Marathon Oil Corporation (MRO) Q4 2022 Earnings Call Transcript

Marathon Oil Corporation (NYSE:MRO) Q4 2022 Earnings Conference Call February 16, 2023 9:00 AM ET

Company Participants

Guy Baber - VP of IR

Lee Tillman - Chairman, President and CEO

Dane Whitehead - EVP and CFO

Pat Wagner - EVP, Corporate Development and Strategy

Michael Henderson - EVP, Operations

Conference Call Participants

Jeanine Wai - Barclays

Neal Dingmann - Truist Securities

Douglas Leggate - Bank of America Merrill Lynch

Matthew Portillo - TPH

Subhasish Chandra - Benchmark Company

Nitin Kumar - Mizuho Securities

Neil Mehta - Goldman Sachs

Operator

Good morning. And invited to nan Marathon Oil Fourth Quarter and Full Year 2022 Conference Call. All participants will beryllium successful a listen-only mode. [Operator Instructions]. Please note, this arena is being recorded.

I would now for illustration to move nan convention complete to Guy Baber, Vice President of Investor Relations. Please spell ahead.

Guy Baber

Thank you, Anita. And convey you arsenic good to everyone for joining america connected nan telephone this morning. Yesterday aft nan close, we issued a property release, a descent position and investor packet that addressed our 4th fourth and afloat twelvemonth 2022 results, arsenic good arsenic our 2023 outlook. These documents tin beryllium recovered connected our website @marathonoil.com.

Joining maine connected today’s telephone are Lee Tillman, our Chairman, President and CEO; Dane Whitehead, our Executive VP and CFO; Pat Wagner, our Executive VP of Corporate Development and Strategy; and Mike Henderson, our Executive VP of Operations.

As a reminder, today’s telephone will incorporate forward-looking statements taxable to risks and uncertainties that could origin existent results to disagree materially from those expressed aliases implied by specified statements. As ever I will mention everyone to nan cautionary connection included successful nan property merchandise and position materials, arsenic good arsenic to nan consequence factors described successful our SEC filings.

We will besides reference definite non-GAAP position successful today’s discussion, which person been reconciled and defined successful our net materials.

With that, I will move nan telephone complete to Lee and nan remainder of nan team, who will supply prepared remarks. After nan completion of these remarks, we will move to question-and-answer session. Lee?

Lee Tillman

Thank you, Guy, and bully greeting to everyone listening to our telephone today. First, I want to convey our labor and contractors for their corporate contributions to different singular year. A twelvemonth that tin only beryllium described arsenic broad transportation against each dimensions of our good established model for success. Your dedication and difficult work, arsenic good arsenic your patient committedness to our halfway values, including information and biology excellence that made it imaginable -- that made imaginable nan exceptional results I get to talk astir today. So convey you.

2022 genuinely was an exceptional year. But our outlook for 2023 and beyond is arsenic compelling. While nan squad and I will screen a batch of crushed coming I'll commencement by highlighting a fewer cardinal things.

First, we're successfully executing connected nan much S&P little E&P instruction our champions for nan past 2 years. They are delivering financial and operational outcomes not conscionable astatine nan apical of our precocious performing E&P adjacent group, but astatine nan very apical of nan S&P 500.

The results successful 2022 really do speak for themselves. $4 cardinal of adjusted free rate travel generation, nan strongest free rate travel output successful our adjacent group, and 1 of nan apical 5 free rate travel yields successful nan full S&P 500. The lowest reinvestment complaint successful our adjacent group a afloat 10 percent points beneath nan S&P 500 average. And 1 of nan lowest superior intensities, each indicators of a now good established superior and operating ratio advantage comparative to a precocious performing adjacent group.

Second, we're returning important superior backmost to our shareholders done our rate travel driven return of superior framework. Our model is transparent, it's differentiated, it prioritizes our investors arsenic nan first telephone connected capital, and it uniquely protect shareholder distributions from superior inflation.

During 2022, we’ve returned 55% of our adjusted free rate travel from operations aliases $3 cardinal to shareholders. And for those keeping people comparative to nan free rate travel based models of our peers, that equates to astir 75% of free rate flow. That besides translates to a 17% shareholder distribution yield, nan highest distribution output connected our E&P adjacent space, and 1 of nan apical 10 distribution deals successful nan full S&P 500.

We've remained patient successful our committedness to nan powerful operation of a competitory and sustainable guidelines dividend. In summation to accordant stock repurchases. That consistency paid disconnected pinch $2.8 cardinal of accredited stock repurchases. That reduced our stock count by 15%, driving important maturation connected a per stock basis.

Rewinding each nan measurement backmost to nan commencement of this astir caller stock repurchase programme successful October of 2021, we person reduced our stock count by 20%. Again, starring nan adjacent group. And we raised our guidelines dividend 3 times during 2022, bringing our way grounds to 7 increases successful nan past 8 quarters.

Third, we successfully closed connected nan Ensign acquisition earlier twelvemonth end. Materially strengthening our portfolio and enhancing our Eagle Ford scale. The Ensign acquisition makes america a stronger company. Checking each container of our disciplined acquisition criteria. It's a in installments to cardinal financial metrics, it’s a in installments to our return of superior framework, it’s a in installments to our precocious value inventory life and it offers compelling business logic successful nan halfway of a basin we cognize well.

Pat will supply further specifications later successful nan telephone that insure, integration efforts are progressing well. And first 2023 results person outperformed our expectations.

Finally, while 2022 was surely a banner year, I'm conscionable arsenic excited astir our imaginable successful 2023 and beyond. Fully accordant pinch our disciplined superior allocation framework, our 2023 fund prioritizes important free rate travel procreation and return of superior to shareholders.

At reference commodity prices of $80 WTI $3 Henry Hub and $20 TTF. We expect to make $2.6 cardinal of adjusted free rate travel and we expect to return a minimum of $1.8 cardinal to our shareholders, providing clear visibility to a double digit shareholder distribution yield.

And recognizing nan ongoing volatility successful commodity prices, peculiarly earthy state is important to statement that a $0.50 per MMBtu alteration successful Henry Hub only impacts our yearly rate travel by conscionable complete $100 million. While dollar alteration successful WTI moves rate travel by astir $70 million, reflecting continued leverage to lipid pricing astatine our balanced portfolio.

Once again, we afloat expect to lead our adjacent group and nan broader S&P 500 erstwhile it comes to nan financial and operational metrics that matter most. Free rate travel generation, superior and operating ratio and shareholder distributions. While our 2023 outlook is compelling, we're moreover amended positioned for 2024 arsenic our unsocial integrated guests state business successful Equatorial Guinea will use from an summation to world LNG value exposure.

