UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
| |
(Mark One) | |
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the Quarterly Period Ended March 31,September 30, 2012 |
OR
|
| |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from _____ to _____ |
Commission file number 1-5153
Marathon Oil Corporation
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 25-0996816 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
5555 San Felipe Street, Houston, TX 77056-2723
(Address of principal executive offices)
(713) 629-6600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes üþ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate webWeb site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)files). Yes þ üNo o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
| |
Large accelerated filer üþ | Accelerated filer o |
Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No üþ
There were 705,319,440706,417,267 shares of Marathon Oil Corporation common stock outstanding as of MarchOctober 31, 2012.
MARATHON OIL CORPORATION
Form 10-Q
Quarter Ended March 31,September 30, 2012
|
| | |
| INDEX | | |
| | Page | |
| |
| | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | 16 | |
| | | | 26 | |
| | | | 26 | |
| | | | 27 | |
| |
| | | | 29 | |
| | | | 29 | |
| | | | 29 | |
| | | | 29 | |
| | | | 30 | |
| | | | 32 | |
Unless the context otherwise indicates, references in this Form 10-Q to “Marathon Oil,” “we,” “our,” or “us” are references to Marathon Oil Corporation, including its wholly-owned and majority-owned subsidiaries, and its ownership interests in equity method investees (corporate entities, partnerships, limited liability companies and other ventures over which Marathon Oil exerts significant influence by virtue of its ownership interest).
Part I - Financial Information
Item 1. Financial Statements
MARATHON OIL CORPORATION
Consolidated Statements of Income (Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions, except per share data) | 2012 | | 2011 | | 2012 | | 2011 |
Revenues and other income: | | | | | | | |
Sales and other operating revenues | $ | 4,018 |
| | $ | 3,633 |
| | $ | 11,513 |
| | $ | 10,969 |
|
Sales to related parties | 16 |
| | 16 |
| | 43 |
| | 45 |
|
Income from equity method investments | 122 |
| | 123 |
| | 260 |
| | 360 |
|
Net gain (loss) on disposal of assets | (12 | ) | | 13 |
| | 126 |
| | 63 |
|
Other income | 17 |
| | 14 |
| | 43 |
| | 36 |
|
Total revenues and other income | 4,161 |
| | 3,799 |
| | 11,985 |
| | 11,473 |
|
Costs and expenses: | |
| | |
| | |
| | |
|
Cost of revenues (excludes items below) | 1,296 |
| | 1,600 |
| | 4,005 |
| | 4,671 |
|
Purchases from related parties | 72 |
| | 57 |
| | 191 |
| | 184 |
|
Depreciation, depletion and amortization | 625 |
| | 517 |
| | 1,779 |
| | 1,716 |
|
Impairments | 8 |
| | — |
| | 271 |
| | 307 |
|
General and administrative expenses | 139 |
| | 104 |
| | 389 |
| | 371 |
|
Other taxes | 63 |
| | 59 |
| | 208 |
| | 170 |
|
Exploration expenses | 176 |
| | 129 |
| | 491 |
| | 504 |
|
Total costs and expenses | 2,379 |
| | 2,466 |
| | 7,334 |
| | 7,923 |
|
Income from operations | 1,782 |
| | 1,333 |
| | 4,651 |
| | 3,550 |
|
Net interest and other | (53 | ) | | (30 | ) | | (160 | ) | | (62 | ) |
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | (279 | ) |
Income from continuing operations | | | | | | | |
before income taxes | 1,729 |
| | 1,303 |
| | 4,491 |
| | 3,209 |
|
Provision for income taxes | 1,279 |
| | 898 |
| | 3,231 |
| | 2,051 |
|
Income from continuing operations | 450 |
| | 405 |
| | 1,260 |
| | 1,158 |
|
Discontinued operations | — |
| | — |
| | — |
| | 1,239 |
|
Net income | $ | 450 |
| | $ | 405 |
| | $ | 1,260 |
| | $ | 2,397 |
|
Per Share Data | |
| | |
| | |
| | |
|
Basic: | |
| | |
| | |
| | |
|
Income from continuing operations | $0.64 | | $0.57 | | $1.79 | | $1.63 |
Discontinued operations | — |
| | — |
| | — |
| | $1.74 |
Net income | $0.64 | | $0.57 | | $1.79 | | $3.37 |
Diluted: | |
| | |
| | | | |
|
Income from continuing operations | $0.63 | | $0.57 | | $1.78 | | $1.62 |
Discontinued operations | — |
| | — |
| | — |
| | $1.73 |
Net income | $0.63 | | $0.57 | | $1.78 | | $3.35 |
Dividends paid | $0.17 | | $0.15 | | $0.51 | | $0.65 |
Weighted average shares: | |
| | |
| | |
| | |
|
Basic | 706 |
| | 711 |
| | 705 |
| | 712 |
|
Diluted | 709 |
| | 714 |
| | 709 |
| | 716 |
|
| | Three Months Ended March 31, | |
(In millions, except per share data) | | 2012 | | | 2011 | |
Revenues and other income: | | | | | | |
| | | | | | |
Sales and other operating revenues | | $ | 3,777 | | | $ | 3,656 | |
Sales to related parties | | | 14 | | | | 15 | |
