MARATHON OIL 
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Marathon reported 2007 net income of
Earnings Highlights(a) Quarter ended Year ended
December 31 December 31
(In millions, except per diluted
share data) 2007 2006(c) 2007 2006(c)
Net income adjusted for special
items(b) $500 $838 $3,771 $4,636
Adjustments for special items (net
of taxes):
Gain (loss) on long-term U.K.
natural gas contracts (62) 139 (118) 232
Gain on foreign currency derivative
instruments 38 - 112 -
Deferred income taxes
- tax legislation changes 193 - 193 21
- other adjustments - 93 - 93
Gain on dispositions - 31 8 274
Loss on early extinguishment of debt (1) (22) (10) (22)
Net income $668 $1,079 $3,956 $5,234
Net income adjusted for special
items(b) - per diluted share $0.70 $1.19 $5.43 $6.42
Net income - per diluted share $0.94 $1.53 $5.69 $7.25
Revenues and other income $18,364 $13,986 $65,207 $65,449
Weighted average shares - diluted 713 705 695 722
(a) Results are preliminary and unaudited. Marathon expects to issue its
audited consolidated financial statements at the end of February.
(b) See discussion of net income adjusted for special items.
(c) Restated for two-for-one stock split on June 18, 2007. See Note 3.
Full Year Key Highlights
- Closed $6.9 billion Western Oil Sands Inc. acquisition
- Completed Equatorial Guinea Liquefied Natural Gas (EG LNG) Train 1 on
budget and ahead of schedule
- Discovered Droshky field (100 percent working interest) in Gulf of
Mexico
- Announced eight exploration discoveries in deepwater Angola
- Was high bidder on 27 blocks at Central Gulf of Mexico Lease Sale
No. 205
- Began construction on projected $3.2 billion Garyville, La. refinery
expansion
- Approved projected $1.9 billion Detroit refinery heavy oil upgrading
and expansion project
- Achieved record full-year refinery crude oil and total throughputs
- Raised quarterly dividend rate 20 percent
- Repurchased approximately 16 million shares, extended stock repurchase
authorization to $5 billion
- Completed two-for-one common stock split
"The fourth quarter of 2007 was a difficult quarter that included: lower
downstream margins driven primarily by rapidly rising crude prices; relatively
flat upstream production due to delays in the Alvheim project and unscheduled
downtime for warranty repairs at our
"However, reflecting on all of 2007, we had significant accomplishments in
each of our business segments; and, we remain confident in Marathon's
integrated business strategy. Last year included the acquisition of Western
Oil Sands Inc., the completion of the EG LNG Train 1 production facility ahead
of schedule and on budget and groundbreaking on our projected
"We expect 2008 will show significant growth as Marathon is uniquely positioned with a broad portfolio of projects," Cazalot added. "Marathon continues to maintain financial discipline while delivering value to investors through multiple reinvestment opportunities, dividends and share repurchases."
Western Oil Sands Inc. Acquisition
On
Segment Results
Total segment income was
Quarter ended Year ended
December 31 December 31
(In millions) 2007 2006 2007 2006
Segment Income (Loss)
Exploration and Production
United States $153 $167 $623 $873
International 312 140 1,106 1,130
Total E&P 465 307 1,729 2,003
Oil Sands Mining (63) - (63) -
Refining, Marketing and
Transportation 4 533 2,077 2,795
Integrated Gas 49 (7) 132 16
Segment Income(a) $455 $833 $3,875 $4,814
(a) See Preliminary Supplemental Statistics for a reconciliation of
segment income to net income as reported under generally
accepted accounting principles.
Exploration and Production
Upstream segment income totaled
Sales volumes averaged 354,000 barrels of oil equivalent per day (boepd) for the fourth quarter of 2007 and 351,000 boepd for the full year 2007, and production available for sale averaged 352,000 boepd and 353,000 boepd in the same periods.