Just arsenic a reminder, nan existent Henry Hub scale statement for our equity Alba state done ET LNG expires astatine nan extremity of 2023. And we will move to a marketplace guidelines world LNG linkage.

With nan existent and important arbitrage betwixt Henry Hub and world LNG prices, we expect this to construe into an uplift to 2024 EBITDA of $500 cardinal to perchance much than $1 cardinal comparative to 2023.

With that, I'll move it complete to Dane, who’ll supply much item astir our return of superior capacity and outlook. Dane?

Dane Whitehead

Thank you, Lee. Good morning, all. Lee had referred superior precocious points, giving you value of nan topic, I'll further elaborate connected our framework, our execution and our outlook.

As we've stated before, returning a important magnitude of superior to shareholders, done this cycle, remains foundational to our worth proposition successful nan marketplace. And erstwhile it comes to shareholder distributions, way grounds matters. We're building a way grounds we're really proud of and that investors tin trust.

During 2022 we’ve returned 55% of our CFO to shareholders, importantly exceeding our 40% of CFO model commitment. Total shareholder distributions amounted to $3 billion, bully for a full shareholder distribution output of 17%. That's nan highest successful our adjacent abstraction and 1 of nan apical distribution yields successful nan S&P 500. That includes $2.8 cardinal of accretive stock repurchases during nan year.

We proceed to judge that buying backmost our banal is an fantabulous usage of superior owed to nan worth we spot pinch our shares, trading astatine a free rate travel output successful nan precocious teens. Repurchases aliases worth accretive a very businesslike intends to thrust per stock maturation and are synergistic to turn successful our guidelines dividends.

During 2022, we reduced our stock count by 15%. And since reinitiating our stock repurchase programme successful October 2021, we've reduced our stock count by much than 20%, by far, nan astir important stock count simplification successful our adjacent abstraction arsenic shown connected nan bottommost correct schematic connected Slide seven.

Another use of our buyback program, is nan capacity it creates for ongoing maturation successful our per stock guidelines dividend. We precocious raised our quarterly guidelines dividend by 11% to $0.10 per share. The seventh summation successful nan trailing 8 quarters. While its astir caller increases much than afloat funded by incremental rate travel from nan wrong acquisition, ongoing stock count reductions from our buyback programme clear imaginable for further guidelines dividend increases successful nan future.

Our operating rate travel driven model is differentiated and it protects distributions from nan effects of superior inflation, offsetting ostentation is connected us. We judge this makes for a stronger committedness to our investors, arsenic our investors will genuinely get nan first telephone connected rate flow.

For 2023, nan precocious completed Ensign acquisition makes our model moreover much shareholder friends and adjacent to 20% to our pre-acquisition, operating rate flow, and truthful adding 20% to our shareholder distribution capacity. In addition, pinch nan 2022 financial -- existent financial results successful hand, on pinch nan December adjacent pinch Ensign, we expect will beryllium capable to defer U.S. rate replacement minimum taxes to 2024.

Our nonsubjective for 2023 is to firmly adhere to our return to superior framework, continuing to return astatine slightest 40% of CFO while besides paying them, and including immoderate of nan Ensign related acquisition financing. We judge we tin do both, maintaining our return of superior activity successful this adjacent space, which is nan apical privilege and proceed to heighten our already finance people equilibrium expanse done gross indebtedness reduction, each supported by our financial spot and flexibility.

On nan equilibrium sheet, we person astir $200 cardinal of precocious coupon U.S.X indebtedness maturing and replaced. We scheme to salary that disconnected pinch rate connected manus to trim gross indebtedness and liking expense.

We besides person $200 cardinal of debased costs taxation exempt bonds maturing successful 2023. These taxation exempt bonds are unsocial and very elastic constituent of our superior structure. We scheme to leverage nan costs advantage aliases taxation exempt in installments capacity to refinance those bonds successful 2023. And we person nan optionality to do nan aforesaid pinch early taxation exempt maturities successful 2024 and 2026.

With respect to shareholder returns, our 40% return connected superior committedness successful 2023 provides visibility to $1.8 cardinal of minimum shareholder distributions astatine our reference value platform arsenic a double digit return of superior yield, 1 of nan highest successful our adjacent space. We person been executing stock repurchases truthful acold successful Q1 ‘23. And scheme to proceed to do truthful accordant pinch our framework. And we person ample capacity successful our existent Board authorization to support moving.

While 40% represents a bully starting constituent for your models, our way grounds has been to transcend that minimum return, and we'll look to support that way grounds intact successful 2023. Especially if we use from immoderate commodity value support complete nan equilibrium of nan year, which would importantly heighten some shareholder returns and indebtedness reduction. They person tremendous leverage to commodity value improvement. And we'll usage that to nan use of our shareholders.

Now I'll move nan telephone complete to Pat, who’ll concisely locomotion america done an update connected nan Ensign acquisition.

Pat Wagner

Thanks, Dane. Consistent pinch our marketplace commitment, we successfully closed connected nan Ensign acquisition earlier nan extremity of nan year. As we've stated, this transaction checks each nan boxes of our M&A framework, contiguous financial accretion, return of superior appreciation accordant pinch Dane comments, accretion to inventory life and value and business logic pinch enhanced scale, each connected maintaining our financial spot and finance people equilibrium sheet.

And we based our Ensign valuation connected a 1 rig attraction programme pinch nary in installments for imaginable upside associated pinch redevelopment refrac. Our attraction now is connected integration and execution. In position of integration, early efforts person gone exceptionally well. We had primitively planned for awesome elements of nan modulation to return up to 4 months station close, we not expect to beryllium substantially complete pinch operations modulation activities by nan extremity of this month.

That accelerated timeline is successful ample measurement owed to nan fantabulous collaboration and practice betwixt some organizations. And it serves to underscore nan execution competence that comes pinch an acquisition and established guidelines and past has a way grounds of success.

On nan execution side, arsenic highlighted connected Slide 11 connected nan deck. Early good capacity is accordant pinch our stated position that nan acquired Ensign inventory has nan imaginable to present immoderate of nan champion returns and highest superior ratio successful nan Eagles Ford, and truthful nan full Lower 48.

Our first 2 pads, 9 wells successful full are outperforming expectations delivering apical decile lipid productivity successful nan basin. This twelvemonth we scheme to bring astir 40 wells to income connected nan acquired acreage, accounting for astir one-third of our full Eagle Ford program. The Ensign wells are expected to present accretive superior ratio and financial returns from comparable lipid productivity to those bequest Eagle Ford program.

I'll now manus complete to Mike, to supply much colour connected our 2023 superior program.

