Marathon, Equatorial Guinea Meet Dec 19 on New Law

Dow Jones Newswires

NEW YORK, Nov 30, 2006 (Dow Jones Newswires)

Marathon Oil Corp. (MRO) said Wednesday it expects to get a better idea of what Equatorial Guinea's new hydrocarbon law will mean for the company's liquefied natural gas (LNG) Train 1 project after a Dec. 19 meeting with the country's government.

The $1.4 billion project, in which Marathon has a 60% interest, is on-budget and ahead of schedule, with first shipments expected in the second quarter of 2007.

The just-passed hydrocarbon law has raised minimum royalties to 13% from 10%, mandates training for local workers and includes regulations for the petrochemical sector and the country's nascent natural gas industry.

The Dec. 19 meeting is expected to afford an opportunity for specific questions about the law.

Steve Hinchman, senior vice president of worldwide production, indicated that it was his understanding that LNG trains would be grandfathered in the wake of the law's passage.

The Equatorial Guinea LNG company has defined terms which will be applied to future trains, pending negotiation, Hinchman said.

The project, which began construction in 2004, comprises a 3.7 million metric tonnes per annum (mmtpa) liquefaction plant that is aligned with, and integrated into, Marathon's other Equatorial Guinea gas processing operations on Bioko Island.

Under a previously announced agreement with BG Gas, Marathon will sell 3.4 million tonnes a year of LNG to BG for 17 years.

Marathon said that based upon a $6/MMBtu Henry Hub price, it expects to realize after-tax cash flow of about $200 million per year and after-tax income of about $180 million per year from the project.

Company executives also said that all the Equatorial Guinea LNG project partners are in discussions with potential gas suppliers in Nigeria, Cameroon and Equatorial Guinea which could provide the basis for additional LNG trains on Bioko Island.

Marathon's partners include an Equatorial Guinea government-owned entity which has 25% and Japan's Mitsui & Co. and Marubeni Corp. which have 8.5% and 6.5% respectively.

The partners are also conducting a study on a potential second LNG train. Feed work on a potential 4.4 mmtpa plant and associated facilities is expected to be completed by the end of the first quarter 2007.

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