Marathon Oil Provides First Quarter 2005 Interim Update
Marathon Oil is providing information on market factors and operating conditions which occurred during the first quarter 2005 that could impact the company's quarterly financial results. The market indicators and company estimates noted below and in the attached schedule may differ significantly from the actual first quarter results. The company will report these actual results on April 28.
Exploration and Production
Marathon estimates oil and natural gas production available for sale for the first quarter will slightly exceed the previous guidance of 330,000 to 340,000 barrels of oil equivalent per day (boepd). As a result of the timing of international crude oil liftings, production sold during the first quarter is expected to be between 330,000 and 340,000 boepd.
In the Gulf of Mexico, the Petronius production facility resumed operation in March. Petronius production had been shut-in for nearly six months due to weather-related damage from Hurricane Ivan. Currently, Petronius is producing at pre-Ivan levels of approximately 25,000 net boepd. Upstream segment income for the quarter will also include a positive income benefit of approximately $35 million for business interruption insurance recoveries net of damage accruals related to Petronius.
While crude oil and natural gas market price indicators have remained strong during the first quarter, actual price realizations continued to be negatively impacted by wide differentials. During the first quarter, approximately 80 percent of Marathon's domestic crude oil production was comprised of sour crudes. Marathon's actual crude oil and natural gas price realizations also vary from these market indicators primarily due to other product quality and location differentials.
Exploration expense for the first quarter is now estimated to be in the range of approximately $35-45 million. U.S. exploration expense is estimated to be $15-20 million, and international exploration expense is estimated to be $20-25 million.
During the first quarter 2005, the 18-month forward gas price curve in the United Kingdom strengthened compared to the fourth quarter 2004 resulting in an estimated $57 million, non-cash mark-to-market loss in the first quarter on two long-term gas sales contracts related to Marathon's Brae gas production.
Due to the volatility of the forward gas sales curve in the United Kingdom, Marathon will continue to exclude these non-cash mark-to-market gains and losses related to these United Kingdom contracts from "net income adjusted for special items."
Refining, Marketing and Transportation
Market indicators for refining margins (crack spreads) in the Midwest and Gulf Coast strengthened during the quarter as compared to the fourth quarter 2004 as reflected in the attached table. When compared to the first quarter 2004, the first quarter 2005 crack spread for the Midwest was slightly stronger while the Gulf Coast crack spread was slightly weaker.
Crude run rates remained strong in January and February averaging nearly 928,000 barrels per day (bpd). The company estimates that crude runs for the quarter will average approximately 920,000 bpd.
The Speedway SuperAmerica LLC gasoline and distillate gross margin has averaged $.1067 per gallon in the first two months of the first quarter 2005, which is lower than both the first quarter 2004 and fourth quarter 2004.
Due to the strength in crack spreads during the first quarter, charges for derivative contracts that Marathon Ashland Petroleum LLC (MAP) has entered into to protect crack spread values are anticipated to total approximately $75 million for the quarter, approximately $60 million of which is due to crack spread contracts that will expire over the last three quarters of 2005. In addition, due to the increase in the price of crude oil during the quarter, MAP will record a crude oil in-transit charge of approximately $75 million in the first quarter of 2005. This adjustment is related to internationally- sourced crude oil that had not been priced as of the end of the first quarter.
Unallocated Administrative Expense
Administrative expenses for the quarter will include approximately $33 million in non-cash expenses related to equity based compensation (stock appreciation rights) resulting from an increase of more than $9 per share in Marathon's common stock price during the quarter.
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