Michael Henderson

Thanks, Pat. Turning to Slide 12 of our deck. I'll supply a little overview of nan precocious points of our 2023 superior pool. As expected, accordant pinch our disciplined superior allocation model and our much S&P little E&P mandate, we expect to present beardown free rate travel and important return superior to our shareholders crossed a wide set of commodity prices arsenic nan graphics connected nan correct of nan descent show.

At our reference value deck, we expect our $1.9 cardinal to $2 cardinal superior fund to present $2.6 cardinal adjusted free rate travel astatine conscionable complete a 40% reinvestment paid. As Lee and Dane some highlighted, we expect to return astatine slightest $1.8 cardinal of superior to our shareholders. To present these financial outcomes, we'll run astir 9 rigs and 3 to 4 frac crews connected mean this year. We expect 2023 superior to beryllium first half weighted, pinch astir 60% of our full superior walk concentrated successful nan first half of nan twelvemonth mostly driven by nan timing of our activity.

At nan midpoint of our guidance, we expect to present attraction level lipid accumulation of astir 190,000 barrels of lipid per day, level comparative to 2022 aft incorporating Ensign volumes.

As is emblematic for our business, location will beryllium immoderate modular quarter-to-quarter variability passim nan year. The little extremity of our yearly guidance scope is simply a bully starting constituent for our first 4th full lipid production, astir 185,000 barrels of lipid per day. This is mostly a reflection of activity timing and nan associated effect connected good sales, on pinch a very humble antagonistic carryover effect from wintertime large wind Ellie, concentrated successful nan Bakken.

With activity and wells to income weighted to nan first 2 quarters of nan year, we expect to spot an improving accumulation inclination for lipid into nan 2nd and 3rd quarters.

Turning to lipid balanced production. The midpoint of our guidance is 395,000 lipid balanced barrels per day, inclusive of a planned 2nd 4th turnaround successful EG that is designed to group america up for a precocious level of uptime successful 2024. Overall, our 2023 scheme is simply a disciplined and precocious assurance programme designed to present beardown financial and operational outcomes.

In nan Eagle Ford, we tally a 4-rig program. We expect an improving good productivity inclination successful 2023 from an already beardown 2022, owed successful portion to Ensign contributions. In nan Bakken, we will tally 3 rigs successful mean again, focusing our activity successful our high-quality hectare area of nan play, wherever nan mean good pays retired and licensed six months astatine existent commodity prices. In nan Permian, we expect to proceed improving our superior ratio by expanding connected mean lateral lines to 10,000 feet this year, an summation of complete 25% successful 2022.

While our header Permian wells income guidance looks akin to past year, nan beardown good productivity and competitory drilling and completion capacity that we've delivered is getting backmost to activity complete nan 2nd half of 2022 supports a higher level of superior allocation. We, therefore, scheme to spud betwixt 25 and 30 wells this twelvemonth inclusive of astatine slightest 1 multi-well pad successful our Texas Delaware, Meramac Woodford fleet, which will support a higher level of good to income successful early 2024.

Our Texas Delaware position is nary longer an exploration play. The plus is now afloat integrated into our Permian plus improvement squad wherever it will compete for superior connected a heads-up ground pinch each nan different assets.

So our Oklahoma plus continues to supply america valuable optionality to a basal strengthening of nan state and NGL value environment. We aren't exposing overmuch superior to nan plus this year. Rather, near-term activity is constricted to a 1.5 rig associated task programme that will let america to efficiently take sides our acreage position and delineate immoderate little privilege acreage constricted scope and capital.

With that, I'll move it complete to Lee, who will supply an update connected our Integrated Gas business successful Equatorial Guinea.

Lee Tillman

Thank you, Mike. 2022 was an exceptional twelvemonth for our unsocial world-class integrated state business successful EG. We delivered complete $600 cardinal of equity income much than double our guidance astatine nan opening of nan year. And we generated astir $900 cardinal of EBITDA. Our results were driven by coagulated operational capacity arsenic good arsenic higher-than-expected commodity pricing, particularly for Henry Hub and European earthy gas.

For 2023, we expect equity income and EBITDA to diminution mostly owed to presume importantly little commodity prices, particularly for earthy state and nan already referenced planned turnaround during nan 2nd quarter. The outlook beyond 2023, however, is robust arsenic we expect to recognize important EG net and rate travel betterment successful 2024 connected nan backmost of an summation successful our world LNG value exposure.

A measurement of background, successful summation to our 64% liking successful nan operated Alba state condensate field, which produced astir 60,000 lipid balanced barrels per time connected a nett ground successful 2022. We besides person a 56% liking successful equity accounted 3.7 MTPA baseload LNG facility. This LNG installation presently processes equity state from our operated Alba section that is sold connected a bequest Henry Hub nexus statement and third-party Alen state volumes connected a full positive profit sharing basis. The Alba Henry Hub nexus statement expires astatine nan extremity of 2023.

While we're still moving done contractual and commercialized details, nan bottommost statement is that opening January 1, 2024, Alba root LNG will nary longer beryllium sold astatine a Henry Hub linkage. It will beryllium sold into nan world LNG marketplace which is expected to thrust a important financial uplift for our institution fixed nan worldly arbitrage betwixt Henry Hub and world LNG pricing.

More specifically, astatine pricing mostly accordant pinch nan guardant curve aliases $20 per MMBtu TTF, we're positioned to recognize an approximate $500 cardinal EBITDA uplift successful comparison to 2023. As location is simply a wide scope of imaginable world LNG value outcomes successful 2024, we've besides provided a precocious broadside sensitivity to thief you amended admit nan leverage we'll person successful 2024 to world LNG prices.

Assuming an upside lawsuit of $40 per MMBtu TTF successful 2024 aliases a value accordant pinch nan mean of nan trailing 12 months, nan imaginable EBITDA uplift could beryllium successful excess of $1 billion. And beyond nan important financial uplift expected successful 2024, we stay arsenic focused connected further maximizing nan semipermanent worth of our unsocial EG state assets by leveraging disposable haulage done EGL&G.

This world-class infrastructure is good positioned successful 1 of nan astir state prone areas of West Africa and is simply a earthy aggregation constituent to monetize some indigenous EG state arsenic good arsenic discovered undeveloped cross-border opportunities.

In summary, for years now, I've reiterated my position that for our institution and for our assemblage to pull accrued investor sponsorship, we must present financial capacity competitory pinch different finance alternatives successful nan market, arsenic measured by firm returns, free rate travel procreation and nan return of capital. More S&P, little E&D.

We've delivered precisely that type of capacity complete nan past 2 years and not conscionable competitive, but astatine nan very top. And arsenic I said before, our situation now is to beryllium that our results are sustainable, 4th in, 4th out, year-end and twelvemonth out. We judge they are. We're up for nan challenge, and I judge our outlook is arsenic beardown arsenic it has ever been.

