Marathon Oil Corp.’s first quarter profit fell 16% from a year ago after property sales cut into oil and gas production, but the company still surpassed analysts’ forecasts by two cents.

Marathon has been in transition since its spin-off from USX Corp., and the changes to improve the bottom line have affected the company short term, officials said (see Daily GPI, Aug. 1, 2001). In the past 12 months, Marathon sold some of its higher-cost, lower-producing fields in the United States, Canada and Europe, while it has added assets in Africa and Russia. The company also announced improvement projects at some of its refineries to boost capacity, and it has begun building a global liquefied natural gas (LNG) business.

The Houston-based producer reported net income of $258 million (83 cents/share), compared with $307 million (99 cents) for the same period of 2003. Wall Street analysts on average expected Marathon to earn 81 cents/share. Revenue rose 4.9% to $10.7 billion.

Earnings from worldwide exploration and production fell 7.2% to $478 million, and total oil and gas production was off 9.8% to 373,700 boe/d. For 2004, Marathon expects average production to fall to about 363,000 boe/d, which it attributed to asset sales.

“During the first quarter of 2004, we continued to focus and execute on our key business strategies, including adding value through integration,” said CEO Clarence P. Cazalot Jr. He called “significant” the move in the quarter to acquire 100% ownership in Marathon Ashland Petroleum LLC (MAP), the U.S. refining, marketing and transportation joint venture with Ashland Inc. MAP is the largest refiner in the Midwest and fifth largest U.S. refiner with seven refineries with a total capacity of 948,000 bbl/d.

In the Upstream segment, income totaled $478 million in the first quarter, compared with $515 million in 1Q2003. “The decrease was primarily due to lower natural gas volumes and prices and liquid hydrocarbon prices, partially offset by lower derivative related losses in the current quarter,” the company said in a statement.

U.S. upstream income was $306 million, down from $361 million for the same period of 2003. Marathon blamed the decline on lower liquid hydrocarbon volumes that resulted from its sale of the Yates field and lower natural gas volumes and prices. Decreases were partially offset by lower exploration expense. Derivative losses totaled $17 million in first quarter 2004, compared with $46 million in first quarter 2003. Going forward, Marathon estimates its 2004 production will average 365,000 boe/d, excluding any acquisitions or asset sales.

For the first time, Marathon reported earnings from its Integrated Gas segment, which previously was listed under “Other.” Income for Integrated Gas stood at $15 million in first quarter, compared with $2 million a year ago. The increase, said Marathon, followed increased margins in gas marketing activities, including mark-to-market changes in derivatives.

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