Delays in liquefied natural gas (LNG) expansions in Equatorial Guinea will push down Marathon Oil Co.’s expected second quarter production numbers, the company said Wednesday. Quarterly worldwide production for the Houston-based producer will average 341,000 boe/d, off from its previous guidance of 348,000 boe/d, and the 2004 production forecast will average 360,000 boe/d, compared with a previous estimate of 365,000 boe/d.

Marathon noted that its second quarter exploration expenses will be in the lower end of the previously estimate of $35-60 million, but the quarter will take a hit on a non-cash mark-to-market loss on two long-term natural gas sales contracts in the United Kingdom, as well as higher administrative expenses.

The company blamed the quarter’s production losses to delays associated with its liquids expansion projects in Equatorial Guinea. It said that while the commissioning of the phase 2A and 2B expansion projects is taking “longer than anticipated,” the peak rate of 79,000 boe/d (44,500 net to Marathon) is still expected to be achieved in the first half of 2005.

Just last month, Marathon, the Equatorial Guinea government and the national oil company of Equatorial Guinea, Compania Nacional de Petroleos de Guinea Ecuatorial (GEPetrol) finalized all the agreements for the companies’ LNG project that would target deliveries to Lake Charles, LA (see Daily GPI, June 23). This was the final investment decision for the LNG project, which is expected to be completed and begin shipping first cargoes of LNG in late 2007.

Marathon, through a wholly owned subsidiary, said it is funding 75% of the Equatorial Guinea LNG project, while GEPetrol is financing the remaining 25%. Marathon and GEPetrol said they have received expressions of interest from a number of other companies about acquiring an equity interest in the LNG project.

In the United Kingdom, Marathon said the 18-month forward gas price curve strengthened more than 30%. As a result, and as required by generally accepted accounting principles, said Marathon, a non-cash mark-to-market charge of approximately $95 million will be recorded in the second quarter related to two long-term sales contracts for gas produced from the Brae Area complex in the North Sea.

Administrative expenses in the second quarter are expected to be approximately $85-95 million, as compared to previous guidance of $62 million. The increase, said Marathon, is primarily attributable to two things: costs related to recently announced outsourcing activities, and an increase of more than $4/share in Marathon’s common stock price during the quarter, resulting in a non-cash charge related to equity-based compensation granted to employees under approved compensation plans.

The quarter’s outsourcing expenses relate to Marathon’s multi-million dollar agreement with IBM Business Consulting Services to take over accounting functions beginning in August (see Daily GPI, June 2). The scope of the work will include most of Marathon’s upstream accounting services and portions of Marathon Ashland Petroleum LLC’s accounting services.

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