Income from equity method investments | | | 78 | | | | 117 | |
Net gain on disposal of assets | | | 166 | | | | 5 | |
Other income | | | 5 | | | | 16 | |
| | | | | | | | |
Total revenues and other income | | | 4,040 | | | | 3,809 | |
| | | | | | | | |
Costs and expenses: | | | | | | | | |
Cost of revenues (excludes items below) | | | 1,407 | | | | 1,404 | |
Purchases from related parties | | | 63 | | | | 56 | |
Depreciation, depletion and amortization | | | 574 | | | | 635 | |
Impairments | | | 262 | | | | - | |
General and administrative expenses | | | 120 | | | | 137 | |
Other taxes | | | 78 | | | | 58 | |
Exploration expenses | | | 142 | | | | 230 | |
| | | | | | | | |
Total costs and expenses | | | 2,646 | | | | 2,520 | |
| | | | | | | | |
Income from operations | | | 1,394 | | | | 1,289 | |
Net interest and other | | | (50 | ) | | | (19 | ) |
Loss on early extinguishment of debt | | | - | | | | (279 | ) |
| | | | | | | | |
Income from continuing operations before income taxes | | | 1,344 | | | | 991 | |
Provision for income taxes | | | 927 | | | | 536 | |
| | | | | | | | |
Income from continuing operations | | | 417 | | | | 455 | |
| | | | | | | | |
Discontinued operations | | | - | | | | 541 | |
| | | | | | | | |
Net income | | $ | 417 | | | $ | 996 | |
| | | | | | | | |
| | | | | | | | |
Per Share Data | | | | | | | | |
| | | | | | | | |
Basic: | | | | | | | | |
Income from continuing operations | | $ | 0.59 | | | $ | 0.64 | |
Discontinued operations | | $ | - | | | $ | 0.76 | |
Net income | | $ | 0.59 | | | $ | 1.40 | |
| | | | | | | | |
Diluted: | | | | | | | | |
Income from continuing operations | | $ | 0.59 | | | $ | 0.64 | |
Discontinued operations | | $ | - | | | $ | 0.75 | |
Net income | | $ | 0.59 | | | $ | 1.39 | |
| | | | | | | | |
Dividends paid | | $ | 0.17 | | | $ | 0.25 | |
| | | | | | | | |
Weighted average shares: | | | | | | | | |
Basic | | | 706 | | | | 711 | |
Diluted | | | 710 | | | | 715 | |
The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements.
|
MARATHON OIL CORPORATION
Consolidated Statements of Comprehensive Income (Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
Net income | $ | 450 |
| | $ | 405 |
| | $ | 1,260 |
| | $ | 2,397 |
|
Other comprehensive income | |
| | |
| | |
| | |
|
Postretirement and postemployment plans | |
| | |
| | |
| | |
|
Change in actuarial loss and other | (90 | ) | | 13 |
| | (80 | ) | | 110 |
|
Spin-off downstream business | — |
| | — |
| | — |
| | 968 |
|
Income tax benefit (provision) on postretirement and | |
| | |
| | |
| | |
|
postemployment plans | 32 |
| | 6 |
| | 28 |
| | (409 | ) |
Postretirement and postemployment plans, net of tax | (58 | ) | | 19 |
| | (52 | ) | | 669 |
|
Derivative hedges | |
| | |
| | |
| | |
|
Net unrecognized gain (loss) | 1 |
| | (1 | ) | | 1 |
| | 9 |
|
Spin-off downstream business | — |
| | — |
| | — |
| | (7 | ) |
Income tax provision on derivatives | — |
| | — |
| | — |
| | (1 | ) |
Derivative hedges, net of tax | 1 |
| | (1 | ) | | 1 |
| | 1 |
|
Foreign currency translation and other | |
| | |
| | |
| | |
|
Unrealized loss | — |
| | — |
| | — |
| | (1 | ) |
Income tax provision on foreign currency translation and other | — |
| | — |
| | — |
| | — |
|
Foreign currency translation and other, net of tax | — |
| | — |
| | — |
| | (1 | ) |
Other comprehensive income (loss) | (57 | ) | | 18 |
| | (51 | ) | | 669 |
|
Comprehensive income | $ | 393 |
| | $ | 423 |
| | $ | 1,209 |
| | $ | 3,066 |
|
The accompanying notes are an integral part of these consolidated financial statements.
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
Net income | | $ | 417 | | | $ | 996 | |
Other comprehensive income | | | | | | | | |
| | | | | | | | |
Postretirement and post-employment plans | | | | | | | | |
Change in actuarial gain | | | 13 | | | | 33 | |
Income tax provision on postretirement and post-employment plans | | | (5 | ) | | | (12 | ) |
Postretirement and post-employment plans, net of tax | | | 8 | | | | 21 | |
| | | | | | | | |
Derivative hedges | | | | | | | | |
Net unrecognized gain | | | - | | | | 9 | |
Income tax provision on derivatives | | | - | | | | (4 | ) |
Derivative hedges, net of tax | | | - | | | | 5 | |
| | | | | | | | |
Foreign currency translation and other | | | | | | | | |
Unrealized gain | | | 1 | | | | - | |
Income tax provision on foreign currency translation and other | | | - | | | | - | |
Foreign currency translation and other, net of tax | | | 1 | | | | - | |
| | | | | | | | |
Other comprehensive income | | | 9 | | | | 26 | |
| | | | | | | | |
Comprehensive income | | $ | 426 | | | $ | 1,022 | |
| The accompanying notes are an integral part of these consolidated financial statements.
