Investor Center

• Corporate Governance
• Press Releases
• Events & Presentations
• Financial Information
• SEC Filings
• Stock Information
• Shareholder Services
• Annual Review
• Proxy Statements
• Fact Book
• Investors FAQs
• Contact Us
• Shareholder Tools

4Q 2011 Earnings Conference Call Remarks

Howard J. Thill
Vice President, Investor Relations and Public Affairs

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 continuing 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 non-cash 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 we commonly  refer 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 on line 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 a about 16,000 BOED swing in liftings with the third quarter being overlifted by 6,000 BOED and the fourth quarter underlifted by 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 in Europe, 400,000 in EG and 1.2 million in Libya.

Slide 8 shows the more than 18% percent 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 to fourth quarter 2011 alone was over 20% going from 75,000 BOED to 91,000 BOED.

Slide 10 shows Marathon's E&P cost structure by category with field level controllable costs remaining relatively stable over the year at around $5 per BOE while DD&A declined primarily as a result of lower Gulf of Mexico volumes.

Turning to Slide 11, the fourth quarter E&P income per BOE increased 60% compared to the prior quarter. This increase was primarily a result of lower income taxes while total operating costs per BOE were relatively flat. 

Slide 12 shows Oil Sands Mining fourth quarter segment income was $63 million compared to $92 million in the third quarter. This reflects lower volumes due to unplanned maintenance and higher costs due to changes in inventory levels partially offset by higher realized prices and lower income taxes. Net synthetic crude sales for the quarter decreased 6,000 barrels per day to 44,000 barrels per day.

To finish out segment reporting, slide 13 shows that the Integrated Gas segment income was $20 million compared to the $55 million recorded in the third quarter 2011. The fourth quarter decline was primarily a result of lower Henry Hub based LNG sales prices and a gain on the sale of the Kenai LNG facility in the third quarter.

Moving to Slide 14, our proved reserves increased from 1.6 billion BOE at the end of 2010 to 1.8 billion BOE at year end 2011, while the percent liquids increased to 75% and percent developed increased to 78%.

We replaced 212% of our overall 2011 production with reserve life moving to 12.4 years at the end of 2011.

Slide 15 provides an analysis of preliminary cash flows for the fourth quarter 2011. Operating cash flow from operations, before changes in working capital, was $1.1 billion, while working capital changes from operations resulted in an $84 million use of cash. Cash capital expenditures for the quarter were $858 million and dividends paid totaled $105 million, while asset acquisitions totaled $4.5 billion. The 2011 year end cash balance was approximately $500 million.

While slide 16 provides an analysis of total company preliminary cash flows for the full year 2011, but for the sake of time I will not go through this line by line.

As shown on Slide 17, at the end of the fourth quarter  2011, our cash-adjusted debt-to-total capital ratio was 20 percent, and as scheduled, the debt serviced by U.S. Steel was removed from our balance sheet at the end of 2011.

Moving to slide 18, I'll turn the call over to Clarence Cazalot for a look at Marathon's 2012 priorities.

I'll turn the call back over to Howard
Thanks Clarence.

We will now open the call to questions and accommodate all who want to ask questions we ask that you limit yourself to two questions. You may re-prompt for additional questions as time permits. For the benefit of all listeners we ask that you identify yourself and your affiliation. Thank you.