Our compelling finance lawsuit is simple. We connection a unsocial and differentiated return of superior model that provides shareholders first telephone connected rate travel and protect distributions from superior inflation. For 2023, we're providing clear visibility to double-digit shareholder distribution yield.

We person an established way grounds of market-leading free rate travel output and shareholder distributions astatine an charismatic valuation and connection investors a free rate travel and return of superior floor plan that competes pinch immoderate assemblage and institution successful nan S&P 500 crossed a wide scope of commodity prices.

We person delivered per stock maturation crossed each nan metrics that matter via a accordant stock repurchase programme that leads our peers successful summation to a durable and competitory guidelines dividend. We judge this peer-leading financial transportation is sustainable, underpinned by our high-quality U.S. unconventional portfolio pinch complete a decade of precocious return inventory and a way grounds of sector-leading superior efficiency, precocious strengthened by nan Ensign acquisition.

Our portfolio provides commodity leverage pinch beardown lipid weighting, coupled pinch a unsocial and expanding vulnerability to world LNG prices that will thrust worldly financial uplift successful 2024 and beyond, each underpinned by an investment-grade equilibrium sheet. And finally, we're delivering these results to thief meet world lipid and state request while prioritizing each elements of our ESG performance.

To close, I want to again reiterate really proud I americium of nan measurement we position our company. We are results driven, but it is besides astir really we present those results, staying existent to our halfway values and responsibly delivering nan lipid and state nan world needs. The lipid and state that is captious to furthering world economical progress, defending U.S. power security, limiting billions retired of power poorness and protecting nan modular of living, we person each travel to enjoy.

With that, we tin unfastened nan statement for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] The first mobility coming comes from Jeanine Wai pinch Barclays. Please spell ahead.

Jeanine Wai

Hi, bully morning, everyone. Thanks for taking our question. Our first question, possibly conscionable starting pinch nan '23 outlook for Lee aliases Mike, 1 of nan things that really stood retired to america and nan outlook was really nan number of Eagle Ford wells to income successful nan plan, which was decently beneath our forecast, and it's about, I think, 20% little year-on-year connected an adjusted basis, if you conscionable presume attraction mode and past you adhd nan 40 Ensign wells to nan number of wells you did past year.

And we saw your comments astir higher aggregate year-over-year good productivity successful nan Eagle Ford successful '23. And we were conscionable wondering if you could stock immoderate further specifications astir nan implied improved superior ratio successful nan Eagle Ford because it seems to beryllium beautiful meaningful. So for example, if nan Eagle Ford -- is nan Eagle Ford really successful attraction mode this twelvemonth connected an adjusted ground and are location immoderate different factors retired location that would beryllium affecting nan wells this twelvemonth to sales, whether it beryllium nan mix, nan moving liking aliases thing else? Thank you.

Michael Henderson

Thanks, Jeanine, it's Mike here. I'll return that call. So to possibly reply portion of your question. Yes, I deliberation it is safe to presume that nan Eagle Ford is successful attraction mode -- each attraction mode this year. And I deliberation it's besides correct. You're besides correct successful nan bequest position, we are holding volumes level connected a little good income count successful 2023, which is evidently a affirmative thing. A mates of elements that I would opportunity spell into that. The first 1 being nan timing of erstwhile we bring wells online successful nan year. We are going to beryllium bringing adjacent to 60% of our bequest wells to income successful nan first half of '23. And that decidedly helps nan annualized volumes.

I deliberation nan 2nd constituent and astir apt nan much important 1 from my position is good productivity and locomotion goes into good productivity. But 1 of nan things that nan squad has been doing is really continuing to optimize our completion design. That has resulted successful an uplift successful our good performance. And you spot that factored into this year's business scheme and nan eventual and volumetric outlook.

So we were already mounting up for a beardown twelvemonth successful Eagle Ford pinch nan bequest business. I deliberation nan summation of nan Ensign acreage only reinforces our position, arsenic Pat mentioned. I deliberation we're peculiarly encouraged pinch nan capacity of nan first 9 wells from nan 2 pads that we brought online successful nan condensate window, very beardown productivity, apical decile and oil, really afloat accordant pinch our belief that this is immoderate of nan highest superior ratio inventory successful nan Eagle Ford. And that only adds to what was already a highly capital-efficient business. So very, very excited astir nan opportunities that nan acquisition brings america this twelvemonth and moreover beyond.

Jeanine Wai

Okay. Great. Same fraction connected this is ever a bully thing. Thank you for nan detail. Maybe Dane, turning to you connected conscionable nan shareholder returns versus indebtedness salary down, you're committed to returning astatine slightest 40% arsenic CFO this year. The equilibrium expanse is successful a really comfortable place.

At slightest astatine Barclays, our location forecast calls were meaningfully higher crude prices than $80 this year. And assuming our prices show up, really should we deliberation astir nan allocation of superior successful this script betwixt buybacks and early indebtedness salary down? We heard your prepared remarks wherever you talked astir your way grounds is to really transcend nan original target percent return. In nan past, you've fixed benignant of different percent targets astatine different commodity prices. But this clip around, you've sewage nan caller Ensign indebtedness successful nan mix.

And truthful astatine what constituent do you really commencement chipping distant astatine nan Ensign debt? Is it arsenic elemental arsenic if lipid is $85 aliases $90, you commencement going aft that more? Can you supply immoderate much color? Thank you.

Dane Whitehead

Good morning, Jeanine, yes, definitely. Let maine benignant of spell backmost to our return connected superior committedness model for a second, and past I'll activity my measurement to really we're reasoning astir paying down acquisition indebtedness and timing of that. One, arsenic I stated, we're firmly committed to our peculiar superior framework, a minimum of 40% of operating rate travel to shareholders assumes WTI is astir $60 and obviously, we're good supra that correct now.

In '22, we importantly exceeded that. We deed 55%, $3 cardinal backmost to shareholders, $2.8 cardinal of that was stock repurchases. So important return to successful nan shape of stock repurchases, and that's really we're reasoning astir 2023 arsenic well.

The Ensign acquisition really enhances our shareholder return capacity added astir 20% some our pre-acquisition operating rate travel and our shareholder distribution capacity. So different measurement to deliberation astir that is simply a 40% minimum shareholder return station Ensign would person beryllium some 50% pre-Ensign. So astatine a minimum, we're beautiful adjacent to what we really delivered past year, but we for illustration having a way grounds not only gathering our goal, gathering our minimum target that exceeding it, and that's what we've done truthful acold and we intend to proceed that.

