Marathon Oil Sees 1Q06 Net Income Rise
Marathon Oil Corporation (NYSE: MRO) reported first quarter 2006 net income of $784 million, or $2.13 per diluted share. Net income in the first quarter 2005 was $324 million, or $0.93 per diluted share. For the first quarter of 2006, net income adjusted for special items was $739 million, or $2.01 per diluted share. For the first quarter of 2005, net income adjusted for special items was $357 million, or $1.02 per diluted share.
Earnings Highlights 1st Quarter Ended March 31 (Dollars in millions, except per diluted share data) 2006 2005 Net income adjusted for special items* $739 $357 Adjustments for special items (net of taxes): Gain (loss) on long-term U.K. natural gas contracts 45 (33) Net income $784 $324 Net income adjusted for special items* - per diluted share $2.01 $1.02 Net income - per diluted share $2.13 $0.93 Revenues and other income $16,638 $13,010 Weighted average shares, in thousands - diluted 368,380 348,645 * See page 6 for a discussion of net income adjusted for special items. Key Events Exploration and Production -- Exceeded guidance on production available for sale due to strong operating performance -- Resumed operations in Libya and achieved first crude oil liftings -- Acquired significant leasehold position in the Bakken Shale play in North Dakota and eastern Montana -- Announced two exploration/appraisal successes - the Mostarda discovery offshore Angola and the Gudrun appraisal well offshore Norway Refining, Marketing and Transportation -- All refinery construction projects are on schedule to meet the June 1, 2006, ultra low sulfur diesel requirements -- Achieved significant same store gasoline sales volume growth of 3.3 percent at Speedway SuperAmerica LLC (SSA) and increased same store merchandise sales by 10.2 percent Integrated Gas -- Equatorial Guinea Liquefied Natural Gas (LNG) Train 1 project remains on schedule for the first shipment in the third quarter of 2007, having achieved 73 percent completion at the end of the first quarter Corporate -- Repurchased approximately $230 million of Marathon common shares as part of previously announced $2 billion share buy back program -- Increased dividend by 21 percent to a new quarterly rate of 40 cents per share
"In the first quarter, Marathon benefited from strong operational performance in all of our business segments," said Clarence P. Cazalot, Jr., Marathon president and CEO. "We achieved additional exploration success and continued to advance our major project developments safely and on time around the globe. These projects, along with the resumption of our operations in Libya, are positioning the Company to achieve a compounded average production growth rate of 8-11 percent between 2004 and 2008. Our downstream operations contributed to our strong results primarily due to the favorable refining margins and higher refined product sales volumes we experienced during the quarter. In addition, downstream results were significantly enhanced as a result of the minority interest acquisition completed June 30, 2005."
Effective January 1, 2006, Marathon revised its measure of segment income to reflect the effects of minority interests and income taxes related to the segments. In addition, the results of activities primarily associated with the marketing of the Company's equity natural gas production, which have been presented as part of the Integrated Gas segment prior to 2006, are now included in the Exploration and Production segment. Segment income amounts for all periods presented in this release reflect these changes.
Total segment income was $804 million in first quarter 2006, compared with $430 million in first quarter 2005.
1st Quarter Ended March 31 (Dollars in millions) 2006 2005 Segment Income Exploration & Production (E&P) United States $245 $177 International 232 157 Total E&P 477 334 Refining, Marketing & Transportation 319 74 Integrated Gas 8 22 Segment Income ** $804 $430
** See Preliminary Supplemental Statistics on page 8 for a reconciliation of segment income to net income as reported under generally accepted accounting principles.
Exploration and Production
Upstream segment income totaled $477 million in first quarter 2006, compared to $334 million in first quarter 2005. The increase was primarily due to higher product prices and liquid hydrocarbon sales volumes. Reported sales volumes during the quarter averaged 376,800 barrels of oil equivalent per day (boepd) compared to production available for sale of 418,600 boepd. This difference was due to the timing of international crude oil liftings in Libya, Equatorial Guinea and the United Kingdom.
Marathon's first quarter production available for sale was higher than guidance due to outstanding operational performance. The Company's United Kingdom operations benefited from high seasonal natural gas sales and increased liquid hydrocarbon production resulting from a successful workover program. Marathon continues to estimate 2006 average daily production available for sale to be 365,000 to 395,000 boepd, excluding the impact of any acquisitions or dispositions.
United States upstream income was $245 million in first quarter 2006, compared to $177 million in first quarter 2005. The increase was primarily a result of higher product prices and liquid hydrocarbon sales volumes. The increase in sales volumes was a result of the Gulf of Mexico Petronius facility being shut-in during the majority of the first quarter of 2005 for hurricane related repairs.
International upstream income was $232 million in first quarter 2006, compared to $157 million in first quarter 2005. The increase was primarily a result of higher product prices and higher liquid hydrocarbon sales volumes due to the resumption of production in Libya and the benefit of a full quarter of the condensate expansion project in Equatorial Guinea.
1st Quarter Ended March 31 2006 2005 Key Production Statistics Sales United States - Liquids (mbpd) 80.0 71.6 United States - Gas (mmcfpd) 561.2 570.3 International - Liquids (mbpd) 130.7 91.5 International - Gas (mmcfpd) 435.1 455.2 Total Sales (mboepd) 376.8 334.0
Marathon continues to advance its major projects. As of the end of the first quarter 2006, the Alvheim project in Norway was 53 percent complete, and on target to deliver first production in the first quarter of 2007. As part of this project, the hull modifications to the Alvheim floating production storage offloading (FPSO) vessel have been completed and the vessel sailed from Singapore to Norway where it is undergoing topside installation work. Alvheim development drilling is scheduled to begin in May 2006. The Neptune development in the Gulf of Mexico was 22 percent complete through March 2006, and remains on target to deliver production by early 2008, with development drilling scheduled to begin in May 2006.
