HOUSTON, May 1 /PRNewswire-FirstCall/ -- Marathon Oil Corporation
(NYSE: MRO) today reported first quarter 2008 net income of $731 million,
or $1.02 per diluted share. Net income in the first quarter of 2007 was
$717 million, or $1.03 per diluted share. For the first quarter of 2008,
net income adjusted for special items was $767 million, or $1.07 per
diluted share, compared to net income adjusted for special items of $707
million, or $1.02 per diluted share, for the first quarter of 2007.
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1st Quarter Ended March 31
(In millions, except
per diluted share data) 2008 2007(b)
Net income adjusted for special
items(a) $767 $707
Adjustments for special items (net of
income taxes):
Gain (loss) on long-term U.K. natural
gas contracts (36) 11
Loss on early extinguishment of debt - (1)
Net income $731 $717
Net income adjusted for special
items(a) - per diluted share $1.07 $1.02
Net income - per diluted share $1.02 $1.03
Revenues and other income $18,100 $13,002
Weighted average shares - diluted 717 694
(a) See discussion of net income adjusted for special items.
(b) Restated for two-for-one stock split on June 18, 2007.
"Despite a very challenging downstream environment, our business
overall generated very solid financial results for the first quarter, with
increased adjusted net income over both the first and fourth quarters of
2007," said Clarence P. Cazalot, Jr., Marathon president and CEO.
"Our upstream and integrated gas segments had strong operating
performance and benefited as well from higher overall hydrocarbon prices.
Upstream sales volumes were up 11.5 percent on a year-on-year basis and 6.8
percent quarter over quarter, while our LNG facility in Equatorial Guinea
performed at near full capacity.
"Downstream results were adversely impacted by lower overall margins as
a result of rapidly rising crude oil prices as well as the substantial
amount of planned maintenance we performed at two of our largest refineries
in the first quarter," Cazalot added.
Segment Results
Total segment income was $735 million in the first quarter of 2008,
compared to $749 million in the first quarter of 2007.
1st Quarter Ended March 31
(In millions) 2008 2007
Segment Income (Loss)
Exploration & Production (E&P)
United States $244 $150
International 440 235
Total E&P 684 385
Oil Sands Mining (OSM) 27 -
Refining, Marketing & Transportation
(RM&T) (75) 345
Integrated Gas (IG) 99 19
Segment Income(a) $735 $749
(a) See Preliminary Supplemental Statistics for a reconciliation of
segment income to net income as reported under generally accepted
accounting principles.
Exploration and Production
Exploration and Production segment income totaled $684 million in the
first quarter of 2008, compared to $385 million in the first quarter of
2007, primarily as a result of higher liquid hydrocarbon realizations,
partially offset by higher exploration expenses. Sales volumes during the
quarter averaged 378,000 barrels of oil equivalent per day (boepd) and
production available for sale averaged 375,000 boepd.
United States upstream income was $244 million in the first quarter of
2008, compared to $150 million in the first quarter of 2007, primarily as a
result of higher liquid hydrocarbon and natural gas realizations, partially
offset by lower sales volumes and higher exploration expenses.
International upstream income was $440 million in the first quarter of
2008, compared to $235 million in the first quarter of 2007, primarily due
to higher liquid hydrocarbon realizations, partially offset by increased
exploration expenses. Included in the first quarter 2008 exploration
expense were costs related to the acquisition of seismic data in Indonesia
and to the evaluation of Canadian in-situ oil sand leases. The increase in
Equatorial Guinea natural gas sales volumes due to the start-up of the EG
LNG Train 1 production facility in the second quarter of 2007 contributed
to the decline in the average natural gas realization for the first quarter
of 2008.
1st Quarter Ended March 31
2008 2007
Key Production Statistics
Net Sales
United States - Liquids (mbpd) 63 69
United States - Natural gas (mmcfpd) 482 512
International - Liquids (mbpd) 127 129
International - Natural gas (mmcfpd) 647 337
Total Net Sales (mboepd) 378 339
Final project commissioning continues on the Alvheim/Vilje development
in Norway. Marathon has a 65 percent operated interest in the Alvheim
fields and a 47 percent outside-operated interest in the Vilje field. It is
expected that a combined peak net production rate of 75,000 boepd will be
reached by early 2009.
During the first quarter, Marathon was the high bidder on 15 blocks
offered in the Central Gulf of Mexico Lease Sale No. 206 conducted by the
Minerals Management Service (MMS). These high bids total $121 million net
to the Company. Two blocks are 100 percent Marathon, and the remaining
blocks were bid with partners. Initial drilling on these leases, and those
acquired at Lease Sale No. 205 in October 2007, is planned for 2009.
