A Letter to Our Stakeholders
Our first responsibility during this ongoing crisis has been to the health and safety of our employees, contractors and communities. And as critical infrastructure providers, we’re also focused on keeping our operations functioning and the supply of energy uninterrupted.
We know how important it is to deliver reliable, affordable energy to the world while also prioritizing environmental, social and governance (ESG) excellence. Marathon Oil was among the first to move to an exploration and production (E&P) business model that prioritizes corporate returns and sustainable free cash flow as opposed to a singular focus on production growth.
This underlying framework for success has delivered financial sustainability that is competitive not only with our direct E&P peers, but the broader market. As we move forward, we must continue to embed strong ESG practices to deliver non-financial outcomes that similarly compete with the broader market as the world transitions to a lower-carbon future.
Record Safety Performance
I’m extremely proud to announce that 2020 was our safest year on record. This is a major achievement, but the fact that this performance was accomplished with the backdrop of the current pandemic demonstrates the impact of our daily commitment to safety as a core value and the continuous improvement in our processes and best practices. This is the second consecutive year of record safety performance, as measured by Total Recordable Incident Rate (TRIR) for both employees and contractors. It reflects the maturity of our safety culture, the rigor of our management systems, the engagement of our leadership at all levels of the organization and our unwavering commitment to continuous improvement.
New Environmental Targets
We believe oil and gas will remain an essential part of the energy future, and we’re working to be part of the transition to a lower-carbon economy. It’s imperative that Marathon Oil and our industry address the dual challenge of meeting the world’s growing energy demand while responding to the impacts of climate change.
We’re taking action, and in early 2021 we raised the bar on environmental performance with the announcement of quantitative greenhouse gas (GHG) emissions intensity targets:
- A short-term target to reduce 2021 GHG emissions intensity 30% compared to 2019, which is hard-linked to compensation.
- A mid-term goal to reduce GHG emissions intensity by at least 50% by 2025 compared to 2019, a time horizon that ensures clear accountability.
These targets build on the momentum we established in 2020, when through companywide efforts we reduced GHG emissions intensity by approximately 26% compared to our 2019 levels. The significant year-over-year reduction was due in large part to the hard work to improve total company gas capture to 98.5% in the fourth quarter of 2020. Looking ahead, in our 2021-2025 benchmark maintenance scenario, we’ve allocated $100 million over the next five years to high-impact emissions reduction strategies and technologies.
We believe strong corporate governance is foundational to delivering shareholder value, and have modified our executive compensation framework to further align management interests with stakeholders’ interests and to incentivize the behaviors we believe are most important:
- GHG emissions intensity reduction
- Capital discipline
- Enterprise breakeven
- Balance sheet/financial performance
In recognition of the importance of these behaviors, several actions were taken related to executive officer compensation. Executive officers saw their base salaries reduced by 10% during 2020 in response to the severe market conditions brought on by the COVID-19 pandemic and for 2021, the company reduced annual board compensation by 25% and my total direct compensation by 25% including a 35% reduction to my long-term incentive awards. These changes are intended to better align compensation with the investor experience and to the broader industry, as well as the current business environment. Other senior officers also participate in total compensation reductions and our revised compensation program.
In early 2021, we also welcomed two new members to the Marathon Oil board of directors: Holli C. Ladhani and Brent Smolik. Holli most recently served as president and CEO of Select Energy, a provider of end-to-end water management solutions for energy producers. Brent most recently served as president and chief operating officer at Noble Energy. We also made leadership changes to the board this year, naming Marcela Donadio as our independent lead director following the 2021 Annual Meeting of Stockholders. We continue to prioritize strong board of director refreshment, independence and diversity. Of our eight current directors, seven are independent, three are female, and two self-identify as an ethnicity other than Caucasian/White. Our average director tenure is below the S&P 500 average, and our board maintains a diverse mix of short- and longer-tenured directors that reflects a balance of company experience and new perspectives.
The past year was marked by tragic events that elevated awareness and recognition that racism and inequality continue to exist in society. It was a powerful reminder that we have work to do as a nation, as an industry and as a company to promote and protect the diversity that has made our company and country so great. First and foremost, Marathon Oil respects the human rights, as well as the cultural and legal rights of individuals and communities. One of our key corporate values is being ‘One Team,’ and we stand together with our employees to denounce discrimination in any form. We know there is more to be done and will continue to drive equity at Marathon Oil by scrutinizing and enhancing our own approach to diversity, equity and inclusion policies and practices. To that end, we continue to assess our disclosures in the area of human capital in both this report and our regulatory filings.
Sustainable Business Practices
When I think of Marathon Oil’s ESG performance in 2020, integrity, resilience, dedication and respect come to mind. These traits underscore our commitment to sustainable business practices and to a culture that allows every employee to work to their fullest potential and drive innovation.
As we manage through commodity price volatility and the ongoing COVID-19 pandemic, I take great pride in the contribution of our employees and contractors who deliver the energy that powers our modern way of life. Throughout this report, I’m confident you’ll see how we strive to operate responsibly, work together as ‘One Team,’ support the communities where we live and work, maintain the values we believe in, and produce affordable and reliable energy.
The energy industry has done more to power human progress than any other and that mandate will not change. Oil and gas will be part of any future energy transition to deliver the products required to support the world’s economy and to elevate the standard of living for many decades to come. There will be energy to provide for a growing world population and we’re positioning Marathon Oil as one of the elite companies to deliver that energy through a powerful combination of capital efficiency, low costs and ESG excellence.
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