Marathon Oil Corporation (NYSE:MRO) Q4 2021 Earnings Conference Call February 17, 2022 9:00 AM ET

Company Participants

Guy Baber - Vice President, Investor Relations
Lee Tillman - Chairman, President & Chief Executive Officer
Dane Whitehead - Executive Vice President & Chief Financial Officer
Mike Henderson - Executive Vice President of Operations
Pat Wagner - Executive Vice President of Corporate Development & Strategy

Conference Call Participants

Arun Jayaram - JPMorgan Chase
Jeanine Wai - Barclays
Josh Silverstein - Wolfe Research
Scott Hanold - RBC Capital Market
Nitin Kumar - Wells Fargo
Neal Dingmann - Truist Securities
Doug Leggate - Bank of America
Scott Gruber - Citigroup

Operator

Good morning, and welcome to the Marathon Oil Fourth Quarter 2021 Earnings Call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator instructions] Please note, this conference is being recorded.

I will now turn it over to Guy Baber. Guy, you may begin.

Guy Baber

Thank you, Brandon, and thank you to everyone for joining us this morning on our call. Yesterday, after the close, we issued a press release, a slide presentation and an investor packet that address our fourth quarter 2021 results and our 2022 outlook. Those documents can be found on our website at marathonoil.com.

Joining me on today's call are Lee Tillman, our Chairman, President and CEO; and Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; and Mike Henderson, Executive VP of Operations.

As a reminder, today's call will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. I'll refer everyone to the cautionary language included in the press release and our presentation materials, as well as to the risk factors described in our SEC filings.

With that, I'll turn the call over to Lee, who will provide us with some opening remarks. We'll also hear from Dane and from Mike today before we move to our question-and-answer session. Lee?

Lee Tillman

Thank you, Guy, and good morning to everyone listening to our call today. I want to start by once again thanking our employees and contractors for their dedication and hard work, their commitment to safety and environmental excellence and their collective contributions to a truly remarkable year.

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. Dan 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 and 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 pure 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 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 over a decade of high return, high competent inventory. And is further supported by our bottoms-up five years benchmark maintenance scenario which is now been extended up to 2026 and which delivers annualized financial outcome similar to 2021 and 2022 on a price normalized basis.

From 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 ensures that we can deliver the same pure 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 we 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 US Federal cash income taxes until the second half of the decade. An advantage outlook versus most peers. My fourth and final key point today is that Marathon Oil is fully committed it to meeting global energy demand, while delivering comprehensive ESG excellence, focusing on each element of ESG.

I hope all of you have had a chance to review the dedicated ESG press release that we issued in late January, which highlighted our key accomplishments in 2021 as well as our new environmental objectives. 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.

With that, I will turn it over to Dane, who will give you all an update on our return of capital initiatives.

Dane Whitehead

Thank you, Lee. Good morning, everybody. I'll speak to slide 7 to 9 of our deck, largely focusing my comments on our return of capital accomplishments and outlook. Grounding our discussion, our return of capital framework is summarized on slide 7, and that is unchanged. As a reminder, our framework calls for delivering a minimum of 40% 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 of 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 lower reinvestment rate, we protect a significant percentage of our CFO for shareholder distributions.

Our 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 multi-year track record 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 in the year. After taking our net debt to EBITDA, comfortably below 1 time at Strip and below 1.5 times at our conservative longer term planning basis of $50 WTI. We 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. Thanks to stronger commodity prices, higher oil production, declining CapEx and an increase in easy cash distributions 4Q was an exceptionally strong financial quarter, enabling us to return over 70% of CFO for more than $800 million to our equity investors to our base dividend and share repurchases, dramatically exceeding our minimum 40% commitment.

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 4.5 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.

Efficiency of a discipline of a readable 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 can continue to trade it 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 with the S&P 500.