Too soon to springiness you much guidance to exemplary connected that, but that's our bias.

With respect to really do we salary backmost acquisition indebtedness successful nan discourse of that return framework, I deliberation we really person nan capacity to do both, moreover astatine today's commodity price, arsenic I look astatine this, I spot nan capacity to not only meet and transcend our shareholder return goals but to commencement to meaningfully spot distant astatine nan acquisition indebtedness and get that liking disbursal and conscionable that gross indebtedness retired of nan system.

From your lips to God's ears connected higher lipid price, we person a tremendous magnitude of leverage to beardown commodity prices, particularly oil, and that would conscionable summation our return capacity. You did statement our equilibrium expanse is really strong. Rating agencies person fixed america affirmative feedback astir that. So we're not successful a huffy unreserved to delever.

But my guidelines lawsuit is to get that taken down astatine $1.5 cardinal 2-year word indebtedness paid disconnected wrong that window. And we tin prepay it without punishment truthful we tin conscionable commencement benignant of slicing chunks disconnected arsenic we spell through. And I deliberation we'll astir apt conscionable measure that periodically arsenic we spell done nan twelvemonth based connected really our rate procreation is.

But erstwhile again, restated our superior goal, our number 1 extremity is return to shareholders, and that will not return a backmost spot to paying down nan debt. While I'm here, fto maine conscionable talk a 2nd astir nan elasticity we person successful our superior structure. I noted successful my prepared comments, we person $200 cardinal of precocious coupon bequest USX indebtedness it's going to beryllium -- it's for illustration 8.5% to 9% coupon. So it'd beryllium really bully to get that retired of nan system. It's not a large quantum, truthful we're conscionable going to salary that disconnected of rate connected hand.

Aside from that, and nan acquisition word indebtedness that I already referenced, nan only different maturities we person betwixt now and 2027 are successful aggregate $1 cardinal successful taxation exempt bonds that mature somewhat relatably complete '23, '24 and '26. And nether that taxation exempt enslaved arrangement, we tin refinance fees, arsenic they travel owed successful immoderate tenor each nan measurement retired to 2037. So a ton of elasticity there. They're very liking complaint advantaged to taxable debt. Even successful this crazy liking complaint environment, they're rather a spot advantaged and nan things normalize arsenic we spell guardant present a small spot from an liking complaint perspective, they're -- nan coupon connected this 1 we're retiring now is 2%, and that's benignant of isolated from 4 companies. So we really for illustration that flexibility.

And nan past point I'll opportunity is we extended precocious our $2.5 cardinal in installments installation retired to July of 2027. So benignant of elasticity there. Bottom line, shareholder returns first, salary backmost indebtedness second. We person capacity to do both. I'm not going to springiness you a break statement look really we're reasoning astir it. But that's our commitment. And that's really we're going to proceed.

Jeanine Wai

Great. Thank you, Dane.

Operator

Next mobility comes from Neal Dingmann, Truist Securities. Please spell ahead.

Neal Dingmann

I'll time off my first mobility for you aliases Dane, connected superior allocation, specifically. I decidedly admit and really support nan buyback focus. I'm conscionable curious, person you each changed nan measurement you deliberation astir your banal dividend aliases your banal valuation arsenic nan savers nan dividend payout. Just wondering, I mean, you each deliberation astir immoderate mid-cycle prices utilized erstwhile looking astatine nan metrics? Or is location immoderate different specifications you were taking to supply connected benignant of really you're looking astatine nan buyback versus nan disk?

Michael Henderson

Yes. Go ahead, Dane.

Dane Whitehead

Neal, yes. So from a guidelines dividend perspective, we want that to beryllium competitory and sustainable. And sustainability is benignant of nan politician there. We look astatine benignant of blimpish mid-cycle pricing, possibly a $50 WTI world and inclination not get excessively acold of, say, 10% of operating rate travel connected that guidelines dividend. And truthful that's a spot of a governor.

Now we person nan synergy pinch nan stock repurchases that amazingly -- is astonishing really quickly you tin bargain backmost capable banal to salary for different 10% increase, and we'll decidedly beryllium successful that model again sometime this year. So that's really we deliberation astir nan dividend, stock repurchases, obviously, integrated lion's stock of our return of superior program, and I would expect that to proceed arsenic agelong arsenic our free rate travel output is suggestive of a really businesslike measurement to bargain backmost stock.

Lee Tillman

Yes. I think, Neal, if you look astatine nan aggregate ratio of our stock repurchase program, it really has been a differentiating, I think, characteristic for america since we started that programme backmost successful October of '21. I mean to beryllium talking astir a 20% -- complete 20% simplification successful shares outstanding and nan melodramatic effect that, that has connected per stock metrics it's beautiful notable. And arsenic Dane noted, not only is that a very businesslike system for getting that rate backmost to shareholders. But nan synergy effect that it has pinch nan guidelines dividend is besides beautiful remarkable.

So that -- those mechanisms, we believe, are still nan lawsuit to beryllium arsenic we look up into 2023.

Neal Dingmann

Yes, I emotion that per stock growth, it really stands out. And past my 2nd mobility is conscionable connected cost, specifically. Incremental costs expectations for nan adjacent fewer quarters look to beryllium now nan astir topical erstwhile again. Just funny connected really volatile you each judge these -- that caused let's say, for nan adjacent 2, 3, possibly moreover 4 quarters will proceed to be. And tin you continue? It seems for illustration you've done a beautiful bully occupation successful nan past, locking successful a bully portion of those. I cognize erstwhile talking to Mike and nan team. So I'm conscionable wondering erstwhile you guys look astatine that, really you're reasoning astir costs present for nan -- telephone it, nan adjacent word and locking in?

Lee Tillman

Yes. Maybe I'll conscionable supply a mates of comments and past manus complete to Mike to possibly get into immoderate of nan specifications of really we're really moving to mitigate those pressures successful time. But erstwhile you deliberation astir costs overall, we person to carnivore successful mind that 2022 was benignant of a communicative of 2 halves of nan year. The first half of nan twelvemonth was -- surely didn't spot nan level of inflationary impacts that we saw successful nan 2nd half. So immoderate of nan unit that I deliberation we're emotion not only nan institution but arsenic a sector, successful 2023 is nan truth that we person nan afloat twelvemonth effect of those inflationary pressures.

And our $1.9 cardinal to $2 cardinal number afloat contemplates that afloat twelvemonth effect of those inflationary pressures. I deliberation nan squad has done an outstanding occupation being very disciplined astir really we fastener successful some capacity and costs from our work providers. And possibly I'll fto Mike conscionable grow a small spot connected that point.