|
MARATHON OIL CORPORATION
Consolidated Balance Sheets (Unaudited)
| | | | March 31, | | | December 31, | | September 30, | | December 31, |
(In millions, except per share data) | | 2012 | | | 2011 | | 2012 | | 2011 |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 513 | | | $ | 493 | | $ | 671 |
| | $ | 493 |
|
Receivables, less allowance for doubtful accounts of zero | | | 2,198 | | | | 1,917 | | |
Receivables | | 2,553 |
| | 1,917 |
|
Receivables from related parties | | | 35 | | | | 35 | | 22 |
| | 35 |
|
Inventories | | | 296 | | | | 361 | | 324 |
| | 361 |
|
Prepayments | | | 83 | | | | 96 | | 111 |
| | 96 |
|
Deferred tax assets | | | 87 | | | | 99 | | 87 |
| | 99 |
|
Other current assets | | | 233 | | | | 223 | | 269 |
| | 223 |
|
| | | | | | | | | |
Total current assets | | | 3,445 | | | | 3,224 | | 4,037 |
| | 3,224 |
|
| | | | | | | | | |
Equity method investments | | | 1,353 | | | | 1,383 | | 1,319 |
| | 1,383 |
|
Property, plant and equipment, less accumulated depreciation, | | | | | | | | | |
| | |
|
depletion and amortization of $17,184 and $17,248 | | | 25,365 | | | | 25,324 | | |
depletion and amortization of $18,438 and $17,248 | | 27,446 |
| | 25,324 |
|
Goodwill | | | 525 | | | | 536 | | 525 |
| | 536 |
|
Other noncurrent assets | | | 1,163 | | | | 904 | | 1,231 |
| | 904 |
|
| | | | | | | | | |
Total assets | | $ | 31,851 | | | $ | 31,371 | | $ | 34,558 |
| | $ | 31,371 |
|
Liabilities | | | | | | | | | |
| | |
|
Current liabilities: | | | | | | | | | |
| | |
|
Commercial paper | | $ | 1,839 |
| | $ | — |
|
Accounts payable | | $ | 2,029 | | | $ | 1,864 | | 2,335 |
| | 1,864 |
|
Payables to related parties | | | 10 | | | | 18 | | 44 |
| | 18 |
|
Payroll and benefits payable | | | 165 | | | | 193 | | 148 |
| | 193 |
|
Accrued taxes | | | 2,065 | | | | 2,015 | | 2,027 |
| | 2,015 |
|
Other current liabilities | | | 207 | | | | 163 | | 206 |
| | 163 |
|
Long-term debt due within one year | | | 197 | | | | 141 | | 183 |
| | 141 |
|
| | | | | | | | | |
Total current liabilities | | | 4,673 | | | | 4,394 | | 6,782 |
| | 4,394 |
|
| | | | | | | | | |
Long-term debt | | | 4,559 | | | | 4,674 | | 4,518 |
| | 4,674 |
|
Deferred income taxes | | | 2,540 | | | | 2,544 | | |
Deferred tax liabilities | | 2,495 |
| | 2,544 |
|
Defined benefit postretirement plan obligations | | | 747 | | | | 789 | | 817 |
| | 789 |
|
Asset retirement obligations | | | 1,437 | | | | 1,510 | | 1,516 |
| | 1,510 |
|
Deferred credits and other liabilities | | | 389 | | | | 301 | | 366 |
| | 301 |
|
| | | | | | | | | |
Total liabilities | | | 14,345 | | | | 14,212 | | 16,494 |
| | 14,212 |
|
| | | | | | | | | |
Commitments and contingencies | | | | | | | | |
|
| |
|
|
| | | | | | | | | |
Stockholders’ Equity | | | | | | | | | |
| | |
|
Preferred stock – no shares issued and outstanding (no par value, 26 million shares | | | | | | | | | |
authorized) | | | - | | | | - | | |
Preferred stock – no shares issued and outstanding (no par value, | | |
| | |
|
26 million shares authorized) | | — |
| | — |
|
Common stock: | | | | | | | | | |
| | |
|
Issued – 770 million and 770 million shares (par value $1 per share, | | | | | | | | | |
| | |
|
1.1 billion shares authorized) | | | 770 | | | | 770 | | 770 |
| | 770 |
|
Securities exchangeable into common stock – no shares issued and outstanding | | | | | | | | | |
(no par value, 29 million shares authorized) | | | - | | | | - | | |
Held in treasury, at cost – 65 million and 66 million shares | | | (2,652 | ) | | | (2,716 | ) | |
Securities exchangeable into common stock – no shares issued and | | |
| | |
|
outstanding (no par value, 29 million shares authorized) | | — |
| | — |
|
Held in treasury, at cost – 64 million and 66 million shares | | (2,607 | ) | | (2,716 | ) |
Additional paid-in capital | | | 6,658 | | | | 6,680 | | 6,634 |
| | 6,680 |
|
Retained earnings | | | 13,084 | | | | 12,788 | | 13,688 |
| | 12,788 |
|
Accumulated other comprehensive loss | | | (361 | ) | | | (370 | ) | (421 | ) | | (370 | ) |
Total equity of Marathon Oil's stockholders | | | 17,499 | | | | 17,152 | | 18,064 |
| | 17,152 |
|
Noncontrolling interest | | | 7 | | | | 7 | | — |
| | 7 |
|
Total stockholders' equity | | | 17,506 | | | | 17,159 | | |
| | | | | | | | | |
Total equity | | 18,064 |
| | 17,159 |
|
Total liabilities and stockholders' equity | | $ | 31,851 | | | $ | 31,371 | | $ | 34,558 |
| | $ | 31,371 |
|
| The accompanying notes are an integral part of these consolidated financial statements. |
MARATHON OIL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
|
| | | | | | | |
| Nine Months Ended |
| September 30, |
(In millions) | 2012 | | 2011 |