International upstream income was
Quarter ended Year ended
December 31 December 31
2007 2006 2007 2006
Key Production Statistics
Net Sales
United States - Liquids
(mbpd) 60 74 64 76
United States - Natural Gas
(mmcfpd) 474 522 477 532
International - Liquids
(mbpd) 130 138 133 147
International - Natural Gas
(mmcfpd) 510 352 448 315
Net Sales from Continuing
Operations (mboepd) 354 357 351 365
Discontinued Operations (mboepd) - - - 12
Total Net Sales (mboepd) 354 357 351 377
During 2007, Marathon added net proved liquid hydrocarbon and natural gas
reserves of 88 million barrels of oil equivalent (mmboe), while producing 125
mmboe, resulting in a reserve replacement ratio of 70 percent. For the three-
year period ended
First production from the Alvheim/Vilje development in
In the Gulf of
Marathon is currently drilling an appraisal well on the Droshky discovery
in the Gulf of
Also in the Gulf of
During the fourth quarter of 2007, Marathon also completed the acquisition of more than 70,000 net leasehold acres in the Bakken Shale play in North Dakota. The acreage brings Marathon's total Bakken Shale leasehold to more than 320,000 net acres. Marathon currently has six rigs running in its Bakken program and ended 2007 with a net production rate of 2,600 boepd.
The Company commenced its Piceance Basin activity in western Colorado and currently has two rigs running. Marathon expects to drill approximately 165 total wells in the region over the next two years.
Marathon continues to grow an inventory of future growth opportunities
with eight discoveries announced during 2007 in deepwater
In addition, Marathon has been awarded two study agreements in
Marathon exited its remaining 10 percent interest in the Ash Shaer and
Cherrife natural gas fields in
With the Alvheim/Vilje and Neptune developments coming online, Marathon expects 2008 production available for sale to increase to a range of between 380 and 420 boepd. (This production guidance does not include bitumen production from the AOSP, which will be reported in the Oil Sands Mining segment.) Despite the challenges encountered with major project delivery in this volatile environment, the Company continues to be on track to deliver compound average annual production growth of 6 to 9 percent from 2006 to 2010.
Oil Sands Mining
The Oil Sands Mining segment reported a loss of
Quarter ended Year ended
December 31 December 31
2007 2006 2007 2006
Key Oil Sands Mining
Statistics
Net Bitumen Production
(mbpd)(a) 15 - 4 -
Net Synthetic Crude Oil Sales
(mbpd)(a) 17 - 4 -
Synthetic Crude Oil Average
Realization (per bbl)(b) $71.07 $- $71.07 $-
(a) The oil sands mining operations were acquired Oct. 18, 2007.
Average daily volumes represent total volumes since the
acquisition date over total days in the reporting period.
(b) Excludes losses on derivative instruments.
Marathon estimates that its net bitumen production in 2008 will be approximately 30 mboepd. Marathon estimates its net share of the AOSP's proven bitumen reserves to be 421 million barrels of bitumen.
Marathon reached a
The AOSP Phase 1 Expansion is currently under construction and it is anticipated that the expansion will be complete in late 2010. The 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.
Refining, Marketing and Transportation
Downstream segment income was
While the relevant market indicators [Light Louisiana Sweet (LLS) 6-3-2-1
crack spreads] in the Midwest (
Marathon's refining and wholesale marketing gross margins included pre-tax
derivatives losses of
Crude oil refined during the fourth quarter of 2007 averaged 956,000 barrels per day (bpd), which is consistent with the throughput achieved in the fourth quarter of 2006. Total refinery inputs were lower in the fourth quarter of 2007 compared to the fourth quarter of 2006, primarily due to the higher level of planned maintenance completed on the fluid catalytic cracking units at three of the Company's refineries during the fourth quarter of 2007. Crude oil refined for the full year 2007 averaged a record 1,010,000 bpd, 30,000 bpd higher than 2006. Total refinery throughputs also averaged a record 1,224,000 bpd for the full year 2007.
