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Text: Those documents can be found on our website at marathonoil.com.
We'll also hear from Dane and from Mike today before we move to our question-and-answer session.
I can best describe 2021 as a year of comprehensive delivery against our framework for success, highlighted by financial results that are not only superior to our E&P peers, but more importantly, superior to any other sector of the S&P 500.
And we are carrying that momentum forward into 2022, fully expecting another year of outstanding delivery.
There are a few key messages I want to highlight today.
First, after accelerating our balance sheet objectives through gross debt reduction, fourth quarter transitioned to a focus on returning a compelling amount of capital to our equity investors.
Our cash flow-driven return of capital framework uniquely prioritizes our shareholders as the first call on cash flow generation, not the drill bit.
And our recent actions underscore both our commitment to prioritizing our shareholders and the power of our portfolio in a constructive price environment.
The outcomes speak for themselves.
During the fourth quarter, we returned over 70% of our cash from operations or more than $800 million to our equity investors, significantly exceeding our minimum 40% commitment.
To clarify, that 70% of our cash flow from operations, not our free cash flow.
That $800 million actually equates to around 90% of our free cash flow during the fourth quarter.
In total, we have now executed $1 billion of share repurchases since October, driving an 8% reduction to our outstanding share count in just four and a half months.
While others in our space may once again be focused on growing their production, we are focused on growing the per share financial metrics that matter most to our equity valuation, our cash flow per share and our free cash flow per share.
Further, we continue to believe buybacks remain an excellent use of capital.
Dane will discuss our perspective in more detail, but to summarize, we see good value in our shares.
We are driving significant underlying per share growth, and buybacks are highly synergistic with base dividend growth over time.
Speaking of our base dividend.
We recently raised our quarterly base dividend for the fourth consecutive quarter, fully consistent with our objective to pay a competitive and sustainable base dividend to our shareholders.
My second key point today is that we are successfully executing on our mandate to deliver financial outcomes that are not only superior to our E&P peer group, but are superior to the broader S&P 500 as well.
As I've said before, for our company and for our sector to attract a broader universe of investors, we must deliver competitive financial performance with other investment opportunities in the market as measured by free cash flow generation and return of capital even when commodity prices are much lower than they are today, all the way down to $40 to $50 WTI range.
We believe we have built that type of resilience into our business.
And we must deliver truly outsized free cash flow and return of capital versus the S&P 500 when we experienced constructive commodity price support as we are seeing today.
Our 2021 results are a strong testament to this mandate.
Over $2.2 billion of free cash flow at a reinvestment rate of 32% in 2021, including over $900 million of free cash flow at a 22% reinvestment rate during the fourth quarter alone, a peer-leading return of capital profile driving significant per share growth, a tremendous balance sheet following $1.4 billion of gross debt reduction last year and a demonstrated capital efficiency advantage relative to other E&P no matter how you want to analyze the publicly available data.
My third key message today is that this peer-leading financial and operational performance we have been delivering is sustainable.
Our $1.2 billion 2022 capital program is fully consistent with our disciplined capital allocation framework that prioritizes sustainable free cash flow generation and per share accretion over production growth.
We expect to deliver over $3 billion of free cash flow at a reinvestment rate of less than 30%, assuming $80 WTI and $4 Henry Hub prices at a discount to the current forward curve.
These financial outcomes are sustainable for years to come and are underpinned by over a decade of high-return, high-confidence inventory, and it's further supported by our bottoms-up five-year benchmark maintenance scenario, which has now been extended out to 2026 and which delivers annualized financial outcomes similar to 2021 and 2022 on a price-normalized basis.
While our five-year benchmark scenario is based on a well-by-well execution-level model, our longer-term portfolio modeling extends the maintenance scenario out 10 years and shows that we can deliver the same peer-leading financial outcomes for at least a decade.
Importantly, we retained significant upside leverage to commodity prices that differentiates us versus our peers for three distinct reasons.
First, we will remain disciplined and will not add production growth capital to our budget in 2022.