Increase (decrease) in cash and cash equivalents | | | |
Operating activities: | |
| | |
|
Net income | $ | 1,260 |
| | $ | 2,397 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Discontinued operations | — |
| | (1,239 | ) |
Loss on early extinguishment of debt | — |
| | 279 |
|
Deferred income taxes | (27 | ) | | (75 | ) |
Depreciation, depletion and amortization | 1,779 |
| | 1,716 |
|
Impairments | 271 |
| | 307 |
|
Pension and other postretirement benefits, net | (56 | ) | | 28 |
|
Exploratory dry well costs and unproved property impairments | 287 |
| | 311 |
|
Net gain on disposal of assets | (126 | ) | | (63 | ) |
Equity method investments, net | (14 | ) | | 16 |
|
Changes in: | | | |
|
Current receivables | (646 | ) | | 202 |
|
Inventories | (6 | ) | | 47 |
|
Current accounts payable and accrued liabilities | 156 |
| | 361 |
|
All other operating, net | (66 | ) | | 113 |
|
Net cash provided by continuing operations | 2,812 |
| | 4,400 |
|
Net cash provided by discontinued operations | — |
| | 1,090 |
|
Net cash provided by operating activities | 2,812 |
| | 5,490 |
|
Investing activities: | |
| | |
|
Acquisitions, net of cash acquired | (806 | ) | | — |
|
Additions to property, plant and equipment | (3,509 | ) | | (2,437 | ) |
Disposal of assets | 193 |
| | 385 |
|
Investments - return of capital | 42 |
| | 41 |
|
Investing activities of discontinued operations | — |
| | (493 | ) |
Property deposit | — |
| | (120 | ) |
All other investing, net | 49 |
| | 13 |
|
Net cash used in investing activities | (4,031 | ) | | (2,611 | ) |
Financing activities: | |
| | |
|
Commercial paper, net | 1,839 |
| | — |
|
Debt issuance costs | (9 | ) | | — |
|
Debt repayments | (111 | ) | | (2,843 | ) |
Purchases of common stock | — |
| | (300 | ) |
Dividends paid | (360 | ) | | (462 | ) |
Financing activities of discontinued operations | — |
| | 2,916 |
|
Distribution in spin-off | — |
| | (1,622 | ) |
All other financing, net | 26 |
| | 129 |
|
Net cash provided by (used in) financing activities | 1,385 |
| | (2,182 | ) |
Effect of exchange rate changes on cash | 12 |
| | (15 | ) |
Net increase in cash and cash equivalents | 178 |
| | 682 |
|
Cash and cash equivalents at beginning of period | 493 |
| | 3,951 |
|
Cash and cash equivalents at end of period | $ | 671 |
| | $ | 4,633 |
|
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
Increase (decrease) in cash and cash equivalents | | | | | | |
Operating activities: | | | | | | |
Net income | | $ | 417 | | | $ | 996 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
Discontinued operations | | | - | | | | (541 | ) |
Loss on early extinguishment of debt | | | - | | | | 279 | |
Deferred income taxes | | | (22 | ) | | | (220 | ) |
Depreciation, depletion and amortization | | | 574 | | | | 635 | |
Impairments | | | 262 | | | | - | |
Pension and other postretirement benefits, net | | | (29 | ) | | | 14 | |
Exploratory dry well costs and unproved property impairments | | | 58 | | | | 173 | |
Net gain on disposal of assets | | | (166 | ) | | | (5 | ) |
Equity method investments, net | | | (21 | ) | | | (47 | ) |
Changes in: | | | | | | | | |
Current receivables | | | (296 | ) | | | (158 | ) |
Inventories | | | 7 | | | | 29 | |
Current accounts payable and accrued liabilities | | | 213 | | | | 361 | |
All other operating, net | | | (24 | ) | | | 117 | |
Net cash provided by continuing operations | | | 973 | | | | 1,633 | |
Net cash provided by discontinued operations | | | - | | | | 959 | |
Net cash provided by operating activities | | | 973 | | | | 2,592 | |
Investing activities: | | | | | | | | |
Additions to property, plant and equipment | | | (1,017 | ) | | | (819 | ) |
Disposal of assets | | | 208 | | | | 87 | |
Investments - return of capital | | | 15 | | | | 8 | |
Investing activities of discontinued operations | | | - | | | | (122 | ) |
All other investing, net | | | (12 | ) | | | 13 | |
Net cash used in investing activities | | | (806 | ) | | | (833 | ) |
Financing activities: | | | | | | | | |
Debt repayments | | | (53 | ) | | | (2,809 | ) |
Dividends paid | | | (121 | ) | | | (178 | ) |
Financing activities of discontinued operations | | | - | | | | 2,939 | |
All other financing, net | | | 17 | | | | 50 | |
Net cash provided by (used in) financing activities | | | (157 | ) | | | 2 | |
Effect of exchange rate changes on cash | | | 10 | | | | 4 | |
Net increase in cash and cash equivalents | | | 20 | | | | 1,765 | |
Cash and cash equivalents at beginning of period | | | 493 | | | | 3,951 | |
Cash and cash equivalents at end of period | | $ | 513 | | | $ | 5,716 | |
The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements.
