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MARATHON OIL CORP (MRO)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 delivered solid execution: total revenues and other income rose to $1.71B, GAAP EPS $0.62 and adjusted EPS $0.63; free cash flow increased to $442M with adjusted FCF $364M as capex remained front‑half weighted and production stepped up sequentially .
  • Guidance unchanged: 2024 oil 185–195 kbopd, total 380–400 kboed, capex $1.9–$2.1B; company expects oil to peak ~200 kbopd in Q3, capex to decline in Q3/Q4, and price‑normalized FCF to increase sequentially in both quarters .
  • Returns and capital structure: $294M returned (incl. $231M buybacks and $63M dividend); buybacks discontinued post ConocoPhillips merger announcement; dividend capped at $0.11 under merger agreement; gross debt reduced ~$130M to $5.3B; cash $77M .
  • No earnings call due to pending merger; operational catalysts into 2H: Q3 oil peak, LNG pricing uplift in EG (realized $8.52/mcf) and continued drilling/completion efficiency gains .

What Went Well and What Went Wrong

  • What Went Well

    • Sequential production growth and efficiency: U.S. oil rose to 183 kbopd (vs. 172 kbopd in Q1), U.S. unit cost fell to $6.21/boe; 99 gross operated wells to sales (above 85–90 guidance) on continued drilling/completion efficiencies .
    • EG LNG uplift and optimization: shifted Alba gas from methanol to higher‑margin LNG; realized $8.52/mcf on Alba LNG sales, supporting International segment income of $79M and $77M in equity distributions .
    • Strong cash generation despite heavy 1H capex weighting: CFO $1,088M; FCF $442M (adjusted FCF $364M), with guidance reiterated and sequentially improving normalized FCF expected in 2H .

  • What Went Wrong

    • Shareholder return mix constrained by merger: buybacks discontinued; dividend increases restricted to $0.11/quarter under Merger Agreement, limiting capital return flexibility despite cash generation .
    • Gas price headwinds in U.S.: realized U.S. gas price fell to $1.42/mcf (from $1.97 in Q1), partially offset by oil/NGL realizations and EG LNG uplift .
    • Opex items up sequentially: G&A rose to $99M (from $86M), taxes other than income to $103M (from $96M), though operating margin still improved on higher revenue .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenues from contracts with customers ($MM)1,484 1,538 1,666
Total revenues and other income ($MM)1,513 1,551 1,707
Income from operations ($MM)454 448 523
Net income ($MM)287 297 349
Diluted EPS ($)0.47 0.52 0.62
Adjusted net income ($MM)295 317 357
Adjusted EPS ($)0.48 0.55 0.63
Operating margin (%)30.0% (454/1,513) 28.9% (448/1,551) 30.6% (523/1,707)
Net income margin (%)19.0% (287/1,513) 19.1% (297/1,551) 20.5% (349/1,707)
Segment income ($MM)Q2 2023Q1 2024Q2 2024
United States365 334 379
International30 82 79
Not allocated to segments(108) (119) (109)
Net income (check)287 297 349
KPIsQ2 2023Q1 2024Q2 2024
Oil production (kbopd) – U.S.181 172 183
Oil production (kbopd) – International8 9 8
Total oil (kbopd)189 181 191
Total production (kboed) – U.S.356 326 351
Total production (kboed) – International43 45 42
Total production (kboed)399 371 393
U.S. unit production cost ($/boe)—6.77 6.21
Wells to sales (gross; excl. JV)—49 99
EG realized LNG price ($/mcf)—7.21 8.52
Net cash from ops ($MM)1,076 757 1,088
Capital expenditures ($MM)623 603 665
Free cash flow ($MM)442 271 442
Adjusted FCF ($MM)531 239 364
Return of capital ($MM)—349 294
RealizationsQ2 2023Q1 2024Q2 2024
U.S. crude & condensate ($/bbl)72.49 75.39 79.12
U.S. NGLs ($/bbl)18.72 22.24 21.18
U.S. natural gas ($/mcf)1.89 1.97 1.42
EG average total gas ($/mcf)0.24 3.71 4.96

Notes: Adjusted metrics and non‑GAAP definitions per company disclosures . No Q2 earnings call was held due to the pending merger with ConocoPhillips .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Oil production (kbopd)FY 2024Same as current range 185–195 Maintained
Total production (kboed)FY 2024Same as current range 380–400 Maintained
Capital expenditures ($B)FY 2024Same as current range 1.9–2.1 Maintained
Oil production peakQ3 2024—~200 kbopd expected New quarterly cadence detail
Capex cadence2H 2024—Declines sequentially in Q3 and Q4 New quarterly cadence detail
Price‑normalized FCF2H 2024—Expected to increase sequentially in Q3 and Q4 New quarterly cadence detail
Share repurchases2H 2024Active programDiscontinued post‑merger announcement Suspended
Dividend policy2H 2024Base dividend $0.11/shCannot increase above $0.11/sh under Merger Agreement Restricted

