Marathon & Equatorial Guinea Govt Sell Partial Stake in LNG Project

Marathon Oil and the Government of Equatorial Guinea have agreed to sell Mitsui & Co., Ltd. (Mitsui) and a subsidiary of Marubeni Corporation (Marubeni) an 8.5 percent and 6.5 percent interest, respectively, in the Equatorial Guinea Liquefied Natural Gas (LNG) project. Following the anticipated closing of the transaction in the third quarter, Marathon will hold a 60 percent interest in the project, with Compania Nacional de Petroleos de Guinea Ecuatorial (GEPetrol), the National Oil Company of Equatorial Guinea, holding a 25 percent interest and Mitsui and Marubeni holding 8.5 percent and 6.5 percent interest, respectively. The value of the transaction was not disclosed.

GEPetrol is selling a thirteen percent interest in the project that it is obtaining from Marathon by exercise of a purchase right as a shareholder in the LNG project company. Under the terms of this purchase by GEPetrol, Marathon will be reimbursed for its actual costs incurred up to the date of closing, plus an additional specified rate of return.

In addition, Marathon is selling a two percent interest in the project to Mitsui for actual costs incurred up to the date of closing, plus a specified rate of return, as well as a premium and future consideration based upon the performance of the LNG project.

"This sale of a portion of our interest in the Equatorial Guinea LNG project clearly demonstrates that Marathon and GEPetrol have together created and progressed a valuable world-class project," said Clarence P. Cazalot, Jr., Marathon president and CEO. "We welcome Mitsui and Marubeni, both of whom bring long-term LNG experience and a commitment to future growth that will support our shared vision of creating an Equatorial Guinea LNG hub with the possibility of multiple LNG trains. This transaction will provide us added financial and marketing flexibility necessary to realize this vision, while at the same time ensuring we capture the significant current and future value we expect the Equatorial Guinea LNG project to deliver to its owners."

Commenting on the announcement, Atanasio Ela Ntugu Nsa, Equatorial Guinea's Minister of Mines, Industry and Energy, said, "The Government of Equatorial Guinea welcomes Mitsui and Marubeni to our country and the partnership that is developing the Equatorial Guinea LNG project. We believe our expanded partnership is an important sign of the international business community's confidence in our LNG Project, our economy and the substantial investment potential that exists in Equatorial Guinea. This project is enabling us to more fully develop our abundant natural resources while providing long-term economic, social and environmental benefits to the people of Equatorial Guinea. We look forward to working with our new partners as we seek ways to achieve continued economic growth."

Nori Iio, Managing Officer and Chief Operating Officer of Mitsui Energy Business Unit, added, "Mitsui is proud to participate in the Equatorial Guinea LNG Project and hopes to develop a long lasting relationship with the Government of Equatorial Guinea and Marathon. We are looking forward to the development of this world class project, which reinforces Mitsui's global LNG portfolio and sets new grounds for further business activities in the region. Mitsui is committed to contribute to the partnership and the economic growth of Equatorial Guinea, and looks forward to the further expansion of the project."

Also commenting on today's announcement, Koichi Mochizuki, Chief Operating Officer, Energy Division of Marubeni, said, "We are honored to enter into the agreement today, as a result of a successful negotiation, and to establish a valuable long-term partnership with Marathon and Equatorial Guinea. This country has great potential and we are keen to contribute to its growth through this promising project. Energy is one of our core business areas and this project will help Marubeni meet its objective to grow our LNG portfolio. We are particularly excited about the proximity to the expanding U.S. LNG market. We are therefore looking forward to working with the other partners, with a shared vision of success and growth in the LNG business arena."

Construction progress on the Equatorial Guinea LNG project continues according to plan, with the project earning the distinction of being the fastest LNG project from initial concept to final investment decision. The project also is expected to be one of the lowest cost LNG operations in the Atlantic basin with an all-in LNG operating, capital and feedstock cost of approximately $1 per million British thermal units (mmbtu) at the loading flange of the LNG plant.

Additional Information About the Equatorial Guinea LNG Project

The Equatorial Guinea LNG project is being constructed on the northwest side of Bioko Island at Punta Europa, near Equatorial Guinea's capitol city of Malabo. The LNG plant will utilize the Phillips Optimized Cascade Process. Key plant facilities will include: refrigeration systems, compressors, condensers, two LNG storage tanks and marine facilities that will allow for the berthing, mooring and loading of LNG ships ranging in size from 90,000 to 160,000 cubic meters of both membrane and spherical design. While the contracted off-take rate is 3.4 million metric tons per year and the off-take term is 17 years, the plant is expected to have the ability to operate at higher rates and for a longer period of time. Efforts are underway to acquire additional gas supplies through exploration and commercial means in order to expand the utilization of this LNG facility.

Natural gas for the project will be purchased from the Alba field participants, Marathon, Noble Energy, Inc. and GEPetrol, and the LNG will be sold to BG Gas Marketing Ltd (BGML), a subsidiary of BG Group plc, under a 17 year purchase and sale agreement beginning in late 2007. BGML will purchase the LNG on a free-on-board (F.O.B.) basis at Bioko Island, Equatorial Guinea, with pricing linked principally to the Henry Hub index. BGML intends to target the Lake Charles (Louisiana) import terminal as the primary destination for the LNG; however, the agreement provides destination flexibility for the LNG, enabling BGML to take advantage of prevailing market conditions at other import destinations around the world.

Total project cost is estimated at $1.4 billion, of which approximately $1 billion are engineering, procurement and construction costs, with the remainder comprised of owners' costs, contingency and working capital. As of June 30, 2005, it is expected that approximately 60-65 percent of the total project costs will have been incurred. Construction is proceeding on schedule with first deliveries of LNG expected in late 2007.