Also in the Gulf of Mexico, Marathon drilled a successful appraisal
well on the Droshky discovery and participated in the successful Stones
appraisal well. The Droshky appraisal well is located on Green Canyon Block
244 in about 2,900 feet of water. The initial appraisal well successfully
defined the limits of the discovery and encountered some additional deeper
pay intervals. The appraisal well was then sidetracked to help assess
reservoir connectivity and gather core and fluid information. The well has
been cased for future completion/production. Marathon owns a 100 percent
working interest in the Droshky discovery. The Stones appraisal well is
located on Walker Ridge Block 508 approximately 200 miles from New Orleans.
This discovery encountered multiple hydrocarbon-bearing sands in the Lower
Tertiary interval. Future drilling activity is currently being planned to
further define the size and help determine the potential commerciality of
this discovery. Marathon holds a 25 percent outside-operated interest in
Stones.
Offshore Angola, Marathon participated in the Portia discovery on Block
31. Portia is Marathon's 27th discovery on Blocks 31 and 32. It was drilled
in a water depth of about 6,500 feet and reached a total depth of about
18,600 feet. The well test results confirmed the capability of the
reservoir to flow more than 5,000 barrels per day. Marathon is currently
participating in a well on Block 31 and a well on Block 32. Also, Marathon
has participated in three additional deepwater Angola exploration/appraisal
wells that have reached total depth. The results of these wells will be
disclosed upon receipt of government and partner approvals. Marathon holds
a 10 percent outside-operated interest in Block 31 and a 30 percent
outside-operated interest in Block 32.
Oil Sands Mining
The Oil Sands Mining segment reported income of $27 million for the
first quarter of 2008. This includes a $36 million after-tax loss, of which
$32 million was unrealized, on derivative instruments. These derivatives
were put in place by Western Oil Sands Inc. prior to its acquisition by
Marathon in October 2007 to mitigate price risk related to future sales of
synthetic crude oil.
Marathon's first quarter 2008 net bitumen production before royalties
from the Athabasca Oil Sands Project (AOSP) mining operation was 24,000
barrels per day (bpd), which was lower than expected due to weather-related
issues at the mine and unplanned maintenance at the Scotford upgrader.
1st Quarter Ended March 31
2008 2007
Key Oil Sands Mining Statistics
Net Bitumen Production (mbpd)(a) 24 -
Net Synthetic Crude Oil Sales (mbpd) 31 -
Synthetic Crude Oil Average
Realization (per bbl)(b) $89.03 -
(a) Before royalties.
(b) Excludes losses on derivative instruments.
The AOSP Phase 1 Expansion -- which includes construction of mining and
extraction facilities at the Jackpine mine, expansion of treatment
facilities at the existing Muskeg River mine, expansion of the Scotford
upgrader, and development of related infrastructure -- is anticipated to
begin operations in late 2010.
During the first quarter, the royalty calculation methodology for the
AOSP was revised to allow for additional eligible costs of the project. As
a result, the project reverted to the one percent gross royalty (in lieu of
the 25 percent post-recovery rate) as of July 1, 2007. Marathon expects a
royalty refund of $32 million, of which $16 million was included in income
for the first quarter of 2008 and $16 million reduced the goodwill recorded
at the acquisition date since it related to pre-acquisition activities.
Refining, Marketing and Transportation
The Refining, Marketing and Transportation segment reported a loss of
$75 million in the first quarter of 2008 compared to segment income of $345
million in the first quarter of 2007, with the decrease primarily a result
of the lower refining and wholesale marketing gross margin.
The refining and wholesale marketing gross margin per gallon was
negative 0.26 cents in the first quarter of 2008, compared to a positive
12.46 cents in the first quarter of 2007. The primary factor contributing
to this decrease was the decline in the relevant market indicators [Light
Louisiana Sweet (LLS) 6-3-2-1 crack spreads] in the Midwest (Chicago) and
Gulf Coast markets. Furthermore, the decline in Marathon's refining and
wholesale marketing gross margin was greater than that of the market
indicators because the Company's wholesale price realizations for
non-gasoline and non-distillate products did not increase over the
comparable prior-year period as much as the average spot market price for
the applicable product used in the market indicators.