And even using a more significant -- more conservative say, $60 WTI price assumption, our free cash flow yield on our current equity value is around 10%. It's still 2.5 times that of the S&P 500. So these are strong indicators that buybacks remain a very good use of cash. We also believe that discipline, 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. They also offer clear synergies with our base dividend, as a reduction in shares outstanding creates capacity, incremental based dividend growth without raising our free cash flow breakeven.

And given a tremendous downside resilience we built into our business, we can continue to repurchase shares through the cycle, including when we experience 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 are a cumulus increased 133%.

With regard to the 2022 outlook, at an $80 WTI and $4 Henry Hub price deck, our minimum return on capital commitment translates to $1.8 billion, a number that stacks up well against our end peers and even better against the broader market. With no material debt maturities in 2022, our constructed 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're 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 around $3.1 billion or close to 20% of our current market capitalization.

With that, I'll turn the call over to Mike who will discuss our 2022 Capital program.

Mike Henderson

Thanks, Dane. In 2022, we fully expect to once again deliver pure 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 holder returns and free cash flow generation over production.

We expect our 2022 program to deliver over $3 billion 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% of our 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 though similar from what you saw from us 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 2021. 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 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 US cash tax position, with no US federal cash income taxes expected until the second half of the decade.

I will now turn it over to Lee, who will provide an ESG update, and we'll close out our prepared remarks.

Lee Tillman

Thank you, Mike. 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 are proud to play our role in supporting US energy security, which protects the US consumer and serves as a powerful tool of foreign policy providing options for both the US and our allies.

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 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.

And we continue to promote equality, diversity, and inclusion as core values, which has helped contribute to a notable increase in the representation of both females and people of color within our workforce over the last five years.

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 US 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 scenario and by our commitment to comprehensive longer-term ESG excellence.

With that, we can open up the line for Q&A.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And from JPMorgan Chase, we have Arun Jayaram. Please go ahead.

Arun Jayaram

Hey Lee and team, good morning. Lee, we're sitting here in a year in oil and gas prices indeed averaged 80 and 4 or better. Should we expect you to return three plus billion of free cash flow to shareholders. That's the buy-side question of the morning.

Lee Tillman

Yes. Good morning, everyone. Thanks for the question. First of all, I think we are already on a pace in first quarter room to return of 50% or more of our CFO back to investors. And as we demonstrated in 2021, whether you look at fourth quarter in isolation where we got hit that 70%, kind of, milestone back to equity investors or even look at the full year, including our gross debt reduction, which also achieved 70%, we know that we have that potential for delivery. But I think what it might be helpful for Dan to talk a little bit about the mechanics of how we approach the share repurchase program because I think it will give you a little bit more insight on how the year will likely play out. So I'll kick over to Dan.

Dane Whitehead

All right. Good morning. Thanks for the question. Yes. With regard to share repurchases, obviously, we just spent 30 minutes talking that impact that we've been aggressively buying back shares, and we think that's good value, but we really move the needle by buying back 8% of the stock. And so we expect us to continue with that kind of program.

In terms of how we execute on that, we have -- we use a couple of tools when executing the share repurchase. And I think of it sort of as a base program and that's sort of a top-up program. The base program, we established simple 10b5-1 programs. Most recently, we've sized those around $250 million.

And we set those in motion to be purchased ratably over a set period of time, typically 30 days to 45 days. We established those 10b5 -1s when we're not in a blackout period, of course. And then they can execute daily through blackout period. So for example, we're buying back stock today under a 10b5-1, and earnings date is the ultimate definition to day [Technical difficulty]

Arun Jayaram

[Technical Difficulty] the ratability today.

Dane Whitehead

Sorry, I'm getting a little beat back here. The ratability of that daily program really helps you in a period of volatility. You're not trying to hunt and peck for low points in the stock price to just ride through in dollar cost average into it. And if we get to the end of a period and our cash flow is sufficient to top up on top of what we've done with these 10b5-1 we can go in with daily purchases under what's called our NBA team. And we can do those in fairly significant size.

