U.K. Mark-to-Market Loss
During the second quarter, the U.K. 18 month forward gas price curve strengthened more than 30 percent. As a result, and as required by generally accepted accounting principles, a non-cash mark-to-market charge of approximately $95 million will be recorded in the second quarter related to two long-term sales contracts for gas produced from the Brae Area complex in the U.K. North Sea.
Revised Production Estimate
Marathon estimates that its worldwide production during the second quarter will average approximately 341,000 barrels of oil equivalent per day (boepd) compared to previous guidance of 348,000 boepd. For the full year 2004, the company estimates it will average approximately 360,000 boepd, compared to previous estimates of approximately 365,000 boepd. This reduction is primarily a result of delays associated with the company's liquids expansion projects in Equatorial Guinea. While the commissioning of the phase 2A and 2B expansion projects is taking longer than anticipated, the peak rate of 79,000 boepd (44,500 net to Marathon) is still expected to be achieved during the first half of 2005.
Second quarter exploration expense is expected to be at the lower end of the previously estimated range of $35-60 million.
Unallocated Administrative Expense
Administrative expenses in the second quarter are expected to be approximately $85-95 million, as compared to previous guidance of $62 million. This increase is primarily attributable to costs related to recently announced outsourcing activities, as well as an increase of more than $4.00 per share in Marathon's common stock price during the quarter, resulting in a non-cash charge related to equity based compensation granted to employees under approved compensation plans.
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