Marathon Oil has earmarked a $5.1 billion capital, investment and exploration budget for 2010, a 17% decrease from 2009 capital spending.
"Marathon's 2010 capital program will focus on Upstream activity, with an emphasis on the development of sanctioned projects, potentially significant exploration wells and advancing our growing resource plays," said Clarence P. Cazalot, Jr., Marathon president and CEO.
"With the completion of our Garyville, La., refinery major expansion, our spending in the Downstream is budgeted to be 53 percent lower in 2010 compared to 2009," Cazalot said. "We are very proud of the effort of so many individuals across the Company in bringing the Garyville Major Expansion to completion on time. Starting in the second quarter of this year, after the major turnaround of the base facility, we anticipate this world-class, 436,000-barrel-per-day refinery will be a major earnings and cash flow contributor to Marathon.
"As previously stated, we intend to link our spending levels to cash flow and to maintain our financial flexibility. Our disciplined approach to investing is designed to create the appropriate diversification and scale for all our business segments and deliver strong returns for our shareholders," he said.
Marathon continues to expect an Upstream production compound annual growth rate of approximately 4 percent, including Oil Sands Mining, for the period 2008-2011, excluding additional asset acquisitions, divestitures or future exploration successes. This growth rate remains unchanged despite completed asset sales estimated to reduce previously projected 2011 production by approximately 12,000 barrels of oil equivalent per day (boepd).
Exploration and Production
Marathon's 2010 worldwide exploration and production budget of approximately $2.9 billion reflects an increase of 24 percent over 2009 capital spending.
An active global exploration drilling program accounts for the majority of the increase. The 2010 worldwide exploration and exploitation budget is $1 billion, nearly 30 percent above 2009 spending. A primary focus in 2010 is the deepwater Gulf of Mexico, where Marathon plans to drill three or four significant wells and has more than doubled its 2009 exploration budget to $370 million. The Company also has targeted spending for Indonesia, where it plans to drill two potentially high-reward, but also high-risk, deepwater wells in 2010. The Company anticipates drilling or participating in approximately 20 to 30 wells in emerging North American resource plays – the Marcellus Shale in Pennsylvania/West Virginia, the Woodford Shale in Oklahoma and the Haynesville/Bossier play in Texas – and approximately 10 to 15 onshore conventional wells in the Lower 48 in 2010.
Worldwide production capital spending is projected to be $1.8 billion, a 21 percent increase from 2009 spending. More than 40 percent of this year's production funding is concentrated on three key oil projects: North Dakota's Bakken oil play, where Marathon plans to drill or participate in approximately 75 wells; offshore Norway, where further work is planned for satellite fields surrounding the Alvheim/Vilje development; and Angola, where advancement of the deepwater PSVM development in offshore Block 31 is under way. Additionally, in the Gulf of Mexico, Marathon is winding down spending on the Droshky development, with first production targeted for mid-2010 and where the Company owns a 100 percent working interest, while continuing work on the Ozona development. Initial production from Ozona, where Marathon holds a 68 percent working interest, is expected in late 2011. The Company also plans to drill or participate in approximately 100 conventional development wells onshore U.S. in 2010.
Marathon estimates 2010 production available for sale will be between 390,000 and 410,000 boepd, excluding the effect of any future acquisitions, dispositions or exploration success.
Oil Sands Mining
Marathon has budgeted approximately $670 million for its Oil Sands Mining segment, down 32 percent from 2009 as Expansion 1 of the Athabasca Oil Sands Project (AOSP) approaches completion. The project is on track and anticipated to begin mining operations in the second half of 2010, with a phased start-up of upgrader operations to follow in late 2010 or early 2011.
Expansion 1 includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine, expansion of the Scotford upgrader and development of associated infrastructure. Marathon holds a 20 percent interest in the AOSP, a long-life project with a stable production profile.
Under revised Securities and Exchange Commission regulations, Marathon will begin reporting Oil Sands Mining production and reserves in terms of synthetic crude production, which is bitumen after upgrading excluding blendstocks. Net synthetic crude production for 2010 is expected to be between 22,000 and 28,000 barrels per day (bpd). The 2010 forecast takes into account a planned turnaround at the existing AOSP mine and upgrader facilities beginning late in the first quarter of this year and continuing into the second quarter. Production is expected to be curtailed for approximately 60 to 70 days and completely shutdown for two-thirds of that time.
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