinvestment rate of just 38% and $476 million of capital return back to shareholders.
Importantly, we expect even stronger free cash flow generation during the fourth quarter as our capital spending continues to moderate.
It should go without saying by now, but we continue to believe that returning significant capital back to our shareholders is foundational to our value proposition in the marketplace.
We're successfully building a long term track record of consistent shareholder returns through the cycle that can be measured in years not to supporters. We're now two years into that journey and the bottom line results. Our program has delivered or both compelling and differentiated.
Over the trailing eight quarters, we've now returned $5 $1 billion back to our shareholders that's over 30% of our current market capitalization.
We repurchased $4 6 billion, our stock at attractive levels, driving a 26% reduction to our expanding share count contributing to peer leading growth on our per share metrics.
The commitment and the consistency of our approach has paid off.
And we remain committed to this powerful combination of material share repurchases, along with a competitive and sustainable base dividend.
That and we raised our base dividend by 10%. This quarter is the ninth increase in the last 13 quarters.
This increase was fully funded by share count reduction from our buyback program protecting our free cash flow breakeven, which is the lowest in our peer group.
Additionally, we have increased our outstanding share repurchase authorization to $2 5 billion, which gives us plenty of runway to continue buying stock.
But as I've said over the last few quarters. Our plan is to maintain this return of capital leadership. While also further improving our already investment grade balance sheet through gross debt reduction we can do both and that's exactly what we are demonstrating.
Now paid down $450 million of gross debt year to date, including $250 million of term loan that we paid down in October.
Looking into the fourth quarter, specifically, we aim to continue paying down the term loan at current prices, we expect to be able to pay down $400 million to $500 million in the fourth quarter and that's inclusive of the $250 million reduction.
Already executed in October.
With the variable interest rate.
The term loan carries a aggressively reducing outstanding principal with free cash flow will make a meaningful dent in our annual cash interest expense.
And we expect to continue to hit our minimum 40% of CFO shareholder return them.
Our balance sheet is very strong firmly in investment grade territory.
To be even stronger.
Our current leverage at prevailing commodity prices is around one time debt to EBITDA over the medium term. Our objective is to reduce reduce current gross debt of $5 5 billion.
Down to around $4 billion.
That would translate to a one time debt to EBITDA, assuming a $50 to $60 W. Ti price environment.
Our return our gross debt level back to where it was before the insight acquisition.
Bad financial summary, I'll turn it over to Mike.
Thanks, Dan.
Strength and sustainability of our shareholder returns and balance sheet initiatives.
Underpinned by the high quality of our U S multi basin portfolio.
Our ability to consistently execute slide.
Slide 12 highlights for delivering strong and durable well productivity, while also continuing to improve our drilling and completion efficiencies.
So what we are positioning ourselves to take advantage of commercial leverage potential inflation, we recognize that self help is fully within our control.
More specifically our average oil productivity per foot. This year is trending flat with 2020.
And at those levels, we are 25% better on a 180 day cumulative basis on our high quality peers.
In the Eagle Ford successful integration of <unk> acquisition earlier. This year is further enhanced.
Already on quantity of our inventory.
Integrated programs delivering another very strong year with.
With oil productivity flat to 2022 and oil equivalent productivity better.
In the Bakken.
We're consistently bringing online the best wells in the basin wells.
In less than six months.
With early oil productivity, 40% better than the basin average.
But also just wrapping up the drilling of our first three mile laterals in the Ajax area.
And in the Permian, we've significantly improved our capital efficiency through our transition to a two mile lateral or longer program no reliably delivering oil productivity consistent with the industry top quartile.
While underlying well productivity gets most of the external tension there are two components to the capital efficiency equation and we are equally focused on both the numerator and the denominator.
Fuel level operational execution matters and is a primary driver for well Kohl's and I'm pleased to report that our year to date execution has been strong with drilling and completion efficiencies continuing to improve.
More specifically.
Average drilling efficiency. This year is on pace for a 10% improvement versus 2022.
