Exploration and Production
Production sold during the third quarter is estimated to be approximately 367,000 barrels of oil equivalent per day (boepd). Revenues are reported based on production sold during the period which can vary from production available for sale primarily as a result of the timing of international crude oil liftings and natural gas sales. Oil and natural gas production available for sale during the third quarter is expected to be approximately 371,000 boepd, within the previously provided third quarter guidance of 355,000 to 375,000 boepd.
As shown in the attached table, Marathon's average liquid hydrocarbon realization for the first two months of the third quarter, as compared to the second quarter of 2007, increased $7.55 per barrel domestically and $9.23 per barrel internationally, reflecting the general market price movements during the first two months of the quarter as well as the timing of liftings. For the entire third quarter of 2007, the average West Texas Intermediate (WTI) crude oil market price indicator was $10.13 per barrel higher than the second quarter of 2007 while the average Dated Brent indicator increased $5.98 per barrel.
Marathon's domestic average natural gas price realization for July and August decreased $0.78 per thousand cubic feet over the Company's average realized price in the second quarter of 2007. The average Henry Hub (HH) prompt natural gas price for the third quarter decreased $1.37 per million British Thermal Units (BTUs), while the average HH bid week natural gas price decreased $1.39 per million BTUs during this same period. The decrease in Marathon's domestic average realized price as compared to the market indicators for the first two months of the third quarter reflects regional pricing differentials to HH as well as the influence of Alaskan natural gas pricing. Marathon's average international natural gas realization during the first two months of the third quarter was essentially flat when compared to the average second quarter 2007 natural gas realization.
Marathon's actual crude oil and natural gas price realizations vary from market indicators primarily due to product quality and location differentials.
Third quarter exploration expense is now estimated to be between $90 and $110 million, slightly lower than the Company's previous guidance. U.S. exploration expense is estimated to be between $50 and $55 million, while international exploration expense is estimated to be $40 to $55 million.
Refining, Marketing and Transportation
The Company currently projects refined products sales volume will average approximately 1,435,000 barrels per day (bpd) in the third quarter of 2007.
The Company projects its third quarter 2007 refining and wholesale marketing gross margin will be about half the $0.3271 per gallon earned in the same quarter last year. The primary reason for the quarter to quarter reduction is the significant change in crude oil prices during these periods. For example, Light Louisiana Sweet (LLS) declined $12.07 per barrel during the third quarter of 2006 but increased $6.28 per barrel in the third quarter of 2007. As a result, the Company's cost of crude oil and other feedstocks was relatively higher than what the quarter to quarter change in average LLS prices would indicate. In addition, the Company's third quarter 2007 increase in its average wholesale sales price realization over the same quarter last year was less than the average spot market price increase for the products that are used in the LLS-based market indicators. The narrowing of the sweet- sour market differential in the third quarter of 2007 versus the same quarter last year also increased the cost of sour crudes that the Company refined during the third quarter of 2007 compared to the same quarter last year. Therefore, while the LLS-based market indicators for refining margins were stronger in the third quarter of 2007 in the Midwest and Gulf Coast compared to the same quarter last year, the Company projects its refining and wholesale marketing gross margin will be lower.
Crude oil refined averaged 1,069,000 bpd during July and August 2007 and is expected to be approximately 1,040,000 bpd for the entire third quarter of 2007. Total refinery throughput averaged 1,279,000 bpd during July and August 2007 and is expected to be approximately 1,240,000 bpd for the entire third quarter of 2007.
Speedway SuperAmerica LLC's gasoline and distillate gross margin averaged $0.1045 per gallon during July and August 2007 and is expected to average approximately $0.1090 per gallon for the third quarter of 2007.
In addition to the above, the Company expects all other expenses to be slightly higher than in the same quarter last year.
Marathon's Equatorial Guinea and Alaska Liquefied Natural Gas (LNG) operations combined are estimated to have sold 6,180 net metric tonnes per day (mtpd) of LNG in the third quarter of 2007, slightly more than previous guidance. The Company also estimates it sold 1,420 net mtpd of methanol from the Ampco Methanol Plant in Equatorial Guinea, also higher than guidance.
Unallocated Administrative Expense and Other Information
Total pre-tax unallocated administrative expense for the quarter is estimated to be $80 to $90 million.
The overall corporate effective income tax rate, excluding special items, is expected to be approximately 44 to 46 percent. The effective income tax rate for the Refining, Marketing and Transportation segment is expected to be approximately 36 to 37 percent, while the Exploration and Production segment is expected to have a third quarter effective income tax rate of approximately 54 to 56 percent.
Since January 2006, the Company's Board of Directors has authorized the repurchase of up to $5.0 billion of Marathon's common stock. To date, the Company has repurchased approximately $2.5 billion in Marathon shares.
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