Our focus will remain on free cash flow generation, return of capital and per share financial metrics.
Second, we have an attractive hedge book that preserves our cash flow upside.
And third, we don't expect to pay U.S. federal cash income taxes until the second half of the decade, an advantaged outlook versus most peers.
My fourth and final key point today is that Marathon Oil is fully committed to meeting global energy demand while delivering comprehensive ESG excellence, focusing on each element of ESG.
Suffice to say, I believe our employees should be just as proud of our ESG delivery in 2021 as they are of our peer-leading financial and operational results.
I'll speak to Slide 7 through 9 of our deck, largely focusing my comments on our return of capital accomplishments and outlook.
Grounding our discussion, our return on capital framework is summarized on Slide 7, and that is unchanged.
As a reminder, our framework calls for delivering a minimum of 40% of cash flow from operations to our equity holders when WTI is at or above $60.
This represents a return of capital commitment at the top of our E&P peer space and that is competitive with any sector in the S&P 500.
Importantly, as Lee mentioned, our return on capital targets are based on our cash flow from operations and not on our free cash flow.
This is purposeful, intended to make clear that our shareholders will get the first call on cash generation.
Additionally, it's consistent with our reinvestment rate-driven approach to capital spending.
By staying disciplined and by maintaining a low reinvestment rate, we protect a significant percentage of our CFO for shareholder distributions.
While frameworks and commitments are important, we believe establishing a consistent track record of delivery quarter in and quarter out, is ultimately key to building and maintaining trust and credibility with the marketplace.
We have a multiyear track record of returning significant capital to our shareholders and are especially proud of our accomplishments in 2021.
We started 2021 with the top priority of balance sheet improvement, accelerating $1.4 billion of gross debt reduction during the first three quarters of the year.
After taking our net debt to EBITDA comfortably below one time at strip and below 1.5 times at our conservative longer-term planning basis of $50 WTI, we have no longer need to accelerate additional debt reduction.
So going forward, we plan to simply retire debt as it matures.
Our balance sheet repositioning opened the door for us to begin returning a significant amount of capital to equity holders during the fourth quarter, and that returns beyond our base dividend.
Stepping back and looking at full year 2021 demonstrates our commitment to allocating cash flow to shareholder friendly purposes.
In total, we directed over 70% of our full year 2021 CFO, that's $2.3 billion to debt reduction, share repurchases and our base dividend.
That's a peer-leading track record of return of capital execution.
Slide 9 highlights that we are well-positioned to lead the market again and returning significant capital to shareholders in 2022.
Since October, we've already executed $1 billion of share repurchases, reducing our outstanding share count by 8% in just four and a half months and driving significant growth to our underlying per share metrics.
Our current outstanding buyback authorization is $1.7 billion, and we continue to believe that buying back our stock in a disciplined manner is a good use of our capital.
The efficiency of a discipline of a ratable share repurchase program is really a function of free cash flow generation relative to market value.
In other words, your free cash flow yield.
And while our equity value has appreciated since we kicked off our buyback program in October, we continue to trade at a free cash flow yield north of 20%, and that's at $80 WTI, which is a discount to the current forward curve.
That's roughly four times the free cash flow yield of the S&P 500 and even using a more conservative, say, $60 WTI price assumption, our free cash flow yield on our current equity value is around 10%, at still 2.5 times that of the S&P 500.
So these are strong indicators that five times remain a very good use of cash.
We also believe the disciplined share repurchases offer clear strategic advantages.
They can drive strong underlying growth in per share metrics that are correlated with shareholder value, including cash flow per share and free cash flow per share.
We also offer clear synergies with our base dividend as the reduction in shares outstanding creates capacity, incremental base dividend growth without raising our free cash flow breakeven.
And given the tremendous downside resilience we've built into our business, we can continue to repurchase shares through the cycle, including when we experienced commodity price pullbacks, and that's a very different dynamic than during past cycles.
Paying a competitive and sustainable base dividend also remains a top priority for us as evidenced by the fact that we have now raised our base dividend four quarters in a row for a cumulative increase of 133%.
