Marathon Oil : 2Q 2022 Earnings Press Release

Marathon Oil Reports Second Quarter 2022 Results

Record Quarterly Free Cash Flow and over $1.7 Billion of YTD Shareholder Distributions

HOUSTON, August 3, 2022 - Marathon Oil Corporation (NYSE:MRO) reported second quarter 2022 net income of $966 million, or $1.37 per diluted share, which includes the impact of certain items not typically represented in analysts' earnings estimates and that would otherwise affect comparability of results. Adjusted net income was $934 million, or $1.32 per diluted share. Net operating cash flow was $1,678 million, or $1,586 million before changes in working capital (adjusted CFO). Free cash flow was $1,323 million, or $1,213 million before changes in working capital and including E.G. distributions (adjusted free cash flow).

• Generated record quarterly adjusted free cash flow of over $1.2 billion at 24% reinvestment rate
• • Returned $816 million of capital to shareholders during second quarter, including $760 million of share repurchases and $56 million base dividend; represents 51% of second quarter adjusted CFO
  • Delivered flat sequential production with second quarter oil-equivalent production of 343,000 net boed; oil production of 167,000 net bopd
• Continue to exceed commitment to return at least 40% of adjusted CFO to equity investors
• • Returned $2.5 billion to equity investors through share repurchases and dividends since achieving leverage objective in October 2021; approximately 55% of adjusted CFO (~75% of adjusted free cash flow) over trailing three quarters
  • Executed $2.3 billion of share repurchases since October 2021, reducing outstanding share count by 15%; includes over $1.6 billion of share repurchases year-to-date
• Expect $4.5 billion of 2022 free cash flow, assuming $100/bbl WTI and $6/MMBtu Henry Hub

"Second quarter represents another quarter of comprehensive delivery on our Framework for Success, including strong corporate returns, sustainable free cash flow generation, significant return of capital to shareholders, and ESG excellence," said Chairman, President, and CEO Lee Tillman. "Our commitment to providing investors with the first call on cash flow through our unique percentage of operating cash flow framework is delivering truly compelling results, including generating over $2 billion of adjusted free cash flow and returning over $1.7 billion of capital to shareholders year-to-date, while also driving significant per share growth. Despite ongoing macro and equity market volatility, we remain well positioned to continue delivering financial results that compete with the best companies in the S&P 500."

Return of Capital

Marathon Oil's percentage of CFO framework provides clear visibility to significant return of capital to equity investors and ensures the shareholder gets the first call on cash flow generation. In a $60/bbl WTI or higher price environment, the Company targets returning a minimum of 40% of CFO to equity investors.

During second quarter, Marathon Oil returned 51% of adjusted CFO to equity investors. Second quarter return of capital totaled $816 million, including $760 million of share repurchases and $56 million base dividend.

Since achieving its minimum leverage objective in October 2021 Marathon Oil has returned $2.5 billion of capital to shareholders. This includes over $2.3 billion of share repurchases that have driven a 15% reduction in outstanding share count, contributing to significant growth in per share metrics. Over the trailing three quarters, the Company has consistently outperformed its minimum return of capital objective, as shareholder distributions have accounted for approximately 55% of adjusted CFO (~75% of adjusted free cash flow).

In the current environment, given its strong free cash flow profile and attractive market valuation, Marathon Oil's preferred return of capital approach remains a competitive and sustainable base dividend in addition to significant share repurchases.

2Q22 Financials

CASH FLOW AND CAPEX: Net cash provided by operations was $1,678 million during second quarter, or $1,586 million before changes in working capital. Second quarter cash additions to property, plant, and equipment totaled $355 million, while capital expenditures (accrued) totaled $375 million.

FREE CASH FLOW: Free cash flow was $1,323 million, or $1,213 million of adjusted free cash flow before changes in working capital and including E.G. distributions.

BALANCE SHEET AND LIQUIDITY: Marathon Oil ended second quarter with $1,162 million in cash and cash equivalents. In July, Marathon Oil extended its revolving credit facility by three years to 2027 and amended the capacity to $2.5 billion.

ADJUSTMENTS TO NET INCOME: The adjustments to net income for second quarter reduced net income by $32 million, primarily due to the income impact associated with unrealized gains on derivative instruments.

2Q22 Operations

UNITED STATES (U.S.): U.S. production averaged 283,000 net barrels of oil equivalent per day (boed) for second quarter 2022. Oil production averaged 157,000 net barrels of oil per day (bopd). The Company brought a total of 49 gross Company-operated wells to sales during second quarter, consistent with guidance for approximately 50 wells to sales. U.S. unit production costs averaged $5.80 per boe during second quarter.