We can really move a lot of stock in a short period of time under that mechanism if we have the capacity to do it. So I would expect -- you should probably step by step to continue to execute like this with the base load and then we have the ability to adjust based on how commodity prices and other factors in our business contribute to our cash flow.

Lee Tillman

And maybe if I can just wrap-up, Arun. I think fourth quarter was a great example of that model. We had signaled that kind of at least the 50% of CFO getting back to shareholders. But as the quarter progressed and as we implemented the structured programs, we saw an opportunity with price support and the cash flow generation that we were seeing to go above and beyond that. And that's in fact how we got to that 70% marker.

Arun Jayaram

Great, great. Appreciate that color. And my follow-up was with Mike. I was wondering if you could provide maybe a little bit more asset level color on the 2022 program, specifically maybe in the Bakken, I'd love to hear about maybe the well mix between Hector and Myrmidon and maybe some thoughts within the Permian as well as in the Mid-Continent, some of the areas that you're targeting as you increase activity from last year's levels?

Lee Tillman

Yeah. Good morning Arun. I can certainly take you through that. I'll start with the Bakken and then I'll probably jump on to Eagle Ford. But in the Bakken, we're -- as we included in the presentation, looking at 50 to 6 0 wells to sales. What I would say is probably more weighted towards the first half of the year. It is a higher working interest program this year, which talks the works in our favor.

What I would say is largely focused in Hector, and Eagle Ford, again, as we mentioned in the presentation, 120 wells to sales. Activity is going to be across our core areas. So we're looking at about 45% of the activity in Karnes, 35% in Atascosa and the remainder up in Gonzales. We are looking at longer laterals on average in Eagle Ford this year.

So that should enhance our efficiencies. We're also going to be continuing the redevelopment testing that in fact, I think it was this time last year, you asked the question. So we'll probably make a date for first and next year. We'll give you another update, but we're continuing the redevelopment testing there. We've 15 wells planned in 2022. We had some good success in 2021. We've added a little over about 100 high-return redevelopment locations to inventory there. So it seems pretty logical to continue that activity into 2022.

Permian again, 20 to 25 wells to sales. It's probably going to be more focused on the second half of the year, targeting the Upper Wolf Camp. And what I'd say is split pretty much 50/50 between Red Hills and Malaga. And then wrapping up Oklahoma, again, 20 to 25 wells to sales, what I'd say there is heavy scoop Woodford focus. And similar to what we're seeing in the Eagle Ford, we're going to benefit there from some longer average lateral length. I think we're 30% up from when we had our last full year of activity in Oklahoma.

Arun Jayaram

Great. Thanks a lot.

Operator

From Barclays, we have Jeanine Wai. Please go ahead.

Jeanine Wai

Hi, good morning everyone. Thanks for taking our questions.

Lee Tillman

Good morning.

Jeanine Wai

Our first question, we noticed that you reported $47 million of acquisitions during the quarter on the cash flow statement after not doing any for several quarters. Can you just provide a little bit of color on what that acquisition capital was spent on? And maybe a little bit on your perspective on the A&D market for Marathon?

Mike Henderson

Morning Jeanine. It's Mike here. I'll give you a little bit of detail on the acquisition, and then I'll kick it over to Lee to provide a little bit of that broader perspective. So the acquisition, it’s a small Eagle Ford bolt-on and the core, it added a few sticks. But I think more importantly for us, it allowed us to drill some extended laterals down in Karnes County there.

Maybe on the broader question, I'll fire that over to Lee if that's okay.

Lee Tillman

Yeah. That's great, Mike. Thanks. From a broader A&D perspective, Jeanine, I think first and foremost, we're going to view all opportunities -- inorganic opportunities for the lens of really our high confidence organic case, which we obviously have spent a lot of time describing today and the types of financial metrics that's delivering. So needless to say, is that's a relatively high bar for any opportunity that's inorganic in nature. And of course, to pursue something, we're going to have to see it as accretive to that organic case. And again, that's going to be a challenge.