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Capital efficiency & extended lateralsEmphasis on capital and operating efficiency; plan to improve underlying capital efficiency in 2024 . Q1: 25% 3‑mile laterals; >20% per‑foot well cost reduction; record Permian pad .Brought 99 gross wells to sales, above guide, on continued drilling/completion efficiencies .Improving execution and pace .
EG LNG & Gas Mega HubShift to global LNG pricing; 2024 EG EBITDAX guide $550–$600M; 5‑year ~$2.5B scenario at $10 TTF . Q1: realized $7.21/mcf LNG; optimizing gas flows; Alba infill sanctioned .Realized $8.52/mcf LNG; continued optimization; International income $79M; $77M distributions .Strengthening cash economics .
Shareholder returnsReturn at least 40% CFO; heavy buybacks . Q1: $350M (41% CFO) returned .$294M returned; buybacks discontinued; dividend capped under merger .Downshift in buybacks due to M&A .
2024 cadence / guidance2024 plan to benchmark top of sector . Q1: Guidance unchanged; 1H capex weighted; production to rise .Guidance unchanged; Q3 oil peak; capex to decline, FCF to rise sequentially .Maintained outlook with clearer 2H cadence .
M&A / corporate actionsPrudent M&A framework; disciplined criteria .—Pending merger with ConocoPhillips; no call held .
Taxes (AMT/R&D credits)Expect ~$150M R&D credits to offset 2024 AMT cash payments .—Not updated in Q2 materials (no call) .

Management Commentary

  • Strategy and performance focus (prior quarter): “We’re expecting $2.2 billion of free cash flow this year… we’ll return at least 40% of our CFO to shareholders… and we believe all these results are sustainable.” – CEO Lee Tillman (Q1 call) .
  • EG LNG and sustainability (prior quarter): “We began marketing our own share of Alba LNG directly into the global LNG market… we continue to expect $550 million to $600 million of total E.G. EBITDAX this year, assuming $10 TTF.” – CEO Lee Tillman (Q1 call) .
  • Capital efficiency (prior quarter): “Extended laterals remain a compelling opportunity… well cost savings on a per foot basis of more than 20% versus comparable 2‑mile laterals.” – EVP Operations Mike Henderson (Q1 call) .
  • Q2 note: Company did not host a Q2 earnings call due to pending merger with ConocoPhillips .

Q&A Highlights

No Q2 earnings call was held due to the pending merger with ConocoPhillips . Key recent Q&A themes from Q1:

  • Refracs/redevelopment economics competitive with new drills; ~600 opportunities identified across Bakken/Eagle Ford, often integrated alongside primary development .
  • Permian trajectory: disciplined ramp, strong early productivity, focus on proven benches and longer laterals; 20+ years of inventory at current pace (subject to activity) .
  • EG strategy: optimization between methanol and LNG; potential to further aggregate regional gas; 5‑year EBITDAX scenario underpins sustainability .

Estimates Context

  • S&P Global (Capital IQ) consensus for Q2 2024 revenue and EPS was unavailable via our estimates tool at the time of analysis due to a mapping issue. As a result, we cannot present a beat/miss vs consensus for this quarter. We attempted to fetch: Primary EPS Consensus Mean and Revenue Consensus Mean for Q2 2024, but the request failed due to missing CIQ company mapping for MRO. Values retrieved from S&P Global were not available due to the mapping error.*

Key Takeaways for Investors

  • Sequential operations inflection into 2H: Q3 oil expected to peak ~200 kbopd; capex to step down and normalized FCF to rise sequentially in Q3/Q4—setup favors cash yield momentum in 2H .
  • LNG uplift is real and durable: EG realized $8.52/mcf on LNG sales, and optimization of gas flows continues to enhance international margins and cash distributions .
  • Efficiency drive continues: above‑plan wells to sales and lower U.S. unit costs validate D&C execution; productivity and extended laterals remain levers for capital efficiency in core basins .
  • Capital returns constrained near term: buybacks halted and dividend capped at $0.11 under merger terms; balance sheet still improving (gross debt down ~$130M to $5.3B) .
  • No call/limited new disclosures: Guidance intact and 2H cadence clarified, but absence of a call removes typical real‑time color; monitor merger milestones and Q3 production delivery .
  • Watch commodity mix: strong oil/NGL realizations offset weaker U.S. gas prices; continued EG LNG exposure provides a favorable hedge to U.S. gas weakness .