Michael Henderson

Yes. Thanks, Lee. It's Mike here, Neal. Maybe a mates of things. How I'd possibly qualify '23. At a precocious level, we've benignant of assumed akin work costs connected that 4th fourth environment. So that's astir apt a bully starting constituent for you. And possibly accordant pinch what we've highlighted previously, and we touched connected this a small bit. We're assuming 10% to 15% ostentation that is built into our 2023 fund arsenic comparative to 2022.

As we mentioned successful nan past, we've been moving this 1 hard. Really, our nonsubjective was to really baseload nan attraction programme benignant of really effort to minimize nan request for spot work. A batch of benefits successful doing that from safety, execution and commercialized perspective. We've taken what I picture arsenic a disciplined but thoughtful approach.

Our privilege has been to really protect nan execution broadside of nan business and effort to get entree to nan aforesaid high-quality providers and instrumentality that we were utilizing successful '22, and I tin show you been successful there. And nan mostly of nan folks that we're moving pinch successful '23 are we spot folks that we're moving pinch successful '22.

As I deliberation astir nan twelvemonth -- for nan first half of nan year, mostly of our reg pressure, pumping soil successful leads each afloat secured. Most of nan value is locked in. There's a small spot of unfastened pricing, but not a batch wherever we tin effort to scale nexus that to nan pricing mechanisms. And past possibly for nan 2nd half of nan year, that's really been a small spot much patient. That feels for illustration nan correct calls conscionable fixed nan macro volatility astatine nan moment.

We consciousness bully astir our expertise to entree high-quality providers and equipment, but we've possibly been a small spot much thoughtful successful position of really overmuch prices we fastener in. Potentially, that could activity to our advantage later successful nan year, peculiarly if you spot immoderate of this commodity value weakness that we seen recently, if that persists, particularly connected nan earthy state broadside of nan business. That could perchance lead to little drilling and completion activity, peculiarly successful immoderate of those higher costs gas, please.

Lee Tillman

Yes. And possibly 1 conscionable benignant of closing remark arsenic well, Neal. I cognize we walk a batch of clip talking astir inflationary pressures connected nan CapEx broadside of our business. I don't want america to hide that our operating expenses are besides a captious constituent of our business model. And if you look astatine our guidance, peculiarly for nan U.S. business this year, nan U.S. portion accumulation disbursal is really going down by circa 10% year-over-year. A batch -- obviously, a batch of awesome activity by nan team, but besides it reflects immoderate of nan implicit ratio that we're gaining done nan standard and nan capacity from nan Ensign acquisition. So I conscionable don't want to attraction each of our clip conscionable connected CapEx, OpEx is still a very cardinal constituent of transportation of our financial metrics. And truthful I conscionable wanted to item that earlier we fto these questions.

Neal Dingmann

That’s a great. Thanks, Lee, thanks, Mike.

Operator

The adjacent mobility comes from Doug Leggate pinch Bank of America. Please spell ahead.

Douglas Leggate

Good morning, guys. Thanks for getting maine on. So Lee tremendous acquisition successful nan Eagle Ford. My mobility is whether you person statement of show aliases immoderate thoughts astir really you reside nan equilibrium of nan portfolio. And fto maine framework my mobility for illustration this. On Slide 20, you're showing astir a 13-year inventory successful nan Lower 48, but you're besides suggesting nan Eagle Ford coming is much than 15 years, and that's astir half of production. So I conjecture I'm coming to a conclusion that nan remainder of nan portfolio is astir apt sub-10. So I'm wondering if you could springiness america immoderate thoughts arsenic to whether that sounds reasonable, possibly break it down by asset, but really you deliberation astir extending nan plus life connected those different parts of nan portfolio? And I've sewage a follow-up, please.

Lee Tillman

Yes. No. Thank you, Doug. Well, first of all, I admit you pointing retired nan inventory life because I do deliberation this is an important topic. This is third-party data. This is -- that we showed successful nan pack. It's besides benignant of sub-$50 WTI breakeven data. So you conscionable person to support successful mind that this is simply a very circumstantial portion of inventory life. To me, 1 of nan cardinal takeaways is that we're clustered successful pinch 4 aliases 5 different companies that are really sitting successful that 12- to 15-year inventory life. And truthful we're successful a very bully ZIP codification there.

So I want to commencement pinch that arsenic a premise. We're not disadvantaged successful immoderate shape aliases manner erstwhile it comes to value inventory for illustration pinch exceptionally debased breakeven. Getting beyond that and talking astir inventory life for nan portfolio, but besides astatine a basin level. You're correct successful nan consciousness that Ensign has been very accretive specifically to nan Eagle Ford. But arsenic you know, superior allocation and depletion rates yet sits nan inventory life calculation, that's why we thin to look astatine it astatine a portfolio level arsenic opposed to a basin level.

But you tin return comfortableness successful nan truth that erstwhile we look crossed our basins, successful aggregate, they are each astatine that benignant of 10-year aliases amended inventory for illustration erstwhile we look astatine that from an soul perspective. We said, well, really do you deliberation astir increasing that inventory life moving forward. Well, I deliberation correct now, we're conscionable wanting to merge and digest nan Ensign acquisition, which, to us, was very overmuch typical of nan type of acquisition that makes consciousness for a institution for illustration Marathon, right?

If you -- we talked extensively astir nan criteria we would usage to measure immoderate acquisition. And it was evidently financial accretion. It was evidently business logic. But a large constituent of that was to look for assets aliases opportunities that would besides person a nett affirmative effect connected inventory life. And not conscionable long-dated inventory, but inventory that tin compete correct now today, and that's precisely what we're seeing from nan Ensign acquisition.

So to nan grade that we proceed to surface and look astatine opportunities present successful nan U.S. And they -- and we find immoderate that meet that criteria. I will return a very difficult look astatine that Pat and his squad are perpetually looking astatine nan opportunities wrong our halfway basins. But if anything, Ensign has really raised that barroom and raise and elevated that criteria because it was truthful accretive to nan wide endeavor and specifically nan Eagle Ford metrics.

Douglas Leggate

I admit nan answer, Lee. I mean, bully assets and hands awesome guidance pinch a batch of rate and you tin benignant of spot wherever I'm going pinch that. So convey you for nan answer. My follow-up is benignant of a akin mobility connected EG. And you cognize we've been benignant of struggling pinch this a small spot because I recognize that nan measurement alteration successful nan 18-year statement is extraordinary.

The problem we're facing is that connected our numbers astatine slightest connected third-party data, successful particular, nan $900 cardinal of EBITDA much aliases little connected nan production, it looks for illustration it's astir $600 cardinal gross going done nan plant. That accumulation looks to diminution astir 70% complete nan adjacent 5 years, and you don't person immoderate superior associated pinch nan uplift this coming year.