We will continue to assess and evaluate those things in the marketplace, particularly those that are around our core areas. But we're going to be very disciplined. The same discipline that you see us applying in our organic business. You should expect that when we look at A&D activities as well. I think the opportunity that Mike described is a great example of an accretive opportunity to bought a little bit of PDP, but generally allowed us to build on a core area and extend our lateral links and improve our capital efficiency. And so those are the type of kind of hand in glove fits that we'll be looking for.

Jeanine Wai

Okay. Great. Thank you for all that color. Our second question is maybe just revisiting the method of the cash payout. If the strip holds and the 70% of cash flow comes to fruition, there is a lot of cash to be allocated, which is a very nice high-class problem. In this upside case, does your preference between buybacks, variables and base dividends change on that allocation split? I know so far, you've had a very strong preference for buybacks, which you described very nicely in the prepared remarks about per share growth, but we’ve just been noticing, we would be getting a little bit more push back in questions from investors on procyclical buybacks? Thank you.

Dane Whitehead

Yeah. Jeanine, this is Dane. Let me take a cut at that. So really, we've got three choices for returning cash to shareholders. The base dividend, share repurchases or some sort of a variable cash return that people often describe as variable dividends. And kind of here's how we think of each. The base dividend. So our objective there with the base dividend is to have a competitive yield when compared to peer average and the S&P 500. And also in addition to competitive, we needed to be sustainable. And we think of that in the context of a pretty conservative planning basis price deck sort of in a $45 to $50 world, where we know investors can count on that base dividend and partially any circumstance.

With our recent fourth consecutive increase in the base dividend, yields competitive with peer average and a little bit better than the S&P 500. So check that box. From a sustainability perspective, we really think about 10% of cash flow from operations has been where we want to target that dividend again in that $45 to $50 world. What keep the enterprise breakeven, free cash flow breakeven after dividend below 40%, we're well below that. So we're in good shape there. The $0.07 again is about right in line with the 10% at that stated price deck. And then keep in mind, there are synergies between the base dividend and share repurchases. As we reduce outstanding shares, we can increase the base dividend further and still stay within that 10% CFO threshold. So we really like that in our play.

Share repurchases, we just went through that in quite a bit of detail, but we still -- the value proposition is so strong there. It's just hard to take your eyes off that, as the largest attractor of return of cash to shareholders. We certainly, from a variable dividend perspective, have considered that and it remains a potential tool for us, use in the future to supplement the base dividend and share repurchases. I wouldn't want to do it to the detriment of the yield of the base dividend or share repurchases, especially when the implied free cash flow yield is so high on those repurchases, and the program is so efficient. But we're not closing the door on any techniques that, I do think on your pro-cyclicality question, just keep in mind, when the free cash flow yield is that high, it doesn't feel pro-cyclical as me at all. And because we've really bulletproofed our company were down price cycles, we can keep buying to pretty much any price cycles. So – and that's really kind of our intention.

Jeanine Wai

Great. Thank you very much.

Operator

From Wolfe Research, we have Josh Silverstein. Please go ahead.

Josh Silverstein

Yeah. Thanks. Good morning, guys. Just sticking on the capital return plans. You still do have some small maturities coming up over the next kind of a year, year and a half or so. Is the game plan still to pay those down with cash, reducing some of the capital returns to shareholders, or are there refinancing thoughts that maybe keep more cash going back to shareholders?

Dane Whitehead

Yeah. My base case is pay them off with cash. They're really kind of small bite-sized maturities. There's – we've got like $38 million of U.S. – old USX debt, if you can believe that with an average coupon it's about close to 10%. It will be nice to get that out of the system. The following year or so, there's another 200 million of USX debt like that. And then we get into a couple of maturities that are the muni bond debt that's pretty unique to us. We like that one, because we can buy it back and put it into treasury, if you will and keep it as capacity to reissue in the future and relatively low cost debt compared to taxable debt. So short answer to your question, base case paid it off, with cash, I think there's some good synergies with interest reduction, especially on that higher coupon debt. And – but as we pay off those munis, we'll kind of retain the optionality. And if we need those going forward to tackle a larger maturity tower or for any other circumstances nice to have.