Marathon's refining and wholesale marketing gross margin for the first
quarter of 2008 was further reduced by higher manufacturing costs,
primarily resulting from increased planned maintenance at the Detroit,
Garyville, La. and Robinson, Ill. refineries. Primarily as a result of the
increase in Marathon's planned maintenance activities, crude oil refined
during the first quarter of 2008 averaged 845,000 bpd, a 123,000 bpd
decrease from the first quarter of 2007. Total refinery throughputs were
1,079,000 bpd for the first quarter of 2008, 10 percent lower than the
1,195,000 bpd during the first quarter of 2007. Partially offsetting these
negative factors was the improvement in the spread between gasoline and
ethanol prices during the first quarter of 2008, compared to the first
quarter of 2007.
Marathon's refining and wholesale marketing gross margins included
pretax derivatives losses of $120 million for the first quarter of 2008 and
gains of $27 million for first quarter of 2007. The derivative changes
reflect both the realized effects of closed derivative positions as well as
unrealized effects as a result of marking open derivative positions to
market. Most derivatives have an underlying physical commodity transaction;
however, the income effect related to the derivatives and the income effect
related to the underlying physical transactions may not necessarily be
recognized in net income in the same period.
Speedway SuperAmerica (SSA) gasoline and distillates gross margin per
gallon averaged 11.47 cents in the first quarter of 2008, compared to 12.17
cents in the first quarter of 2007. SSA same store gasoline sales volume
declined 2.4 percent during the first quarter of 2008 while same store
merchandise sales declined by slightly less than one percent during the
same period.
1st Quarter Ended March 31
2008 2007
Key Refining, Marketing & Transportation Statistics
Crude Oil Refined (mbpd) 845 968
Other Charge and Blend Stocks (mbpd) 234 227
Total Refinery Inputs (mbpd) 1,079 1,195
Refined Product Sales Volumes (mbpd) 1,279 1,343
Refining and Wholesale Marketing
Gross Margin ($/gallon) $(0.0026) $0.1246
The projected $3.2 billion Garyville refinery expansion project --
which will provide the equivalent of an additional 7.5 million gallons of
clean transportation fuels each day -- continues to progress on time and on
budget toward a 2009 start-up.
In addition, the permitting process continues for Marathon's projected
$1.9 billion heavy oil upgrading and expansion project at the Detroit
refinery.
Integrated Gas
Integrated Gas segment income was $99 million in the first quarter of
2008 compared to $19 million in the first quarter of 2007. The increase was
primarily related to income from the Equatorial Guinea LNG production
facility which commenced operations in May 2007. The operational
availability of the facility was 93 percent in the first quarter of 2008.
The production facility, in which Marathon holds a 60 percent interest,
delivered 15 cargoes during the first quarter of 2008. Income from Atlantic
Methanol Production Company LLC was $4 million higher in the first quarter
of 2008 compared to the first quarter of 2007. Higher realized methanol
prices offset the impact of a sales volume decrease that resulted from a
planned shut-down to repair the reformer and to install a new compressor.
Spending for Gas-to-Fuels(TM) and other natural gas commercialization
technologies in the first quarter of 2008 was $16 million compared to $5
million in the first quarter of 2007.
1st Quarter Ended March 31
2008 2007
Key Integrated Gas Statistics
Net Sales (mtpd)
LNG 6,909 1,163
Methanol 1,130 1,324
Corporate
Marathon has certain deferred income tax balances denominated in
foreign currencies. Fluctuations in currency exchange rates cause the U.S.
dollar value of these deferred tax balances to change with the related
currency gains and losses reflected in the provision for income taxes. For
the first quarter of 2008, Marathon's provision for income taxes included a
$49 million foreign currency gain primarily related to its deferred income
tax balance in Canada. Marathon does not allocate foreign currency gains or
losses to segments.
Marathon continued its share repurchase program during the first
quarter, repurchasing approximately 2.8 million shares at a cost of
approximately $143 million. Since January 2006, Marathon's Board of
Directors has authorized the repurchase of up to $5 billion of Marathon's
common stock. As of the end of the first quarter, just under $2.7 billion
in Marathon shares had been repurchased.
Special Items
Marathon has two long-term natural gas sales contracts in the United
Kingdom that are accounted for as derivative instruments. Mark-to-market
changes in the valuation of these contracts must be recognized in current
period income. In the first quarter of 2008, the non-cash after-tax
mark-to-market loss on these contracts related to Marathon's Brae natural
gas production totaled $36 million. Due to the volatility in the fair value
of these contracts, Marathon consistently excludes these non-cash gains and
losses from net income adjusted for special items.
The Company will conduct a conference call and webcast today, May 1, at
2 p.m. EDT during which it will discuss first quarter results. The webcast
will include synchronized slides. To listen to the webcast of the
conference call and view the slides, visit the Marathon Web site at
http://www.Marathon.com. Replays of the webcast will be available through May 15,
2008. Quarterly financial and operational information is also provided on
Marathon's Web site at http://ir.marathon.com in the Quarterly Investor
Packet.
