Marathon Oil (MRO 0.79%) has worked hard over the past few years to transform into a company that can create value for its shareholders, no matter what happens with oil prices. The oil producer has already hit an inflection point, which was evident during the recently completed first quarter when it delivered a profit gusher.

That strong financial performance led CEO Lee Tillman to take some time on the accompanying conference call to remind investors what Marathon has to offer, which he believes meets their desired criteria for a compelling investment opportunity.

We check all the boxes

Towards the end of his prepared remarks discussing Marathon's first-quarter performance, Tillman pivoted and began talking about why his company should hold broad appeal among investors:

As I've said before, we don't believe it's a mystery as to what investors are looking for -- whether generalist or energy-focused, it's pretty straightforward. All investors are looking for companies that have the right portfolio of assets, that have the right strategy putting returns first, generating sustainable free cash flow at conservative oil prices and sharing that cash flow with investors, that have a strong balance sheet to weather potential volatility, and that have the capability to execute on their commitments consistently.

Tillman points out that investors have specific criteria they look for in a potential oil stock investment. They want a company not only focused on delivering a strong return on the capital they invest in new wells, but also with a fortress-like financial profile to help weather the storms that routinely batter the oil market. That allows such a company to share its success with investors via dividends and stock buybacks.

A notebook with a checklist on a pile of $100 bills

Image source: Getty Images.

Marathon's CEO says of his company:

We screen well on these criteria, and our performance in 2018 and now first-quarter 2019 stand as our proof points. We have a uniquely resilient cash-generative portfolio that is already delivering a compelling free cash flow yield, relative to both other E&Ps [exploration and production companies] and the broader market with high-value oil growth and outcome, and all at an organic breakeven of $45 WTI.

One metric that Tillman points out is Marathon's ability to generate free cash flow, which it can do as long as oil averages $45 per barrel. As oil prices rise, so does its cash flow. At $60 a barrel, the company can generate about $1 billion in free cash flow per year, which is nearly 10% of its current market value.

We have tremendous upside potential

As Tillman noted, the company's overall free cash flow inflection point is $45 a barrel. But things get interesting when crude rises above that level. He pointed out that "significant organic free cash flow is expected through 2020, of $750 million at just $50 WTI flat." Meanwhile, the company could produce more than $2.2 billion in excess cash at $60 a barrel, which is around the current oil price. That led Tillman to point out that's "almost double the broader-market free cash flow yield."

Marathon's high free cash flow yield suggests its stock is significantly undervalued. That's why the company's primary use for its free cash flow right now is to repurchase its shares. The company believes that's the best use for this cash since "we continue to see good value in buying our shares at current prices," according to Tillman.

Meanwhile, the company's ability to generate free cash should increase in the coming years. Tillman commented: "And though $50 WTI remains our planning basis and a commodity price at which we generate meaningful free cash flow, we believe that continuing to drive our enterprise breakeven point even lower is essential [in a] commodity business."

The company has already demonstrated its ability to improve its inflection point, driving it down from just over $50 a barrel in 2017 to the current level of less than $45 a barrel. This steadily falling breakeven level positions the company not only to weather lower oil prices, but also to generate an even bigger gusher of cash flow if oil prices rise.

An oil stock for all investors

Tillman concluded his prepared remarks by stating that Marathon's "sustainable free cash flow profile allows us to prioritize return of capital to shareholders and compete for the broadest cross-section of investors." Those increasing cash returns could enable the company to buy back a sizable amount of its undervalued stock.

Add that to its cash-flow growth profile, and Marathon appears to have the fuel needed to generate market-smashing total returns from here, even if oil prices fall back a bit.