Marathon Oil Corp. blamed higher-than-expected exploration expenses and unscheduled downtime for a 38% decline in quarterly profit from a year ago; however, the producer is stepping up its exploration spending this year -- with most of the money directed at U.S. assets.
Profit for the Houston-based producer fell to $668 million (94 cents/share) in 4Q2007 from $1.08 billion ($1.53) in 4Q2006. Adjusted to exclude one-time items, quarterly earnings totaled $500 million (70 cents/share), compared with $838 million ($1.19) in the final quarter of 2006. Wall Street analysts had projected earnings of 86 cents/share, excluding one-time items.
CEO Clarence Cazalot said Thursday that "it was pretty clear that the fourth quarter was a difficult one." Speaking to energy analysts on a conference call, Cazalot said, "We are not satisfied with that performance, especially as to those areas that we can control. In its entirety, 2007 was solid for the company...For 2008, we expect substantial growth in oil and natural gas production volumes...We have several investments coming in long-life projects."
In its upstream segment, Marathon's income reached $465 million, ahead of $307 million in 4Q2006. Sales volumes averaged 354,000 boe/d, slightly higher than the 352,000 boe/d in 4Q2006.
U.S. upstream income fell to $153 million in 4Q2007 from $167 million, with the largest sales volume declines "associated with expected production declines for Gulf of Mexico (GOM) and Permian Basin properties." Natural gas sales (net) in the United States totaled 474 MMcf/d in 4Q2007, well below the 522 MMcf/d in 4Q2006. For the year, U.S. gas sales dropped to 477 MMcf/d from 532 MMcf/d.
For 2008 Marathon announced an $8 billion capital, investment and exploration budget, which is 67% higher than last year's $4.8 billion. For exploration and production alone the producer increased its spending by 23% to $3.2 billion, setting aside nearly $600 million for production.
Marathon currently is drilling an appraisal well on the Droshky discovery in the GOM, and it has secured an additional year of rig capacity in 2009 for development drilling in anticipation of a 2008 project sanction (see NGI, Aug. 6, 2007). The timing of initial production will be dependent upon delivery of key equipment and regulatory approvals, but it could be as early as 2010. Marathon holds a 100% working interest in the prospect.
Also in the GOM, Marathon was high bidder on 27 blocks at the Minerals Management Service's Central Gulf of Mexico Lease Sale No. 205 in October 2007 (see NGI, Oct. 8, 2007). These high bids total almost $222 million net to Marathon, and the company has $150 million set aside for its GOM bids.
Marathon also ramped up its Piceance Basin activity in western Colorado and currently it has two rigs running. The company expects to drill 165 total wells in the region over the next two years.
In its integrated gas program, Marathon has budgeted only $20 million for 2008 for a potential liquefied natural gas (LNG) Train 2 project in Equatorial Guinea. In 2007 Marathon budgeted $83 million for this segment of its business, which included spending associated with the construction of the Equatorial Guinea LNG Train 1 production facility. That facility began operations in May 2007.
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