Marathon Oil Corporation
Q3 2020 Earnings Call Transcript

Published: 5 Nov 2020

[Operator:]

Good morning, and welcome to the MRO Third Quarter Earnings Conference 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. Please note this conference is being recorded. I will now turn it over to Guy Baber, Vice President - Investor Relations. You may begin, sir.

[Guy Baber:]

Thanks, Brandon, and thanks as well to everyone for joining us this morning. Yesterday, after the close, we issued a press release, a slide presentation and an investor packet that address our third quarter results. 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; Dane Whitehead, Executive VP and CFO; Pat Wagner, Executive VP of Corporate Development and Strategy; Mitch Little, Executive VP, Adviser to the CEO; and Mike Henderson, Senior VP of Operations. As always, 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. Today, we'll also refer to some non-GAAP financial measures, and reconciliations to the nearest corresponding GAAP measure can be found on our website. I'll refer everyone to the cautionary language included in the press release, and presentation materials as well as to the risk factors described in our SEC filings. With that short intro, I'll turn the call over to Lee, who will provide his remarks. We'll then open the call up to your questions.

[Lee Tillman:]

Thanks, Guy, and good morning to everyone joining us on the call. I want to start by again thanking our employees and contractors for their continued resilience and dedication as we manage through the ongoing COVID-19 pandemic. Safe, environmentally responsible operations are central to our company values and to our commitment to our stakeholders. The safety of our people is my top priority. I am pleased to report that our year-to-date safety performance, as measured by total recordable incident rate, is the best in our company's history. I am proud of our people. They have risen to the challenge and a demanding year. Rest assured, we will continue to manage COVID-19 risk diligently through our business continuity and emergency response plans. I also want to extend my thanks to Mitch Little, for his three decade service and leadership at our company. This will be Mitch's last earnings call with us, which I know he is disappointed about as he plans to retire at the end of this year. Mitch has been an integral part of our team and is a driving force behind execution excellence across all aspects of our operations. And I have every confidence that Mike Henderson will only continue to build on the standard of excellence. I have personally leaned on Mitch's wise counsel and guidance as CEO, and wish him all the best as he transitions to the next chapter in life. Thank you and best of luck to you and Sandy.

[Operator:]

Thank you. From JPMorgan, we have Arun Jayaram. Please go ahead.

[Arun Jayaram:]

Good morning. Lee and team. Lee, I was wondering if you could start-off and give us your perspective on the U.S. election. Obviously, we're not done yet. Perhaps you can give us some of your thoughts on potential implications to the industry, MRO from a regulatory perspective, obviously, a lot of things, federal acreage, pipelines, you at IDCs around nuclear deal. But I was wondering if you could start there?

[Lee Tillman:]

Yeah. Well, certainly, I'm not going to provide any prediction this morning, Arun. But I think we all recognized the energy policy and energy security really should be non-partisan, right? There should be full alignment on addressing the dual challenge of meeting growing energy demand and, of course, reducing the risk of climate change. And we also know that the reality is that oil and gas is going to be an integral part of any future energy transition. And in fact, has provided a pathway for U.S. energy security. I think we have a responsibility to work collaboratively with whomever prevails. So, at the federal state and local levels, so that we can meet that dual challenge, my view is failure on either is just not acceptable. I think the current uncertainty around federal land is a good reminder of the benefits of our multi-basin model asset diversification and capital allocation flexibility. Certainly, we're realistic that with a Biden win, doing business on BLM land will become more difficult, and those are his words, not mine. But I just want to remind everyone as far as Marathon is concerned, we have very limited exposure to BLM land. In fact, in our core plays less than 10% of our acreage production and reserves resides on BLM land. So overall, we don't necessarily view that element of the regulatory environment having any discernible impact on us. Clearly, we would be cognizant of the fact that under a new administration, there will be new regulations that will have to be addressed. And I take some solace in the fact, though, to remind everyone that states like New Mexico have a vested interest in having a viable oil and gas industry. We're a significant provider of revenue and jobs for a state -- was one of the highest property rates in the U.S. You touched upon everything there from foreign policy to tax policy, but maybe on the tax policy, perhaps maybe I'll kick that over today and just let Dane kind of share a few thoughts on how we're thinking about that.

