Marathon Oil Corp. showed a nearly 100% gain on fourth quarter net income from $98 million, or $0.32 per diluted share in 2001, to $194 million, or $0.62 per diluted share in 2002. The company also reported it had achieved a 250% reserve replacement ratio, including expansion of its Powder River Basin coalbed methane holdings.

Marathon reported full year 2002 net income, adjusted for special items, of $563 million or $1.81 per diluted share, compared to net income, adjusted for special items, of $1.485 billion or $4.80 per diluted share, for 2001. For the fourth quarter 2001 the company had reported a net loss of $898 million, or $2.90 per share, which included special items of a $1.144 billion after-tax loss related to the disposition of United States Steel and a $28 million after-tax charge related to an inventory market valuation reserve adjustment.

At year-end 2002, Marathon had proved reserves of more than 1.25 billion boe and is on track to increase its proven reserve base to 1.4 billion boe by the end of 2004, excluding acquisitions and dispositions.

During last year Marathon expanded its coalbed natural gas interests in the Powder River Basin through a property exchange, adding more than 400 Bcf of Powder River Basin risked resource, including some 110 Bcf of proved reserves. This brings Marathon’s total resource in the Powder River Basin to 1.6 Tcf, including 417 Bcf of proved reserves.

Including the property exchange, Marathon’s net coalbed natural gas production increased by nearly 70% from an average of 46 MMcf/d in 2001 to 79 MMcf/d in 2002. Excluding the acquired volumes, 2002 production increased by more than 25%. Current production is more than 90 MMcf/d.

Also, Marathon said it had “significantly enhanced its gas transportation position” in the Rocky Mountains region in 2002 by acquiring additional pipeline export capacity, giving the company long-term access to Midcontinent markets at competitive prices. “This provides Marathon with attractive netbacks on its equity production, as well as for its other gas marketing business.”

Marathon collected an average gas price in the United States of $3.42/Mcf in the fourth quarter 2002, compared to $2.32/Mcf for 4Q 2001. For the year 2002 the average gas price collected was $2.87/Mcf compared to $3.69/Mcf in 2001. Including derivative gains and losses the averages were: 4Q 2002, $3.56/Mcf versus $2.54/Mcf in 4Q 2001; overall 2002, $3.05/Mcf versus $3.92/Mcf in 2001.

For the first half of 2003 Marathon said it has 225 MMcf/d hedged with costless collars between a $3.71/Mcf floor and a ceiling of $4.71/Mcf. For the second half of 2003 it has 285 MMcf/d hedged with costless collars between $3.83/Mcf and $4.97/Mcf.

Marathon’s U.S. gas production averaged 744.8 MMcf/d for 2002 and 793 MMcf/d in 2001. Internationally the company produced 485.5 MMcf/d in 2002 compared to 480 MMcf/d in 2001.

Its net oil and gas liquids production in the U.S. was 124.6 million b/d in 2002 compared to 135.7 million b/d in 2001. International oil and liquids production was 82.5 million b/d in 2002 versus 73.3 million b/d in 2001. The company’s total oil and liquids production for 2002 was 207.1 million b/d compared to 209 million b/d in 2001.

Overall combined natural gas, oil and liquids production for 2002 was 412.2 million barrels of oil equivalent/day compared to 421.2 MMboe/d in 2001.

Company officials said they planned to shift the balance of capital expenditures (capex) for 2003 to 65% for international exploration and production versus 53% in 2002. Overall capex is targeted for $1.96 billion in 2003, compared to $1.6 billion in 2002.

In the U.S. Gulf of Mexico, Marathon currently is drilling the Komodo prospect (Green Canyon block 569) and the Barracuda prospect (Desoto Canyon block 927) in the eastern Gulf, in which the company has 50% working interests. During the fourth quarter, the company’s Camden Hills field in the ultra-deepwater of the Gulf of Mexico began producing natural gas from a world-record water depth of 7,209 feet. The Camden Hills development is part of the recently completed Canyon Express gas gathering system. Marathon operates and holds a 50% interest in Camden Hills, which is currently flowing at a gross rate of approximately 105 MMcf/d from two wells.

Following up on its 2002 deepwater gas discovery offshore Nova Scotia on the Marathon-operated Annapolis block (30% interest), the company plans to drill one exploration well on the same block and will acquire new 3-D seismic on two adjacent blocks.

“We are encouraged by our 2002 exploration successes offshore Nova Scotia and Angola and have plans for additional activities in 2003,” said Marathon Corp. President Clarence Cazalot. “In addition, we will be increasing our 2003 shallow water exploration activities in Norway and Equatorial Guinea to help add value to these new core areas.”

While the company’s refining and marketing business faced a very challenging year, Cazalot said its “integrated operations enabled us to partially offset the commodity market volatility experienced during the year. While the downstream business had strong operating performance, that segment was challenged by the high price of crude oil and narrow margins, while our upstream business realized the benefits of high crude oil prices.”

Regarding its LNG projects, Marathon awarded a FEED contract in the fourth quarter for the proposed phase 3 LNG project in Equatorial Guinea. This project would be complemented by the previously announced acquisition of long-term LNG delivery rights at Elba Island, GA.

On the downstream end, the company advanced plans to develop an LNG regasification, power generation and water treatment complex located near Tijuana, Mexico, through the submission of a permit application and the award of a FEED contract. Marathon’s permit submission for the Tijuana Regional Energy Center was the first of its kind accepted by the Mexican government. Marathon expects approval will come during the first quarter 2003. It is seeking partners in the project and expects to retain a one-third interest, company officials said in a conference call. The company currently is working on contracts for feedstock and downstream deliveries.

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