|
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
These consolidated financial statements are unaudited; however, in the opinion of management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. These consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements.
As a result of the spin-off (see Note 2), the results of operations for our downstream (Refining, Marketing and Transportation) business have been classified as discontinued operations in 2011. The disclosures in this report are presented on the basis of continuing operations, unless otherwise stated. Any reference to “Marathon” indicates Marathon Oil Corporation as it existed prior to the June 30, 2011 spin-off.
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Marathon Oil Corporation (“Marathon Oil”) 2011 Annual Report on Form 10-K. The results of operations for the third quarter ended March 31,and first nine months of 2012 are not necessarily indicative of the results to be expected for the full year.
2. Spin-off Downstream Business
On June 30, 2011, the spin-off of the downstream business was completed, creating two independent energy companies: Marathon Oil and Marathon Petroleum Corporation (“MPC”). On June 30, 2011, stockholders of record as of 5:00 p.m. Eastern Daylight Savings time on June 27, 2011 (the “Record Date”) received one common share of MPC stock for every two common shares of Marathon stock held as of the Record Date.
The following table presents selected financial information regarding the results of operations of our downstream business which are reported as discontinued operations. Transaction costs incurred to affect the spin-off of $74 million are included in discontinued operations for 2011.
| | | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(In millions) | | Three Months Ended March 31, 2011 | | 2011 | | 2011 |
Revenues applicable to discontinued operations | | $ | 17,842 | | $ | — |
| | $ | 38,602 |
|
Pretax income from discontinued operations | | | 768 | | — |
| | 2,012 |
|
3. Accounting Standards
Recently Adopted
In September 2011, the Financial Accounting Standards Board (“FASB”) amended accounting standards to simplify how entities test goodwill for impairment. The amendment reduces complexity by allowing an entity the option to make a qualitative evaluation of whether it is necessary to perform the two-step goodwill impairment test. The amendment is effective for our interim and annual periods beginning with the first quarter of 2012. Adoption of this amendment did not have a significant impact on our consolidated results of operations, financial position or cash flows.
The FASB amended the reporting standards for comprehensive income in June 2011 to eliminate the option to present the components of Other Comprehensive Income (“OCI”) as part of the statement of changes in stockholders' equity. All non-owner changes in stockholders’ equity are required to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of OCI, and total comprehensive income. The presentation of items that are reclassified from OCI to net income on the income statement is also required. The amendments did not change the items that must be reported in OCI or when an item of OCI must be reclassified to net income. The amendments are effective for us beginning with the first quarter of 2012, except for the presentation of reclassifications, which has been deferred. Adoption of these amendments did not have a significant impact on our consolidated results of operations, financial position or cash flows.
In May 2011, the FASB issued an update amending the accounting standards for fair value measurement and disclosure, resulting in common principles and requirements under accounting principles generally accepted in the U.S. (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”). The amendments change the wording used to describe certain of the U.S.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
GAAP requirements either to clarify the intent of existing requirements, to change measurement or expand disclosure principles or to conform to the wording used in IFRS. The amendments are to be applied prospectively for our interim and annual periods beginning with the first quarter of 2012. The adoption of the amendments did not have a significant impact on our consolidated results of operations, financial position or cash flows. To the extent they were necessary, in this quarter, we have made the expanded disclosures in Note 13.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
4. Variable Interest EntitiesEntity
The owners of the Athabasca Oil Sands Project (“AOSP”), in which we hold a 20 percent undivided interest, contracted with a wholly ownedwholly-owned subsidiary of a publicly traded Canadian limited partnership (“Corridor Pipeline”) to provide materials transportation capabilities among the Muskeg River and Jackpine mines, the Scotford upgrader and markets in Edmonton. The contract, originally signed in 1999 by a company we acquired, allows each holder of an undivided interest in the AOSP to ship materials in accordance with its undivided interest. Costs under this contract are accrued and recorded on a monthly basis, with a $3$3 million current liability recorded at MarchSeptember 30, 2012, consistent with December 31, 2012.2011. Under this agreement, the AOSP absorbs all of the operating and capital costs of the pipeline. Currently, no third-party shippers use the pipeline. Should shipments be suspended, by choice or due to force majeure, we remain responsible for the portion of the payments related to our undivided interest for all remaining periods. The contract expires in 2029; however, the shippers can extend its term perpetually. This contract qualifies as a variable interest contractual arrangement and the Corridor Pipeline qualifies as a variable interest entityVariable Interest Entity (“VIE”). We hold a variable interest but are not the primary beneficiary because our shipments are only 20 percent of the total; therefore, the Corridor Pipeline is not consolidated.consolidated by Marathon Oil. Our maximum exposure to loss as a result of our involvement with this VIE is the amount we expect to pay over the contract term, which was $724$697 million as of March 31, 2012.September 30, 2012. The liability on our books related to this contract at any given time will reflect amounts due for the immediately previous month’s activity, which is substantially less than the maximum exposure over the contract term. We have not provided financial assistance to Corridor Pipeline and we do not have any guarantees of such assistance in the future.
