HOUSTON, Aug. 3 /PRNewswire-FirstCall/ -- Marathon Oil Corporation (NYSE: MRO) today reported second quarter 2009 net income of $413 million, or $0.58 per diluted share. Net income in the second quarter 2008 was $774 million, or $1.08 per diluted share. For the second quarter 2009, adjusted net income was $251 million, or $0.35 per diluted share, compared to adjusted net income of $858 million, or $1.20 per diluted share, for the second quarter of 2008.
Three Months
Ended
June 30
(In millions, except per diluted share data) 2009 2008 (b)
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Adjusted net income (a) $251 $858
Adjustments for special items (net of taxes):
Gain (loss) on U.K. natural gas contracts 2 (84)
Gain on disposal of assets 160 -
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Net income $413 $774
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Adjusted net income (a) - per diluted share $0.35 $1.20
Net Income - per diluted share $0.58 $1.08
Revenues and other income $13,358 $22,202
Weighted average shares - diluted 711 714
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(a) Adjusted net income is a non-GAAP financial measure and should not
be considered a substitute for net income as determined in
accordance with accounting principles generally accepted in the
United States. See below for further discussion of adjusted net
income.
(b) Previously reported revenues and other income have been revised to
reflect the presentation of Marathon's Irish businesses as
discontinued operations.
"Marathon's businesses performed very well in the second quarter. Our Exploration and Production segment achieved a 12 percent year-over-year increase in production available for sale from continuing operations while our Refining, Marketing and Transportation segment out-performed its competitors in the domestic market posting positive financial results, up slightly from both first quarter and prior year," said Clarence P. Cazalot, Jr., president and CEO of Marathon. "A continued focus on high mechanical reliability and cost control contributed to our overall solid operating performance. And, in spite of challenging global economic conditions, Marathon continues to maintain a very solid financial position, aided by the value captured from selective asset sales."
Segment Results
Total segment income was $400 million in the second quarter of 2009, compared to $925 million in the second quarter of 2008.
Three Months
Ended
June 30
(In millions) 2009 2008(b)
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Segment Income (Loss)
Exploration and Production
United States $(41) $359
International 261 463
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Total E&P 220 822
Oil Sands Mining 2 (157)
Refining, Marketing and Transportation 165 158
Integrated Gas 13 102
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Segment Income (a) $400 $925
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(a) See Preliminary Supplemental Statistics below for a reconciliation
of segment income to net income as reported under generally accepted
accounting principles.
(b) Previously reported Exploration and Production segment income has
been revised to reflect the presentation of Marathon's Irish
businesses as discontinued operations.
Exploration and Production
Exploration and Production (E&P) segment income totaled $220 million in the second quarter of 2009, compared to $822 million in the second quarter of 2008. The decrease was primarily a result of lower liquid hydrocarbon and natural gas price realizations.
Sales volumes from continuing operations increased 26 percent year on year, averaging 436,000 barrels of oil equivalent per day (boepd), compared to 347,000 boepd for the same period last year. While the increase in sales volumes is primarily due to the timing of international liftings, production available for sale from continuing operations in the quarter was up 12 percent to 411,000 boepd from the same quarter in 2008. Production increased with the addition of the Alvheim/Vilje development offshore Norway, which started operation in June 2008, and with increased natural gas sales volumes in Equatorial Guinea due to exceptional reliability at the LNG and methanol facilities on Bioko Island which purchase natural gas from the Company's Alba field, partially offset by lower United States natural gas production as investment activities have been curtailed due to lower natural gas prices.
International E&P income was $261 million in the second quarter of 2009, compared to $463 million in the second quarter of 2008. The decrease was primarily a result of lower liquid hydrocarbon price realizations in the second quarter 2009, partially offset by increased income from the Alvheim/Vilje development and improved operating reliability across the business, highlighted by operations at the Equatorial Guinea natural gas producing and processing facilities where reliability was 97.5 percent for the quarter. Additionally for the quarter, international E&P saw a 17 percent decline in per barrel operating costs [excluding depreciation, depletion and amortization (DD&A) and exploration expense], as costs fell to $6.22 per boe in the second quarter 2009 from $7.46 per boe in the comparable quarter of 2008 through stronger volume performance and increased focus on cost reduction initiatives. Lower exploration expenses also had a positive impact on results. The change in mix of product sales year-over-year included higher sales in jurisdictions with high tax rates. This change contributed to the higher segment effective tax rate for the quarter.
