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Marathon Oil CEO says company will favor investor returns above growth

Marathon Oil Corp. will stick to its "framework for success" and continue to emphasize shareholder returns and capital discipline ahead of growth, Chairman, President and CEO Lee Tillman said Aug. 8.

Speaking during the company's second-quarter earnings call, Tillman attempted to hit on all the major points investors are prioritizing. Marathon's goal, he said, is to consistently generate returns that not only compete with other independent exploration and production companies but against the broader market.

"We are consistently and comprehensively delivering against our framework for success," he said "We are driving significant bottom-line corporate returns improvement. We are generating sustainable free cash flow at conservative pricing. We are returning a considerable portion of that free cash flow back to our shareholders through dividend and share repurchases. And we are improving our capital efficiency, cost structure and resource base through differentiated execution."

Tillman said Marathon has now delivered six consecutive quarters of organic free cash flow post-dividend, with its free cash flow yield for 2019 to date at approximately 5%.

"We aren't just talking about free cash flow or forecasting it for the future. We are delivering it here and now," he said. "During the second quarter, we generated $137 million of post-dividend organic free cash flow. Since the beginning of 2018, we have now delivered over $1 billion of cumulative organic free cash flow post-dividend for our shareholders."

Tillman touted the company's multi-basin approach in its U.S. operations, where oil production was up 17% from the second quarter of 2018. Marathon's developing operations in the Delaware Basin, he said, were showing significant promise.

"In the northern Delaware, we are protecting our leasehold, delineating our position and improving our margins, all while delivering significant early development drilling success," he said. "Our cash costs were down 10% sequentially during the second quarter … our oil on pipe is at 70% and rising."

The CEO's praise was greatest for the company's operations in the Eagle Ford Shale, where he said Marathon was delivering returns and free cash flow "that compete with any basin across the Lower 48."

"We delivered excellent results across our Eagle Ford footprint. We established a new IP30 pad record in Karnes County. We delivered tremendous results from 15 wells across the oil window of Atascosa County," he said. In the Bakken Shale, Tillman said, Marathon now accounts for 20 of the top 25 wells drilled in the Williston Basin and has decreased its well cost by 15% from the company's 2018 average.

When asked if Marathon was looking for expansion opportunities in the Permian Basin or elsewhere, Tillman indicated major moves were off the table in favor of share buybacks and other investor-friendly moves.

"I think that the reauthorization [of share buybacks] to the $1.5 billion mark by the board signaled the strong intent for us to continue to deploy free cash flow and to share repurchases," he said. "We remain very focused, though, as we always have been in those core four areas looking for those unique opportunities that fit our acreage position hand in glove. So we're very mindful of small bolt-ons ... as well as trades that ... continue to help to build out our position."

For the second quarter, Marathon reported $189.0 million, or 23 cents per share, in adjusted net income. That was significantly higher than the S&P Global Market Intelligence consensus normalized earnings estimate for the second quarter of 14 cents per share.