Exploration & Production | Quarterly / Earnings Reports
Marathon Sees Jump in North American E&P Income
Print
|
Marathon Oil Corporation reported second quarter 2013 net income of $426 million, or $0.60 per diluted share, compared to net income in the first quarter of 2013 of $383 million, or $0.54 per diluted share.
For the second quarter of 2013, adjusted net income was $478 million, or $0.67 per diluted share, compared to adjusted net income of $361 million, or $0.51 per diluted share, for the first quarter of 2013.
(a) Adjusted net income is a non-GAAP financial measure and should not be considered a substitute for net income as determined in accordance with accounting principles generally accepted in the United States. See below for further discussion of adjusted net income.
(b) Cash flow from operations before changes in working capital is a non-GAAP financial measure and should not be considered a substitute for cash flow from operations as determined in accordance with accounting principles generally accepted in the United States. See below for further discussion of cash flow from operations before changes in working capital.
North America E&P
The North America E&P segment reported income of $221 million in the second quarter of 2013, compared to a loss of $59 million in the first quarter of 2013. The improvement was primarily due to higher liquid hydrocarbon sales volumes and lower unproved property impairments related to cancelled or expiring leases.
Individual updates for its unconventional operations are available below:
Marathon Maintains Bakken, MidCont Momentum in Q2
Marathon Talks Eagle Ford Downspacing, Production in Q2
Clarence P. Cazalot, Jr., Marathon Oil's executive chairman, commented: "Marathon Oil continued to execute well operationally and had strong second quarter operating cash flows of $1.445 billion, before changes in working capital, in spite of lower international liquid hydrocarbon realizations compared to the first quarter. The large increase in the second quarter usage of cash for working capital was primarily a result of two tax installment payments for Norway, versus one in the first quarter, and our annual tax payment to Equatorial Guinea.
"Second quarter production available for sale in both E&P segments was at or above the Company's guidance. In the U.S., Lower 48 onshore production grew to 182,000 barrels of oil equivalent per day (boed), a nearly 6 percent increase over the first quarter, highlighted by 11 percent growth in the Company's Eagle Ford operations and more than 5 percent growth in the Bakken. In the International E&P segment, we again had strong reliability and the Equatorial Guinea turnaround was completed in 22 days, 8 days ahead of schedule and under budget. The Company's non-operated Oil Sands Mining production decreased compared to the first quarter as a result of unplanned mine downtime and a planned turnaround at the AOSP in Canada.
"During the quarter we advanced our portfolio optimization through an agreement to sell our 10 percent working interest in Angola Block 31 for approximately $1.5 billion. This brings our total completed or agreed divestitures to $2.9 billion for the period 2011 to date, at the top end of our targeted $1.5 to $3 billion.
"In addition, we raised our quarterly dividend 12 percent, further demonstrating our commitment to delivering competitive value to our shareholders.
"In June we announced my retirement at year end and the appointment of Lee M. Tillman who succeeded me as president and CEO effective Aug. 1. Lee's strong leadership skills and extensive experience in global operations, project execution and leading edge technology make him ideally suited to lead our Company and efforts to create sustainable value for our shareholders."
Sales and Production Volumes
Total Company sales volumes (excluding Libya) during the second quarter of 2013 averaged 457,000 net boed compared to 485,000 net boed for the first quarter of 2013. This decrease was driven by a planned turnaround in Equatorial Guinea, unplanned mine downtime and a planned turnaround at the non-operated Athabasca Oil Sands Project (AOSP) in Canada, fewer liftings at the non-operated Foinaven field in the U.K., as well as the first quarter disposition of the Company's Alaska assets.
(a) Libya is excluded because of uncertainty around sustained production and sales levels.
(b) Includes blendstocks.
(a) This guidance excludes the effect of acquisitions or dispositions not previously announced.
(b) Libya is excluded because of uncertainty around sustained production and sales levels.
(c) Upgraded bitumen excluding blendstocks.
The difference between production volumes available for sale and recorded sales volumes was primarily due to the timing of International E&P liftings.
Production available for sale from all segments (excluding Libya) for the second quarter of 2013 averaged 455,000 net boed, an expected decrease compared to the first quarter of 2013 average of 471,000 net boed as a result of impacts in Equatorial Guinea, Canada and the disposition of Alaskan assets, as detailed above. Production available for sale of 418,000 net boed for the North America E&P and International E&P segments combined (excluding Libya) was at the upper end of the Company's guidance for the quarter (403,000 to 420,000 net boed). The OSM segment had net production in the quarter of 37,000 barrels per day (bbld) (excluding blendstocks), below the Company's previous guidance of 40,000 to 44,000 bbld as a result of the AOSP unplanned mine downtime.
