Marathon Oil Corporation (MRO) Earnings Call Transcript & Summary

Good day, and welcome to the Marathon Oil Corporation 2020 Annual Meeting. I would now like to turn the conference over to Lee Tillman. Please proceed.

Good morning, ladies and gentlemen. I'm Lee Tillman, Chairman, President and Chief Executive Officer of Marathon Oil Corporation. On behalf of the Board of Directors, I am happy to welcome you to the 2020 Annual Meeting of Stockholders, and I would like to call the meeting to order. With me on the line today is Reggie Hedgebeth, our Executive Vice President, General Counsel, Secretary and Chief Administrative Officer, who is acting as the Secretary of the meeting. I am pleased to introduce the members of your Board of Directors who are also on the line. In addition to me, Marathon Oil's Directors are Greg Boyce; Chad Deaton; Marcela Donadio; Jason Few; Doug Foshee; Lisa Hyland; and Kent Wells. In addition, I'd like to introduce David Caraway and Andy Lofton, who are representatives present today for PricewaterhouseCoopers, our independent auditors. Finally, I would like to acknowledge our management team members who are participating in this virtual shareholder meeting. The Annual Meeting is being held in accordance with the notice mailed on or about April 15, 2020, to each stockholder of record at the close of business on March 31, 2020, as well as the additional proxy materials filed with the SEC on April 29, 2020. A list of stockholders entitled to vote at this annual meeting has been available for inspection electronically and at the company's offices at 50 55 (sic) [ 5555 ] San Filipe, Houston, Texas, for the past 10 days. This list is also available via the virtual shareholder meeting portal to any stockholder desiring to examine it. The Board of Directors has appointed James Gan, designee of Broadridge Financial Solutions, who has been appointed inspector of election in accordance with our bylaws and has been duly sworn. His oath as inspector has been filed with the office of the Corporate Secretary. Mr. Hedgebeth has provided me a certificate from Broadridge that 84.89% of the voting power of the outstanding shares of the company's common stock entitled to vote is present in person or by proxy at this Annual Meeting. Therefore, quorum is present and we can proceed with the meeting. We will follow the agenda, which is found on the web portal. As noted in the rules of conduct, stockholders may submit a question online, and we intend to respond to appropriate and relevant questions on our website, following the meeting. We will now proceed with the business items on the agenda, including the introduction of our proposals. Upon completion of the balloting on all of the proposals, the polls will be closed, and I will present an overview of our business. I now declare the polls open on May 27, 2020, at 10:03 a.m., and the polls for each matter to be voted on at this meeting are now open. If you are a stockholder as of the record date, and you have already voted by means of a proxy card or over the phone or the Internet, your vote on the matters presented here will be cast by the proxy committee in accordance with your instructions. You need not vote now unless you now wish to change your vote. Proposal number 1 is the election of 8 Directors. The nominees for Director are Gregory H. Boyce; Chadwick. C. Deaton; Marcela E. Donadio; Jason B. Few; Douglas L. Foshee; M. Elise Hyland; J. Kent Wells; and myself. Proposal number 2 is the ratification of the selection by the Audit and Finance Committee of PricewaterhouseCoopers as our independent auditor for 2020. Proposal number 3 is the proposal for a nonbinding advisory vote to approve the compensation of our named executive officers as disclosed in the proxy statement. [Voting]