Quarter ended Year ended
December 31 December 31
2007 2006 2007 2006
Key Refining, Marketing &
Transportation Statistics
Crude Oil Refined (mbpd) 956 952 1,010 980
Other Charge and Blend Stocks
(mbpd) 223 260 214 234
Total Refinery Inputs
(mbpd) 1,179 1,212 1,224 1,214
Refined Products Sales Volumes
(mbpd) 1,432 1,389 1,410 1,425
Refining and Wholesale Marketing
Gross Margin ($/gallon) $0.0480 $0.1707 $0.1848 $0.2288
Speedway SuperAmerica LLC (SSA) gasoline and distillate gross margin per gallon averaged 11.31 cents during the fourth quarter of 2007, up nearly 1 percent from the 11.21 cents realized in the fourth quarter of 2006, and averaged 11.19 cents for the full year 2007, down 3 percent from the 11.56 cents realized in 2006. SSA's same store merchandise sales increased 1.1 percent during the fourth quarter and 3.2 percent for the full year 2007.
In the fourth quarter of 2007, Marathon's Board of Directors approved a
projected
Construction continues to progress on the projected
Integrated Gas
Integrated Gas segment income totaled
Quarter ended Year ended
December 31 December 31
2007 2006 2007 2006
Key Integrated Gas Statistics
Net Sales (metric tonnes per day)
LNG 3,890 901 3,310 1,026
Methanol 1,376 807 1,308 905
Corporate
Marathon continued its
Marathon raised its quarterly dividend rate 20 percent in 2007, and this is the fifth consecutive year that the Company has increased its dividend.
In
Special Items
Marathon has two long-term natural gas sales contracts in the
Marathon entered foreign currency derivative instruments to limit the
Company's exposure to changes in the Canadian dollar exchange rate related to
the cash portion of the Western purchase price. During the fourth quarter of
2007, the after-tax gain on these derivative instruments was
Subsequent to Marathon's acquisition of Western, decreases to the Canadian
federal income tax rates were enacted. These rates will decrease from 32
percent to 25 percent by 2012. The
Marathon extinguished a portion of its outstanding debt at a premium,
recognizing a
Also excluded from full year 2007 net income adjusted for special items
was an additional
The Company will conduct a conference call and webcast today,
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 forecasted costs for the Garyville refinery expansion project
and the
This release contains forward-looking statements with respect to, the
timing and levels of the Company's worldwide liquid hydrocarbon and natural
gas and condensate production, bitumen production, the Alvheim/Vilje
development, the Volund and Neptune developments, the Droshky prospect,
potential developments in
Cautionary Note to U.S. Investors - The
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
Condensed Consolidated Statements of Income (Unaudited)
Quarter ended Year ended
December 31 December 31
(In millions, except per
share data) 2007 2006 2007 2006
Revenues and other income:
Sales and other operating
revenues (including
consumer excise taxes) $17,704 $13,274 $62,800 $57,973
Revenues from matching
buy/sell transactions 2 208 127 5,457
Sales to related parties 479 325 1,625 1,466
Income from equity method
investments 151 93 545 391
Net gain on disposal of
assets 16 49 36 77
Other income 12 37 74 85
Total revenues and other
income 18,364 13,986 65,207 65,449
Costs and expenses:
Cost of revenues (excludes
items below) 14,944 9,768 49,235 42,415
Purchases related to
matching buy/sell
transactions 2 191 149 5,396
Purchases from related
parties 72 51 232 210
Consumer excise taxes 1,307 1,240 5,163 4,979
Depreciation, depletion
and amortization 415 388 1,613 1,518
Selling, general and
administrative expenses 377 333 1,327 1,228
Other taxes 108 91 394 371
Exploration expenses 190 131 454 365
Total costs and expenses 17,415 12,193 58,567 56,482
Income from operations 949 1,793 6,640 8,967
Net interest and other
financing income (costs) (17) 44 41 37
Gain on foreign currency
derivative instruments 62 - 182 -
Loss on early
extinguishment of debt (3) (35) (17) (35)
Minority interests in loss
of Equatorial Guinea
LNG Holdings Limited - 3 3 10
Income from continuing
operations before
income taxes 991 1,805 6,849 8,979
Provision for income taxes 323 726 2,901 4,022
Income from continuing
operations 668 1,079 3,948 4,957
Discontinued operations - - 8 277
Net income $668 $1,079 $3,956 $5,234
Income from continuing
operations
Per share - basic $0.95 $1.54 $5.72 $6.92
Per share - diluted $0.94 $1.53 $5.68 $6.87
Net income
Per share - basic $0.95 $1.54 $5.73 $7.31
Per share - diluted $0.94 $1.53 $5.69 $7.25
Dividends paid per share $0.24 $0.20 $0.92 $0.76
Weighted average shares
Basic 708 699 690 716
Diluted 713 705 695 722
Selected Notes to Financial Statements (Unaudited)
1. On October 18, 2007, Marathon purchased Western Oil Sands Inc.
(Western) for cash and securities of $5.8 billion. Western's
outstanding debt was $1.1 billion at closing, for a total transaction
value of $6.9 billion. The acquisition was accounted for under the
purchase method of accounting and, as such, Marathon's results of
operations include Western's results from October 18, 2007.
