Marathon Oil Corporation Provides First Quarter 2008 Interim Update

Source: www.gulfoilandgas.com 4/8/2008, Location: North America

Marathon Oil Corporation provided information on market factors and operating conditions that occurred during the first quarter of 2008 that could impact the Company's quarterly financial results. The market indicators and Company estimates noted below.

Exploration and Production

Liquid hydrocarbon and natural gas production sold during the first quarter is estimated to be approximately 375,000 barrels of oil equivalent per day (boepd), compared to 354,000 boepd during the fourth quarter 2007. 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 first quarter is expected to be approximately 372,000 boepd, within the previous guidance of 360,000 to 380,000 boepd and higher than the 352,000 boepd available for sale in the fourth quarter of 2007.

Marathon's average liquid hydrocarbon realization for the first two months of the first quarter, as compared to the fourth quarter of 2007, increased $4.68 per barrel domestically and $1.95 per barrel internationally, reflecting the general market price movements during the first two months of the quarter. For the same two-month period, the average West Texas Intermediate (WTI) crude oil market price indicator was $3.61 per barrel higher than the fourth quarter of 2007 while the average Dated Brent indicator increased $5.03 per barrel. Market prices continued to strengthen in the third month of the quarter.

Marathon's domestic average natural gas price realization for January and February increased $0.75 per thousand cubic feet (mcf) over the Company's average realized price in the fourth quarter of 2007. The average Henry Hub (HH) bid week natural gas price for the same two-month period increased $0.60 per million British Thermal Units (BTUs). The larger increase in Marathon's domestic average realized price for the first two months of the first quarter as compared to the average HH bid week market indicator primarily reflects the impact of regional pricing differentials to Henry Hub. Domestic market prices for natural gas continued to increase during the third month of the quarter.

International average natural gas realizations decreased $0.60 per mcf in the first two months of the first quarter compared to the fourth quarter of 2007, primarily reflecting the higher volume of Equatorial Guinea (EG) natural gas sales to the EG Liquefied Natural Gas (LNG) production facility, which was down for a portion of fourth quarter 2007 for warranty repairs.

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

First quarter 2008 exploration expense is now estimated to be between $135 and $145 million, within previous guidance of $120 to $145 million for the quarter. U.S. exploration expense is estimated to be between $55 and $60 million, while international exploration expense is estimated to be between $80 to $85 million.

Oil Sands Mining

For first quarter 2008, the Company estimates that its net share of bitumen production before royalties from the Athabasca Oil Sands Project (AOSP) mining operation, acquired in fourth quarter 2007, will be approximately 24,000 barrels per day (bpd), which is lower than previous guidance of 30,000 bpd due to weather-related issues at the mine and unplanned maintenance at the Scotford upgrader. Marathon's synthetic crude oil sales from AOSP for first quarter 2008 are estimated to be approximately 31,000 bpd. Marathon's average synthetic crude oil realization (excluding derivative impacts) for the first two months of the first quarter, as compared to fourth quarter 2007, increased $11.33 per barrel, reflecting the general market price movements during the first two months of the quarter.

At the time of Marathon's 2007 acquisition of Western Oil Sands, Inc. (Western), 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 loss on these instruments of approximately $36 million for the first quarter 2008. The last of these derivative instruments is set to expire in fourth quarter 2009.

Refining, Marketing and Transportation

The Company currently projects that refined products sales volume will average approximately 1,280,000 bpd in the first quarter of 2008, compared to 1,343,000 bpd in the first quarter of 2007.

The Company projects its first quarter 2008 refining and wholesale marketing per gallon gross margin will be slightly negative. For comparison, the refining and wholesale marketing gross margin for the first quarter 2007 was $0.1246 per gallon. The primary reason for the quarter-to-quarter reduction was the substantially weaker refining margins experienced in the first quarter 2008 in the Midwest (Chicago) and Gulf Coast markets. For example, the Light Louisiana Sweet (LLS) 6-3-2-1 crack spread on a two-thirds Chicago, one-third Gulf Coast basis decreased from $5.14 per barrel in first quarter 2007 to $0.51 per barrel in first quarter 2008. Manufacturing expenses, which are included in the refining and wholesale marketing per gallon gross margins noted above, are estimated to be approximately $170 million higher in first quarter 2008 compared to the same quarter last year, primarily due to the significant amount of planned turnaround and other major maintenance-related activities performed in the first quarter 2008.

The above refining and wholesale marketing per gallon gross margins also include a derivatives-related loss of about $120 million in the first quarter of 2008 compared to a derivatives-related gain of $27 million in the first quarter of 2007.

Crude oil refined during January and February 2008 averaged about 807,000 bpd and is expected to be approximately 845,000 bpd for the entire first quarter 2008. Total refinery throughputs for the first quarter 2008 are expected to be slightly higher than the 1,072,000 bpd average for January and February 2008. In the first quarter of 2007, crude oil refined averaged 968,000 bpd and total throughputs averaged 1,195,000 bpd. The primary reason for the quarter-to-quarter reduction was the significant amount of planned maintenance activities performed in the first quarter of 2008 at the Company's Detroit, Garyville, La. and Robinson, Ill. refineries.

Speedway SuperAmerica LLC's (SSA) gasoline and distillate gross margin averaged $0.1213 per gallon during January and February 2008 and is expected to average approximately $0.1125 per gallon for the first quarter of 2008.

Integrated Gas

Marathon's share of LNG sales from operations in Equatorial Guinea and Alaska are estimated to be approximately 6,900 metric tonnes per day (mtpd) in the first quarter of 2008, slightly higher than previous guidance. The Company also estimates that its share of methanol sales from Atlantic Methanol Production Company LLC in Equatorial Guinea will be approximately 1,100 mtpd, which is lower than previous guidance.

Unallocated Administrative Expense and Other Information

Total pre-tax unallocated administrative expense for the quarter is estimated to be $85 to $95 million.

The overall corporate effective income tax rate, excluding special items and foreign currency effects, is expected to be approximately 45 to 48 percent for the first quarter of 2008. The effective income tax rate for the Exploration and Production segment is expected to be approximately 51 to 54 percent, while the Refining, Marketing and Transportation segment is expected to have a first quarter effective income tax rate of approximately 35 to 37 percent.

The Company continued its share repurchase program during the first quarter of 2008 by repurchasing approximately 2.8 million shares at a cost of approximately $143 million. Since January 2006, the Company's Board of Directors has authorized the repurchase of up to $5.0 billion of Marathon's common stock. To date, the Company has repurchased just under $2.7 billion in Marathon shares.


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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 

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