Lee Tillman

Yeah. And just as a reminder, the $1.4 billion of gross debt that we took out last year also brought with $50 million of annualized interest rate savings. And so when we think about our overall enterprise free cash flow breakeven, that's cost structure that is coming out of the business. So it is good to continue to keep retiring that debt as it matures. But we don't see the need to accelerate any of that.

Josh Silverstein

All right. Thanks, guys. And then the activity is still heavily weighted with this 75-25 split from the Eagle Ford and Bakken. When do you see that – the shift kind of slowly going towards Oklahoma and Delaware? And how does the capital efficiency change as you guys start to do that?

Lee Tillman

Yeah. Maybe I'll just refer you to our kind of five-year benchmark scenario that we just updated to include from 2022 to 2026. So essentially, we've added a year. We've incorporated kind of what we've seen from an inflation standpoint, et cetera. And what I would say is that, that relative capital allocation weighting stays essentially in that same range throughout that five-year view, Josh. So no radical movement, you'll see some capital move in between basins, but kind of that 20% to 30% going to Delaware and Oklahoma, that's pretty consistent across that five-year benchmark maintenance scenario, just to kind of give you a little bit of a benchmark.

Q - Josh Silverstein

Got it. Thanks, guys.

Operator

From RBC Capital Markets, we have Scott Hanold. Please go ahead.

Scott Hanold

Thanks, all. Hi. Just to maybe follow up on that question a little bit. And it looks like the Eagle Ford is getting a little bit higher allocation, say, this year and I guess, last year relative to say the Bakken. But can you give us a sense of like where you see the runway in the Eagle Ford is?

I know a lot of conversation with investors kind of discuss what type of core runway still is left in the Bakken and the Eagle Ford. And if you can just give us a little bit of color on your perspective on the confidence in that drilling program through that five-year time frame in the Eagle Ford?

Lee Tillman

Yes. I think, you're seeing a little bit of natural variability as we optimize across facilities and developmental areas. So there's not much more of a read through, I think, than that. But in terms of inventory wise, we obviously talk at a corporate level about having more than a decade of high-quality inventory. You need to only look at the Enverus data, which, of course, we included within the appendix of the deck.

But beyond that, when you look at each of our individual basins, they each independently also have over a decade of inventory for inventory to exploit. So we feel very good about the outlook, the five-year benchmark case and even the portfolio model work that we've done on the 10-year benchmark continues to show us delivering annualized financial outcomes that look very similar to what we're delivering this year on a price normalized basis.

And from a capital efficiency standpoint, we've been the leader of the pack there for quite some time. We'd included, again, a little bit more public available data on that point. But there is no real drop off per se in that capital efficiency as we move amongst the plays.

These are still very economic opportunities across the board, both within -- both the Eagle Ford and Bakken, but also within Oklahoma and Delaware, with, obviously, Oklahoma benefiting somewhat from some of the strength in NGL and gas pricing. But quite frankly, that uplifts all of the portfolio.

So from our perspective, a very strong runway looking ahead. And when we take that inventory and convert it into financial outcomes, we feel very confident in both the five and the 10-year view.

Scott Hanold

Great. Thanks for that. And then -- and I think you've been pretty clear on your views on growth, especially where we are at right now. But I know there is some, I guess, I'd call it flexibility to grow upwards of 5% if the market needs the barrels or you think it's the right decision? And as you start thinking about 2023 and beyond, can you give us your thoughts on looking -- what would get you to move toward something closer to 5% growth case?