[Dane Whitehead:]

Hey, Arun, sorry, you choked me up with your tax question. Excuse me. Yeah, I do think -- I'm not going to predict outcomes either, but it does look like Republicans are going to hold the Senate. And that should lessen the likelihood of aggressive tax policy changes. But certainly, Vice President Biden has indicated multiple times that he wants to reduce incentives for energy, which I think we all translate to IDCs. In Marathon's case, we're not expecting to be a tax -- cash taxpayer at the federal level until late in the decade. We've got NOLs and foreign tax credits that shield us from anything, but the highest commodity price environment, certainly, at prevailing prices or any of the ranges that Lee talked about earlier. It's going to be many, many years before we get there. IDCs, we actually kind of manage our tax strategy toggling between NOLs, tax credits and IDCs. And frankly, we don't really lean very heavily on deducting IDCs in the current period. If that option went away altogether, I don't think it would change our trajectory at all on cash taxes.

[Arun Jayaram:]

That's very helpful. My follow-up question, Lee, is just regarding how you're thinking about portfolio longer-term? Obviously, I think the first call on free cash flow looks to be the balance sheet, but how do you think about portfolio renewal? We do seem to be in somewhat of a buyer's market as you think about A&D low premiums and given your low-cost structure, I would think that you could be a natural consolidator, just given that -- the fact that you drill your wells much lower than industry averages, et cetera?

[Lee Tillman:]

Yeah. I think on the topic of portfolio renewal, I kind of take you back to the approach we've addressed before, which is first, it's really organic enhancement in our existing basins. I think we showed very clearly how we continue to expand the economic window and enhance the capital efficiency of even our more mature basins in the Eagle Ford and the Bakken. So that's one element of it. We'll continue to assess smaller acquisitions and trades that we believe are accretive and fit within our footprint. We always want to be open to those types of opportunities. But whether those opportunities are small, medium and large, they still have to really address that criteria that I described in my opening comments, financially accretive. They have to be generally balance sheet neutral. There has to be industrial logic and natural synergies there. And then kind of the final element, the third element that I would highlight would be our continued commitment to our resource play exploration program. And I will just mention, as we talk about our maintenance capital kind of benchmark case into 2021. That still does include an element of resource play exploration capital as part of that plan. So we believe that, that type of model where we keep the aperture wide open on those opportunities, but then apply a very exacting criteria that's very returns focused. That's the right approach for continuing to renew the business and grow our resource base.

[Arun Jayaram:]

Great. Thanks a lot Lee.

[Lee Tillman:]

Thank you.

[Operator:]

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

[Jeanine Wai:]

Hi. Good morning, everyone. Thanks for taking my questions.

[Lee Tillman:]

Good morning, Jeanine.

[Dane Whitehead:]

Hi, Jeanine.

[Jeanine Wai:]

Good morning. I'm glad, you can hear me. It's my first day back in the office and nothing works. This is my first question. My first question is on the breakeven. And my second question is on inventory. So on the 2021 maintenance breakeven, that slightly improved in last night's update. Can you discuss what assumptions are baked into that updated breakeven? I know you mentioned natural gas price is strengthening. But also, in particular, your well cost, they seem to be improving every quarter and you're anticipating further reduction sequentially in Q4. So we're just trying to quantify how that breakeven could trend over the next few quarters? And then any commentary on productivity would be appreciated as well?

