Marathon has reported third quarter 2008 net income of $2.064 billion, or $2.90 per diluted share. Net income in the third quarter 2007 was $1.021 billion or $1.49 per diluted share. For the third quarter 2008, net income adjusted for special items was $1.963 billion, or $2.76 per diluted share, compared to net income adjusted for special items of $1.016 billion, or $1.48 per diluted share, for the third quarter 2007.
"Despite volatility in the marketplace, Marathon delivered outstanding operational and financial results across all our business segments in the third quarter 2008. Marathon's net income for the quarter more than doubled year-over-year," said Clarence P. Cazalot, Jr., president and CEO of Marathon.
"Our upstream business achieved strong production performance and our downstream segment realized strong profitability, in spite of impacts from Hurricanes Gustav and Ike. Marathon's LNG operations in Equatorial Guinea continued reliable performance at near-peak capacity, while bitumen production from the Canadian oil sands mining project increased during the quarter," Cazalot said.
"As a prudent approach to the current business environment, and as part of our ongoing capital discipline, we expect our 2009 capital program to be more than 15 percent lower than 2008 expenditures," Cazalot said. "We also are continuing the process of evaluating a potential separation of Marathon's businesses, and we're on course for a decision by the end of this year.
"Importantly, Marathon continues to maintain a strong balance sheet, with substantial cash balances and significant unused credit facility capacity. Furthermore, our liquidity has been further enhanced since September 30 with the proceeds from the sale of our ownership interests in Pilot Travel Centers, which closed in early October, and will additionally benefit from the sale of our non-core Norwegian assets, which is expected to close October 31. Marathon is on track to achieve our goal of $2 - $4 billion in gross proceeds from the ongoing portfolio review by mid-year 2009," he said.
Total segment income was $2.063 billion in the third quarter of 2008, compared to $1.013 billion in the third quarter of 2007.
Exploration and Production
Exploration and Production segment income totaled $939 million in the third quarter of 2008, almost double the $479 million reported in the third quarter of 2007. The increase was primarily a result of the average liquid hydrocarbon price realization reaching $111.33 per barrel, as well as higher sales volumes. This liquid hydrocarbon price realization was 63 percent higher, compared to the third quarter of 2007.
Sales volumes during the quarter averaged 379,000 barrels of oil equivalent per day (boepd), compared to 371,000 boepd for the same period last year, despite shutting-in the Gulf of Mexico operations for hurricanes. Production from the Alvheim/Vilje development offshore Norway and from the new Neptune development in the Gulf of Mexico more than compensated for those weather-related declines.
Hurricanes Gustav and Ike impacted Gulf of Mexico production for the latter part of the third quarter, resulting in approximately 9,500 net boepd being shut-in during the quarter. The Neptune development, in which Marathon holds a 30 percent outside-operated working interest, was shut down during the hurricanes but resumed production on Sept. 25, and the Marathon-operated Ewing Bank development resumed production on Oct. 27.
However, the non-operated Troika and Ursa fields remain shut-in for repairs. Marathon holds an approximate 65 percent operated interest in Ewing Bank, a 50 percent working interest in Troika and a 3.5 percent overriding royalty interest in Ursa.
Production available for sale in the third quarter 2008 averaged 389,000 boepd, compared to 373,000 boepd in the same period last year, an increase of more than 4 percent. Excluding hurricane impacts, the year-on-year increase would have been nearly 7 percent. The difference between production volumes available for sale and the recorded sales volumes is due to the timing of international oil liftings and natural gas held in storage. The Company has narrowed its expectation for 2008 production available for sale to be between 385,000 and 395,000 boepd, excluding the effects of any dispositions.
United States upstream income was $285 million in the third quarter of 2008, compared to $147 million in the third quarter of 2007, primarily as a result of higher liquid hydrocarbon and natural gas price realizations partially offset by increased costs, operating expense and depletion, depreciation and amortization, primarily related to new production and higher income taxes.
International upstream income was $654 million in the third quarter of 2008, compared to $332 million in the third quarter of 2007. The increase was primarily a result of higher liquid hydrocarbon prices, sales volumes and natural gas price realizations, partially offset by increased costs related to new pro The Vilje field offshore Norway began production in late July 2008. Commissioning of the Alvheim/Vilje project is continuing with a total of 10 wells currently available for production, out of a total of 12 producing wells planned for Phase 1. Marathon has seen extended periods of production at facility capacity of 125,000 gross boepd (75,000 net boepd) and expects stabilization at these rates during November. Marathon has a 65 percent operated interest in the Alvheim fields and a 47 percent outside-operated working interest in the Vilje field.
In the Gulf of Mexico, Marathon announced a deepwater discovery on the Freedom/Gunflint prospect on Oct. 14. The discovery well, located on Mississippi Canyon Block 948, encountered more than 550 feet of net hydrocarbon-bearing sands in the Middle and Lower Miocene reservoirs. Marathon holds a 12.5 percent working interest in the block.
Marathon made its 28th deepwater discovery offshore Angola with the Dione discovery well on Block 31, announced on Oct. 15. Marathon holds a 10 percent outside-operated interest in Block 31 and a 30 percent outside-operated interest in Block 32.
In October, the Company was awarded a 49 percent interest and operatorship in the Bone Bay Block offshore Indonesia. This high potential, under-explored area has water depths ranging between 165 to 6,500 feet. The Bone Bay Block is about 200 miles southeast of Marathon's Pasangkayu Block, which was awarded in 2006.
Oil Sands Mining
The Oil Sands Mining segment reported income of $288 million for the third quarter of 2008. This reflects a net after-tax gain of $190 million on crude oil derivative instruments, which includes a realized after-tax loss of $24 million and an unrealized after-tax mark-to-market gain of $214 million. These derivative instruments were put in place by Western Oil Sands Inc. prior to its acquisition by Marathon in October 2007 to mitigate price risk related to future sales of synthetic crude oil. The last of these derivative instruments is set to expire in the fourth quarter of 2009.
Marathon's third quarter 2008 net bitumen production before royalties from the Athabasca Oil Sands Project (AOSP) mining operation was approximately 28,000 bpd. Third quarter production increased 15 percent over the second quarter 2008 due to greater reliability of delivery of mined ore to the processing plant. Also, during the third quarter, the royalty calculation rate applicable to bitumen production from the Muskeg River Mine increased from 1 percent of gross revenue to 25 percent of net revenue, as per applicable regulations, following the achievement of the project's payout.
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