HOUSTON, July 9 /PRNewswire-FirstCall/ -- Marathon Oil Corporation today is providing information on market factors and operating conditions that occurred during the second quarter of 2008 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.
(Logo: http://www.newscom.com/cgi-bin/prnh/20051027/DATH029LOGO ) Exploration and Production
Liquid hydrocarbon and natural gas production sold during the second quarter is estimated to be approximately 356,000 barrels of oil equivalent per day (boepd), compared to 378,000 boepd during the first quarter 2008. 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 second quarter is expected to be approximately 372,000 boepd, above the previous guidance of 355,000 to 370,000 boepd, but slightly lower than the 375,000 boepd available for sale in the first quarter of 2008.
As shown in the attached table, Marathon's average liquid hydrocarbon realization for the first two months of the second quarter, as compared to the first quarter of 2008, increased $21.31 per barrel domestically and $15.38 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 $20.99 per barrel higher than the first quarter of 2008 while the average Dated Brent indicator increased $18.98 per barrel. Market prices continued to strengthen in the third month of the quarter, as indicated in the attached table.
Marathon's domestic average natural gas price realization for April and May increased $1.76 per thousand cubic feet (mcf) over the Company's average realized price in the first quarter of 2008. The average Henry Hub (HH) bid week natural gas price for the same two-month period increased $2.41 per million British Thermal Units (BTUs). The smaller increase in Marathon's domestic average realized price for the first two months of the second quarter as compared to the average HH bid week market indicator primarily reflects the impact of regional pricing differentials. Domestic market prices for natural gas continued to increase during the third month of the quarter.
International average natural gas realizations decreased $0.50 per mcf in the first two months of the second quarter compared to the first quarter of 2008, primarily reflecting the proportionally higher volumes of Equatorial Guinea natural gas sales going to the liquefied natural gas facility on Bioko Island, coupled with reduced European sales volumes.
Marathon's actual crude oil and natural gas price realizations vary from market indicators primarily due to product quality and location differentials.
Second quarter 2008 exploration expense overall continues to be forecast within previous guidance of $130 to $150 million for the quarter. U.S. exploration expense is estimated to be slightly higher than originally projected, while international exploration expense is estimated to be slightly below original projections.
Oil Sands Mining
For second quarter 2008, the Company estimates that its net share of bitumen production before royalties from the Athabasca Oil Sands Project (AOSP) mining operation will be approximately 24,000 barrels per day (bpd), which is lower than previous guidance of 30,000 bpd, due to higher than planned activity related to management of mine tailings which results in lower grade ore being mined, as well as planned and unplanned maintenance. Marathon's synthetic crude oil sales from AOSP for second quarter 2008 are estimated to be approximately 31,600 bpd. Marathon's average synthetic crude oil realization (excluding derivative impacts) for the first two months of the second quarter, as compared to first quarter 2008, increased $20.46 per barrel, reflecting the general market price movements during the first two months of the quarter.
For the second quarter 2008, the Company expects to recognize an after-tax loss of approximately $250 million on crude oil derivative instruments intended to mitigate price risk related to future sales of synthetic crude oil. The Company estimates the mark-to-market portion of that loss will be approximately $220 million. 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 1,370,000 bpd in the second quarter of 2008 compared to 1,426,000 bpd in the second quarter of 2007.
The Company projects its second quarter 2008 refining and wholesale marketing gross margin will be approximately $0.0850 per gallon compared to $0.3925 per gallon earned in the second quarter 2007. The primary reason for this quarter-to-quarter reduction was the substantial decline in refining margins in the Midwest (Chicago) and Gulf Coast markets quarter to quarter. 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 $15.47 per barrel in second quarter 2007 to $2.47 per barrel in second quarter 2008. In addition, the Company was not able to fully pass along to its wholesale customers (especially for non-motor fuels) the substantial increase in refined product spot market prices experienced in the second quarter of 2008. Consequently, the Company's wholesale price realizations in the second quarter did not increase over the comparable prior year period as much as the spot market prices used in the market indicators increased quarter over quarter.
The above refining and wholesale marketing per gallon gross margin includes a loss on derivative instruments of approximately $190 million in the second quarter of 2008 compared to a loss of $134 million in the second quarter of 2007. 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.
Crude oil refined is expected to average approximately 1,020,000 bpd for the entire second quarter 2008, compared to 1,072,000 bpd in the second quarter of 2007. Total refinery throughputs for the second quarter 2008 are expected to be about 1,205,000 bpd. The primary reason for the quarter-to- quarter reduction was maintenance-related activities performed in the second quarter of 2008 at the Catlettsburg and Robinson refineries.
Speedway SuperAmerica LLC's (SSA) gasoline and distillate gross margin averaged $0.0717 per gallon during April and May 2008 and is expected to average approximately $0.0825 per gallon for the second quarter of 2008.
Integrated Gas
Marathon's share of LNG sales from operations in Equatorial Guinea and Alaska is estimated to be approximately 6,400 metric tonnes per day (mtpd) in the second quarter of 2008, within previous guidance of 5,000 to 6,500 mtpd. The Company also estimates that its share of methanol sales from Atlantic Methanol Production Company LLC in Equatorial Guinea will be within the previous guidance of 1,100 to 1,350 mtpd.