[Lee Tillman:]

Yes. No, absolutely, Jeanine. Thanks for the question. Maybe just starting with those underlying assumptions and what is really changing. First of all, just reflecting back on my comments, I want to be really clear that 2021 benchmark maintenance case, does not benefit from some outsized drawdown. It is basically on an unhedged basis. And it does still include some modest resource play exploration spending. Now in terms of the improvement trend that you take note of, that is on the back really of us continuing to bake in actual performance in both operating efficiency and capital efficiency. So that's one element. And then as you note, since essentially in these scenarios, we're holding WTI pricing constant, the gas price does have an impact. In our earlier maintenance cases, breakeven cases that we disclosed, we had assumed nominally a $2.50 gas price. Given the forward curve outlook, we have bumped that up to the $3. And so when you kind of roll all that in there, in essence, this 2021 benchmark maintenance case where we're spending basically $1 billion to hold our 4Q '20 production flat. That's delivering essentially a $33 per barrel WTI breakeven. $35, if you include our dividend. If I could, I'll maybe shift, Jeanine, to your inventory question. And -- I'm sorry, yes.

[Dane Whitehead:]

Jeanine, did you have a follow-up on inventory and a specific question there?

[Jeanine Wai:]

Yes. So I guess we've noticed a new slide in the presentation, which are great and very helpful. You've discussed in the past of having about a decade of good inventory in the Bakken and Eagle Ford. I think you mentioned it again today. That could probably be maybe even a little bit longer given slower growth. So can you provide any color on the criteria that you used to get to that decade of inventory number? And I think, specifically, if you have any commentary on what return threshold that you use at a certain oil price to count good inventory? And if you've got Tier 1, Tier 2 in that decade? And maybe any assumptions around spacing would be helpful too? Thank you.

[Lee Tillman:]

Okay. There's a lot in that question. I'll try to unpack it. Maybe, first of all, let's start just going back to some of that third-party public data that we shared. When we look at the Bakken and Eagle Ford by these objective measures, they're not just among the best. I mean, they are the best from a capital efficiency standpoint. And even as we step away from what we would consider the historic core areas, we continue to see those ranking as the best from a capital efficiency standpoint. And so, when we look at that 10 years of inventory across both the Bakken and the Eagle Ford, that is high return, high-quality inventory. And without getting into hurdle rates and things, all of that inventory we would view. And certainly, within the price bands that we just addressed as being very accretive to our overall corporate returns. From a spacing standpoint, I mean, there are no, I would say, aggressive assumptions as it comes to spacing. Within the Bakken and the Eagle Ford, we have very well-established spacing designs across the zones and within the various geology that exists in the plays. We tend to look at both maximizing PV, as well as returns within a given DSU, and that's really again, supporting this 10 years of inventory. So, there's nothing in, I'd say, this analysis that is aggressive as it pertains to spacing. The other thing I would just add is that, we continue to see both on the cost and the productivity side, ways to move the needle there. From a cost standpoint, when we continue to drive down our completed well cost. And on the completions and productivity side, we continue to optimize our designs. And if you look again at our productivity data, if you normalize for geology, we continue to see an improving trend there as well. So, all the vectors are in the right direction. So I'll just pause there, Jeanine, and see if I touched upon most of your question.

[Jeanine Wai:]

Definitely, that was very helpful. Thank you.

[Lee Tillman:]

All right. Thanks, Jeanine

[Operator:]

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

[Neal Dingmann:]

Could you speak -- you guys sounded confident in the prepared, I guess, in the press release, I should say, on your inflection point comment. And it does sound like, you're certainly trending that way. I'm just wondering, maybe could you give some more color on just the confidence either you, from your side or data from the finance side that you have turned that corner to generating more consistent free cash flow on that inflection?

[Lee Tillman:]

Yes. Neal, well, certainly, when you look at third quarter performance, and bear in mind, this was on essentially a $40 WTI kind of marker pricing. When we're able to generate that level of cash flow in that type of environment, particularly as we kind of land, even a bit earlier on our exit rate expectations, I think that really tells the full story. And so, as we continue to move throughout fourth quarter, we're still very confident that, that trend of consistently and sustainably generating free cash flow will remain in place. And that confidence is really underpinned on that enterprise breakeven that we've worked so hard to drive as low as reasonably practical. In fact, just as a reminder, in the second half of 2020, our breakevens really for the second half of this year are in the low 30s, right? So, I just want to remind everyone of that. So, I think we're on the right trajectory. It's building on a track record that we firmly established before. I think, we had this black swan event at the beginning of this year. We were delivering on all of those metrics that matter in '18 and '19. We had returned $1.4 billion back to our shareholders in that period. And obviously, when you look at the delivery of free cash flow from our model, whether it's kind of our view of mid-cycle pricing at kind of $600 million of free cash flow or with even just modest pricing improvement towards $50, you can see the outsized torque that we have to the oil price with that number going up basically to $900 million.

