Marathon MRO comfortably met financial and production targets in the fourth quarter and anticipates more of the same in the new year. The firm announced a 2022 capital budget of $1.2 billion (compared with $1.05 billion spent in 2021) and reaffirmed its priority to return excess cash to shareholders, like peers are doing. Marathon has aggressively repurchased $1 billion of shares since October of last year (reducing its share count by about 8%), while also increasing its base dividend, which has increased steadily throughout the year and now rests at $0.07 per share. And the firm also paid down $1.4 billion of debt in the year, as net debt to EBITDAX trended below 1 times.
The firm produced 358 boe/d in the fourth quarter, 4% higher sequentially and 3% higher than guided. For the full year, Marathon expects total production to be consistent with 2021 averages, as it intends to take a passive approach and sit tight in the backdrop of high prices, rather than deploy excess capital in a bid to take advantage of near-term pricing. This is consistent with the trend across the upstream space. And shareholders have reacted well to the strategy--Marathon’s stock has more than doubled year-over-year and was the second-best performer in the S&P 500 (behind shale peer Devon). The durability of the free cash windfall from higher pricing is partially dependent on macroeconomic factors that lie beyond the reach of the individual U.S. E&Ps, but we think firms that keep spending to a minimum are making the right choice, as oil prices will likely subside to a more midcycle level in 2023.
We will incorporate these operating and financial results into our model shortly, but our fair value estimate and no-moat rating are currently unchanged.
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