Marathon Oil Corporation has 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.
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.
Overview of Operations
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 weatherrelated issues at the mine and unplanned maintenance at the Scotford upgrader.
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.
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-FuelsTM 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.