Lee Tillman

Yes. I believe right now, our focus, Scott, is really again on per share accretion, whether that be free cash flow, cash flow or even production on a per share basis. We're going to be informed by the macro. But at the end of the day, we're price takers, not price predictors. And there's a wide range of potential outcomes that are going to be driven clearly by events, as well as supply and demand fundamentals. But our strategy is predicated on really generating outsized free cash flow, when we are in a constructive pricing environment. And I don't really see that mantra changing as we move out in time. And I think that the growth in per share metrics for us is the right approach, I think, for a mature business that is trying to attract more of a broad investor universe.

Scott Hanold

Appreciate that. Thank you.

Operator

From Wells Fargo, we have the Nitin Kumar. Please go ahead.

Nitin Kumar

Hi, good morning and thanks for taking my question. Lee, you've covered this a bit this morning, but looking at your slide eight and the allocation of cash flow. You stand out in terms of the buyback, but when I look at the base dividend again ship here, the allocation of cash flow look to the base dividend is a little bit lower. So, you talked a little bit earlier about mid-cycle price stuff, but where is the room for that to grow, or what is the appetite to grow that to be a little bit more competitive to your peers, if not the S&P 500?

Dane Whitehead

Lee, I'll take a shot at that. As I mentioned earlier in an earlier answer, we really are focused on maintaining a competitive yield with that base dividend, and we're right on top of the average for the peer group today and a little bit ahead of the S&P 500. And we have raised that base dividend four quarters up consecutively to point now. We're paying $50 million a quarter to shareholders. We do want to make sure that it passes the sustainability test. So 10% of cash flow from operations, pretty conservative $45 to $50 planning basis, price environment.

And when we want to keep the enterprise free cash flow breakeven below $40, and it's well below 40 at this point. So it's probably $35 or less after dividend. The other synergies that I keep pointing to because they're real is as we continue to buy back shares, we create more capacity or that dividend for that base dividend and frankly, as we pay down some of that high-coupon debt, more capacity for the base given name as well. So we're very focused on keeping that competitive, but we also not to be sustainable. We think we've got a flywheel effect going here that's going to be that base dividend, go forward.

Nitin Kumar

Great. Great. I appreciate that. I guess the other question I have is you've highlighted the lack of hedges as one of your competitive advantages. But it's -- you're presenting a financial model, right? It's a cash generation, cash recur model. At what point do hedges or at least taking some of that downside risk in commodity prices become important? If you could answer the title on hedging going forward in the long term?

Pat Wagner

Nitin, this is Pat. I'll take that one. Lee covered it in his opening remarks, and you just reiterated that we have significant leverage even to further commodity price strength. And we think it's really important to preserve that strength for our shareholders. That's why we showed the slide 14 showing what our current book looks like in a couple of different prices. We have intentionally structured our crude hedges such that they tie to our return of cash framework. So we've set our floors with $60 and we have high calls so that we can share in that upside. And that helps preserve our ability to return that minimum of 40% of cash flow from operations to investors. And hedging is just one dimension of our commodity risk management approach.

I think we've hit on these before, but other dimensions include our strong balance sheet, our low-cost structure, our low corporate free cash flow breakeven, as Dave mentioned, oil $35 a barrel. And then, of course, our diversified portfolio, with our significant balance sheet improvement in 2021 and those low breakevens, we can be patient and take our time in assessing hedging opportunities so that we make sure we preserve the upside. And then lastly, I'd just say that we have a good product diversity mix with 50% of oil. And so we feel comfortable with what we see today.

Nitin Kumar

Great. Appreciate the answers.

Operator

From Truist Securities, we have Neal Dingmann. Please go ahead/

Neal Dingmann

Good morning. Thanks for the time. First question is just on the ops plans. I really like that Slide 21 that you go over inventory depth and hopefully, some of the other analysts are seeing the same slides. My question around that is, given the sample acreage, will you all look to drill and complete even longer laterals and very extended wells in order to potentially boost returns, or can you just maybe talk about the operational plans given this?

