Marathon Oil Corporation (MRO)

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Marathon Oil Corporation (MRO)

Q3 2009 Earnings Call

November 3, 2009 2:00 pm ET

Executives

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

Douglas Terreson – ISI Group

Robert Kessler – Simmons & Company International

Paul Cheng – Barclays Capital

Doug Leggate – Howard Weil

Paul Sankey – Deutsche Bank Securities

Evan Calio – Morgan Stanley

Faisal Khan – Citi

Mark Gilman – The Benchmark Company

Pavel Molchanov – Raymond James

Neil McMahon – Sanford Bernstein

Blake Fernandez – Howard Weil

Presentation

Operator

Good day and welcome to Marathon Oil's 2009 Third Quarter Earnings 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, [Kerrie], and I too would like to welcome everyone to Marathon Oil Corporation's Third 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 Janet Clark, Executive Vice President and CFO; Gray Heminger, Executive Vice President, Downstream; and Gary Peiffer, Senior Vice President of Finance and Commercial Services Downstream.

Slide two contains a discussion of forward-looking statement 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 its annual report, on Form 10-K, for the year-ended December 31, 2008 and subsequent Forms 10-Q and 8-K cautionary language identifying 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 to this presentation there is a reconciliation of quarterly net income to adjusted net income for 2008 and for the first three quarters of 2009, preliminary balance sheet information fourth quarter and full year 2009 operating estimates and other data that you may find useful.

Slide three provides net income and adjusted net income data both on an absolute and per share basis. Our third quarter 2009 adjusted net income of $436 million reflects a 74% increase from the second quarter of 2009, and a 78% decrease from third quarter of 2008. The increase from the second quarter was largely driven by the improvement in liquids prices and lower E&P expenses which more than offset a decrease in E&P sales volumes.

The decrease from the third quarter of 2008 reflects income declines across all segments. The largest of which was in our downstream operations as a result of lower refining and wholesale marketing gross margins. Slide four steps through the changes from the second quarter 2009 adjusted net income of $251 million to the $436 million earned in the third quarter.

As shown in the waterfall chart pre-tax income increased for all segments. Please note that the activities of our Irish and Gabon operations are reported as discontinued operations and have been excluded from E&P results for all periods. As shown on slide five, we had a 136% quarter to quarter increase in E&P segment income growing from $208 million in the second quarter, to $491 million in the third quarter.

Higher crude oil prices together with decreases in DD&A and other costs more than offset the impact of the lower liftings in the third quarter. Additionally, during the third quarter we began to credit certain foreign taxes that were previously deducted. Partially offsetting this positive affect was evaluation allowance recorded on certain deferred tax assets that we do not expect to realize.

These items contributed to the 38% E&P effective tax rate for the third quarter. Slide six shows our historical E&P realizations and highlights the $4.08 per BOE increase in our average realizations which moved from $39.97 per BOE in the second quarter to $44.05 per BOE in the third quarter, driven by an $8.24 per barrel increase in liquids realizations while natural gas realizations were made relatively flat quarter-to-quarter.

Moving to slide seven, production volumes sold in the third quarter decreased 14% from the second quarter to 366,000 BOE per day as a result of the over lifts we discussed in the second quarter. Compared to third quarter under lifts in Europe and Libya and increased gas storage in Alaska. Property dispositions also contributed to the decline.

Third quarter production available for sale decreased 3% from the second quarter to 393,000 BOE per day, primarily a result of the planned EG turnaround as well as property dispositions during the quarter, but increased 5% compared to last year's third quarter.

Slide eight shows the trend over the last seven quarters for field level controllable costs and exploration expenses per BOE. While exploration expenses were flat on a per BOE basis during the third quarter, field level controllable costs per BOE decreased 9% from the second quarter. This decrease was primarily driven by lower liftings in the UK as well as in Norway and the resulting change in sales volume mix compared to the second quarter.

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