5. Income per Common Share
Basic income per share is based on the weighted average number of common shares outstanding, including securities exchangeable into common shares.outstanding. Diluted income per share assumesincludes exercise of stock options and stock appreciation rights, provided the effect is not antidilutive.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2012 | | 2011 |
(In millions, except per share data) | Basic | | Diluted | | Basic | | Diluted |
Net income | $ | 450 |
| | $ | 450 |
| | $ | 405 |
| | $ | 405 |
|
| | | | | | | |
Weighted average common shares outstanding | 706 |
| | 706 |
| | 711 |
| | 711 |
|
Effect of dilutive securities | — |
| | 3 |
| | — |
| | 3 |
|
Weighted average common shares, including | | | | | | | |
dilutive effect | 706 |
| | 709 |
| | 711 |
| | 714 |
|
Per share: | |
| | |
| | |
| | |
|
Net income | $0.64 | | $0.63 | | $0.57 | | $0.57 |
| Three Months Ended March 31, | |
| 2012 | | | 2011 | |
(In millions, except per share data) | Basic | | Diluted | | | Basic | | Diluted | |
| | | | | |
Income from continuing operations | | $ | 417 | | | $ | 417 | | | $ | 455 | | | $ | 455 | |
Discontinued operations | | | - | | | | - | | | | 541 | | | | 541 | |
Net income | | $ | 417 | | | $ | 417 | | | $ | 996 | | | $ | 996 | |
| | | | | | | | | | |
Weighted average common shares outstanding | | | 706 | | | | 706 | | | | 711 | | | | 711 | |
Effect of dilutive securities | | | - | | | | 4 | | | | - | | | | 4 | |
Weighted average common shares, including | | | | | | | | | | | | | | | | |
dilutive effect | | | 706 | | | | 710 | | | | 711 | | | | 715 | |
| | | | | | | | | | |
Per share: | | | | | | | | | | | | | | | | |
Income from continuing operations | | $ | 0.59 | | | $ | 0.59 | | | $ | 0.64 | | | $ | 0.64 | |
Discontinued operations | | $ | - | | | $ | - | | | $ | 0.76 | | | $ | 0.75 | |
Net income | | $ | 0.59 | | | $ | 0.59 | | | $ | 1.40 | | | $ | 1.39 | |
MARATHON OIL CORPORATIONNotes to Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2012 | | 2011 |
(In millions, except per share data) | Basic | | Diluted | | Basic | | Diluted |
Income from continuing operations | $ | 1,260 |
| | $ | 1,260 |
| | $ | 1,158 |
| | $ | 1,158 |
|
Discontinued operations | — |
| | — |
| | 1,239 |
| | 1,239 |
|
Net income | $ | 1,260 |
| | $ | 1,260 |
| | $ | 2,397 |
| | $ | 2,397 |
|
| | | | | | | |
Weighted average common shares outstanding | 705 |
| | 705 |
| | 712 |
| | 712 |
|
Effect of dilutive securities | — |
| | 4 |
| | — |
| | 4 |
|
Weighted average common shares, including | | | | | | | |
dilutive effect | 705 |
| | 709 |
| | 712 |
| | 716 |
|
Per share: | |
| | |
| | |
| | |
|
Income from continuing operations | $1.79 | | $1.78 | | $1.63 | | $1.62 |
Discontinued operations | — |
| | — |
| | $1.74 | | $1.73 |
Net income | $1.79 | | $1.78 | | $3.37 | | $3.35 |
The per share calculations above exclude 710 million and 5 million stock options and stock appreciation rights for the third quarter and first threenine months of 2012, as they were antidilutive. Excluded for the third quarter and first nine months of 2011 that were antidilutive.9 million and 7 million stock options and stock appreciation rights.
6. Acquisitions
In April 2012, we entered into agreements to acquireWe acquired approximately 20,000 net acres in the core of the Eagle Ford shale formationduring the first nine months of 2012. All Eagle Ford properties are included in our Exploration and Production (“E&P”) segment. The largest transaction was the acquisition of Paloma Partners II, LLC, which closed August 1, 2012 for cash consideration of $768 million. This transaction was accounted for as a business combination. Smaller transactions valuedclosed during the second quarter of 2012.