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 for 2008, excluding special items and foreign currency remeasurement effects, is anticipated to be 46 to 49 percent, slightly higher than previous guidance. The actual annual effective tax rate is influenced by several factors including the geographical mix and timing of product sales.
The Company continued its share repurchase program during the second quarter of 2008 by repurchasing approximately 3 million shares at a cost of approximately $152 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 $2.8 billion in Marathon shares.
This release contains forward-looking statements with respect to estimates of the Company's worldwide liquid hydrocarbon and natural gas production, exploration expenses, mined bitumen production, synthetic crude oil sales, oil sands mining derivative losses, refined products sales volume, refining and wholesale marketing gross margin per gallon, crude oil and total refinery throughputs, Speedway SuperAmerica LLC gasoline and distillate gross margins, LNG and methanol sales volumes, unallocated administrative expenses, and the corporate effective income tax rate for 2008. These are preliminary estimates and are therefore subject to change. Actual results may differ materially from the estimates given in this update. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in its Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent Forms 10-Q and 8-K, cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
Select Operating and Financial Data (unaudited)
2Q 1Q Apr-May 2Q 2007 2008 2008 2008 Actual Actual Actual Actual Exploration and Production Net Sales (1) Domestic - Liquid Hydrocarbons (MBPD) 65 63 64 -- Domestic - Natural Gas (MMCFD) 460 482 430 -- International - Liquid Hydrocarbons (MBPD) 134 127 118 -- International - Natural Gas (MMCFD) (2) 374 647 580 -- MBOEPD(1) 338 378 350 -- Market Prices NYMEX prompt WTI oil price ($/BBL) 65.02 97.82 118.81 123.80 Dated Brent oil price ($/BBL) 68.76 96.71 115.69 121.18 HH prompt natural gas price ($/MMBTU) 7.54 8.58 10.69 11.32 HH bid week natural gas price ($/MMBTU) 7.55 8.03 10.44 10.94 Average Realizations(3) Liquid Hydrocarbons: Domestic ($/BBL) 55.19 83.98 105.29 -- International ($/BBL) 61.02 91.03 106.41 -- Natural Gas: Domestic ($/MCF) 6.16 6.83 8.59 -- International ($/MCF) 2.27 3.19 2.69 -- Oil Sands Mining(4) Net bitumen production (MBPD) -- 24 23 -- Net synthetic crude sales (MBPD) -- 31 30 -- Synthetic crude average realization ($/BBL) (3) -- 89.03 109.49 -- Refining, Marketing and Transportation Chicago LLS 6-3-2-1 crack spread ($/BBL) 16.61 0.07 3.74 2.71 Gulf Coast LLS 6-3-2-1 crack spread ($/BBL) 13.20 1.39 2.81 1.99 Chicago LLS 3-2-1 crack spread ($/BBL) 24.68 4.93 11.32 10.32 Gulf Coast LLS 3-2-1 crack spread ($/BBL) 20.37 6.75 10.12 9.33 Sweet/sour differential ($/BBL) (5) 11.87 12.85 13.16 13.74 Refinery Runs: Crude oil refined (MBPD) 1,072 845 1,030 -- Other charge & blend stocks (MBPD) 208 234 175 -- Total (MBPD) 1,280 1,079 1,205 -- Crude oil capacity utilization (%)(6) 110 83 101 -- Refined product sales volumes (MBPD) (7) 1,426 1,279 1,347 -- Refining & wholesale marketing gross margin ($/gal) (8) 0.3925 (0.0026) -- -- SSA gasoline and distillate sales (MMGal) 828 792 528 -- SSA gasoline and distillate gross margin ($/gal) 0.1029 0.1147 0.0717 -- SSA merchandise gross margin ($million) 182 163 118 -- Integrated Gas Sales Volumes (MTPD)(9) LNG 1,997 6,909 6,148 -- Methanol 1,107 1,130 1,351 -- BBL - barrel MBPD - thousand barrels per day MMCFD - million cubic feet per day MMBTU - million British Thermal Units MMBPD - million barrels per day gal - gallons MTPD - metric tonnes per day MCF - thousand cubic feet MMGal - million gallons MBOEPD - thousand barrels of oil equivalent per day (1) Amounts reflected are after royalties, except for Ireland and Canada where amounts are before royalties. (2) Includes natural gas acquired for injection and subsequent resale. (3) 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. (4) The oil sands mining operations were acquired October 18, 2007. (5) 15% Arab Light, 20% Kuwait, 10% Maya, 15% Western Canadian Select, 40% Mars. (6) Prior to January 1, 2008, crude oil capacity utilization was based on historical crude oil refining capacity of 974 MBPD. As of December 31, 2007, crude oil refining capacity was revised to 1.016 MMBPD. (7) Total average daily volumes of all refined product sales to wholesale, branded and retail (SSA) customers. (8) Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation. (9) LNG sales volumes include both consolidated sales and our share of the sales of an equity method investee. Methanol sales volumes represent our share of sales of an equity method investee. Media Relations Contacts: Lee Warren 713-296-4103 Paul Weeditz 713-296-3910 Investor Relations Contacts: Howard Thill 713-296-4140 Chris Phillips 713-296-3213 Michol Ecklund 713-296-3919
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