Marathon Oil Corporation reported a third quarter 2020 net loss of $317 million, or $0.40 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. The adjusted net loss was $219 million, or $0.28 per diluted share. Net operating cash flow was $345 million, or $352 million before changes in working capital.
- Third quarter free cash flow generation of $180 million through strong execution across all elements of business
- Third quarter capital expenditures of $176 million on successful and efficient resumption of drilling and completion activity; 25% reduction to completed well cost per lateral foot vs. 2019 average
- Third quarter U.S. unit production cost of $4.32 per boe on strong cost control, a 13% reduction from 2019 average; reduced full year 2020 U.S. unit production cost guidance by more than 5%
- Third quarter total Company oil production of 172,000 net bopd; full year 2020 total Company oil guidance unchanged at midpoint
- Third quarter total Company oil-equivalent production of 370,000 net boed; full year oil-equivalent guidance raised by 5,000 net boed at midpoint
- Ended third quarter with $4.1 billion of liquidity, including $3.0 billion undrawn revolving credit facility and $1.1 billion of cash and cash equivalents; investment grade credit rating at all three primary rating agencies, including recent outlook upgrade to stable by S&P
- Subsequent to end of third quarter, reinstated quarterly base dividend at 3 cents per share and reduced gross debt by $100 million
- Committed to transparent capital allocation framework that provides free cash flow visibility and makes meaningful cash flow available for investor-friendly purposes across a broad range of commodity prices
"While we continue to manage through commodity price volatility and the ongoing COVID-19 pandemic, third quarter represented an inflection point in what has been a transitional year, highlighted by $180 million of free cash flow generation on strong execution across all elements of our business," said Chairman, President, and CEO Lee Tillman.
"We believe our unwavering focus on how we allocate capital, how we manage our cost structure, and how we execute is clearly paying off. Third quarter free cash flow more than funded the reinstatement of our base dividend and a gross debt reduction of $100 million, consistent with our objective to return capital to shareholders and enhance our balance sheet. We are well positioned to continue doing both in the current environment."
"We have also committed to a transparent capital allocation framework that provides visibility to compelling free cash flow generation and the dedication of meaningful cash flow to investor-friendly purposes," continued Tillman. "Beyond just a commitment, we have a unique track record of delivery on this framework since 2018. We believe we have successfully positioned our company for industry leading capital efficiency and sustainable free cash flow generation at lower and more volatile mid-cycle pricing."
United States (U.S.)
U.S. production averaged 297,000 net barrels of oil equivalent per day (boed) for third quarter 2020. Oil production averaged 159,000 net barrels of oil per day (bopd). U.S. unit production costs were $4.32 per boe, a reduction of approximately 13% in comparison to the 2019 average.
Third quarter marked a successful and efficient resumption in drilling and completion activity for Marathon Oil following the full pause in activity during second quarter. During third quarter, the Company brought a total of 18 gross Company-operated wells to sales and delivered an average completed well cost per lateral foot reduction of more than 25% in comparison to the 2019 average. Consistent with prior guidance, second half 2020 gross Company-operated wells to sales will be weighted to fourth quarter.
In the Eagle Ford, Marathon Oil's third quarter 2020 production averaged 91,000 net boed. Oil production averaged 53,000 net bopd on 9 gross Company-operated wells to sales. In the Bakken, production averaged 98,000 net boed, including oil production of 69,000 net bopd. The Company brought 8 gross Company-operated wells to sales during third quarter in the Bakken. Oklahoma production averaged 73,000 net boed in the third quarter 2020, including oil production of 18,000 net bopd. Northern Delaware production averaged 26,000 net boed in the third quarter 2020. Oil production averaged 14,000 net bopd on 1 gross Company-operated well to sales.
Equatorial Guinea production averaged 73,000 net boed for third quarter 2020, including 13,000 net bopd of oil. Unit production costs averaged $1.76 per boe.
Marathon Oil reduced its full year unit production operating expense guidance for both U.S. and International segments by over 5% and 8% respectively. The Company also raised its full year U.S. oil-equivalent production guidance by 5,000 net boed at the midpoint.
Marathon Oil's full year 2020 capital spending guidance and midpoint of oil production guidance remain unchanged.
Disciplined Capital Allocation Framework
Marathon Oil recently provided an update on a transparent capital allocation framework that prioritizes sustainable free cash flow generation across a broad range of commodity prices.
In a $40 to $45/bbl WTI oil price environment, the Company plans to target a total capital spending reinvestment rate of approximately 70% to 80% of cash flow from operations, with 20% to 30% of cash flow available for investor-friendly purposes - prioritizing balance sheet enhancement and return of capital to shareholders.
In an oil price environment above $45/bbl WTI, Marathon Oil plans to target a total capital reinvestment rate of approximately 70% or less of cash flow from operations, with 30% or more of cash flow available for investor-friendly purposes.
Marathon Oil's resilience to lower commodity prices is underpinned by a free cash flow breakeven below $35/bbl WTI in its 2021 benchmark maintenance scenario. This maintenance scenario would deliver total Company 2021 oil production in line with the fourth quarter 2020 for approximately $1 billion in total capital spending.
In all commodity price environments, the Company will continue to prioritize free cash flow generation and corporate returns improvement. While production growth will remain an output of the Company's capital allocation process, growth will be capped at 5% in higher price environments, underscoring a commitment to capital discipline and free cash flow generation.
Net cash provided by operations was $345 million during third quarter 2020, or $352 million before changes in working capital. Third quarter capital expenditures totaled $176 million.
Total liquidity as of September 30 was approximately $4.1 billion, which consisted of an undrawn revolving credit facility of $3.0 billion and $1.1 billion in cash and cash equivalents. The third quarter ending cash balance included the remarketing of $400 million tax exempt bonds at a weighted interest rate of 2.25%.
Subsequent to the end of third quarter and consistent with prior announcements, Marathon Oil reinstated a quarterly dividend at 3 cents per share and completed a cash tender for an aggregate principal amount of $500 million of its outstanding $1 billion 2.8% Senior Notes due November 2022.
The tender proactively reduced the Company's next significant debt maturity and resulted in a gross debt reduction of $100 million. Both the fourth quarter dividend payment and gross debt reduction were more than fully funded by third quarter free cash flow generation of $180 million.
The adjustments to net loss for third quarter 2020 totaled $98 million, primarily due to unrealized losses on derivative instruments, the income impact associated with an equity method investment impairment, pension settlement, and other non-recurring costs.