While our completion efficiency set for improved 15%.
We've taken advantage of improved market.
<unk> certain areas of our business, where it made sense, we placed a greater emphasis on preplanning efforts, which have reduced nonproductive time on location.
And we continue to work closely with our longer term service providers to implement incremental changes that can drive quantifiable execution improvements.
Turning to our integrated gas business in EG, great job by our teams in achieving all our targeted commercial milestones this year.
With the signing of our new Tcf late Alba LNG contract with playing for US beginning January <unk> 2024.
All the sourced LNG will no longer be sold at a Henry hub linkage current arbitrage between Henry hub and European natural gas pricing is expected to drive significant financial uplift whatever company at current forward curve pricing next year.
The year over year, EBITDA increase of $300 million to $500 million.
Assuming a tcf price range of 50 to $20 and then Btu.
What's the commercial framework and are fully in place to realize this financial question. Our focus now turns to further extending the longevity of stronger financial performance.
Next year, we'll begin devoting a portion of our Alba gas prominent in all facilities to the higher margin higher working interest LNG facility.
Highlighting the flexibility of our integrated.
<unk> operations, where we have alignment across the entire value chain.
Additionally.
We're continuing to assess up to a two well infill drilling program on the Alba block targeting high confidence low execution risk shorter cycle opportunities that could partially mitigate alba field decline beginning in 2025 and maximize the floor for equity molecules through the LNG plant.
Are all of the infill program is expected.
With the risk based returns generated from our USPS <unk> Suisse.
So any all but essential capital spending is like is unlikely to make a significant impact on our overall 2024 capital programs.
And finally, we continue to advance longer term gas Mega hub concept in EG.
As more fully described in the heads of agreement signed between ourselves the EG government and our partner Chevron earlier this year.
Yeah.
I've truly leveraging our unique world class infrastructure and one of the most gas prone areas West Africa, we expect to extend the life of EG LNG well into the next decade and further enhance our multi year free cash flow capacity.
The next phases of development likely with the same gas cap monetization as well as potential cross border opportunities.
With that I will turn it over to we will wrap up our call.
Thank you Mike.
For years, now I've reiterated that for our company and for our sector to attract increased investor sponsorship, we must deliver financial performance competitive with other investment alternatives in the market as measured by corporate returns free cash flow generation and return of capital.
More S&P <unk>.
We delivered exactly that type of performance over the last few years and counting and not just competitive but at the very top secured group.
And looking ahead to 2024, I don't expect anything to change.
To close I would be remiss, if I didn't address the competitive landscape for our sector.
We've obviously seen significant consolidation in our peer space recently.
While every transaction is unique with its own set of facts and circumstances are common takeaways clear low cost high quality traditional oil and gas assets will have a critical role to play in helping meet global energy demand for decades to come.
And within the oil and gas space, the short cycle U S shale opportunities with our advantaged risk adjusted returns and potential for further innovation will continue to be highly valued and critical to meeting that long term demand.
Recently, you may have seen articles speculating on marathons involvement in alumina and M&A.
While I won't address any specific market rumors or speculation on today's call I will reiterate that its our duty to always explore avenues to further enhance the long term value for our shareholders, whether those opportunities are organic or inorganic.
That's always been our objective and our responsibility to our shareholders and nothing has changed.
Our marathon oil our approach to M&A small or large has been consistent and.
And we will not be compromised as exemplified by the ensign transaction, which ticked all the boxes of our well established criteria.
It is about making our company better not just bigger and enhancing the delivery against our framework for success.
Any transaction must meet our tried and true principles.
Financial and return of cash accretion industrial logic within our existing basins inventory life extension and no harm to our investment grade balance sheet.
Our paradigm to shift from that of an energy transition to one of an energy expansion and I continue to believe an elite group of high quality U S. E&P company are necessary to drive that energy expansion to deliver strong financial results for shareholders. While also collectively defending use.
Energy security, playing our role in lifting millions out of energy poverty and protecting the standard of living we've all come to enjoy.