North America E&P production available for sale, excluding Alaska, averaged 201,000 net boed in the second quarter, a 4 percent increase compared to the first quarter of 2013 average of 193,000 net boed.
International E&P production available for sale for the second quarter of 2013 averaged 217,000 net boed (excluding Libya), which was lower than the first quarter of 2013 average of 229,000 net boed as a result of the turnaround in Equatorial Guinea and declines in Norway and U.K. production.
As per the table above, production available for sale in the third quarter of 2013 is expected to be lower than the second quarter. This anticipated decrease is a result of a planned turnaround in Norway, planned pipeline curtailments and turnaround at Brae in the U.K. North Sea, as well as compression and subsea equipment issues at non-operated Foinaven in the U.K. Production at Foinaven was shut-in in mid-July and is expected to resume at partial rates in mid-August. Full year 2013 guidance for production available for sale from the combined North America E&P and International E&P segments (excluding Libya) has been narrowed to a range of 410,000 to 425,000 net boed, from the previous guidance of 405,000 to 425,000 net boed. Full year 2013 production guidance for the OSM segment has been narrowed to 40,000 to 44,000 net bbld of synthetic crude oil, from the previous guidance of 40,000 to 45,000 net bbld.
Segment Results
Total segment income was $623 million in the second quarter of 2013, compared to $432 million in the first quarter of 2013.
(a) See Supplemental Statistics below for a reconciliation of segment income to net income as reported under generally accepted accounting principles.
International E&P
The International E&P segment reported income of $382 million in the second quarter of 2013, compared to segment income of $453 million in the first quarter of 2013. The decrease is primarily a result of lower volumes and price realizations, as well as less income from equity method investments due to the planned turnaround in Equatorial Guinea in the second quarter.
Oil Sands Mining (OSM)
The OSM segment reported income of $20 million for the second quarter of 2013, compared to $38 million in the first quarter of 2013. The decrease in income was primarily a result of lower second quarter sales volumes due to unplanned mine downtime and the planned turnaround at the non-operated AOSP in Canada. The decrease in revenue from lower volumes was partially offset by higher price realizations. Second quarter operating costs were higher than the first quarter of 2013, primarily as a result of the turnaround. The total cost to date of the turnaround is approximately $25 million (net), of which $16 million (net) occurred in the second quarter.
Corporate and Other
The change in working capital in the second quarter of 2013 includes two tax installment payments for Norway, versus one in the first quarter, as well as an annual tax payment to Equatorial Guinea.
Marathon Oil announced in June that it entered into an agreement to sell its 10 percent working interest in the Production Sharing Contract and Joint Operating Agreement in Block 31 offshore Angola. The transaction has a total value of approximately $1.5 billion, excluding any purchase price adjustments at closing. The companies anticipate closing the transaction in the fourth quarter of 2013, subject to government, regulatory and third-party approvals. Marathon Oil expects to use the proceeds from this sale to repurchase shares, strengthen the balance sheet and for general corporate purposes.
As of Aug. 6, 2013, the Company has agreed upon or closed on nearly $2.9 billion in divestitures over the period of 2011 to date, at the upper end of its targeted $1.5 billion to $3 billion of divestitures.
On July 31, Moody's Investors Service upgraded Marathon Oil's senior unsecured debt rating to Baa1 from Baa2 based on expected consistent production and reserves growth with conservative financial policies. Moody's also affirmed Marathon Oil's Prime-2 commercial paper rating and the outlook is stable.
Special Items
In August 2012, Marathon Oil entered into crude oil derivative instruments related to a portion of its forecast North America E&P crude oil sales. For the second quarter of 2013, an after-tax unrealized gain of $32 million ($50 million pre-tax) was recorded related to these crude oil derivative instruments.
In the second quarter of 2013, Marathon Oil recorded an after-tax loss of $73 million ($114 million pre-tax) on the disposition of its interests in the D.J. Basin.
Marathon Oil recorded an after-tax settlement charge of $11 million ($17 million pre-tax) in the second quarter of 2013 in connection with the Company's U.S. pension plans.