So my mobility is, really do you support -- what are nan opportunities that successful position of whether it mightiness require superior aliases third-party connected that state to walk capital, which brings questions complete what benignant of separator you tin really support connected that. So I conjecture I'm looking for confirmation. Is that really nan diminution rate? And really do you backfill it?

Lee Tillman

Yes. Well, I deliberation nan -- first of all, connected nan diminution rate, connected nan equity Alba state clip and safe, we're benignant of 8% to 10% yearly diminution rate. So that's benignant of nan diminution complaint that we would typically acquisition wrong that asset. In position of early opportunities, fto maine picture it for illustration this.

First of all, arsenic I said successful my opening comments, we person this world-class very unsocial infrastructure sitting successful 1 of nan astir state prone areas of West Africa. And rather frankly, those molecules will not get monetized unless they astir apt travel done EG LNG. We are nan way to monetization. And we've already demonstrated occurrence successful that. If you look astatine nan Alen project, which, arsenic you said, if you will, different molecule, a non-equity project. But pinch that, we were capable to participate some from a tolling arsenic good arsenic a percent of proceeds connected nan profit sharing broadside of that.

Not only that, but erstwhile you talk astir capital, we had much infrastructure built retired connected personification else's capital, i.e., nan Alen pipeline. And that was evidently captious for nan Alen task but it besides subsequently now connects america to further discovered undeveloped state that we cognize yet will travel to market.

Remember, we're successful nan Atlantic Basin, wherever proscription and geographically advantaged to European markets. There is nary different monetization way for those molecules. So I person a very precocious assurance that betwixt third-party opportunities arsenic good arsenic nan truth that we proceed to measure some on-block Alba and disconnected artifact opportunities ourselves. Now location could beryllium immoderate superior requirements there.

But for third-party molecules, those are going to travel to us, and we're going to beryllium capable to participate successful nan upside, conscionable for illustration we person successful nan Alen project. So successful aggregate, erstwhile I deliberation astir each of those opportunities, erstwhile I deliberation astir our already demonstrated occurrence astatine Alen, we person commercialized model that useful and that model tin beryllium replicated. The truth that these molecules person to find a location aliases they're going to beryllium stranded gas. I person a batch of assurance that we've sewage a very beardown trajectory for EG LNG retired to 2030 and beyond.

Douglas Leggate

Appreciate nan answer. Lee, acknowledgment truthful much.

Lee Tillman

Anita, possibly we tin do connected mobility per expert to effort to make our measurement done remaining a cardinal there.

Operator

Okay. The adjacent mobility comes from Matt Portillo pinch TPH. Please spell ahead.

Matthew Portillo

Just a follow-up to Doug's question. Great to spot nan Texas Delaware making its measurement into nan improvement program. Just funny if you tin springiness america an update connected nan delineation scheme for this year? What you've learned truthful far? And really this mightiness effect benignant of your inventory views for nan Permian benignant of moving forward?

Patrick Wagner

I'll return this one. Matt, this is Pat. Yes, arsenic you said, we conscionable completed 3 wells connected our astir caller pad. The wells are performing good to date, accordant pinch our predrill expectations. All 3 wells and execute astatine slightest 1,000 barrels of lipid per time connected travel back. It's still early. We're still watching nan wells. We request immoderate clip to look astatine longer-term performance, but early indications that are good, they're exhibiting precocious lipid cuts, they're showing debased h2o connected ratios and a debased decline, immoderate affirmative result there.

You whitethorn callback that we deliberately down-spaced this pad successful Woodford and cheque our spacing development. We collected a batch of fibre information and different time to effort and activity successful nan optimal spacing, some vertically and horizontally. The cardinal takeaway truthful acold is that there's nary connection we've seen betwixt nan Woodford and nan Meramec, which gives america beardown grounds that we tin successfully co-develop those 2 reservoirs without successful nan period.

With respect to early improvement spacing, I'd opportunity early learnings from this pad look to corroborate our original position that optimally will astir apt spell pinch a 4x4 co-development. That will beryllium nan astir capital-efficient measurement to create nan acreage.

I'll punctual you that nan erstwhile pad, we had nan strongest Woodford lipid good mean drilled and that good continues to conscionable beryllium a really beardown well. We now person astir 12 wells online crossed nan 55,000-acre position that we person 8 successful nan Woodford aliases successful nan Meramec. Again, very assured successful each their capacity very precocious lipid productivity, debased h2o ratio and shallow decline. And we deliberation ultimately, this play is going to make very precocious returns.

As Mike said successful his opening remarks, nary longer an exploration play afloat integrated into nan team. It will compete pinch headdress for superior pinch nan remainder of nan portfolio. That said, we will drill different multi-well pad this twelvemonth to proceed nan development, and we'll spot really it goes. We'll thief successful that.

Operator

[Operator Instructions] The adjacent mobility comes from Subhasish Chandra pinch Benchmark Company.

Subhasish Chandra

Just funny connected your state views. Yesterday, we mightiness person seen a institution that targets lipid and spot state arsenic a derivative. And nan consequence of that strategy, fixed what's happened successful nan macro world. I deliberation successful your commentary, you are much cautious connected gas, astatine slightest successful Mid-Con, et cetera. But could you talk much specifically to really you mightiness set activity astatine each based connected state prices?

And secondly, I should -- well, a follow-up -- nary follow-up connected nan Bakken. Bakken is getting gassier, and really you benignant of look astatine that going forward?

Lee Tillman

Yes, Subhasish, this is Lee. Just successful position of state views, we're not successful nan business of predicting pricing. We're a value taker. We do have, though, however, a very earthy hedge by kindness of our portfolio. I want to support successful mind that our portfolio is astir 50% oil, astir 50% state and NGL.

So moreover though prices will inevitably grounds volatility. We've seen that connected nan state side, we don't expect extremist changes wrong our superior allocation programme for this year. Could we spot immoderate mini optimization present and there, good absolutely? But again, we're not going to effort to foretell aliases pursuit pricing because inherently, we person a very balanced portfolio that gives america a very wide vulnerability crossed nan full commodity deck. So we consciousness very bully astir that.

We talked astir immoderate of nan sensitivities wrong our portfolio. We still are very leveraged to oil. We for illustration that. We deliberation that, that is -- I'm very constructive connected lipid now and successful nan future. And I for illustration nan truth that for each dollar alteration successful WTI, that's a $70 cardinal uplift successful rate travel for us. So I don't expect immoderate awesome shifts successful superior allocation arsenic a consequence of state volume.

