Marathon Oil Corporation (MRO)

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Marathon Oil Corp. (MRO)

Q2 2009 Earnings Call

August 3, 2009; 2:00 pm ET

Executives

Clarence Cazalot - President & Chief Executive Officer

Janet Clark - Executive Vice President & Chief Financial Officer

Gary Heminger - Executive Vice President, Downstream

Dave Roberts - Executive Vice President, Upstream

Garry Peiffer - Senior Vice President of Finance & Commercial Services, Downstream

Howard Thill - Vice President of Investor Relations & Public Affairs

Analysts

Doug Leggate - Howard Weil

Ryan Todd - Morgan Stanley

Paul Cheng - Barclays Capital

Faisal Khan - Citigroup

Pavel Molchanov - Raymond James

Mark Gilman - Benchmark

Paul Sankey - Deutsche Bank

Ann Kohler - Caris & Co.

Mark Caruso - Millennium Partners

Presentation

Operator

Good day everyone. Welcome to Marathon Oil’s 2009 second quarter earnings conference call. As a reminder today’s 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.

Howard Thill

Thank you Erica and welcome Marathon Oil Corporation second quarter 2009, earnings webcast and conference call. The synchronized slides that accompany this call can be found on our website, marathon.com.

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

Slide two, contains a discussion of forward-looking statements and other information included in this presentation. Our remarks and answers to questions today 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 of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in it’s Annual Report on Form 10-K for the year ended December 31, 2008 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 note that in the appendix to this presentation is a reconciliation of quarterly net income to adjusted net income for 2008 and the first two quarters of 2009, preliminary balance sheet information, third quarter and full year 2009 operating estimates and other data you may find useful.

Moving to slide three, this provides net income and adjusted net income data both on an absolute and per share basis. Our second quarter 2009 adjusted net income of $251 million reflects the 5% increase from the first quarter of 2009 and a 71% decrease from the second quarter of 2008.

The increase from the first quarter was largely driven by the improvements in liquid prices and increased E&P sales volumes, but higher income tax provision almost entirely offset these positive impacts. The decrease from the second quarter of 2008 was primarily result of the decline in commodity prices partially offset by higher E&P sales volumes.

Consistent with our reporting practice we excluded the small mark-to-market gain on you on U.K. gas sales contracts and gains and lose on our more significant asset sales from adjusted net income. However, the adjusted income net of $251 million or $0.35 per share, as certain items included that investors and analyst may not have been aware of or are normally, excluded from their calculations.

The E&P segment included a $38 million increase for DD&A for Neptune over the first quarter and charges totaling $28 million for an impairment of an East Texas field, a Bakken rig cancellation and a loss on the sale of a small asset. These items total about $66 million pre-tax or $41 million after tax.

Also as stated in our interim update, we expect the overall corporate effective income tax rate from continuing operations to be between 54% and 59% for the full year 2009. Excluding special items and the effect of foreign currency remeasurement of a deferred tax balances.

For the second quarter, the effective income tax rate was 68%, which included a $94 million foreign currency remeasurement loss which by definition is an after tax number. Excluding this loss, the effective tax rate would have been 59%, the first quarter included a $28 million remeasurement gain resulting in a $122 million change quarter-to-quarter.

The previously discussed E&P charges and the current quarter foreign currency remeasurement loss together result in an after tax impact of $135 million to the second quarter.

Slide four steps through the changes from the first quarter adjusted net income of $240 million to the $251 million earned in the second quarter. As shown in the Waterfall chart, pre-tax segment increases in E&P, Oil Sands Mining, and our RM&T were almost entirely offset by a higher provision for income tax.

Please note that the activities of our Irish businesses, which we recently exit, have been reported at discontinued operations and excluded from E&P result for all periods. As shown on slide five we had a 159% increase in the E&P segment income growing from $85 million in the first quarter to $220 million in the second quarter. Higher crude oil prices and increased lifting’s during the second quarter were partially offset by higher income taxes, lower natural gas prices and higher DD&A.

Slide six shows our historical realizations and highlight the $9.87 per BOE increase in our average realizations, which moved from $30.16 per BOE in the first quarter to $40.03 for BOE in the second quarter.

Read the rest of this transcript for free on seekingalpha.com