Exploration and Production During the second quarter 2006, Marathon sold its Russian exploration and production businesses. Quarterly results for these Russian businesses, along with the gain on the sale, will be reported as discontinued operations and will not be reflected in segment income. Segment income for prior periods will be restated to exclude these businesses.
Production sold from continuing operations during the second quarter is estimated to be approximately 390,000 barrels of oil equivalent per day (boepd). Revenues are reported based on production sold during the period and can vary from production available for sale primarily as a result of the timing of international crude oil liftings (sales).
Oil and natural gas production available for sale from continuing operations during the second quarter is expected to be approximately 345,000 boepd, within the previous second quarter guidance of 335,000 to 350,000 boepd, which has been adjusted for the second quarter 2006 sale of Marathon's Russian exploration and production businesses.
The difference between the 345,000 boepd available for sale and the 390,000 boepd of estimated sales from continuing operations was primarily a result of the timing of international crude oil liftings. At the end of the first quarter 2006, Marathon was underlifted from international operations by approximately 4 million barrels, of which approximately half was in Libya. During the second quarter 2006, the company lifted approximately 1.8 million barrels in excess of second-quarter production available for sale from Libya and 2.1 million barrels from other international operations in excess of production available for sale. As a result, at the end of the second quarter the company was in a relatively balanced position on liftings versus production on a worldwide basis.
The WTI crude oil market price indicator strengthened during the second quarter. Marathon's liquid realizations for April and May 2006 likewise increased compared to first quarter realizations. The Henry Hub natural gas market price indicators weakened during the second quarter. Marathon's domestic natural gas realizations similarly decreased in the first 2 months of the quarter. International gas realizations declined in the first 2 months of the quarter, primarily reflecting seasonally lower spot natural gas prices in Europe. Marathon's actual crude oil and natural gas realizations vary from market indicators primarily due to product quality and location differentials as well as timing of its international crude oil liftings.
Estimated second-quarter exploration expense is expected to be between $50 and $70 million, slightly lower than previous guidance. U.S. exploration expense is estimated to be between $30 and $40 million, while international exploration expense is estimated to be $20 to $30 million.
Refining, Marketing, and Transportation Due to seasonality in the refining and marketing business, comparisons to the same period in the previous year provide the best indication of this business's profitability.
Effective April 1, 2006, Marathon adopted EITF Issue No. 04-13, "Accounting for Purchases and Sales of Inventory with the Same Counterparty." As a result, certain types of purchase and sales transactions previously reported separately in revenues and cost of revenues will be reported prospectively on a net basis in cost of revenues. This change will result in Marathon's sales volume in the current quarter being lower than the sales volume reported for the same quarter last year. The company currently projects that refined products sales volume will average about 1,450,000 barrels per day (bpd) in the second quarter 2006.
Market indicators for refining margins (crack spreads) in the Midwest (Chicago) and Gulf Coast strengthened substantially during the second quarter 2006 when compared with the second quarter 2005. As a result of these strong margins and favorable sweet/sour differentials, the company estimates its refining and wholesale marketing gross margin for the current quarter will average approximately $0.29 per gallon.
Crude oil refined during April and May 2006 averaged 1,039,000 bpd and is expected to be at approximately that level for the entire second quarter 2006. Total refinery throughputs for the second quarter 2006 are expected to be somewhat higher than the 1,187,000 bpd during the second quarter 2005. Speedway SuperAmerica LLC's gasoline and distillate gross margin averaged approximately $0.096 per gallon during April and May of 2006 and is expected to average approximately that level for the second quarter 2006. The company also is projecting higher non-manufacturing costs this quarter compared to the same quarter last year.
Unallocated Administrative Expense and Other Information Total unallocated administrative expense for the quarter is expected to be approximately $95 to $105 million before tax and an estimated $55 to $65 million after tax.
The overall corporate tax rate is expected to be approximately 46 to 48 percent. The tax rates by segment are expected to be relatively in-line with those realized during the first quarter 2006; Exploration and Production is expected to record approximately a 50- to 52-percent tax rate, with Refining, Marketing, and Transportation and Integrated Gas both estimated to record approximately 37- to 39-percent tax rates.
Marathon continued its $2 billion share repurchase program during the quarter, reducing the quarterly average share count to an estimated 367 million common shares outstanding for the period. The company purchased approximately 7.5 million shares of its common stock during the first 6 months, at a cost of approximately $565 million.
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