[Neal Dingmann:]

And then, Lee, it kind of touches into my -- just my follow-up. Just it seems like the cycle times, I mean, you guys continue to improve. Can you maybe just discuss Eagle Ford and Bakken cycle times? They certainly just continue to improve. And does that, give you the flexibility on when you're looking at this plan?

[Lee Tillman:]

Yes. Well, certainly, cycle time is an integral part of the overall well economics, just like well cost and productivity. And it's our ability to really minimize that time for when we start on the well, until we actually start making money. And so, maybe I'll just kick over to Mike and just let him talk about, we continue to see improving trends in both the Eagle Ford and Bakken on those points.

[Mike Henderson:]

Yes. I'll just build on that a little bit, Neal. I think we've touched on some of this during his comments. There's probably three or four areas that we're particularly focused on, and we're seeing the benefits. I think, in the well design area as well as the cycle times. Our emphasis on maximizing volume as well as returns I think is helping. The – another big area, and this came out in the deck was just execution efficiency. I think our teams have a relentless focus on just driving further improvements there. The third area I'd probably highlight would be supply chain optimization. We have modeled should cost models. So we have a good understanding of how much things should cost. And we really use that to drive our sourcing strategies. And then the third – or sorry, the fourth element would just be commercial leverage. And really, that comes in the form of inflation. What I would say is the first three are more structural in nature, and that's where our teams spend most of our time.

[Neal Dingmann:]

Very good. Thanks, Lee, thanks, Mike.

[Lee Tillman:]

Thanks, Neal

[Operator:]

From Scotiabank, we have Paul Cheng. Please go ahead.

[Paul Cheng:]

Thank you. Good morning.

[Lee Tillman:]

Good morning, Paul.

[Paul Cheng:]

Two questions. One is short and one maybe is maybe twofold. The short one is that with the number of wells you're coming on stream, coming in the fourth quarter. One would have thought your production should be up somewhat from the third quarter level in oil. And you are flat according to your guidance. Is it that just simply a timing of those well coming on stream or is there any other reasons? The second question is that one of your competitor argue in the merger announcement that size does matter in terms of the attractiveness to investor and think that if you are below a certain size, probably less than $10 billion that the investor will just ignore it and not even on the water screen. I'm just curious that whether you agree with that assessment? And also that whether – how you take that into consideration and the Board, looking at any M&A opportunity? And that when we're looking at M&A, is what type of ideal merger partner that from your standpoint, from a basin, is it that they will be offering a lot of synergy in the existing basin or diversification? Yes, a benefit? Thank you.

[Lee Tillman:]

Okay, Paul, I'm going to – I'll start trying to tick through those, but thanks for the question. First of all, maybe I hope on the short answer question. For the number of wells on stream in the fourth quarter, those – we do have a higher well count. In fact, we have about double the wells to sales between third quarter to fourth quarter. But those are arriving relatively late in the quarter, and therefore, you don't necessarily see the full impact of those barrels coming online in fourth quarter. And even though, obviously, we talk about our business on a quarterly basis, we're managing our business through the quarters and looking ahead to – already to 2021 as well. On your second question, just around speculation around what generates investor relevance. First of all, I'll maybe just start off by saying the sector must certainly mature. And part of that maturity will probably be consolidation that ensures assets get in the hands of the most efficient and financially-healthy operators. Having done all the repositioning that we've done for our company, significant and sustainable free cash flow, shareholder-friendly actions, a track record dating back to 2018, we certainly believe we're one of those operators. At the end of the day, profitable and sustainable E&P companies that deliver on the financial metrics that matter are going to attract investors irrespective of size. I mean, size, obviously, is an element. But if you have a profitable company that generates strong free cash flow across a lower and more volatile price deck and that takes investor-friendly actions, my perspective is that's an investable thesis. I mean, our belief is that an E&P company should be judged on its financial outcomes and profitability, scale alone does not secure financial performance. And I'll just maybe just leave it there, Paul.