Marathon oil is well positioned to be one of those significant view companies with over a decade of high return U S unconventional inventory and a differentiated EG integrated gas business with unique and growing global LNG exposure.
I am proud of how our company is delivering for our shareholders, our financial and operational leadership speaks for itself.
And you can have confidence that our strategic framework will continue to guide all of our decisions by prioritizing strong corporate returns and sustainable free cash flow generation significant return of capital to our shareholders and ongoing resource base enhancement.
And all while protecting our investment grade balance sheet.
That we can open the line for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
The first question comes from Arun Jairam of Jpmorgan. Please go ahead.
Hey, Lee Good morning, I wanted to follow up on your M&A comments.
Wanted to get your thoughts on how you would view transactions that could potentially be viewed as more of an MAA for marathon and just maybe if you could address.
We've got numerous buy side things in an 8-K filing from MRO MRO last week that was filed under M&A or an asset disposition under Reg FD. It looks like the amendment earlier this week, but just wanted to see if you could touch upon what the deal was with that 8-K filing as well.
Yeah, no worries would be at the morning.
First of all just around M&A and whenever flavor of M&A, you want to talk about whether that's <unk> or a large bolt on transaction like we did in enzyme. The criteria is still fully in play we don't look at those really through any different lands and ill now take you back to what I stated in the prepared.
Remarks, which is.
Any transaction of scale is going to have to check all the boxes and and our criteria is going to need to be.
Financially accretive its going to ABB return of cash accretive.
It needs to add to our already high quality.
Our resource life and inventory life.
And need to have very clear industrial logic, meaning for us it is.
It exist in one of the basins, where we have high execution confidence and then finally I can't do any harm to our investment grade balance sheet and financial flexibility.
It's really irrespective of the scale, that's going to be the land the criteria that we're going to evaluate any opportunity.
Yes, let me just maybe puts arrest any of the noise created on the 8-K, we had we have not updated our corporate bylaws since back in 2016. This was just some cleanup on those bylaws there was a little bit of a mistake on how those guys classify which prompted the amendment, but there is nothing more to it.
The network.
Great.
Follow up is on EG Lee you mentioned in your press release Us earlier in October.
You had a long term sales agreement by Glencore can you talk about why they were the right partner for you and maybe you could talk about the new wrinkle, which is the ability to shift maybe some volumes for methanol, but to Tibet LNG some thoughts on what the implications of that could be.
And perhaps.
As well you could outline kind of your development program.
At Alba later in 2024.
Okay and could you just packed a lot into that question.
Let me.
Sorry about that.
Hey, you're very clever.
Let me start maybe with the.
Glen.
First I wanted to say upfront that the team the marketing team did an exceptional job of creating competitive tension in the marketplace and we had a lot of interest when we put out the RFP for those based on cargo so.
The positive of course is linked core came in with a very competitive.
<unk> with a five year term and TTM linkage.
Fixed transportation element as well they also have experience working and operating in EG.
So from a lifting scheduling standpoint et cetera, they are very familiar.
But how we operate the business there so first and foremost it was all about driving the best competitive offer.
And I think an added bonus of course is the fact that link or did have a lot of experience already in country.
On the diversion question, obviously, there we've talked a lot about the arbitrage between Henry hub, and obviously TTS in global LNG, but there is another element of arbitrage that we have available to us and <unk> as well and that is the feed gas that we send to the methanol facility and <unk>.
Cause of our alignment across the full value chain.
We can look at optimization.
Around that where we can divert some of those volumes, where we believe the highest value can be attained and as we look at and where methanol pricing and where tcf pricing under the new.
Contract terms as well as just the market in general we feel very strongly that redirecting those molecules and optimizing that flow will end up just adding some incremental value as we look ahead to 'twenty four.
And then finally I think the last element of your question was really around just the the Alba infill program and some of the opportunities that we're pursuing there.
We've described that thus far has been.
Up to a two well infill program and and as Mike mentioned in his comments.