The following table summarizes the amounts allocated to the assets acquired and liabilities assumed based upon their fair values at $767 million, subjectthe acquisition date:
|
| | | | |
(In millions) | | |
Assets: | | |
Cash | | $ | 8 |
|
Receivables | | 22 |
|
Inventories | | 1 |
|
Total current assets acquired | | 31 |
|
Property, plant and equipment | | 822 |
|
Total assets acquired | | 853 |
|
Liabilities: | | |
Accounts payable | | 78 |
|
Asset retirement obligations | | 7 |
|
Total liabilities assumed | | 85 |
|
Net assets acquired | | $ | 768 |
|
The fair values of assets acquired and liabilities assumed were measured primarily using an income approach, specifically utilizing a discounted cash flow analysis. The estimated fair values were based on significant inputs not observable in the market, and therefore represent Level 3 measurements. Significant inputs included estimated reserve volumes, the expected future production profile, estimated commodity prices and assumptions regarding future operating and development costs. A discount rate of approximately 10 percent was used in the discounted cash flow analysis. The accounting for this transaction is complete. The pro forma impact of this business combination is not material to closing adjustments. The majorityour consolidated statements of these transactions in terms of value are expected to close inincome for the third quarter and first nine months of 2012.2012 and 2011.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
7. Dispositions
2012
In the third quarter of 2012, we sold approximately 5,800 net undeveloped acres located outside the core of the Eagle Ford shale, held by our E&P segment, for proceeds of $9 million. A pretax loss of $18 million was recorded.
In May 2012, we executed agreements to relinquish our E&P segment’s operatorship of and participating interests in the Bone Bay and Kumawa exploration licenses in Indonesia. As a result, we accrued and reported a $36 million loss on disposal of assets in the second quarter of 2012. Government ratification of the agreements was received during the third quarter of 2012, which released us from our obligations and further commitments related to these licenses, and we paid the amount accrued.
On In April 2012, we entered into agreements to sell all of our E&P segment’s assets in Alaska. One transaction closed in the second quarter of 2012 with proceeds and a net pretax gain of $7 million. The remaining transaction, with a value of $375 million before closing adjustments, is currently under review by the U.S. Federal Trade Commission and the Alaska Attorney General's office, which could impact the closing of this transaction. Assets held for sale are included in the September 30, 2012 balance sheet as follows:
|
| | | |
(In millions) | |
Other current assets | $ | 59 |
|
Other noncurrent assets | 190 |
|
Total assets | 249 |
|
Other current liabilities | 1 |
|
Deferred credits and other liabilities | 90 |
|
Total liabilities | $ | 91 |
|
In January 3, 2012, we closed on the sale of our Exploration and Production (“E&P”)&P segment’s interests in several Gulf of Mexico crude oil pipeline systems for proceeds of $206 million.$206 million. This includes our equity method interests in Poseidon Oil Pipeline Company, L.L.C. and Odyssey Pipeline L.L.C., as well as certain other oil pipeline interests, including the Eugene Island pipeline system. A pretax gain of $166$166 million was recorded in the first quarter of 2012.
2011
In September 2011, we sold our Integrated Gas segment's equity interest in a liquefied natural gas (“LNG”) processing facility in Alaska. A gain on the transaction of $8 million was recorded in the third quarter of 2011.
In April 2012,2011, we entered into agreements to sell all ofassigned a 30 percent undivided working interest in our E&P segment’s assets in Alaska. The transactions are expected to closeapproximately 180,000 acres in the second halfNiobrara shale play located within the DJ Basin of 2012, pending regulatory approvalsoutheast Wyoming and closing conditions. Substantially allnorthern Colorado for total consideration of these assets are reflected as held for sale in the March 31, 2012 balance sheet as follows:$270 million, recording a pretax gain of $39 million. We remain operator of this jointly owned leasehold.
(In millions) | | | |
Other current assets | | $ | 59 | |
Other noncurrent assets | | | 185 | |
Total assets | | | 244 | |
| | | | |
Deferred credits and other liabilities | | | 87 | |
Total liabilities | | $ | 87 | |
2011
In March 2011, we closed the sale of our E&P segment's outside-operated interests in the Gudrun field development and the Brynhild and Eirin exploration areas offshore Norway for net proceeds of $85$85 million, excluding working capital adjustments. A $64$64 million pretax loss on this disposition was recorded in the fourth quarter of 2010.
8. Segment Information
We have three reportable operating segments. Each of these segments is organized and managed based upon the nature of the products and services they offer.
Exploration and Production (“E&P”) – explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis;
Oil Sands Mining (“OSM”) – mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil; and
· | E&P – explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis; |
· | Oil Sands Mining (“OSM”) – mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil; and |
· | Integrated Gas (“IG”) – produces and markets products manufactured from natural gas, such as liquefied natural gas (“LNG”) – produces and markets products manufactured from natural gas, such as LNG and methanol, in Equatorial Guinea. |
Information regarding assets by segment is not presented because it is not reviewed by the chief operating decision maker (“CODM”). Segment income represents income from continuing operations, net of income taxes, attributable to the operating segments. Our corporate general and administrative costs are not allocated to the operating segments. These costs primarily consist
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
of employment costs (including pension effects), professional services, facilities and other costs associated with corporate activities, net of associated income tax effects. Foreign currency remeasurement and transaction gains or losses are not allocated to operating segments. Impairments, gains or losses on disposal of assets or other items that affect comparability (as determined by the CODM) also are not allocated to operating segments.