2. Equatorial Guinea LNG Holdings Limited (EGHoldings), in which Marathon
holds a 60 percent interest, was formed for the purpose of constructing
and operating an LNG production facility. During facility
construction, EGHoldings was a variable interest entity (VIE) that was
consolidated by Marathon because Marathon was its primary beneficiary.
Once the LNG production facility commenced its primary operations and
began to generate revenue in May 2007, EGHoldings was no longer a VIE.
Effective May 1, 2007, Marathon no longer consolidates EGHoldings,
despite the fact that the Company holds majority ownership, because the
minority shareholders have rights limiting Marathon's ability to
exercise control over the entity. Marathon's investment is accounted
for prospectively using the equity method of accounting.
3. On April 25, 2007, the Company's Board of Directors declared a two-for-
one split of the Company's common stock. The stock split was effected
in the form of a stock dividend distributed on June 18, 2007, to
stockholders of record at the close of business on May 23, 2007.
Stockholders received one additional share of Marathon Oil Corporation
common stock for each share of common stock held as of the close of
business on the record date. Common share and per share information
for all periods presented in the condensed consolidated statements of
income has been restated to reflect the stock split.
Preliminary Supplemental Statistics (Unaudited)
Quarter ended Year ended
December 31 December 31
(Dollars in millions, except
as noted) 2007 2006 2007 2006
SEGMENT INCOME (LOSS)
Exploration and Production
United States $153 $167 $623 $873
International 312 140 1,106 1,130
E&P segment 465 307 1,729 2,003
Oil Sands Mining (63) - (63) -
Refining, Marketing and
Transportation 4 533 2,077 2,795
Integrated Gas 49 (7) 132 16
Segment income 455 833 3,875 4,814
Items not allocated to
segments, net of taxes
Corporate and other
unallocated items 45 5 (104) (212)
Gain (loss) on long-term U.K.
natural gas contracts (62) 139 (118) 232
Gain on foreign currency
derivative instruments 38 - 112 -
Deferred income taxes
- tax legislation changes 193 - 193 21
- other adjustments - 93 - 93
Gain on dispositions - 31 8 274
Loss on early extinguishment
of debt (1) (22) (10) (22)
Discontinued operations - - - 34
Net income $668 $1,079 $3,956 $5,234
CAPITAL EXPENDITURES
Exploration and Production $888 $553 $2,511 $2,169
Oil Sands Mining 165 - 165 -
Refining, Marketing and
Transportation 659 389 1,640 916
Integrated Gas(a) - 71 93 307
Discontinued Operations - - - 45
Corporate 29 15 57 41
Total $1,741 $1,028 $4,466 $3,478
EXPLORATION EXPENSES
United States $137 $60 $274 $169
International 53 71 180 196
Total $190 $131 $454 $365
(a) Through April 2007, includes Equatorial Guinea LNG Holdings
(EGHoldings) at 100 percent. Effective May 1, 2007, Marathon
no longer consolidates EGHoldings and its investment in EG
Holdings is accounted for under the equity method of
accounting; therefore, EGHoldings' capital expenditures
subsequent to April 2007 are not included in Marathon's
capital expenditures.