Marathon Oil's second quarter production in the Eagle Ford averaged 84,000 net boed, including 54,000 net bopd of oil, with 19 gross Company-operated wells to sales. In the Bakken, production averaged 114,000 net boed, including 75,000 net bopd of oil, with 20 gross Company-operated wells to sales. In Oklahoma, production averaged 56,000 net boed, including 14,000 net bopd of oil, with 10 gross Company-operated wells to sales (excluding joint venture wells). Northern Delaware production averaged 20,000 net boed, including 10,000 net bopd of oil.

INTERNATIONAL: Equatorial Guinea production averaged 60,000 net boed for second quarter 2022, including 10,000 net bopd of oil. Unit production costs averaged $2.83 per boe. Net income from equity method investees totaled $152 million and total cash distributions from equity method companies amounted to $146 million during second quarter.

For full year 2022, Marathon Oil raised E.G. equity income guidance to a new range of $520 million to $560 million.

A slide deck and Quarterly Investor Packet will be posted to the Company's website following this release today, August 3. On Thursday, August 4, at 9:00 a.m. ET, the Company will conduct a question and answer webcast/call, which will include forward-looking information. The live webcast, replay and all related materials will be available at https://ir.marathonoil.com/.

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Non-GAAP Measures

In analyzing and planning for its business, Marathon Oil supplements its use of GAAP financial measures with non- GAAP financial measures, including adjusted net income (loss), adjusted net income (loss) per share, net cash provided by operating activities before changes in working capital (adjusted CFO), free cash flow, adjusted free cash flow, capital expenditures (accrued) and reinvestment rate.

Our presentation of adjusted net income (loss) and adjusted net income (loss) per share is a non-GAAP measure. Adjusted net income (loss) is defined as net income (loss) adjusted for gains or losses on dispositions, impairments of proved and certain unproved properties, goodwill and equity method investments, changes in our valuation allowance, unrealized derivative gains or losses on commodity and interest rate derivative instruments, effects of pension settlements and curtailments and other items that could be considered "non-operating" or "non-core" in nature. Management believes this is useful to investors as another tool to meaningfully represent our operating performance and to compare Marathon to certain competitors. Adjusted net income (loss) and adjusted net income (loss) per share should not be considered in isolation or as an alternative to, or more meaningful than, net income

(loss) or net income (loss) per share as determined in accordance with U.S. GAAP.

Our presentation of adjusted CFO is defined as net cash provided by operating activities adjusted for changes in working capital and is a non-GAAP measure. Management believes this is useful to investors as an indicator of Marathon's ability to generate cash quarterly or year-to-date by eliminating differences caused by the timing of certain working capital items. Adjusted CFO should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of free cash flow is a non-GAAP measure. Free cash flow is defined as net cash provided by operating activities and cash additions to property, plant and equipment. Management believes this is useful to investors as a measure of Marathon's ability to fund its capital expenditure programs, service debt, and fund other distributions to stockholders. Free cash flow should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of adjusted free cash flow is a non-GAAP measure. Adjusted free cash flow before dividend ("adjusted free cash flow") is defined as adjusted CFO, capital expenditures (accrued), and EG return of capital and other. Management believes this is useful to investors as a measure of Marathon's ability to fund its capital expenditure programs, service debt, and fund other distributions to stockholders. Adjusted free cash flow should not be considered in isolation or as an alternative to, or more meaningful than, net cash provided by operating activities as determined in accordance with U.S. GAAP.

Our presentation of capital expenditures (accrued) is a non-GAAP measure. Capital expenditures (accrued) is defined as cash additions to property, plant and equipment adjusted for the change in capital accrual and additions to other assets. Management believes this is useful to investors as an indicator of Marathon's commitment to capital expenditure discipline by eliminating differences caused by the timing of capital accrual and other items. Capital expenditures (accrued) should not be considered in isolation or as an alternative to, or more meaningful than, cash additions to property, plant and equipment as determined in accordance with U.S. GAAP.

Our presentation of reinvestment rate is a non-GAAP measure. The reinvestment rate in the context of adjusted free cash flow is defined as capital expenditures (accrued) divided by adjusted CFO. The reinvestment rate in the context of free cash flow is defined as cash additions to property, plant and equipment divided by net cash provided by operating activities. Management believes the reinvestment rate is useful to investors to demonstrate the Company's commitment to generating cash for use towards investor-friendly purposes (which includes balance sheet enhancement, base dividend and other return of capital).

These non-GAAP financial measures reflect an additional way of viewing aspects of the business that, when viewed with GAAP results may provide a more complete understanding of factors and trends affecting the business and are a useful tool to help management and investors make informed decisions about Marathon Oil's financial and operating performance. These measures should not be considered in isolation or as an alternative to their most directly comparable GAAP financial measures. A reconciliation to their most directly comparable GAAP financial measures can be found in our investor package on our website at https://ir.marathonoil.com/ and in the tables

below. Marathon Oil strongly encourages investors to review the Company's consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.