Marathon Oil Corporation (MRO)

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Marathon Oil (MRO)

Q4 2011 Earnings Call

February 01, 2012 2:00 pm ET

Executives

Howard J. Thill - Vice President of Investor Relations & Public Affairs

Clarence P. Cazalot - Chairman, Chief Executive officer, President and Member of Proxy Committee

David E. Roberts - Chief Operating officer and Executive Vice President

Janet F. Clark - Chief Financial Officer, Executive Vice President and Member of Proxy Committee

Analysts

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Arjun N. Murti - Goldman Sachs Group Inc., Research Division

Edward Westlake - Crédit Suisse AG, Research Division

Paul Sankey - Deutsche Bank AG, Research Division

Evan Calio - Morgan Stanley, Research Division

Paul Y. Cheng - Barclays Capital, Research Division

Blake Fernandez - Howard Weil Incorporated, Research Division

Faisel Khan - Citigroup Inc, Research Division

John Malone - Global Hunter Securities, LLC, Research Division

Mark Gilman - The Benchmark Company, LLC, Research Division

Pavel Molchanov - Raymond James & Associates, Inc., Research Division

Katherine Lucas Minyard - JP Morgan Chase & Co, Research Division

Presentation

Howard J. Thill

Welcome to Marathon Oil Corporation's Fourth Quarter 2011 Earnings Webcast and Teleconference.

The synchronized slides that accompany this call can be found on our website, marathonoil.com. On the call today are Clarence Cazalot, Chairman, President and CEO; Janet Clark, Executive Vice President and CFO; and Dave Roberts, Executive Vice President and COO.

Slide 2 contains the forward-looking statement and other information related to 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, 2010, as amended, 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 note that in the appendix to this presentation, there is a reconciliation of quarterly net income to adjusted net income from continued operations for 2010 and 2011, preliminary balance sheet information and cash flow, first quarter and full year 2012 operating estimates and other data that you may find useful.

Moving to Slide 3, our fourth quarter 2011 adjusted income from continuing operations of $552 million was a 31% increase over the third quarter 2011, while earnings per share increased 32% over the same period as a result of the share buybacks in the third quarter.

As indicated on Slide 4, earnings before tax for the E&P segment increased $46 million. However, the Oil Sands Mining and Integrated Gas segments both decreased $42 million.

The $202 million decrease in the consolidated tax expense for the fourth quarter was largely a result of the third quarter's noncash tax charge of $227 million. This charge was related to the expectation that we will not be fully able to utilize foreign tax credits generated in 2011.

The corporate effective income tax rate was 55% for the fourth quarter. For 2012, we expect the overall effective income tax rate, excluding Libya, to be between 55% and 60%. Please remember, the actual rate can vary quarter-to-quarter based on the level of liftings and earnings by tax jurisdiction or what is commonly referred to as production mix.

As shown on Slide 5, the E&P segment's fourth quarter earnings increase of $228 million compared to the third quarter was largely driven by lower segment income tax expense for the same reason I just discussed and by an increase in sales volumes. These were slightly offset by higher DD&A and other expenses.

Slide 6 shows our historical E&P realizations and market indicators. As highlighted, the differential between WTI and Brent narrowed during the quarter with WTI strengthening by $4.52 per barrel and Brent declining by $3.94 per barrel. As our production is more highly leveraged to Brent, we saw a decrease of $0.72 per boe in our average realizations.

As shown on Slide 7, fourth quarter E&P production available for sale, including Libya, increased 10% primarily as a result of new wells coming online in Norway, the Eagle Ford and the Bakken and resumption of production in Libya. Also contributing was higher reliability in the U.K. Sales volumes in the fourth quarter increased approximately 5% from the third quarter. Overall, there was about a 16,000-boed swing in liftings with the third quarter being overlifted by 6,000 boed and the fourth quarter underlifted by about 10,000 boed. In the fourth quarter, Europe was underlifted by approximately 800,000 boe, while EG was overlifted by approximately 200,000 boe. There were no liftings in Libya, resulting in an underlift of about 350,000 barrels.

We ended the year approximately 4 million boe underlifted with 2.1 million boe in Alaska gas storage and approximate cumulative underlift positions of 300,000 boe in Europe, 400,000 boe in EG and 1.2 million boe in Libya.

Slide 8 shows the more than 18% growth in E&P production available for sale since the beginning of 2010, excluding Libya. The lower available-for-sale volumes in the second and third quarters of 2011 were largely driven by unplanned downtime and seasonality in the base business and declines in the Gulf of Mexico.

Reliability increased in our base business during the fourth quarter, and volumes increased as a result of our ramping up the rig count, particularly in the Eagle Ford, and better performance in the Bakken.

Slide 9 shows the projected growth in our Lower 48 onshore production from 75,000 boed in the third quarter 2011 to between 120,000 and 130,000 boed in the fourth quarter 2012. The growth from the third quarter to fourth quarter 2011 alone was over 20%, going from 75,000 boed to 91,000 boed.

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