Marathon Oil Corporation is providing information on market factors and operating conditions that occurred during the first quarter of 2008 that could impact the Company's quarterly financial results. The market indicators and Company estimates may differ significantly from actual results. The Company will report first quarter results on May 1, 2008, and will conduct a conference call and webcast that same day.
Exploration and Production
Liquid hydrocarbon and natural gas production sold during the first quarter is estimated to be approximately 375,000 barrels of oil equivalent per day (boepd), compared to 354,000 boepd during the fourth quarter 2007. 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. Liquid hydrocarbon and natural gas production available for sale during the first quarter is expected to be approximately 372,000 boepd, within the previous guidance of 360,000 to 380,000 boepd and higher than the 352,000 boepd available for sale in the fourth quarter of 2007.
Marathon's average liquid hydrocarbon realization for the first two months of the first quarter, as compared to the fourth quarter of 2007, increased $4.68 per barrel domestically and $1.95 per barrel internationally, reflecting the general market price movements during the first two months of the quarter. For the same two-month period, the average West Texas Intermediate (WTI) crude oil market price indicator was $3.61 per barrel higher than the fourth quarter of 2007 while the average Dated Brent indicator increased $5.03 per barrel. Market prices continued to strengthen in the third month of the quarter.
Marathon's domestic average natural gas price realization for January and February increased $0.75 per thousand cubic feet (mcf) over the Company's average realized price in the fourth quarter of 2007. The average Henry Hub (HH) bid week natural gas price for the same two-month period increased $0.60 per million British Thermal Units (BTUs). The larger increase in Marathon's domestic average realized price for the first two months of the first quarter as compared to the average HH bid week market indicator primarily reflects the impact of regional pricing differentials to Henry Hub. Domestic market prices for natural gas continued to increase during the third month of the quarter.
International average natural gas realizations decreased $0.60 per mcf in the first two months of the first quarter compared to the fourth quarter of 2007, primarily reflecting the higher volume of Equatorial Guinea (EG) natural gas sales to the EG Liquefied Natural Gas (LNG) production facility, which was down for a portion of fourth quarter 2007 for warranty repairs.
Marathon's actual crude oil and natural gas price realizations vary from market indicators primarily due to product quality and location differentials.
First quarter 2008 exploration expense is now estimated to be between $135 and $145 million, within previous guidance of $120 to $145 million for the quarter. U.S. exploration expense is estimated to be between $55 and $60 million, while international exploration expense is estimated to be between $80 to $85 million.
Oil Sands Mining
For first quarter 2008, the Company estimates that its net share of bitumen production before royalties from the Athabasca Oil Sands Project (AOSP) mining operation, acquired in fourth quarter 2007, will be approximately 24,000 barrels per day (bpd), which is lower than previous guidance of 30,000 bpd due to weather-related issues at the mine and unplanned maintenance at the Scotford upgrader. Marathon's synthetic crude oil sales from AOSP for first quarter 2008 are estimated to be approximately 31,000 bpd. Marathon's average synthetic crude oil realization (excluding derivative impacts) for the first two months of the first quarter, as compared to fourth quarter 2007, increased $11.33 per barrel, reflecting the general market price movements during the first two months of the quarter.
At the time of Marathon's 2007 acquisition of Western Oil Sands, Inc. (Western), Western held crude oil derivative instruments intended to mitigate price risk related to future sales of synthetic crude oil. Due to rising crude oil prices, the Company expects to recognize an after-tax loss on these instruments of approximately $36 million for the first quarter 2008. The last of these derivative instruments is set to expire in fourth quarter 2009.
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