The reason, we really like this are first of all it competes head to head from an economic return standpoint, with our U S. Resource plays but importantly, this is about as short cycle as you can get.
The offshore space.
We have very high geologic certainty this will all be jackup drilling with dry trees theres no facilities investment.
Required and so we're just working through that process and I would just say just be patient with us we'll have a lot more to say about the <unk> program.
As part of.
February budget.
Please and work program.
I think I caught everything thanks for taking me by doing it.
Okay. Thank.
Thanks again Lee.
The next question comes from Scott Gruber of Citi. Please go ahead.
Yes, good morning.
Scott.
Just looking back at your til schedule.
It's evolved over the course of the year it looks like the.
Targeted well count for the full year has ticked higher.
Yes, just a bit over the course of the year. So the question is as you look out.
At your maintenance program next year do you think you can achieve the 190.
So in oil production.
<unk> woke up from the $2 60, or so this year. If you include all the JV wells, what would you anticipate needing to take care of it next year.
Okay.
Yes, well first of all I would just say that the til count. There is there is a positive story in there which is around execution efficiency.
And obviously, we don't want to pump the brakes on that and we're achieving that kind of efficiency that Mike talked about on both the drilling and completion side, we want to continue that momentum and solid. So you saw that again net wells to sales count being a bit a bit higher.
It's still probably a little premature to talk specifically about the 2024 program, but I will tell you even with a bit of capital say from some long lead kit in EG, we expect the capital program to essentially be flattish year over year, and so I think.
The subtext to that would be that we would on a if you kind of move from maybe gross wells to net wells, we would expect on a net well basis to generally be in alignment with where we've been this year.
And a lot of that quite frankly is driven by the the productivity that we have seen that underlying productivity that was in the deck, which really shows you that as we move from 2022 to 2023, there was really no downshift in productivity and as we just started our early planning for 2020.
Four we.
We believe that's a trend that we're going to be able to support even moving into next year. So we feel very good about the capital efficiency that we're going to be able to deliver in.
In 2024, we set a pretty high bar this year.
But we believe that we can continue that trend and that momentum going into 2024.
Got it.
Yes Julian.
Drilling and completion efficiencies look robust and it's obviously, giving you some some leverage on your service contractor. So what's what's the latest thinking on kind of overall deflation potential.
Into 'twenty four.
Yes, Scott.
<unk> I'll take that one so.
It feels a little bit early to make any definitive call on 2020 for service costs.
Scott said I think we're likely trending towards that kind of low single digit year on year deflation in 'twenty four but again I think ultimately it's going to be dependent on what commodity prices do and probably more importantly, what kind of industry activity levels were quite.
I think for US looking looking at 'twenty four largest contribution to any deflation is likely going to be around steel on hydraulic horsepower.
Maybe the calendar to the categories that have significant labor any labor cost steel pretty sticky.
So don't see much movement there on when you think about D&C services, that's a big big part of that is.
Labor, So maybe an area, where we don't see as much deflation suddenly absent any kind of material.
Move in the commodities.
Maybe just providing a little bit more detail on the very serious for steel costs are trending down as I've said from kind of first half is in 2023, we're kind of thinking about 20% there.
Pretty consistent lower raw materials know capacity has opened up.
The decreased demand as well.
Similar similar story in the Frac space hydraulic horsepower soften.
Rates have come down with kind of looking at.
At 25% from those highs note what I would notice we were never contracted at those levels. So it's more just about an industry perspective suddenly high spec rig market availability is definitely improved again pricing is kind of trend is down 20% of peaks.
They're on again, we werent, we werent contracted those levels and as I mentioned anything that is going to have labor components and things like directional drilling cement coil wireline hauling all of those kind of costs are probably going to be a little bit stickier and more.
Recognizing that it's not an insignificant component of your total well cost and then maybe the last area is diesel and that is a bit of a wildcard.
Supply demand fundamentals still seems to be quite there.
Got it I appreciate all the color. Thank you.
