Marathon Oil Corporation Provides Fourth Quarter 2007 Interim Update

Source: www.gulfoilandgas.com 1/9/2008, Location: North America

Marathon Oil Corporation provided information on market factors and operating conditions that occurred during the fourth quarter of 2007 that could impact the Company's quarterly financial results. The market indicators and Company estimates noted below and in the attached schedule may differ significantly from actual results.

Exploration and Production
Liquid hydrocarbon and natural gas production sold during the fourth quarter is estimated to be approximately 350,000 barrels of oil equivalent per day (boepd). Revenues are reported based on production sold during the period which can vary from production available for sale primarily as a result of the timing of international crude oil liftings and natural gas sales. Liquid hydrocarbon and natural gas production available for sale during the fourth quarter is expected to be approximately 350,000 boepd, within the previous fourth quarter guidance of 330,000 to 355,000 boepd.

Marathon's average liquid hydrocarbon realization for the first two months of the fourth quarter, as compared to the third quarter of 2007, increased $11.18 per barrel domestically and $11.99 per barrel internationally, reflecting the general market price movements during the first two months of the quarter. For the entire fourth quarter of 2007, the average West Texas Intermediate (WTI) crude oil market price indicator was $15.35 per barrel higher than the third quarter of 2007, while the average Dated Brent indicator increased $13.71 per barrel.

Marathon's domestic average natural gas price realization for October and November increased $0.46 per thousand cubic feet (mcf) over the Company's average realized price in the third quarter of 2007. The average Henry Hub (HH) prompt natural gas price for the fourth quarter increased $0.75 per million British Thermal Units (BTUs), while the average HH bid week natural gas price increased $0.81 per million BTUs during this same period. The smaller increase in Marathon's domestic average realized price for the first two months of the fourth quarter as compared to the market indicators primarily reflects the impact of regional pricing differentials to Henry Hub. International average gas realizations increased $2.07 per mcf in the first two months of the fourth quarter compared to the third quarter of 2007, primarily reflecting the lower volume of Equatorial Guinea (EG) natural gas to the EG Liquefied Natural Gas (LNG) production facility due to the plant shutdown from October 4 until mid-November and seasonally higher spot natural gas prices in Europe.

Marathon's actual crude oil and natural gas price realizations vary from market indicators primarily due to product quality and location differentials.

Fourth quarter 2007 exploration expense is now estimated to be between $190 and $210 million, which is higher than previous guidance of $110 to $150 million for the quarter. The increase is largely a result of expensing the non-commercial Flathead wells in the Gulf of Mexico. U.S. exploration expense is now estimated to be between $140 and $150 million, while international exploration expense is estimated to be $50 to $60 million.

Oil Sands Mining
On Oct. 18, 2007, Marathon completed the acquisition of Western Oil Sands Inc. (Western), including Western's 20 percent interest in the Athabasca Oil Sands Project (AOSP). The Company estimates that its net share of production from the AOSP mining operation for the fourth quarter of 2007 will be lower than previous guidance because production at the mine was curtailed during the fourth quarter due to a mid-November fire and subsequent shutdown of the non- operated Scotford Upgrader, which upgrades bitumen to synthetic crude oil, and the resulting decision to advance maintenance work that was originally scheduled for the first quarter of 2008.

At the date of the acquisition, Western held crude oil derivative instruments intended to mitigate price risk related to future sales of synthetic crude oil. Due to rising crude oil prices, the Company expects to recognize an after-tax unrealized loss on these instruments of approximately $40 million for the fourth quarter 2007.

Refining, Marketing and Transportation
The Company currently projects that refined products sales volume will average approximately 1,420,000 barrels per day (bpd) in the fourth quarter of 2007.

The Company projects its fourth quarter 2007 refining and wholesale marketing gross margin will be about 30 percent of the $0.1707 per gallon earned in the fourth quarter of 2006. While the Light Louisiana Sweet (LLS)- based market indicators for refining margins were weaker in the fourth quarter of 2007 in the Midwest and Gulf Coast compared to the same quarter in 2006, the primary reason for the quarter-to-quarter reduction was due to the significant change in crude oil prices during these two periods. For example, during the fourth quarter of 2006, the price of LLS was essentially flat while during the fourth quarter of 2007, it increased $17.32 per barrel. Due to this rapid increase in crude oil prices, the Company's fourth quarter 2007 increase in average wholesale price realization versus the same quarter last year was less than the average spot market price increase for the products that are used in the LLS-based market indicators. In addition, the Company's cost of crude oil was relatively higher than what the quarter-to-quarter change in average LLS prices would indicate due to the rapid crude price increase during the fourth quarter of 2007 and the change in the structure of the futures markets from an average of $1.83 per barrel contango in the fourth quarter of 2006, to an average of $1.33 per barrel backwardation in the fourth quarter of 2007. Also, Marathon produced less gasoline and its manufacturing expenses were much higher in the fourth quarter of 2007 compared to the same quarter of the prior year primarily due to the significant amount of planned maintenance the Company completed at its Catlettsburg, Ky., St. Paul Park, Minn., and Robinson, Ill. refineries during the just completed quarter.

Crude oil refined averaged about 946,000 bpd and total refinery throughput averaged 1,160,000 bpd during October and November 2007. The Company currently expects to average approximately the same volumes for the entire fourth quarter of 2007.

Speedway SuperAmerica LLC's (SSA) gasoline and distillate gross margin averaged approximately $0.1044 per gallon during October and November of 2007 and is expected to average approximately $0.1100 per gallon for the fourth quarter of 2007.

In addition to the above, the Company expects all other refining, marketing and transportation expenses to be higher than in the same quarter last year, primarily due to certain one-time charges as well as the higher cost environment.

Integrated Gas
Marathon's liquefied natural gas (LNG) operations in Equatorial Guinea and Alaska are estimated to have sold approximately 3,850 net metric tonnes per day (mtpd) of LNG in the fourth quarter of 2007, higher than previous guidance. The Company also estimates that its net share of methanol sales from Atlantic Methanol Production Company LLC in Equatorial Guinea will be approximately 1,375 mtpd, also higher than guidance.


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Related Categories: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 


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