[Paul Cheng:]

Thank you.

[Operator:]

From Goldman Sachs, we have Brian Singer. Please go ahead.

[Brian Singer:]

Thank you. Good morning.

[Lee Tillman:]

Good morning, Brian.

[Brian Singer:]

My first question is with regards to a return of capital and leave it to the analyst community right upon your re-initiation of a dividend to ask about incremental return of capital, but I guess we'll go there anyway. Can you just talk philosophically about your framework? You're very clear about the reinvestment rates, the prioritization of the base dividend and the balance sheet enhancement, getting down to 1 to 1.5 times leverage, where does incremental return of capital fit into that? Does leverage need to get down to one to 1.5 times before the base dividend or any other return of capital can go up, or is there some middle ground?

[Lee Tillman:]

Well, I think – and I'll kick over to Dane, just a second here to maybe build on your question, Brian. But the reality is that, I think what we demonstrated in the last quarter is we can do both. We can walk in to go, meaning that we can we can address our balance sheet as well as be focused on return of cash to shareholder. Beyond the base dividend, I think, clearly, we're going to have to see achievement of some of our balance sheet goals, which we view as kind of midterm goals. But maybe I'll kick over to Dane just let him talk a little bit about the prioritization of free cash flow, which, by the way, is a great problem to have.

[Dane Whitehead:]

Yeah. Hey, Brian, yes. Good question. Returning capital is obviously to shareholders is obviously a top priority for us. And that's why we went ahead when we got confidence in our free cash flow generation ability at these price levels and reinstated that base dividend. We're very confident that we can support that. And then we conducted a series of liability management transactions were designed to do a couple of things

[Brian Singer:]

Great. Great. Thank you. And then my follow-up is to continue on the M&A thread here. And you were pretty clear about the criteria that needs to make the company better and not just fully for scale, but I wondered if you could characterize the market today and whether those opportunities exist or whether, in your mind, it's just more theoretical. And then if you look across your portfolio, you highlighted the inventory that you have in the Bakken and the Eagle Ford. In particular, is it – is there more or a better opportunity to pursue incremental scale there versus to try to bring up the Permian or Oklahoma to maybe compete from a size or scale perspective relative to the Bakken and Eagle Ford?

[Lee Tillman:]

Yeah. Yeah, I think, Brian, just to maybe reiterate our stance, because it is, obviously, I think, the topic de jure. We have confidence in our organic model. But it's not at the exclusion of strategic options that could enhance our financial outcomes. And part of the path to get there may in fact be scale. And as you stated, to that end, we do have a very well-defined criteria. I wouldn't say, it's purely theoretical, what I would say is it's very exacting because we are already generating such strong and compelling financial outcomes. When you look at our breakevens, when you look at the capital efficiency of our portfolio, when you look at the free cash flow yields that we can generate at today's pricing as well as even with modest price support, we have to be very confident that any strategic option that we were to pursue would, in fact, be additive to delivering against those financial outcomes. In terms of specific preference to basins, although that today, Bakken and Eagle Ford are certainly receiving the lion's share of capital allocation. And again, I'll take you back to that capital efficiency chart. That's what's driving that. We're going to the highest return, most capital efficient elements of our portfolio. We are also governing that investment by this reinvestment rate criteria. And so there are very competitive opportunities that reside in both Northern Delaware and Oklahoma. And we clearly see those competing for capital as we move forward in time. Would we, obviously, look in our more mature basins of the Eagle Ford and Bakken given our operations excellence in those basins? Well, certainly, we would. But we would not limit the aperture to just those two basins. I mean, to really to meet that criteria, I think right now, you do have to keep that aperture wide open and – but still rigorously test against it, because we certainly don't want to take action that would, again, erode the strength of what is already a compelling organic business model.