Preliminary Supplemental Statistics (Unaudited)
Quarter ended Year ended
December 31 December 31
2007 2006 2007 2006
E&P OPERATING STATISTICS
Net Liquid Hydrocarbon Sales
(mbpd)(b)
United States 60 74 64 76
Europe 34 34 33 35
Africa 96 104 100 112
Total International 130 138 133 147
Worldwide Continuing
Operations 190 212 197 223
Discontinued Operations - - - 12
Worldwide 190 212 197 235
Net Natural Gas Sales
(mmcfd)(b)(c)
United States 474 522 477 532
Europe 245 262 216 243
Africa 265 90 232 72
Total International 510 352 448 315
Worldwide 984 874 925 847
Total Worldwide Sales (mboepd)
Continuing operations 354 357 351 365
Discontinued operations - - - 12
Worldwide 354 357 351 377
Average Realizations (d)
Liquid Hydrocarbons (per bbl)
United States $74.16 $48.33 $60.15 $54.41
Europe 89.17 59.01 70.31 64.02
Africa 83.05 53.61 66.09 59.83
Total International 84.64 54.94 67.15 60.81
Worldwide Continuing
Operations 81.33 52.63 64.86 58.63
Discontinued Operations - - - 38.38
Worldwide $81.33 $52.63 $64.86 $57.58
Natural Gas (per mcf)
United States $5.70 $5.36 $5.73 $5.76
Europe 7.98 6.49 6.53 6.74
Africa 0.25 0.32 0.25 0.27
Total International 3.96 4.90 3.28 5.27
Worldwide $4.80 $5.17 $4.54 $5.58
(b) Amounts represent net sales after royalties, except for
Ireland where amounts are before royalties.
(c) Includes natural gas acquired for injection and subsequent
resale of 41 mmcfd and 47 mmcfd for the fourth quarters of
2007 and 2006, and 47 mmcfd and 46 mmcfd for the years 2007
and 2006.
(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.
Preliminary Supplemental Statistics (Unaudited) (continued)
Quarter ended Year ended
December 31 December 31
(Dollars in millions, except as
noted) 2007 2006 2007 2006
OSM OPERATING STATISTICS
Net Bitumen Production (mbpd)(e) 15 - 4 -
Net Synthetic Crude Oil Sales
(mbpd)(e) 17 - 4 -
Synthetic Crude Oil Average
Realization (per bbl)(f) $71.07 $- $71.07 $-
RM&T OPERATING STATISTICS
Refinery Runs (mbpd)
Crude oil refined 956 952 1,010 980
Other charge and blend stocks 223 260 214 234
Total 1,179 1,212 1,224 1,214
Refined Product Yields (mbpd)
Gasoline 635 681 646 661
Distillates 339 342 349 323
Propane 21 24 23 23
Feedstocks and special products 81 74 108 107
Heavy fuel oil 34 34 27 26
Asphalt 84 74 86 89
Total 1,194 1,229 1,239 1,229
Refined Products Sales Volumes
(mbpd)(g)(h) 1,432 1,389 1,410 1,425
Matching buy/sell volumes
included in above(h) - - - 24
Refining and Wholesale
Marketing Gross Margin (i)(j) $0.0480 $0.1707 $0.1848 $0.2288
Speedway SuperAmerica
Retail outlets 1,636 1,636 - -
Gasoline and distillate
sales (k) 836 842 3,356 3,301
Gasoline and distillate
gross margin(j) $0.1131 $0.1121 $0.1119 $0.1156
Merchandise sales $686 $677 $2,796 $2,706
Merchandise gross margin $172 $170 $705 $667
IG OPERATING STATISTICS
Net Sales (metric tonnes per day)
LNG 3,890 901 3,310 1,026
Methanol 1,376 807 1,308 905
(e) The oil sands mining operations were acquired October 18,
2007. Average daily volumes represent total volumes since the
acquisition date over total days in the reporting period.
(f) Excludes losses on derivative instruments.
(g) Total average daily volumes of all refined product sales to
wholesale, branded and retail (SSA) customers.
(h) As a result of the change in accounting for matching buy/sell
arrangements on April 1, 2006, the reported sales volumes will
be lower than the volumes determined under the previous
accounting practices.
(i) Sales revenue less cost of refinery inputs, purchased products
and manufacturing expenses, including depreciation. As a
result of the change in accounting for matching buy/sell
transactions on April 1, 2006, the resulting per gallon
statistic will be higher than the statistic that would have
been calculated from amounts determined under previous
accounting practices.
(j) Per gallon
(k) Millions of gallons
SOURCE Marathon Oil Corporation