Lee Tillman

Yes. I think what you're asking there is are we kind of leveraging longer laterals in the portfolio this year. I think Mike had upon a few of those points. But Mike, maybe you want to just talk broadly not only about extended lateral but some of the other things that we're doing from an efficiency standpoint as we look to mitigate some of the inflationary pressures.

Mike Henderson

Yes. Just touching on the laterals. I think I maybe mentioned in previous comments, but we're looking at a 10% increase in the Eagle Ford year-over-year. Mentioned Oklahoma, we're doing Bakken there. I think it's a 30% increase in Oklahoma from the last time we were operating there. And then in Permian, it's actually over 50% increase. So all of those things are obviously the benefit capital efficiency.

The other things I've mentioned, and this is something that we've touched on in the past. We've got a bit of a track record in terms of just improving capital efficiency, and it isn't just down to lateral lengths. I think we continually look at our well design. We're always looking to optimize there and really try to maximize value. And the second area is just execution efficiency. What I'd say is we got a pretty relentless focus there, just on how we drill and how we improve and quite honestly, how we operate our wells.

And then the third element is maybe supply chain optimization, I think we've got a -- we're continually looking at our cost models, really trying to determine what ultimately makes sense for us. So while we're seeing a little bit of inflation at the moment, we do try to offset by all of the things that I've just mentioned.

Neal Dingmann

Great. Great added details. I appreciate it guys. And then just a quick follow-up. Really like that Slide 14 that shows your leverage commodity prices. My question is around that, really kind of look like that bottom quarter, does your advantage. And you touched on this earlier, having the no upcoming cash tax for quite some time, unlike most of your peers. Does that maybe change how you think about some of your operational plans, or is it still more capital discipline sort of weighs out that even though you have that benefit, there's really no change because of that?

Lee Tillman

No, I don't think there is any -- certainly no undue influence of that fact on our business plan and our capital allocation from that standpoint, Neal. But clearly, as you pointed out on Page 14, it does put us in an advantaged position in terms of the cash flow generation over kind of over this mid-term period. And of course, we battle tested this to make sure that between our NOLs and our foreign tax credits that this is the right ZIP code for us from a cash tax standpoint. But it doesn't influence us directly from a capital allocation standpoint. We're still going to be returns and NPV-driven on the opportunities we select to invest in.

Neal Dingmann

Okay. Thanks, Lee.

Operator

From Bank of America, we have Doug Leggate. Please go ahead.

Doug Leggate

Thanks. Good morning everyone. Lee, you led the market on this cash return model. So congratulations to you on that. It's obviously working. My question is about the procyclicality I think, we all know that oil prices are suffering a number of issues right now, whether it's geopolitics or gas in Europe or whatever is going on. And we know that there is a forward curve substantially below the spot. So why not build cash and wait on what will inevitably be an opportunity to buy back your stock at a lower level?

Lee Tillman

Yes. I think, Doug, the way I would kind of phrase that is, we're not going to try to convince ourselves that we're price predictors. We believe that a more ratable, dollar average type approach where we can look through the cycle. I mean, just to give you an example, Doug, if you look at that $1 billion of share repurchases that we did, that was done below a $17 share price. And of course, today, I don't know where we are trading in the market this morning, but certainly north of $20.

So I think that the opportunity that presents itself is when you have a model where you are resilient across a broad range of commodity price outcomes, that kind of procyclicality argument starts fading away. And I think it's indicative of a new, more mature model that we're deploying now at least at our company in the E&P space.

And so, I think, Dane said it well. I think with this new model, it does give us that ability to really invest in our shares through the cycle. And again, assuming we continue to see the types of yields that we're seeing, free cash flow yields down to even down to 60% or 10%, we feel very strongly that, that is a great option for us. And we look at the suite of investment options, certainly investing in our own company and the confidence that, that shows and the return that is generating makes the most sense for us. So I would not expect us to try to say, for the rainy day and try to predict when that's actually going to occur.