In addition to net income determined in accordance with generally
accepted accounting principles, Marathon has provided supplementally "net
income adjusted for special items," a non-GAAP financial measure which
facilitates comparisons to earnings forecasts prepared by stock analysts
and other third parties. Such forecasts generally exclude the effects of
items that are considered non-recurring, are difficult to predict or to
measure in advance or that are not directly related to Marathon's ongoing
operations. A reconciliation between GAAP net income and "net income
adjusted for special items" is provided in a table on page 1 of this
release. "Net income adjusted for special items" should not be considered a
substitute for net income as reported in accordance with GAAP. Management,
as well as certain investors, uses "net income adjusted for special items"
to evaluate Marathon's financial performance between periods. Management
also uses "net income adjusted for special items" to compare Marathon's
performance to certain competitors.
Unlike capital expenditures reported under generally accepted
accounting principles, the projected costs for the Garyville refinery
expansion project and the Detroit refinery heavy oil upgrading and
expansion project discussed in this release do not include capitalized
interest. Capitalized interest is budgeted at the corporate level.
This release contains forward-looking statements with respect to the
Alvheim/Vilje development, the Droshky prospect, potential developments in
Angola, anticipated future exploratory and development drilling activity,
the AOSP expansion, the Garyville refinery expansion project, the Detroit
refinery heavy oil upgrading and expansion project, and the common stock
repurchase program. Some factors that could potentially affect the
Alvheim/Vilje development, the Droshky prospect, potential developments in
Angola, and anticipated future exploratory and development drilling
activity, include pricing, supply and demand for petroleum products, the
amount of capital available for exploration and development, regulatory
constraints, timing of commencing production from new wells, drilling rig
availability, unforeseen hazards such as weather conditions, acts of war or
terrorist acts and the governmental or military response thereto, and other
geological, operating and economic considerations. Except for the
Alvheim/Vilje development, the foregoing forward-looking statements may be
further affected by the inability or delay in obtaining government and
third-party approvals and permits. Factors that could affect the AOSP
expansion, the Garyville refinery expansion and the Detroit refinery heavy
oil upgrading and expansion projects include transportation logistics,
availability of materials and labor, unforeseen hazards such as weather
conditions, delays in obtaining or conditions imposed by necessary
government and third-party approvals, and other risks customarily
associated with construction projects. The common stock repurchase program
could be affected by changes in prices of and demand for crude oil, natural
gas and refined products, actions of competitors, disruptions or
interruptions of the Company's production or refining operations due to
unforeseen hazards such as weather conditions or acts of war or terrorist
acts, and other operating and economic considerations. The foregoing
factors (among others) could cause actual results to differ materially from
those set forth in the forward-looking statements. In accordance with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, Marathon Oil Corporation has included in its Annual Report on Form
10-K for the year ended December 31, 2007, and subsequent Forms 8-K,
cautionary language identifying other important factors, though not
necessarily all such factors, that could cause future outcomes to differ
materially from those set forth in the forward- looking statements.
Media Relations Contacts: Lee Warren 713-296-4103
Scott Scheffler 713-296-4102
Investor Relations Contacts: Howard Thill 713-296-4140
Michol Ecklund 713-296-3919
Chris Phillips 713-296-3213
Condensed Consolidated Statements of Income (Unaudited)
1st Quarter ended March 31
(In millions, except
per share data) 2008 2007
Revenues and other income:
Sales and other operating
revenues (including consumer
excise taxes) $17,280 $12,549
Sales to related parties 542 320
Income from equity method
investments 209 107
Net gain on disposal of assets 10 11
Other income 59 15
Total revenues and other income 18,100 13,002
Costs and expenses:
Cost of revenues
(excludes items below) 14,452 9,603
Purchases from related parties 139 47
Consumer excise taxes 1,216 1,197
Depreciation, depletion and
amortization 451 393
