Marathon Oil Corporation (MRO)

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Marathon Oil Corporation (MRO)

Q4 2008 Earnings Call Transcript

February 3, 2009 2:00 pm ET


Howard Thill – VP, IR & Public Affairs

Clarence Cazalot – President & CEO

Gary Heminger – EVP, Downstream

Dave Roberts – EVP, Upstream

Janet Clark – EVP & CFO


Robert Kessler – Simmons & Company

Paul Sankey – Deutsche Bank

Erik Mielke – Merrill Lynch

Paul Cheng – Barclays Capital

Neil McMahon – Sanford Bernstein

Doug Leggate – Howard Weil

Mark Gilman – Benchmark Company

Faisel Khan – Citigroup



Good day, and welcome to Marathon Oil fourth quarter and full year 2008 quarterly call. As a reminder, this call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Howard Thill, Vice President of Investor Relations and Public Affairs. Please go ahead, sir.

Howard Thill

Thank you, Karina and welcome to Marathon Oil Corporation's fourth quarter 2008 earning webcast and teleconference. The synchronized slides that accompany this call can be found on our Web site,

On the call today are Clarence Cazalot, President and CEO; Janet Clark, Executive Vice President and CFO; Gary Heminger, Marathon Executive Vice President and President of our Refining, Marketing, and Transportation Organization; Dave Roberts, Executive Vice President, Upstream; and Gary Peiffer, Senior Vice President of Finance and Commercial Services, Downstream.

Slide #2 contains the forward-looking statements and other information related to this presentation. Our remarks and answers today to questions will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

In accordance with Safe Harbor provisions and the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has incorporated in the annual report on Form 10-K for the year ended December 31st, 2007 and subsequent Forms 10-Q and 8-K cautionary language identifying the important factors but not necessarily all factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Please also note that in the appendix of this presentation is a reconciliation of net income to adjusted net income by quarter for 2007 and 2008, preliminary balance sheet information, first quarter and full year 2009 operating estimates and other data that you may find useful.

Moving to Slide #3, during the fourth quarter we had strong growth in E&P volumes and improved year-over-year downstream margins. However, primarily as a result of the $1.4 billion non-cash after-tax impairment of goodwill in our Oil Sands Mining segment, we had a net loss for the period of $41 million or $0.06 per share.

Excluding the impact of the goodwill impairment, gain on asset sales, and other special items, adjusted net income was more than double that of the fourth quarter 2007 and just over $1 billion or $1.44 per diluted share while segment income was up 59% over the same period.

Moving to Slide #4, key drivers to the year-over-year increase in adjusted net income included a significant increase in downstream segment earnings, driven by strong refining and wholesale marketing margins as well as strong retail margin and a higher earnings from our Oil Sands Mining segment which reflected a full quarter of earnings in 2008, including derivative gains due to the rapid decline in crude oil prices during the quarter.

Corporate and other unallocated items amounted to a positive $300 million for the fourth quarter 2008 compared to a positive $45 million during the fourth quarter 2007. This includes such items as net interest expense and unallocated G&A as well as items related to taxes that we do not allocate to segments.

In the fourth quarter, this included a tax benefit for currency remeasurement on foreign deferred tax liabilities and a tax benefit due to fully recognizing the effect of unutilized Norwegian net operating losses. Together, these two items totaled approximately $270 million for the fourth quarter 2008. These favorable effects were partially offset by a significant decline in E&P earnings, largely a result of the steep decline in crude oil and natural gas prices during the quarter.

Turning to Slide #5, Marathon reported its second best adjusted net income of $4.6 billion in 2008, less than $25 million off our record 2006 adjusted net income. 2008 adjusted net income per diluted share of $6.47 did set a Marathon record, exceeding the previous record of $6.42 set in 2006. 2008 benefited from the share repurchase program which commenced January 1, 2006. Adjusted net income per share for 2008 increased 19% over 2007.

Moving to Slide #6, key drivers to the year-over-year increase in adjusted net income included record earnings in E&P segment due to higher average realization and a more than 8% increase in production, sales volumes, a full year of earnings from our Oil Sands Mining assets, acquired October 18th of last year, and increased earnings in the segment gas – I'm sorry, in the integrated gas segment as a result of the first full year of operations at the EG LNG facility.

These favorable effects were partially offset by a significant decline in downstream earnings, primarily as a result of the decline in the refining and wholesale marketing gross margin and lower refined product demand.

As shown on Slide #7, E&P segment income for the fourth quarter decreased 43% year-over-year to $264 million. The segment was negatively impacted by year-over-year decrease in average realization of $15.43 per BOE.

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