Marathon & GEPetrol Finalize Equatorial Guinea LNG Project

Equatorial Guinea LNG
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Marathon Oil, the Government of Equatorial Guinea and Compania Nacional de Petroleos de Guinea Ecuatorial (GEPetrol), the National Oil Company of Equatorial Guinea, through subsidiary companies, have finalized all of the necessary agreements, including formation of Equatorial Guinea LNG Holdings Limited and GEPetrol's funding arrangements, for the companies' Equatorial Guinea liquefied natural gas (LNG) project. This marks the final investment decision for this LNG project, which is expected to be completed and begin shipping first cargoes of LNG in late 2007 -- a record setting pace from project inception to first delivery of LNG. This major investment is an endorsement of the Government of Equatorial Guinea's progressive policy to encourage private foreign investment and stimulate economic development.

"Today's announcement marks a significant achievement for the Government of Equatorial Guinea, GEPetrol and Marathon that will fulfill our shared ambition to further commercialize the substantial gas resources of Equatorial Guinea. The Equatorial Guinea LNG project also is an important milestone in our ongoing implementation of Marathon's integrated gas strategy," said Clarence P. Cazalot, Jr., President and CEO of Marathon. "This LNG project is an excellent investment opportunity that will yield attractive rates of return enabling both Marathon and Equatorial Guinea to create sustainable value growth. We also are pleased to be working with GEPetrol and the Government of Equatorial Guinea to develop a project that will provide economic, social and environmental benefits for the citizens of Equatorial Guinea."

This project will be one of the lowest cost LNG operations in the Atlantic basin with an all-in LNG operating, capital and feedstock cost of approximately $1/mmbtu at the loading flange of the LNG plant.

Currently Marathon, through a wholly owned subsidiary, is funding a 75 percent interest in the LNG project, with GEPetrol funding the remaining 25 percent. Marathon and GEPetrol have received expressions of interest from a number of companies about acquiring an equity interest in the LNG project. Natural gas for the project will be purchased from the Alba field participants, Marathon, Noble Energy, Inc. and GEPetrol, under a long term gas supply agreement, and 3.4 million metric tons per year of LNG will be sold to BG Gas Marketing Ltd (BGML), a subsidiary of BG Group plc, under a 17 year purchase and sale agreement beginning in late 2007. BGML will purchase the LNG on a free on board (F.O.B.) basis at Bioko Island, Equatorial Guinea, with pricing linked principally to the Henry Hub index. BGML intends to target the Lake Charles (Louisiana) import terminal as the primary destination for the LNG; however, the agreement provides destination flexibility for the LNG, enabling BGML to take advantage of prevailing market conditions at other import destinations around the world.

Commenting on today's announcement, Atanasio Ela Ntugu Nsa, the newly appointed Minister of Mines, Industry and Energy said, "The Government of Equatorial Guinea and GEPetrol are very pleased to be a part of a project that holds such significant potential for Equatorial Guinea and its people. We believe the LNG project is an important sign of the international community's confidence in the stability and economic progress of our country. In addition, this project will enable us to further develop our abundant energy resources bringing economic and social benefits to the people of Equatorial Guinea. We look forward to pursuing further LNG developments with Marathon in the future."

The LNG plant will be located on the northwest side of Bioko Island at Punta Europa, near Equatorial Guinea's capital city of Malabo. Bechtel has been appointed the primary engineering, procurement and construction contractor and has been given notice to proceed. Construction costs are estimated to be approximately $1 billion or an equivalent of approximately $260 per metric ton of installed capacity. In addition, other costs associated with the project are estimated to total approximately $400 million representing project management costs, contingency, working capital, taxes, training programs, operations setup, insurance and other related activities. Preliminary construction work on the plant began in December 2003, and work is progressing on schedule with site preparation, accommodation, equipment mobilization and ordering of major plant components.

The Equatorial Guinea LNG plant will utilize the Phillips Optimized Cascade Process. While the contracted offtake rate is 3.4 million metric tons per year and the offtake term is 17 years, the plant is expected to have the ability to operate at higher rates and for a longer period. Key plant facilities will include: refrigeration systems, compressors, condensers, two LNG storage tanks and marine facilities that will allow for the berthing, mooring and loading of LNG ships ranging in size from 90,000 to 160,000 cubic meters of both membrane and spherical design.

Complementary Operations
The participants in the Alba field, in which Marathon holds a 63 percent interest and serves as operator, have recently completed the Phase 2A natural gas condensate expansion project. Phase 2A, which is mechanically complete, will increase total liquids production from approximately 20,000 gross barrels per day (bpd) to approximately 59,000 gross bpd (32,000 bpd net to Marathon). This project also is eliminating the need to flare gas, preserving the resource while reducing emissions associated with flaring.

In addition, Alba Plant LLC (a joint venture company owned 52 percent by Marathon, 28 percent by Noble and 20 percent by Guinea Equatorial Oil & Gas Marketing Ltd.(GEOGAM)), is expanding liquefied petroleum gas (LPG) production capacity. With all major equipment installed, the Phase 2B LPG expansion project is expected to start-up late this year or early 2005. Upon completion of Phase 2B, gross liquids production is expected to increase from approximately 59,000 bpd to approximately 79,000 bpd (44,500 bpd net to Marathon).

Approximately 120 million cubic feet per day (mmcfd) of dry gas remaining after the condensate and LPG are removed is supplied to the existing Atlantic Methanol Production Company LLC (AMPCO) methanol plant on Bioko Island where it is used to manufacture 2,700 tons of methanol per day. AMPCO is a joint venture company owned 45 percent each by subsidiaries of Marathon and Noble, and 10 percent by GEOGAM. All remaining dry gas will be returned offshore and re-injected into the Alba reservoir for later production when the LNG plant is completed.

The Alba field holds estimated remaining gross risked recoverable resource of 4.4 trillion cubic feet (TCF) of gas, of which approximately 3 TCF is expected to be produced through the LNG plant under the contract with BG, and 400 million barrels of liquids. Recognizing the additional resource potential of the Alba field and surrounding offshore areas of Equatorial Guinea, Marathon is conducting an exploration program on the Alba Block and the adjacent Block D offshore Equatorial Guinea. Recently, the company announced the Deep Luba natural gas and condensate discovery on the Alba block (Sub Area A), in which the company holds a 63 percent interest. This discovery is in addition to the 2003 Bococo discovery on Block D, in which Marathon holds a 90 percent interest and serves as operator. Opportunities to utilize the full capacity of the first LNG train and any expansions could come from these discoveries as well as the adjacent gas discoveries in neighboring areas. At year-end 2003, Marathon's proved reserves in Equatorial Guinea totaled more than 315 million barrels of oil equivalent.

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