Doug Leggate

Yes. And that's fair. I think, it's really more about what the market is prepared to discount. And if the curve rolls higher, then you're absolutely right. My follow-on is on the inventory question, and you've given a lot of color this morning, so thank you for that. But you've also shown a little bit of sensitivity on the oil price, which is substantially below the high end is still $50 on your slide deck. What does the inventory depth look like at today's curve?

Lee Tillman

Yes. Well, I think, if you do look even at just the third-party data, and clearly, it does shift in terms of kind of where that higher return inventory lies as that price deck moves up. I mean, we test all of our opportunities at a very conservative price deck. So when I talk about over a decade of inventory, we typically are testing that inventory at $50 WTI. So, it goes without saying that some of that Tier 3 and Tier 4 inventory, if we continue to see constructive pricing will allow us to economically grow that inventory just from a price perspective. But I do think the Enverus data is broadly indicative of that effect as you look at the breakeven cutoffs that they have shown, clearly, as prices move higher, it's going to enhance that inventory depth over time.

So, we try to speak pretty conservatively is the way I would put it again. And really not only conservative in terms of our inventory life, but make sure that we show transparency on what that inventory can generate from a financial outcome standpoint, because it's not just inventory, it's the quality of inventory. And I think the balance of data that we've shown on capital efficiency, the level of reinvestment rate that we can deliver, are all indicative of the capital efficiency embedded in that well over a decade of inventory lies.

Doug Leggate

Appreciate the color. Thanks guys.

Operator

And from Citigroup, we have Scott Gruber. Please go ahead.

Scott Gruber

Yes. Good morning. Thanks for squeezing me in here. So looking at the Bakken activity, your production popped in 4Q, but the point two Tils are going to be down 10 to 20 wells. At that level of activity, should we expect Bakken production to start to trend lower on a year-over-year basis in the second half? And is the expectation to be made up for the second half by the completions in the Permian? And then thinking out into next year, is that the direction of travel we should be thinking about into 2023?

Mike Henderson

Yes, Scott, it's Mike here. Maybe I would think about Bakken on annual kind of year-to-year basis, it's going to be pretty flat. It's how I think about it. We're going to see quarterly variability, as I mentioned in my prepared remarks. I mean that's just to be expected. But as you -- I think about it on an annual basis it’s pretty flat.

Scott Gruber

Okay. So, it's flat in the five-year plan is the way to think about it?

Mike Henderson

Again, you're going to see a little bit of variability there, but I think it's going to be pretty close to that.

Scott Gruber

Okay. And then, the redevelopment opportunity in the Eagle Ford is interesting. What's the rough breakeven on those redevelopment wells? And at strip, how should we think about the redevelopment cadence over the next couple of years?

Mike Henderson

I don't -- Scott, it's Mike again. I don't think we've disclosed anything on breakevens. I mean -- we had -- we have 14, 15 redevelopment tests last year. And as I mentioned, a little bit earlier, we provided a little over 100 stacks. We've got another 15 wells planned this year to potentially derisk and some additional areas and potentially look to add some further locations. And I think we look at this on an annual basis. We've got a number of these, we call it OEO opportunities, and we'll continue to look at that on an annual basis. And we may have some more in the future. I think a lot of it is dependent on the results that we see.

Lee Tillman

Yes. If I could just add in, Scott. Bottom line is that the redevelopment wells compete head-to-head with the rest of the portfolio. They have to compete on a heads-up basis for capital allocation with the rest of the portfolio. So breakevens per se will be not dissimilar to what we see across the rest of the portfolio.

Scott Gruber

Got it. Appreciate the color. Thank you.

Operator

Thank you. We're now over time, and we'll now turn it back to Lee Tillman for closing comments.

Lee Tillman

Thank you for your interest in Marathon Oil. And I'd like to close by again thanking all of our dedicated employees and contractors for their commitment to safely and responsibly deliver the energy the world needs each and every day. That ends our call.

Operator

Thank you. And ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.