With regard to the 2022 outlook at an $80 WTI and $4 Henry Hub price deck, our minimum return of capital commitment translates to $1.8 billion, a number that stacks up well against our E&P peers and even better against the broader market.
With no material debt maturities in 2022, a constructive commodity price backdrop, our commitment to capital discipline and expected reinvestment rate of less than 30%, we see potential to meaningfully outperform our minimum 40% of CFO commitment.
We are on pace to return over 50% of our CFO to equity investors in the first quarter.
For the full year, upside potential at the same $80 WTI and $4 Henry Hub deck could be as high as 70% of our CFO, the level at which we executed during the fourth quarter.
That would represent a return to equity investors of around $3.1 billion or close to 20% of our current market capitalization.
In 2022, we fully expect to once again deliver peer-leading financial and operating results.
Our $1.2 billion capital program with details summarized on Slide 13, is fully consistent with our disciplined capital allocation framework that prioritizes corporate returns and free cash flow generation over production model.
We expect our 2022 program to deliver over $3 billion of free cash flow at a reinvestment rate of less than 30%, assuming $80 WTI and $4 Henry Hub.
As Dane just mentioned, by staying disciplined and maintaining a low reinvestment rate, we expect to exceed our minimum return of capital commitment of 40% of cash flow from operations.
We will continue our investment in reducing our GHG intensity targeting a 40% reduction relative to our 2019 baseline.
In addition, the gas capture of 99% or better.
At basin level, consistent with prior indications around our capital allocation mix, we will be spending approximately 75% for capital budget in the Eagle Ford and Bakken with the balance going to the Permian and Oklahoma.
Included within our Permian program is the continued disciplined progression of our emerging Texas Delaware oil fleet with a planned four-well appraisal plan later in the year.
I'm excited about the restart of a more steady activity level in both Permian and Oklahoma and the strong economics associated with these opportunities.
We are not allocating any production growth capital in 2022 and expect our total company oil and oil equivalent production to be flat with the 2021 full year averages.
Yet, while we aren't growing absolute production levels, the 8% reduction to our share count we've already achieved is driving significant growth to our production per share cash flow per share and free cash flow per share.
Metrics we believe are highly correlated with shareholder volume.
While we expect our full year 2022 average production for both oil and oil equivalent to be flat versus the prior year.
There will be some natural variability from one quarter to the next, largely a result of well timing that is typical for our short-cycle business.
For any given quarter, it is reasonable to expect a plus or minus 5% variance around the midpoint of our full year production guidance.
Not similar from what you saw from us in 2021.
Our focus will remain on maximizing our capital efficiency and free cash flow generation sustainably over time, not the production output of any single quarter in isolation.
For first quarter 2022 due to the timing of our wells to sales and some typical winter weather downtime, we expect our total company oil production to be at the lower end of our annual guidance range at around 168,000 barrels of oil per day for improving into the second quarter.
Regarding our capital spending profile, our full year capital will be slightly weighted to the first half of the year with approximately $350 million of capex expected during 1Q '21.
I want to make clear that should commodity prices continue to surprise to the upside, we will remain disciplined and have no plans to allocate production growth capital.
With a balanced exposure to oil, natural gas and NGLs, our company retains significant leverage to commodity price upside with a $1 per barrel increase in oil price, translating to around $60 million incremental free cash flow.
We believe preserving this upside is important for our investors.
The resilience of our 2022 program is underscored by a free cash flow breakeven well below $35 per barrel WTI, assuming conservative gas and NGL prices.
A hedge book that preserves our upside commodity exposure and an advantaged U.S. cash tax position with no U.S. federal cash income taxes expected until the second half of the decade.
As I've stated before, strong ESG performance is foundational to our framework for success and our long-term value proposition in the marketplace.
We believe that we have a clear and much-needed role to play in the longer-term energy landscape.
Oil and gas are essential to a thoughtful and orderly transition to a lower carbon future and to protect the standard of living we have all come to enjoy and to which others around the world strive to attain.