Selling, general and
administrative expenses 300 287
Other taxes 123 98
Exploration expenses 129 61
Total costs and expenses 16,810 11,686
Income from operations 1,290 1,316
Net interest and other financing
income 9 19
Loss on early extinguishment of
debt - (2)
Minority interests in loss of
Equatorial Guinea
LNG Holdings Limited - 2
Income before income taxes 1,299 1,335
Provision for income taxes 568 618
Net income $731 $717
Per Share Data:
Net income per share - basic $1.03 $1.04
Net income per share - diluted $1.02 $1.03
Dividends paid per share $0.24 $0.20
Weighted Average Shares:
Basic 713 689
Diluted 717 694
Preliminary Supplemental Statistics (Unaudited)
1st Quarter ended March 31
(Dollars in millions,
except as noted) 2008 2007
Segment Income (Loss)
Exploration and Production
United States $244 $150
International 440 235
E&P segment 684 385
Oil Sands Mining 27 -
Refining, Marketing and
Transportation (75) 345
Integrated Gas 99 19
Segment income 735 749
Items not allocated to segments, net
of income taxes:
Corporate and other unallocated items 32 (43)
Gain (loss) on long-term U.K. natural
gas contracts (36) 11
Net income $731 $717
Capital Expenditures
Exploration and Production $775 $461
Oil Sands Mining 248 -
Refining, Marketing and
Transportation 511 217
Integrated Gas(a) 1 57
Corporate 2 2
Total $1,537 $737
Exploration Expenses
United States $50 $37
International 79 24
Total $129 $61
E&P Operating Statistics
Net Liquid Hydrocarbon Sales (mbpd)(b)
United States 63 69
Europe 23 32
Africa 104 97
Total International 127 129
Worldwide 190 198
Net Natural Gas Sales (mmcfd)(b)(c)
United States 482 512
Europe 252 247
Africa 395 90
Total International 647 337
Worldwide 1,129 849
Total Worldwide Sales (mboepd) 378 339
(a) Through April 2007, includes EGHoldings at 100 percent. Effective May
1, 2007, Marathon no longer consolidates EGHoldings and its investment
in EGHoldings is accounted for prospectively using the equity method
of accounting; therefore, EGHoldings' capital expenditures subsequent
to April 2007 are not included in Marathon's capital expenditures.
(b) Amounts are net after royalties, except for Ireland where amounts are
before royalties.
(c) Includes natural gas acquired for injection and subsequent resale of
37 mmcfd and 40 mmcfd in the first quarters of 2008 and 2007.
Preliminary Supplemental Statistics (Unaudited) (continued)
1st Quarter ended March 31
(Dollars in millions,
except as noted) 2008 2007
E&P Operating Statistics (continued)
Average Realizations(d)
Liquid Hydrocarbons (per bbl)
United States $83.98 $49.32
Europe 94.48 56.72
Africa 90.25 50.44
Total International 91.03 52.01
Worldwide $88.70 $51.07
Natural Gas (per mcf)
United States $6.83 $5.91
Europe 7.80 6.62
Africa 0.25 0.26
Total International 3.19 4.91
Worldwide $4.75 $5.51
OSM Operating Statistics
Net Bitumen Production (mbpd)(e) 24 -
Net Synthetic Crude Sales (mbpd)(e) 31 -
Synthetic Crude Average Realization
(per bbl)(d) $89.03 $-
RM&T Operating Statistics
Refinery Runs (mbpd)
Crude oil refined 845 968
Other charge and blend stocks 234 227
Total 1,079 1,195
Refined Product Yields (mbpd)
Gasoline 601 621
Distillates 284 322
Propane 21 20
Feedstocks and special products 101 147
Heavy fuel oil 30 22
Asphalt 60 78
Total 1,097 1,210
Refined Product Sales Volumes
(mbpd)(f) 1,279 1,343
Refining and Wholesale Marketing
Gross Margin (per gallon)(g) $(0.0026) $0.1246
Speedway SuperAmerica
Retail outlets 1,637 1,632
Gasoline & distillates sales
(millions of gallons) 792 800
Gasoline & distillates gross margin
(per gallon) $0.1147 $0.1217
Merchandise sales $647 $644
Merchandise gross margin $163 $160
IG Operating Statistics
Sales Volumes (mtpd)(h)
LNG 6,909 1,163
Methanol 1,130 1,324
(d) Excludes gains and losses on traditional derivative instruments and
the unrealized effects of long-term U.K. natural gas contracts that
are accounted for as derivatives.
(e) Amount is before royalties.
(f) Total average daily volumes of all refined product sales to wholesale,
branded and retail customers.
(g) Sales revenue less cost of refinery inputs, purchased products and
manufacturing expenses, including depreciation.
(h) LNG sales volumes include both consolidated sales (Alaska) and our
share of the sales of an equity method investee (Equatorial Guinea).
Methanol sales volumes represent our share of sales of an equity
method investee.
SOURCE Marathon Oil Corporation
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CONTACT:
Media, Lee Warren, +1-713-296-4103, or Scott
Scheffler, +1-713-296-4102, or Investor Relations, Howard Thill,
+1-713-296-4140, or Michol Ecklund, +1-713-296-3919, or Chris
Phillips, +1-713-296-3213, all of Marathon Oil Corporation
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