Marathon recently completed leasehold acquisitions totaling approximately 200,000 acres in the Bakken Shale resource play, located in the Williston Basin of North Dakota and eastern Montana. With this substantial position in the Bakken Shale, Marathon plans to drill approximately 300 wells over the next four to five years, with additional infill drilling likely. This program has the potential to add more than 20,000 barrels of oil equivalent per day of production by 2012.
Offshore Norway, Marathon participated in a successful appraisal well on the Gudrun prospect. Two zones were tested at an aggregate gross rate of more than 10,000 barrels of oil per day (bpd) and 30 million cubic feet of natural gas per day (mmcfd). Future activities will primarily focus on evaluating various development scenarios. Marathon holds a 28 percent non-operated working interest in Gudrun.
Offshore Angola, Marathon participated in the discovery well on the Mostarda prospect in Block 32, where the Company holds a 30 percent working interest. This discovery is located near the previously announced Gindungo, Canela and Gengibre discoveries. In Block 31, where the Company holds a 10 percent working interest, Marathon participated in a successful appraisal well in the northeast part of the block, a dry hole in the southeast portion of the block, and the Urano well reached total depth. The results of the Urano well will be reported upon governmental approvals.
Refining, Marketing and Transportation
Downstream segment income was $319 million in first quarter of 2006 compared to $74 million in first quarter of 2005. Downstream segment income for the first quarter of 2006 benefited from the June 30, 2005, minority interest acquisition, while the first quarter 2005 was negatively impacted by a legislated tax increase by the State of Kentucky.
A key driver of the increase in segment income was the Company's refining and wholesale marketing gross margin which averaged 11.37 cents per gallon in first quarter of 2006 versus 6.85 cents in the comparable 2005 quarter. This margin improvement reflected favorable sweet/sour crude oil differentials in the first quarter 2006 and was consistent with the relevant indicators (crack spreads) in the Midwest (Chicago) and Gulf Coast markets. The Company's refining and wholesale marketing gross margins in the first quarters 2006 and 2005 included pre-tax losses of $11 million and $172 million related to derivatives that are utilized primarily to manage price risk. SSA's gasoline and distillate gross margin averaged approximately 10.55 cents per gallon during the first quarter of 2006, essentially unchanged from the margin realized in the first quarter 2005.
Crude oil refined during the first quarter of 2006 averaged 897,600 barrels per day (bpd), slightly lower than during the first quarter 2005. However, total refinery throughputs totaled 1,146,800 for the first quarter 2006, approximately five percent higher than the 1,093,600 bpd during the first quarter 2005.
SSA achieved significant same store gasoline sales volume growth of 3.3 percent during the first quarter 2006 compared to the first quarter 2005. In addition, SSA increased same store merchandise sales by 10.2 percent during the same period. This marks the 13th consecutive quarter that SSA has achieved same store merchandise sales growth of greater than 9 percent when compared to the same quarter from the previous year.
1st Quarter Ended March 31 2006 2005 Key Refining, Marketing & Transportation Statistics Crude Oil Refined (mbpd) 897.6 922.2 Other Charge and Blend Stocks (mbpd) 249.2 171.4 Total Refinery Inputs (mbpd) 1,146.8 1,093.6 Refined Product Sales Volumes (mbpd) 1,416.6 1,369.7 Refining and Wholesale Marketing Gross Margin ($/gallon) $0.1137 $0.0685
Marathon is on schedule to meet the Federal EPA regulations which require ultra low sulfur diesel fuel production effective June 1, 2006. These modifications will complete the approximately $900 million capital project the Company began in 2002 to comply with the Tier II gasoline and on-road diesel requirements of the Clean Air Act that are effective as of June 1, 2006.
Integrated gas segment income was $8 million in first quarter 2006 compared to $22 million in first quarter 2005. The decrease was primarily a result of a higher provision for income taxes.
The Equatorial Guinea LNG Train 1 project made continued progress during the quarter and remains on-track to begin first shipments of LNG in the third quarter of 2007. At the end of the first quarter, the project was approximately 73 percent complete on an engineering, procurement and construction (EPC) basis. Marathon holds a 60 percent interest in Equatorial Guinea LNG Holdings Limited.
In January 2006, Marathon announced a $2 billion share repurchase plan. Through the first quarter of 2006, Marathon has repurchased approximately $230 million of its common shares. The Company expects to repurchase shares ratably through 2007 unless market or other conditions change significantly.
The Company's board of directors has approved a seven cent, or 21 percent, per share increase in the first quarter dividend payable on Marathon Oil Corporation Common Stock, resulting in a new quarterly dividend rate of 40 cents per share.
Annually, the Corporation determines its income tax provision by aggregating income taxes arising from each jurisdiction in which it operates. In interim periods, the income tax provision is determined by applying an estimate of the Corporation's annual effective tax rate to quarterly pre-tax earnings. This tax accounting method can result in volatility in segment income quarter over quarter.
Marathon has two long-term natural gas sales contracts in the United
Kingdom that are accounted for as derivative instruments. Mark-to-market
changes in the valuation of these contracts must be recognized in current
period income. During the first quarter 2006, the non-cash after-tax mark-to-
market gain on these two long-term gas sales contracts related to Marathon's
Brae gas production totaled $45 million. Due to the volatility in the fair
value of these contracts, Marathon consistently excludes these non-cash gains
and losses from "net income adjusted for special items."
Operates 4 Offshore Rigs
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