The next question comes from roaming Chowdhry of Goldman Sachs. Please go ahead.
Hi, Good morning, Thank you for taking my questions.
On E G.
On <unk> I appreciate all of your response to <unk> questions.
I guess, one more any update you can provide us on the progress on capturing the third party is saying volumes.
Yes, I mean, I would just say that right now that thats, an active dialog as we look to bring those third party and maybe just as a little bit of a reminder, we already have a commercial model in place.
That will guide that discussion and obviously the same gas cap was also part and parcel of the heads of agreement that you signed.
Earlier this year.
But again just to maybe lay out the opportunity here. This is this is a reservoir where the operator has been producing the oil Ram. They are now looking to really turn that around and blow down the gas cap, there's already the existing our land pipeline that connects in to our gas plant and LNG plant.
So much of the infrastructure to get to our facility is already in place.
And again, we have the commercial model, which is a tolling plus.
Percentage of proceeds or profit sharing model that we already have in place for the <unk> molecules. So I would say that's just a continuing effort right now on a negotiation that just ongoing and I would just say stay tuned.
But at the end of the day. This is this is really the only monetization route.
Ultimately for that gas.
Very helpful. Thank you.
Then on slide 12, you highlighted strong productivity and efficiency gains across your U S asset base.
When you look.
Across your assets, which aid as I'm moving up from a return perspective, and probably you're going to likely demand more capital deployment over time and then the housekeeping question, which I have for you is that implied <unk> guidance or the guidance.
It's one of the biggest step done versus what we were expecting if you plan to keep.
Okay. If you plan to hit the midpoint of your FY guidance. So any color you can provide that.
Yeah, maybe let me let me start with what I think it was kind of a little bit of a question around capital allocation and how we're thinking about that certainly as we look ahead to.
For 2024.
Again, we're very very early in the cycle. So it's a bit difficult to give specifics and more to come on this but.
Certainly the Eagle Ford and the Bakken are going to continue to compete for the lion's share of capital. We do expect that because of the strong results that we've seen in the Permian and it will start competing offer a bit more capital as we finalized the 2024 plan as well and of course, you've also talked about potentially the need.
To loop in some long lead items for the <unk> program.
2024, so when you when you think about capital allocation next year.
Not any seismic shift there.
Looking at again, a couple of billion dollars inclusive of a little bit of EG spend but again Bakken eagle for the Black oil plays are coupled with a little more incremental allocation to the Permian is likely the case to be.
On the on the <unk>.
Kind of I'll call it dip <unk> squeeze against where we sit right now.
First of all we we don't get that fast about quarter to quarter variation. That's just that's just an output of our business plan. Our focus is really on delivering our annual guidance commitments, that's where we're really looking to to drive the results. So if you just reflect for instance on.
This year.
We start in our first quarter at about 186002nd quarter about 189000 barrels of oil per day third quarter at 198000 will probably be in the upper kind of $1 <unk>.
In the fourth quarter, all of that being driven by our business plan and that commitment to meet that 190, <unk> annual average and.
And we do expect just like we saw this year that there will be some quarter to quarter variation.
Into 2024, it's likely that we'll once again have a bit of a first half weighted program and that will translate into a bit of a shape to our production volumes, but at the end of the day, we believe for a nominal $2 billion program, we're going to nail that 190000 barrels oil per day because of the underlying <unk>.
Code activity durability that we're seeing in our portfolio.
Very helpful. Thank you so much.
Okay.
The next question comes from Josh Silverstein of UBS. Please go ahead.
Hey, Thanks, Good morning, guys just on EG now that you guys are willing to TTM pricey.
<unk> been pretty volatile over the last two years.
Is there anything that you guys can do to lock in some of the 300 plus million dollars uplift whether through some hedges or any other tools in the glencore contract.
Yeah, I'll, maybe say a few things and then maybe Pat jump in as well our philosophy has been that we obviously want to protect the upside.
