Marathon's Oil Sands Mining segment reported income of $100 million for the fourth quarter of 2008 and $258 million for the full year, compared to a loss of $63 million for the fourth quarter and full year 2007. The Oil Sands Mining segment was acquired from Western Oil Sands Inc. in October 2007. Western held derivative instruments expiring in December 2009 at the sale date, which are marked-to-market each period. An after-tax gain on these crude oil derivative instruments of $128 million was reported in the fourth quarter 2008 and $32 million for the full year 2008. Of these after-tax derivative gains, the unrealized portion was $123 million for the fourth quarter 2008 and $85 million for the full year 2008. For fourth quarter and the full year 2007, the Company reported an after-tax loss of $40 million on these derivatives, of which $39 million was unrealized.
Marathon's fourth quarter 2008 net bitumen production before royalties from the AOSP mining operation was 25,000 bpd, compared to 15,000 bpd for the same period of 2007, reflecting that the operation was owned and operated for the full quarter in 2008.
Results for the full year of 2008 were impacted by planned and unplanned maintenance, reliability issues and the implementation of a revised tailings management plan that impacted ore grade. These issues adversely impacted production and processing levels and resulted in higher than anticipated total operating costs.
Net bitumen production for 2009 is expected to be between 25,000 to 30,000 bpd before royalties.
Marathon estimates net proven bitumen reserves of 388 million barrels at Dec. 31, 2008.
For the fourth quarter and full year 2008, the royalty calculation rate applicable to bitumen production from the Muskeg River Mine was 1 percent of gross revenue, as per applicable regulations. As a result, the fourth quarter included a royalty refund of $12.5 million for royalty overpayments in previous quarters. The Alberta government has enacted a new royalty regime whereby the previous fixed royalty rates were replaced with a sliding scale, effective Jan. 1, 2009.
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