[Brian Singer:]

Great. Thank you.

[Lee Tillman:]

Thank you, Brian.

[Operator:]

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

[Nitin Kumar:]

Hi, good morning Lee and team. Thanks for taking my question.

[Lee Tillman:]

Good morning.

[Nitin Kumar:]

Maybe I want to start with M&A. One thing I noticed was in the Oklahoma, you have managed to keep your production relatively flat with almost six months of no real activity or new activity. Just kind of curious, what's driving that? Is there some base management or something that we should be thinking about?

[Lee Tillman:]

Yeah. Excellent observation and question. And the way I would think about Oklahoma is, first of all, as we wrapped up the drilling and completion program in Oklahoma, we had some very successful wells that came out of that program. In addition to that, clearly, Oklahoma did see some shut-ins during the peak of the crisis. And so as we brought some of those wells back online, we did, in fact, see some elements of flush production. But I think overall, there is a more moderate decline that exists and much of the Oklahoma portfolio, just due to the nature of those reservoirs. And so yes, Oklahoma has been a great successor. And I also want to just shout out to that team is despite having de minimis D&C activity, their focus on uptime, reliability and that type of performance has just been outstanding. And our most profitable barrels are the ones that we've already invested in. And so you see that, that team taking it to a whole new level and really being focused on keeping those existing barrels online and ensuring that everything from gas lift optimization to keeping our surface facilities up and running. So I think that's what you're seeing in that decline curve in Oklahoma.

[Nitin Kumar:]

Excellent. And then, I guess, the other question, which has been asked, but I'll ask it a little bit differently, I guess. You exit the year with a few more completions. And, obviously, this has been a challenging year. One of the things you focused on in the past has been ratability of your spending and activity. How soon do you think you get back to that in 2021, or maybe is it later?

[Lee Tillman:]

Yeah. I think you probably need to differentiate activity perhaps between when wells to sales come online. Actually, our activity is very ratable in many respects in the third and fourth quarter, meaning that we have two frac crews essentially running basically, six drilling rigs running. What you're seeing is, obviously, as wells come online from pad drilling, they do tend to come on in batches. If we have a pad that has exceptionally long laterals, it will take a bit longer to get it online. And so I think what you're seeing is some natural variability in the activity. I think probably the best way to look at it would be to look through third and fourth quarter and put those two together and look across the average of that half year, and that really delivers what is, I think, a more indicative ratable capital spend, recognizing there is going to be variability on when wells are delivered. I mean, again, we don't -- we're not tailoring those wells to hit at certain points in a quarter. I mean, we're driving that those six rigs and those two frac crews to maximize efficiency. And, of course, the wells comes to sales as they come to sales.

[Nitin Kumar:]

Great. Thank you for your answers.

[Operator:]

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

[Doug Leggate:]

Thanks. Good morning Lee. Good morning everyone.

[Lee Tillman:]

Good morning Doug.

[Doug Leggate:]

Lee, hope you're doing well. I admire the continued disclosure on the free cash flow, which is obviously what everyone's focused on. My question is longevity. What are you thinking today when you look at -- when you talk about $1 billion of sustaining capital, what's the longevity of the portfolio without REx at this point? And I guess, if you could share also, maybe it's a second question, if you could share also what proportion of that cash flow, free cash flow currently is coming from EG? I'll leave it there. Thanks.

