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Marathon Rounds Out Stellar 2021

Marathon comfortably met financial and production targets in the fourth quarter.

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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