In his comments during the meeting, Marathon president and CEO, Clarence P. Cazalot, Jr., noted that the company's vision, business model and strategy established in 2002 and reiterated in 2003 are unchanged and that the company's forward view of the industry's business environment at that time has been validated by actual events. "Three years ago, Marathon established a strategic plan with a business model that differentiates us from our competition. We also defined Marathon's vision which remains unchanged -- to be the pacesetter in creating sustainable value growth through innovative energy solutions and unique partnerships. Our business model focuses on adding shareholder value by enabling us to use our size as an advantage, linking our technical strengths, commercial skills and international stature with the ability to form unique partnerships, and to do so with the speed and agility of a smaller enterprise. Underpinning our vision, business model and strategy is the recognition that access to resource is the most critical challenge facing international oil companies."
Cazalot noted Marathon's overall strategy is based upon several key business factors and strategic intents that have guided the company's business focus over the last three years and positioned the company for continued profitable growth. These factors and strategic intents include:
During this time period, Marathon has differentiated itself by maintaining a top quartile refining and marketing business through its interest in Marathon Ashland Petroleum LLC (MAP), a U.S. joint venture refining, marketing and transportation company in which Marathon holds a 62 percent interest. The company established new exploration and production core areas where it has gained access to significant oil and gas resources with near and long term potential. Marathon also established a significant Atlantic basin liquefied natural gas (LNG) business, positioning the company to commercialize stranded gas resources to meet growing demand for clean, accessible natural gas in the U.S. and other major consuming nations. In addition to LNG, Marathon also has advanced its gas-to-liquids (GTL) technology which could lead to large scale projects to convert currently stranded natural gas to ultra-clean fuels and other high value liquid products. Each of these areas of the company's business benefited from Marathon's continued efforts to enhance its major project execution skills.
"Among the most important of our accomplishments is the continued success we have achieved in our exploration and production business," added Cazalot. "With a 70 percent exploration success rate during the past two years and the addition of approximately 700 million barrels of resource through the drill bit since 2001, we are well positioned to realize profitable growth from future developments. With this exploration success, the establishment of new core areas in three countries and continued development of our base businesses, we were able to achieve a three year average reserve replacement ratio of 190(a) percent at very competitive finding and development costs of $5.71(b) per barrel of oil equivalent. This success, and the ongoing contributions from our base business, provides defined production growth that is expected to increase our average daily production by an estimated compounded average growth rate of five to nine percent between 2005 and 2008."
(a) See page 6 for a reconciliation to the GAAP financial measure for the reserve replacement ratio.
(b) See page 6 for a reconciliation to the GAAP financial measure for finding and development costs per barrel of oil equivalent.
Exploration and Production
Marathon also has enhanced its strategic position to access key markets by securing long term capacity rights at the Elba Island, Georgia, LNG regasification terminal. These rights, acquired in late 2002, enable the company to deliver and sell up to 58 billion cubic feet of natural gas per year through this terminal, with pricing linked to the Henry Hub Index, for a period of up to 22 years. Last year Marathon reached an agreement with BP Energy Company under which BP will supply Marathon with 58 billion cubic feet of natural gas per year, as LNG, using its Elba Island capacity for a minimum period of five years beginning in the second half of 2005.
The company also continues to make progress in exploring the potential of GTL technology. An example of this progress is the successful GTL demonstration plant at the Port of Catoosa, Oklahoma. This plant mirrored a commercial scale plant and successfully demonstrated GTL technology that could be incorporated into the design of a commercial GTL facility such as Marathon's proposed gas processing project in Qatar.
Refining, Marketing and Transportation
Cazalot added that Marathon's financial strength, flexibility and capital discipline provide the resources necessary to fund these growth opportunities and enhance Marathon's ability to deliver superior shareholder value growth. "Returns from these high value projects are expected to increase Marathon's return on capital employed and earnings per share on a flat commodity price and refined product margin basis.
"Marathon's strategic intents remain unchanged," noted Cazalot. "We intend to remain integrated across the entire value chain, target mid-cycle return on capital employed at greater than 10 percent, retain a substantial OECD asset position, maintain a cash adjusted debt to total capital ratio below 40 percent, and achieve earnings per share growth on a flat price and margin basis.
"Central to all of our business activities is our unwavering commitment to the highest standards of business ethics and integrity, environmental stewardship, safety, corporate social responsibility, and maintaining Marathon's reputation for excellence in corporate governance," concluded Cazalot. "Our continued success is fueled by an employee team with a shared vision and core values that underpin our performance. Accountability is in place at every level within our organization to ensure everyone fully understands their role in contributing to Marathon's success."
Most Popular Articles