And the linkage to TTM, our investors, we have an investment grade balance sheet, we have the lowest enterprise breakeven in the peer group, we have a very balanced portfolio from a product mix standpoint, and so when you couple all that together, we don't do we feel that we can hold some of that upside and not hedge that away.
<unk> four for our investors.
TTS, a little bit different maybe not quite as liquid as some of the other markers as well, but we believe because of the way we position this asset within our broader portfolio that where the TTM linking that's going to give us the market base upside that's going to give us the biggest about packing when anybody you're really good at all.
I mean, our contract is linked to QTS.
We have a commodity risk.
It looks at our opportunity.
Yes.
Volume increases not a lot of liquidity there will continue.
Yes.
Yeah.
That's helpful and then thanks for the commentary.
The thoughts are on spending as well on the 190 <unk> for next year can you just talk about how much runway you guys see to kind of holds.
<unk>.
Oil and total production kind of around a similar a couple of billion dollars of capex level. Thanks.
In terms of yes, we will certainly you know in the past we've talked about.
Maintenance program that can take us out five even 10 years and when you look at our inventory life in the quality of that inventory.
When we talk about a decade plus of inventory and really is thinking about projecting that maintenance program out in time.
There'll be some well mix effects as you move through the portfolio, but I believe our productivity and the durability of that productivity is pretty resilient and the example, I would use is when you look at places like the Bakken, where we've made the shift into the Hector area that type of productivity capital efficient.
See that's the board inventory there similarly, all the good work and Permian that's been done on extended laterals two miles or beyond that.
That's the type of capital efficiency that we see going forward and with the addition of something like enzyme, which had capital efficiency at or above our legacy acreage. We see that also being very additive as we look forward in time and look at projecting that maintenance program Alps.
<unk> like I said over a decade of inventory.
Okay.
Okay.
The next question comes from Doug Leggate from Bank of America. Please go ahead.
Thank you good morning, guys. Thanks for taking my questions Lee I Wonder if I could just address the balance sheet topic that you obviously touched on what your target so there but.
I wanted to kind of put it to you a little differently than say your capital structure today is still about 25% net debt.
And if you think about market recognition of value.
You've got a backward if the oil curve.
On the buyback program.
Is arguably buying but store front very backward dated oil price.
Why would it not make more sense to try and tackle.
The net debt formula to transfer value from debt to equity.
Rather than pursue the per share growth metrics.
Obviously come with the buyback program.
Yes, Doug.
Doug maybe I'll start it off and then I'll get Dave to jump in here.
First of all this for US this is not an either or proposition I mean, we are.
Consistently delivering our minimum 40% CFO back to our shareholders while also continuing.
Continuing to work against that gross debt kind of mid term gross debt target and I'll, let <unk> talk about that a little bit more on your on the stock repurchase question keep in mind that we're trying to look through the cycle. I mean this is a different business model today I mean, we're not trying to time the market or be opportunistic we're putting attendee.
Programs in place, we're getting dollar averaging we're consistently doing free cash flow yield on our shares is still well into the double digits, which mean that program is devastatingly efficient.
And so because we can do both.
What we in essence are doing so we don't have to make that choice today.
Today, and we still believe when you look at some of the numbers that <unk> shared on just how much dilution we have taken out of the share repurchase program. We've done that at a very attractive price point on our shares as well so as long as we continue to have that free cash flow yield and efficiency in our shares it's still.
Very competitive for us to focus on that per share metric and drive that that you want to say anything a little bit more about kind of how we're approaching gross debt.
And maybe how we think about prioritization.
Hey, Doug Yes. It is.
Both answer right now we feel like we've got the capacity to do both I think about the.
Investment grade balance sheet or on positive watch with one or more of the ratings agencies in our current state.
We've got a ton of flexibility with regard to debt maturities.
Over $2 billion liquidity, we've just have all the tools in the toolkit, we need to manage a glide path from $5 $5 billion of gross debt down to $4 billion over time and I think over the next 12 to 18 months.