[Lee Tillman:]

Yes. I'll -- maybe I'll take the first part on longevity, and maybe I'll kick over to Mitch to talk a little bit about EG performance and its contribution. Clearly, Doug, for us, we believe very strongly in the three elements of resource enhancement that I talked about earlier, organic enhancement within basin, in addition to smaller trades and acquisitions and then, of course, the REx program that you mentioned. All of those are embedded in our forward outlook. We don't view that as an either/or proposition. We want to ensure that even within our benchmark maintenance case that we're continuing to reinvest in elevating in-basin performance, in-basin resource as well as continuing to support REx and have the financial flexibility that if there is a market-based opportunity that we can act on that. Strictly to the longevity, let's just kind of set all that to the side and even zero that out. We have high confidence, as you have seen in some of the presentation material, that the Eagle Ford and the Bakken are superior to really any of the U.S. shale plays. And we have a 10-year inventory life in both of those basins that we believe can drive the business to generate consistent outcomes to 2021. In other words, we don't see a falloff in that performance as we move forward in time because we're going to obviously continue to work on cost efficiency on productivity gains, et cetera. So, we see that model as being consistent and really being complemented then by the more competitive opportunities that we still have access to in Oklahoma and Northern Delaware, particularly as we see strengthening in secondary product pricing, particularly gas and NGLs. So, we are very confident in the longevity of free cash flow delivery. And we're also equally confident that we can continue to progress our, I'll call it, resource enhancement work as part of our reinvestment rate framework. Maybe I'll just kick over to Mitch for just a minute to share a few thoughts on EG and kind of the -- not only the path today's contribution of EG, but kind of what that future contribution may look like.

[Mitch Little:]

Good morning. Consistent with how we've talked about EG for a number of years and quarters, it certainly a strong asset for us and has historically generated meaningful free cash flow. This year, like the rest of our business, EG is certainly not immune to the price pressure that's occurred. However, as we move in through the third quarter and into the back half of the year now, we have seen modest price recovery across the board. We've got a Henry Hub index contract at the LNG facility. Methanol prices have certainly improved significantly. And so we would expect to return to meaningful dividends in the fourth quarter from that business. Having said that, I think, more broadly, your question, our U.S. business generates significant free cash flow as well. And particularly from the Bakken and Eagle Ford assets, where they have a track record of doing that for some time. So, with respect to EG going forward, I would expect 2020 to be a bit of an outlier on the low side. It's an asset that doesn't require a lot of continuous investment. We've got the Alen backfill project, that's proceeding on schedule coming on in the first half of next year, seeing this price recovery, modest price recovery, certainly relative to Q2. And we continue to progress and pursue additional regional gas opportunities, where we've got this really world-class infrastructure that's uniquely positioned with TCFs of discovered and undeveloped gas around us in the region and are at various levels of maturity with a number of interested parties in trying to enhance and pursue those opportunities further.

[Doug Leggate:]

Guys, I wanted just to clarify, I'm looking at slide 8, the 2021 guidance on the free cash flow. I'm just trying to get a handle as to what proportion of that free cash flow is coming from EG. That was really the question I was asking.

[Lee Tillman:]

Yeah. I mean, we can -- we can get more into that when we actually put forward a physical business plan and talk a little bit more explicitly about the sources of our free cash flow. But the reality is, as Mitch pointed out, a big proportion of that is coming from the U.S. resource plays. And that's really -- and if you look at the fact that we had, obviously, some maintenance, et cetera, at EG earlier this year. So there have been some impacts to that. And then, coupled with the price dislocation that Mitch referenced, its contribution has been pretty -- in a relative sense, has been relatively small this year. As we move more into more constructive gas pricing, certainly, we would expect EG to perhaps come back more equivalent to historic levels that we have seen in that asset. If you rewind back to 2019, EG was throwing off considerable free cash flow. But for us, there's a -- obviously, this is where the diversity of the portfolio really comes into play, because we have that diversity, not only across basin, but also across the various commodity types. And in this case, EG may have been penalized for gas early in the year, but it could step up as we move into 2021. So, I would just say more to come as we move from kind of talking about a benchmark case to the physical business plan.

[Doug Leggate:]

Thanks a lot. That

[Lee Tillman:]

Okay. Thanks, Doug.

[Operator:]

Thank you. We'll now turn it back to Lee Tillman for closing remarks.

[Lee Tillman:]

I wanted to end by recognize our employees and contractors have been so resilient, during these challenging times, never losing sight of our core values. Thank you for your interest in Marathon Oil and that concludes our call.

[Operator:]

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