MARATHON OIL CORP (MRO)·Q4 2023 Earnings Summary

Executive Summary

• Q4 2023 delivered solid cash generation despite softer realizations: net income $397M ($0.68) and adjusted EPS $0.69; revenue from contracts with customers $1.585B; free cash flow rose to $681M (from $573M in Q3) while adjusted CFO was $980M .
• Capital returns and balance sheet remain focal: $417M returned to shareholders in Q4; FY23 totaled $1.724B (41% of adjusted CFO) with a 9% share count reduction and $500M gross debt reduction .
• 2024 guide initiated: $1.9–$2.1B capex, ~190 kbopd oil at midpoint (Q1 weather impact ~-4 kbopd), at least 40% of adjusted CFO to shareholders, and ~$1.9B FCF at $75 WTI/$2.50 HH/$10 TTF; AMT at 15% partially offset by ~$150M R&D credits .
• Structural uplift from EG: all 2024 LNG cargoes contracted to global price indices (TTF/JKM); management guided 2024 EG EBITDAX of $550–$600M at $10 TTF and ~$2.5B cumulative over 5 years at $10 TTF/$80 Brent, underpinning medium‑term cash flow visibility .

What Went Well and What Went Wrong

• What Went Well
  • Sequential FCF improvement: Q4 free cash flow rose to $681M (from $573M in Q3); adjusted FCF was $624M (vs $718M in Q3) as capex moderated and CFO remained strong; management highlighted $2.2B adjusted FCF for 2023 and disciplined capital returns .
  • EG repricing to global LNG executed: first cargo lifted under new terms; all 2024 cargoes contracted at TTF/JKM linkages, expected to materially lift EG results in 2024 .
  • Shareholder-first framework intact: returned 41% of adjusted CFO in 2023 ($1.724B), raised base dividend 22% vs YE22, and reduced gross debt by $500M while reiterating “shareholder gets the first call on cash flow” .
• What Went Wrong
  • Unit costs ticked up: U.S. unit production costs rose to $6.51/boe in Q4 (from $5.07 in Q3), driven by fewer net wells to sales and higher opportunistic workover activity .
  • International underlift and lower realized liquids pricing weighed on EG: Q4 EG sales volumes below production (underlift), with $2.30/boe unit costs and Q4 crude realizations of $47.43/bbl ahead of contractual shift beginning 1/1/24 .
  • YoY earnings lower on price backdrop: diluted EPS fell to $0.68 vs $0.82 in Q4’22 despite solid execution; adjusted EPS $0.69 vs $0.88 in Q4’22 .

Financial Results

Segment income

KPIs

Notes: Non-GAAP metrics (Adjusted EPS, Adjusted CFO, Adjusted FCF, Reinvestment rate) are defined and reconciled in company materials .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We generated $2.2 billion of adjusted free cash flow, returned $1.7 billion of capital back to our shareholders, and reduced gross debt by $500 million…These results are a strong testament to the quality of our multi-basin portfolio, the discipline in our capital allocation framework” — Lee Tillman, CEO .
• “We expect our $2 billion capital program to deliver approximately $1.9 billion of free cash flow…We’ll stay true to our CFO return of capital framework, expecting to return at least 40% of our CFO to shareholders” — Lee Tillman .
• “Our EG business now has no Henry Hub exposure…now fully realizing global LNG pricing…we’re expecting our EG business to generate cumulative EBITDAX of approximately $2.5 billion [5 years] assuming flat $10 TTF” — Lee Tillman .
• “With our stock trading in the low $20 per share range and at a free cash flow yield in the mid-teens at strip pricing, repurchases remain highly value accretive” — Dane Whitehead, CFO .
• “We expect…flat total company oil production of approximately 190,000 barrels of oil per day…with 5% to 10% fewer net wells to sales than last year” — Mike Henderson, EVP Operations .

Q&A Highlights

• M&A discipline: High hurdles remain—accretion to financials and ROC framework, inventory life, industrial logic in known basins, and no harm to IG balance sheet; patience supported by 10+ years of inventory .
• EG durability: 5‑year outlook aligns with sales agreement, but management sees path to extend beyond 2030 via infill and third‑party gas; recent supermajor exit in EG seen as unique and not directly relevant to MRO’s path .
• Capital efficiency drivers: Peer‑leading well productivity across basins, longer laterals (+~5% companywide in 2024), modest deflation; Bakken productivity guided marginally higher in 2024 .
• Capital returns mix: Variable dividend remains secondary; buybacks prioritized given valuation and per‑share growth leverage; continued gross debt reduction targeted toward ~$4B gross debt over time .
• Permian/OK evolution: Texas Delaware program is now in development; longer laterals and cost efficiencies expected as team integrates learnings from Oklahoma .

Estimates Context

• S&P Global consensus EPS and revenue estimates for Q4 2023 (and the prior two quarters) were unavailable via our data connector at this time; as a result, we are not presenting vs‑consensus comparisons for this recap. We attempted to retrieve “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q2–Q4 2023 but received a mapping error for MRO; we will update when S&P Global mapping is restored.
• Where appropriate, investors should note that results included non‑GAAP adjustments (Adjusted EPS, Adjusted CFO, Adjusted FCF), with reconciliations provided in company materials .

Key Takeaways for Investors

• 2024 free cash flow visibility: ~$1.9B FCF at the reference deck with ≥40% of adjusted CFO to be returned to shareholders supports ongoing buybacks/dividends and debt reduction .
• EG is a structural tailwind: full shift to global LNG pricing (TTF/JKM) and guided 2024 EG EBITDAX of $550–$600M underpin medium‑term cash flows; 5‑year cumulative EG EBITDAX outlook ~$2.5B at $10 TTF/$80 Brent .
• Capital efficiency improving: flat oil with 5–10% fewer net wells and ~5% longer laterals; cap weighted to 1H sets up stronger 2H volumes/FCF .
• Taxes mitigated: 15% AMT partially offset by ~$150M of R&D credits—an upside to many models per management .
• Cost watch item: U.S. unit costs rose to $6.51/boe in Q4 on lower wells to sales and workovers; management expects 2024 U.S. unit costs to be consistent with FY23 averages .
• Balance sheet and ROC: $500M FY23 debt reduction and ongoing intent to move toward ~$4B gross debt, while maintaining peer‑leading shareholder distributions .
• Risk/catalysts: Commodity price sensitivity across oil/LNG; execution on EG infill and third‑party gas; M&A optionality remains but bar is high; first‑half weighted capex implies H2 operational/cash catalysts .

Additional details and reconciliations are available in Marathon Oil’s Q4/FY23 press release and call materials .