Well positioned to do that while we meet that minimum 40% return to shareholders. So really if I was perceiving something a little more stress than that but that was showing up in our stock valuation for example.
Maybe it will be a little more urgent pace to pay down the debt, but I don't feel like we're in that situation at all and in this current pricing environment. We are generating a bunch of free cash flow and if we get a tailwind. It will just further accelerate things and remember also Doug our return of cash framework also does recalibrate as you move through.
Price bands as well so if we if we start seeing some of that Backwardation. Then obviously, we can we will adjust by virtue of the framework that we have put out to the market.
But some very clear thanks, guys. How are you thinking about this I guess my follow up is if you don't mind on EG.
I think we all recognize the coupon the capacity the potential of the legacy plants.
And clearly usually only game in town. So I think it's inevitable that you find opportunities I guess to help frame.
The current situation, though I wonder if you could share with us with what you have today.
How long do you keep the plant full in other words.
To try and kind of risk what the future opportunity needs to be if nothing else happened what do you have today in terms of longevity.
Yes, no I understand the question Doug.
Let me maybe describe it in financial terms, Doug. So we've shown very clearly the potential uplift that's going to occur in 2024 that is a very durable uplift at a minimum for the duration of this five year contract that we have with Glencore. So.
I can I can say with great confidence that that financial uplift that we're capturing in 2024 is very durable over the next five years.
Just a few of these incremental items that we're talking about the <unk> infill program as well as the same which as you say were the only game in town.
Just those relatively modest projects are going to extend the EG LNG operating life well into the next decade.
And that's wonderful and that gives us a much broader runway on cash flows and EBITDA, but it also provides some time for us to continue to work on things like the cross border opportunity. Some of the discovered undeveloped assets that could really be game changers for us and they just take two.
Time to mature.
And so when we think back of land was kind of the first step now we've moved on to the next step which is a recalibration of the commercial terms from there. We're now looking at diversion options from methanol because it makes value sense to do so and finally, the Alba infill work is under evaluation.
Relation right now between ourselves and our partners and the commercial terms are being discussed with the same so.
Just with those few incremental wins and I hope you see that we've demonstrated a track record of actually actually capturing those wins will extend EG LNG like I said well out into the next decade.
Great. Thanks for the answers guys appreciate it.
Thank you. The next question comes from Neal Dingmann from <unk>. Please go ahead.
Hey, good morning, guys. Thanks, so sadly.
My first question is on maybe for John just on the regional activities, specifically Im just wondering whats what do you view sort of upcoming quarterly plans for the Bakken and Permian is it seems like the Bakken activity remains brisk with <unk>.
20, plus wells to sales quarterly why the Permian.
Incremental activity has gone back to a couple of wells.
Yes, yes.
Naturally there's going to be some ebb and flow from a capital allocation standpoint first of all I just want to recognize the Bakken team had a tremendous third quarter and that was as usual that was a combination of things. We brought on some fantastic wells execution efficiency was strong, which we've already talked about we're getting more.
More wells to sales days.
The team did an amazing job of keeping our facility up and running I mean, our most profitable barrels are the ones that we've already invested in keeping online doing things like a very aggressive workover programs. All of these things are contributing to that very strong performance that you saw in the Bakken.
But again, we're going to balance capital allocation across that's one of the beauties of the multi basin model.
And we're going to move that capital and take advantage of the efficiencies that we have across all of the base.
Like if you wanted to add anything else, maybe just the other the only other thing I'd add.
It was stolen.
Don't interpret lateral wells to sales of lack of activity.
We've got nine rigs running at the moment, we've got a couple of JV rigs running the three rigs running in Bakken and Eagle Ford.
I actually got three running in between Oklahoma Northern pardon.
Permian so.
I think that's an indicator.
But the volume that will be placed in dot asset.
The potential future upside I think it's going to be.
A key contributor for US next year is just maybe wells to sales in the fourth quarter and third quarter for that matter just dug in a little bit, but I wouldn't read too much into it.