On your different mobility conscionable astir nan Bakken, obviously, typically, arsenic we person moved into nan Hector area, et cetera, we will spot immoderate earthy variety successful GOR. But again, we're driven by profitability. I won't opportunity we're afloat agnostic to commodities. But again, we're going to beryllium driven by economics.

Michael Henderson

Yes. I think, Subhash, I'll conscionable chime successful arsenic good connected nan Bakken. What you're seeing location is possibly conscionable nan improving state seizure business successful nan basin arsenic good and for ourselves. We've progressively each twelvemonth sewage amended and amended and expect that to continue. So there's astir apt an constituent of that playing into it arsenic well.

Lee Tillman

Yes. And that's been a conscious finance connected our portion to amended that state seizure to seizure that worth successful nan section arsenic good arsenic evidently nan emissions benefits that travel pinch that.

Operator

The adjacent mobility comes from Nitin Kumar pinch Mizuho Securities. Please spell ahead.

Nitin Kumar

Hi, bully morning. And acknowledgment for taking my question. I'll limit myself to 1 question, one-part question. Can you talk a small spot astir really do you spot superior allocation amongst your 4 cardinal U.S. assets guidelines going forward? As you did pointed out, you had less wells successful nan Eagle Ford, but you're besides doing a fewer much successful nan Bakken than we expected for 2023. So conscionable really should we deliberation astir nan allocation of superior betwixt nan 4 plays?

Lee Tillman

Well, possibly I'll opportunity a mates of things, and I'll fto possibly Mike capable successful immoderate of nan details. But -- and this year's superior allocation, astir 80% of nan superior allocation is flowing to nan Eagle Ford and nan Bakken. But we besides person an uplift year-over-year successful allocation to nan Permian arsenic good based connected nan outstanding results that we knowledgeable successful 2022.

And truthful that's what we're looking astatine this year. I would expect that arsenic we march guardant successful time, nan Eagle Ford and nan Bakken are still going to compete very, very heavy for superior allocation. But there's nary uncertainty that Permian now coupled not only pinch nan Northern Delaware position, but pinch nan Texas Delaware, Woodford, Meramec is going to commencement stepping up and competing much straight for capital. There are evidently immoderate different subtleties wrong each basin successful position of really nan superior allocation is flowing. And possibly I'll fto Mike springiness a small spot of colour connected specifically what's happening astatine a basin level.

Michael Henderson

It's Mike here. Yes, conscionable a small spot much item connected '23. We provided nan reg splits and nan wells to income successful nan deck. So 9 to 10 rigs successful total, that's excluding nan JV activity, 4 rigs successful nan Eagle Ford, and I'll beryllium 1 connected nan Ensign acreage pinch 3 successful Bakken and past 2.5 successful nan Permian past 1.5 JV rigs successful Oklahoma.

I deliberation Lee mentioned that astir 80% of nan superior is going to Eagle Ford and marketplace Eagle Ford is acute superior plus pinch nan summation of Ensign. And possibly a small spot amazed well, possibly not, it was Permian conscionable grabbing nan mostly of nan remaining capital. And really, that's driven by nan fantabulous results that we've had successful Permian past year.

That plus is now efficaciously competing for superior against nan Eagle Ford and nan Bakken, which is nary mini mean feat, making a beardown lawsuit for moreover much superior successful 2024. And a mates of elements to that good productivity is simply a large portion of it, seen immoderate very, very beardown results location successful aggregate.

The 19 wells that we brought online past twelvemonth averaged IP30s of complete 2,200 barrels of lipid balanced per time and a 70% lipid cut. Extended accumulation history successful nan region is looking really bully arsenic well. One of nan Thunderbird 4H good successful Red Hills, that achieved an IP 120 complete 2,100 barrels of lipid per day.

And I deliberation you past mates that pinch nan team. We've seen nan teams really excel successful their completion activities, we're astir apt pumping for complete 19 hours a day. I deliberation you tin harvester each of that together and you spot nan superior efficiency, a batch to for illustration astir 2022 capacity then. Just overgarment awesome occupation that nan teams person done arsenic good pinch acreage trades and benignant of adding to our mean lateral length, it conscionable causes that plus to go moreover much superior efficient. Yes, that's probably.

Lee Tillman

Anita, we’ll return 1 much question.

Operator

Our adjacent mobility comes from Neil Mehta pinch Goldman Sachs. Please spell ahead.

Neil Mehta

Thanks for squeezing maine in. Just a speedy mobility connected superior efficiency. Obviously, you provided nan '23 guideline here, but are you seeing immoderate signs of existent clip of nan 2nd derivative of ostentation improving pinch diesel coming off, chemicals getting a small spot better. Just talk astir what is sticky and what mightiness really beryllium moving backmost into your direction?

Lee Tillman

Well, I deliberation that there's nary uncertainty that nan complaint of alteration connected ostentation is surely slow. And we -- arsenic Mike said earlier, what we person embedded successful this year's fund to $1.9 cardinal to $2 cardinal is fundamentally nan ostentation levels that we saw arsenic we exited 2022.

So from our perspective, to nan grade that we spot ostentation and commodities for illustration diesel, et cetera, commencement to moderate. We would expect that to beryllium fundamentally a tailwind for america comparative to not only our superior program, but besides evidently our operating costs arsenic well. Mike, I don't cognize if you want to opportunity thing other connected that?

Michael Henderson

I deliberation -- I mean nan different point astir apt you look astatine rig count, broadly speaking, that's decidedly flattened besides from an activity position that should beryllium adjuvant arsenic well. I benignant of alluded to this successful possibly 1 of my erstwhile answers pinch commodity prices, peculiarly state being wherever they are perchance immoderate of nan state basins, possibly successful particular, commencement to spot activity and tailing disconnected and that perchance could lead to a small spot of a weakening successful nan marketplace arsenic well.

And I'll astir apt commencement pinch rigs, but past there's a non-current effect connected publication crews and everything other that comes successful nan oilfield work sector. So I deliberation erstwhile -- again, I touched connected a fewer minutes agone erstwhile I deliberation astir our strategy, our attack to nan twelvemonth successful position of locking in, beautiful overmuch astir of our prices successful nan first half of nan twelvemonth and past nan elasticity successful nan 2nd half of nan year, I deliberation we consciousness beautiful bully astir nan wide macro situation.

Operator

This concludes our question-and-answer session. I would now for illustration to move nan convention backmost complete to Lee Tillman for immoderate closing remarks.

Lee Tillman

Well, convey you for your liking successful Marathon Oil. I'd for illustration to adjacent by again thanking each of our dedicated labor and contractors for their committedness to safely and responsibly present nan power nan world needs now much than ever. Thank you very much.

Operator

This convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.