U.S. E&P reported a loss of $41 million in the second quarter of 2009, compared to income of $359 million in the second quarter of 2008, as revenues decreased by 60 percent, primarily the result of 52 percent lower liquid hydrocarbon and 58 percent lower natural gas price realizations. DD&A increased to $271 million during the second quarter 2009, up $100 million from the same period last year. The Neptune development, which started operation in July 2008, added $90 million of DD&A over the second quarter of 2008. Also contributing to the loss were pretax expenses totaling $28 million ($17 million after tax) recognized in the second quarter of 2009, primarily for partial impairment of a natural gas field in east Texas, as well as a rig cancellation in the Bakken and a loss on a sale. Pretax expenses during the first six months of 2009 from rig cancellations totaled $24 million, and the Company does not anticipate any additional cancellations for the remainder of the year. As a result of a capital expenditure program with more emphasis on oil projects, U.S. E&P reported a year-over-year increase in liquid hydrocarbon production volumes of approximately 1,000 barrels per day (bpd) for the second quarter and over 2,000 bpd for the first half of 2009.
Three Months
Ended
June 30
2009 2008
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Key E&P Production Statistics
Net Sales
United States - Liquids (mbpd) 64 63
United States - Natural Gas (mmcfpd) 365 431
International - Liquids (mbpd) 213 119
International - Natural Gas (mmcfpd) 590 558
Worldwide Net Sales from Continuing Operations (mboepd) 436 347
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Marathon's Alvheim/Vilje development in Norway completed a planned 12-day turn-around in the second quarter of 2009, and still achieved strong operational performance for the quarter, with production available for sale averaging 69,800 net boepd [64,300 net bpd of liquid hydrocarbons and 32.6 million net cubic feet per day (mmcfpd) of natural gas]. Also in Norway, the Volund development is on schedule to be operationally ready for production in the fourth quarter of 2009. Importantly, due to better than expected production from the Alvheim field, the Volund start-up is not expected until the first half of 2010, subject to available processing capacity on the Alvheim floating, production, storage and offloading vessel. Marathon has 65 percent operated interests in Alvheim and Volund and a 47 percent outside-operated interest in Vilje.
The Company announced the Oberon discovery on Angola Block 31. Also in Angola, the PSVM development, located in the northeast sector of the block, is proceeding with first production targeted in 2012. In July 2009, Marathon entered into a definitive agreement to sell an undivided 20 percent participating interest in the Production Sharing Contract and Joint Operating Agreement in Angola Block 32. See the Corporate section below for further discussion of this transaction.
Marathon was awarded a 49 percent interest and will serve as operator in the Kumawa Block offshore Indonesia, which is Marathon's third Indonesian offshore exploration block. The Kumawa Block encompasses 1.24 million acres in a high-potential, under-explored area.
In the Gulf of Mexico, Marathon has completed drilling all four development wells on its Droshky project, located on Green Canyon Block 244, and well completions are underway. First production is targeted for 2010.
Oil Sands Mining
Oil Sands Mining (OSM) segment income was $2 million for the second quarter of 2009 compared to a loss of $157 million in the second quarter of 2008 that included a $250 million after-tax loss on derivative instruments. Excluding the derivative impact, income was adversely impacted by a 53 percent decrease in average realizations, partially offset by lower blendstock and energy costs.
Three Months
Ended
June 30
2009 2008
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Key Oil Sands Mining Statistics
Net Bitumen Production (mbpd) 26 24
Net Synthetic Crude Oil Sales (mbpd) 30 31
Synthetic Crude Oil Average Realization (per bbl)(a) $55.02 $116.40
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(a) Excludes gains and losses on derivative instruments.
Marathon's second quarter 2009 net bitumen production from the Athabasca Oil Sands Project (AOSP) mining operation was 26,000 bpd, compared to 24,000 bpd in the same quarter of last year.
The AOSP Phase 1 expansion is on track and is anticipated to begin operations in the 2010/2011 timeframe. The Phase 1 expansion 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.
In the second quarter, the operator of AOSP offered three additional leases to the joint venture partners as a life-of-mine extension for the Muskeg River mine. Terms of the transaction were as agreed in the original 1999 AOSP Joint Venture Agreement. Marathon elected to participate in these leases and was able to reclassify approximately 190 million net barrels of contingent resource. Net proved bitumen reserves increased approximately 168 million barrels and net probable bitumen reserves increased 22 million barrels. These additional reserve barrels resulted in reducing Marathon's OSM DD&A rate per barrel by approximately 40 percent, starting in June 2009.
Also during the second quarter, the Alberta Government announced its decision to consider AOSP's Quest carbon capture and storage (CCS) project, involving the Scotford base and Phase 1 expansion upgraders, for possible government funding. The AOSP partners are currently working with the government on a letter of intent, after which a funding agreement will be negotiated. A final investment decision on the Quest project will be made at a later date, pending agreement on funding details with the Government of Alberta, regulatory approvals, stakeholder engagement, as well as final joint venture partner agreement.
Refining, Marketing and Transportation
Refining, Marketing and Transportation (RM&T) segment income was $165 million in the second quarter of 2009 compared to $158 million in the second quarter of 2008. The second quarter 2009 refining and wholesale marketing gross margin of 8.71 cents per gallon increased slightly from 8.35 cents in the second quarter of 2008.