This concludes the introduction of the matters to be acted upon at the meeting. It is now 10:04 a.m. Central Time and the polls are declared closed. I will now provide an overview of our business. The business overview will include forward-looking statements. This is a reminder that actual results may differ materially and you should refer to our filings with the SEC for factors that could cause actual results to differ from projections. We'll also refer to some non-GAAP financial measures today. Reconciliations of non-GAAP measures to the nearest corresponding GAAP measure can be found on our website. Thank you for joining me today at the Marathon Oil Corporation Annual Stockholders meeting. I want to start out by extending my thanks to our resilient and dedicated employees and contractors during these uncertain times and reiterate that their health and safety remains our #1 priority. Throughout the COVID-19 crisis, our field staff has remained hard at work as essential critical infrastructure providers, expertly doing their job to keep the U.S. supplied with made-in-America energy. Our industry has been a powerful engine of U.S. economic growth for the last decade, and the clean affordable energy we provide will unquestionably be critical in powering our nation's eventual economic recovery. As I reflect on the current state of our industry, it's clear that even before the global pandemic, the E&P business model was evolving with legitimate demands from investors with respect to profitability, free cash flow generation and shareholder return. Our company, however, was consistently delivering against the new investor mandate for energy companies, corporate returns improvement, sustainable free cash flow generation over multiple years, meaningful return of capital to shareholders, consistent delivery on our promises. And we had done so for 8 consecutive quarters with over 20% of our cash flow from operations returned to our shareholders over that period, reducing our shares outstanding by 7%, and all fully funded from free cash flow. 2019 was another year of differentiated execution for Marathon Oil, including the best safety performance in company history with a peer-leading total recordable incident rate of 0.32. We returned approximately $510 million to stockholders, including $350 million of share repurchases and $160 million of dividends. We further simplified our international portfolio, eliminating over $970 million of asset retirement obligations and added over 1,000 gross operated drilling locations. And while we are rightfully proud of our track record and of these accomplishments, we also recognize this is all in the past. Everything has changed, and our focus has rapidly shifted to our future and adapting to a new reality. While our principles, our playbook for success, have not changed, the current crisis demands that we respond with a sense of urgency and purpose to prioritize our balance sheet and financial flexibility. We are truly in uncharted waters, but we are determined and confident that we will emerge from this correction, a healthier company with an improved cost structure and ample financial flexibility. We have taken immediate and decisive action in response to the macro challenges. Our response has been prudent but strong, reducing our 2020 capital expenditure program, lowering our cost structure and protecting our balance sheet and liquidity. With a focus on the elements of our business we can control, we were proactive in quickly taking the necessary actions to address the reality of an extremely low commodity price environment. We announced a revised capital program of $1.3 billion or less, a $1.1 billion reduction relative to our initial 2020 budget and a 50% reduction in comparison to our actual 2019 capital spending. We are high-grading our CapEx to our most capital efficient, cash flow generative opportunities that offer some of the strongest returns across the entire Lower 48 landscape. Given how dynamic the current macro environment is, we will continue to exercise our flexibility to further reduce or increase activity as the macro conditions warrant. Along with resetting our investment levels, we are also resetting our cost structure. More specifically, we are driving annualized cash cost reductions of approximately $350 million or 20% relative to our initial 2020 budget. These savings are the result of broad-based measures with reductions across numerous expense categories: production expense; general and administrative; shipping and handling; and production taxes. Significant initiatives include: base salary reductions for myself as well as other corporate officers; a reduction in our Board of Director compensation; and broad U.S. workforce actions that have reduced our U.S. employee base by 16% and our contractor base by 70%. These actions will contribute to annualized G&A expense reductions of 17% in comparison to 2019. Behind all of the actions we have taken, we are first and foremost, prioritizing the financial strength of the enterprise, protecting our balance sheet, our liquidity and our cash flow generation. Marathon oil maintains a strong financial foundation, ending first quarter 2020 with approximately $3.8 billion of liquidity, including over $800 million of cash and cash equivalents and an undrawn revolving credit facility of $3 billion. The unsecured credit facility is backed by 18 leading global financial institutions, and the maturity date was recently extended to May 2023. We remain investment-grade at all 3 primary rating agencies, with recent reviews by all 3 agencies, and we have no significant debt maturities until November of 2022. While the safety and well-being of our people remains my top priority, so too does the financial strength of our company. We entered this unprecedented downturn on firm financial footing, and we are taking the necessary steps to protect our hard-earned financial strength and flexibility. We believe the best solution to our current crisis is to get the world healthy and back to work, while not abandoning the free market principles that have created U.S. energy independence. We aren't looking for bailouts, but we are looking for stability in energy markets that allows us to compete on equal footing and continue investing in and protecting American energy's security. On behalf of the Board of Directors, I want to thank our stockholders. We believe we can emerge from this time a stronger company and look forward to delivering on our commitments for our shareholders again in 2020 and beyond. Continuing with the business items on the agenda, I have received a preliminary report from the inspector of election. Only a small percentage of the total votes remains to be counted. But it won't significantly affect the overall results. I will now announce the results of the voting. Based on this report, I declare: first, that each of the 8 nominees standing for reelection was duly elected as a director. Second, that PricewaterhouseCoopers was ratified as our independent auditor for 2020; and third, that the compensation of our named executive Officers was approved on an advisory basis. The inspector will file his final written report with the Secretary. The Secretary will file, with the records of this meeting, the inspector of election's oath and reports, along with the documents submitted to the meeting by the Secretary. The final voting results will also be included in a report on Form 8-K to be filed with the SEC. Ladies and gentlemen, we sincerely thank you for your investment in Marathon Oil, and for your attendance at this Annual Meeting. Since there is no further business to come before the meeting, our annual meeting is hereby adjourned. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.