Access to responsible, reliable and affordable energy is the great social equalizer and is the foundation upon which the world's modern economy is built.
We must take on the dual challenge of meeting the world's growing energy needs while also prioritizing all elements of our ESG performance, including efforts to address climate change.
This is not an either/or proposition and failure on either front is not acceptable.
However, our approach must be pragmatic and grounded in the free market, innovation and an all-of-the-above energy approach.
We are unfortunately experiencing firsthand the impacts of misguided energy policy and the dramatic role it can play on energy affordability, as well as geopolitical stability.
Slide 16 provides a comprehensive progress report across each of the elements of ESG.
When viewed in totality, the progress our company has made is not only compelling, but is a point of pride for our entire organization.
For us, it always starts with safety.
I'm, therefore, especially proud that we delivered our second best safety performance in our company's history in 2021 as measured by total recordable incident rate for employees and contractors.
We realized significant progress against our core environmental objectives, achieving our GHG intensity reduction target of at least 30% relative to our 2019 baseline and improving our total company gas capture to 98.8% for the full year.
During the third and fourth quarters of 2021, we achieved a gas capture of approximately 99%, and we expect to perform at or above this level in 2022 and beyond.
As we previously announced, we've also recently introduced new quantitative goals for the near, medium and the long term horizon across our core environmental focus areas: GHG intensity, methane intensity and gas capture.
These goals complement our existing 2025 GHG intensity reduction objective of 50% versus our 2019 baseline.
They represent a pragmatic road map to realizing significant improvement in our environmental performance through the end of this decade, driving significant GHG intensity reductions consistent with the trajectory called for by the Paris Climate Agreement.
Our environmental objectives will promote transparency and accountability, while enhancing the internal alignment and innovation that will be necessary to deliver such strong performance.
Importantly, our 2030 GHG and methane intensity objectives represent industry-leading improvement and will contribute to absolute performance that is competitive with the very best oil and gas producers globally.
Moving from environmental to our social accomplishments, we invested thoughtfully and strategically in our local areas of operations to build healthier, safer and stronger communities in alignment with core UN sustainable development objectives.
On governance, we believe we have taken a leadership role in aligning executive compensation with the most important drivers of shareholder value.
I've covered the comprehensive changes we made for the 2021 compensation cycle previously, including quantum reductions and redesign short-term and long-term incentive programs.
So I won't revisit all of those details today.
However, I will remind everyone that we've eliminated production metrics from all scorecards and have included unique free cash flow performance stock units and our executive long-term incentive design.
Finally, we have also taken a leadership role in ensuring strong board of directors' oversight, refreshment, independence and diversity, highlighted by the addition of two new directors and the appointment of a new lead director in 2021.
Before we move to our question-and-answer session, I want to wrap up with the compelling investment case for Marathon Oil.
We fully recognize that investors have options, so why MRO.
First, we have instituted a transparent capital framework that uniquely prioritizes our shareholders as the first call on cash flow generation.
Our shareholder-friendly framework is complemented by a track record of delivery.
And it is my expectation that we will lead our pure space in returning capital to shareholders in 2022.
Second, we are committed to capital discipline.
If commodity prices continue to outperform, we won't introduce production growth capital into our budget.
We will remain focused on free cash flow generation and return of capital.
When it comes to growth, our focus is not on growing production.
It's on growing the per share metrics that matter most and $1 billion of buybacks in just the last four and a half months, driving 8% underlying per share growth is a strong statement of our commitment.
Third, due to our balanced production mix, low corporate free cash flow breakeven, attractive hedge book and advantaged U.S. federal cash income tax position, our company retains differentiated upside leverage to commodity outperformance, and we will protect this upside for our investors.
And finally, we believe the peer-leading financial and operating results we are delivering today are sustainable, underpinned by over a decade of high-quality, high-return inventory by our five- and 10-year benchmark maintenance scenarios and by our commitment to comprehensive longer-term ESG excellence.
With that, we can open up the line for Q&A.

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2022 capital budget of $1.2 billion.
has no material debt maturities due in 2022.

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