Great details, Mike and then Lee just a follow up.
I'm just wondering how does the broad M&A market look today in terms of just potential deals or quality of deals out there versus its good question.
I'd say versus exactly a year ago today, when you announced the <unk> deal.
Yeah.
<unk>.
The ensign deal for us was a little bit of a uniform in the sense that it did check all the boxes R&R criteria.
And as we look at what's in the market today are rumored to be in the market today.
I have to say frankly that they really don't tick the boxes on our criteria.
They may take one or two possibly.
But we can be patient I mean, we have in a tremendous amount of organic opportunity that was made only stronger with the addition of ensign remember inside added 600, plus wells into the Eagle Ford very high quality wells and keep in mind that we're already 700, plus existing wells many of those with earlier.
Early designs for the completion and we took no credit for redevelopment and re Frac, which based on our legacy experienced in the Eagle Ford, We know will ultimately compete for capital as well.
When I look at what's out there today, Neil we're just not seeing anything that would really fit.
Our criteria and Theres, just no need for us to compromise.
No I totally great. Thanks, Lee so much.
Bye bye.
The next question comes from Phillips Johnston from capital one. Please go ahead.
Hey, guys. Thank you Lee you just touched on the 190 for next year and how there are some similarities to to this year just in terms of activity waiting.
This might be too granular, but relative to the high 100 <unk> exit rate.
After a pretty flush Q3 here can you maybe directionally talk about the sequential quarter over quarter trajectory from Q4 into Q1.
Yeah, well I think you probably can be pretty well informed just by looking at what we have done in the past right. If you go back and you kind of look at and how we have trended even from 'twenty two to 'twenty three that's probably a good indicator I know inside may have muddied the waters a little bit this year early.
In the year, but if you get down to the underlying legacy business that profile, where we come in probably a little bit lighter like I said just look at <unk> and 2023 were 186189 now we're at 198, probably trending towards the high 100, <unk> in the fourth quarter that kind of profile.
Causing the way that we laid our capital Directionally. That's what you should expect to see in 2024 and again.
We will give a lot more color and granularity on that in February but that shape and that concentration of capital in the first half that's going to feel very familiar relative to this year.
Okay, but the only thing I'd.
Got it.
So if you look back to this time last year fourth quarter last year, we brought 26 wells to sales.
This quarter, sorry fourth quarter of last year, we brought 22 quarters in Mexico.
Last year, we brought 22 wells to sales this quarter.
We're projecting 26, so it was a playbook with it.
Labor there though.
We've tried and tested it works well.
Yes, just really building on these columns there.
Okay, Great and then just one more follow up on AG I guess.
I think in the past you guys had talked about sort of an 8% to 10% natural PDP decline rate. There. So wanted to check to see if that's still a good number and then.
Obviously, youre still evaluating the two infill wells, but if you were to drill those.
How might that impact your production trajectory in EG just over the next couple of years.
Yes.
The questions were those wells more than offset those declines and to keep production relatively flat or just offset some of the declines.
First of all Youre, 10% decline numbers in the right Zip code.
Terms of thinking about our gas production.
<unk> in there for sure.
With respect to the infill wells obviously.
We've talked about not the two wells, even if we get to the two well program. What we're talking about is partially mitigating the decline and of course, those wells wouldn't even be coming online until 2025, but the beauty of those wells. They are very high value molecules for us because of our alignment again across the.
<unk> change from the Alba PSC all the way through the LNG plant those are going to be extremely valuable equity molecules. So if I.
If I accept the fact that we are.
We won't obviously offset all of the decline, but if you look at it through a financial lens and being able to extend our financial performance.
The integrated asset those wells are really going to help us there.
Alright, great. Thanks Lee.
This concludes our question and answer session I would like to turn the conference back over to Lee Tillman for closing remarks.
Alright. Thank you for your interest in marathon oil and I'd like to close by again thanking all our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs now more than ever.
Cannot be prouder of what they achieve each and every day. Thank you and that concludes our call.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.