Differences between segment totals and our consolidated totals for income taxes and depreciation, depletion and amortization and our consolidated totals represent amounts related to corporate administrative activities and other unallocated items which are included in “Items not allocated to segments, net of income taxes” in the reconciliation below. Total capital expenditures include accruals but not corporate activities.
As discussed in Note 2, our downstream business was spun-off on June 30, 2011 and has been reported as discontinued operations in 2011.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2012 |
(In millions) | E&P | | OSM | | IG | | Total |
Revenues: | |
| | |
| | |
| | |
|
Customer | $ | 3,503 |
| | $ | 470 |
| | $ | — |
| | $ | 3,973 |
|
Related parties | 16 |
| | — |
| | — |
| | 16 |
|
Segment revenues | $ | 3,519 |
| | $ | 470 |
| | $ | — |
| | 3,989 |
|
Unrealized gain on crude oil derivative instruments | | | | | | | 45 |
|
Total revenues | | | | | | | $ | 4,034 |
|
Segment income | $ | 486 |
| | $ | 65 |
| | $ | 39 |
| | $ | 590 |
|
Income from equity method investments | 74 |
| | — |
| | 48 |
| | 122 |
|
Depreciation, depletion and amortization | 556 |
| | 60 |
| | — |
| | 616 |
|
Income tax provision | 1,252 |
| | 20 |
| | 9 |
| | 1,281 |
|
Capital expenditures | 1,274 |
| | 41 |
| | 1 |
| | 1,316 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2011 |
(In millions) | E&P | | OSM | | IG | | Total |
Revenues: | |
| | |
| | |
| | |
|
Customer | $ | 3,190 |
| | $ | 427 |
| | $ | 16 |
| | $ | 3,633 |
|
Intersegment | 6 |
| | — |
| | — |
| | 6 |
|
Related parties | 16 |
| | — |
| | — |
| | 16 |
|
Segment revenues | $ | 3,212 |
| | $ | 427 |
| | $ | 16 |
| | 3,655 |
|
Elimination of intersegment revenues | | |
|
| |
|
| | (6 | ) |
Total revenues |
|
| |
|
| |
|
| | $ | 3,649 |
|
Segment income | $ | 330 |
| | $ | 92 |
| | $ | 55 |
| | $ | 477 |
|
Income from equity method investments | 63 |
| | — |
| | 60 |
| | 123 |
|
Depreciation, depletion and amortization | 454 |
| | 55 |
| | — |
| | 509 |
|
Income tax provision | 890 |
| | 31 |
| | 19 |
| | 940 |
|
Capital expenditures | 684 |
| | 36 |
| | 1 |
| | 721 |
|
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2012 |
(In millions) | E&P | | OSM | | IG | | Total |
Revenues: | |
| | |
| | |
| | |
|
Customer | $ | 10,284 |
| | $ | 1,184 |
| | $ | — |
| | $ | 11,468 |
|
Related parties | 43 |
| | — |
| | — |
| | 43 |
|
Segment revenues | $ | 10,327 |
| | $ | 1,184 |
| | $ | — |
| | 11,511 |
|
Unrealized gain on crude oil derivative instruments | | | | | | | 45 |
|
Total revenues |
|
| |
|
| |
|
| | $ | 11,556 |
|
Segment income | $ | 1,380 |
| | $ | 157 |
| | $ | 56 |
| | $ | 1,593 |
|
Income from equity method investments | 176 |
| | — |
| | 84 |
| | 260 |
|
Depreciation, depletion and amortization | 1,593 |
| | 159 |
| | — |
| | 1,752 |
|
Income tax provision | 3,398 |
| | 51 |
| | 15 |
| | 3,464 |
|
Capital expenditures | 3,459 |
| | 136 |
| | 2 |
| | 3,597 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2011 |
(In millions) | E&P | | OSM | | IG | | Total |
Revenues: | |
| | |
| | |
| | |
|
Customer | $ | 9,696 |
| | $ | 1,180 |
| | $ | 93 |
| | $ | 10,969 |
|
Intersegment | 47 |
| | — |
| | — |
| | 47 |
|
Related parties | 45 |
| | — |
| | — |
| | 45 |
|
Segment revenues | $ | 9,788 |
| | $ | 1,180 |
| | $ | 93 |
| | 11,061 |
|
Elimination of intersegment revenues | | |
|
| |
|
| | (47 | ) |
Total revenues | | | | | | | $ | 11,014 |
|
Segment income | $ | 1,599 |
| | $ | 193 |
| | $ | 158 |
| | $ | 1,950 |
|
Income from equity method investments | 187 |
| | — |
| | 173 |
| | 360 |
|
Depreciation, depletion and amortization | 1,541 |
| | 141 |
| | 3 |
| | 1,685 |
|
Income tax provision | 2,101 |
| | 64 |
| | 62 |
| | 2,227 |
|
Capital expenditures | 2,101 |
| | 236 |
| | 2 |
| | 2,339 |
|
| | Three Months Ended March 31, 2012 | |
(In millions) | | E&P | | | OSM | | | IG | | | Total | |
| | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Customer | | $ | 3,398 | | | $ | 379 | | | $ | - | | | $ | 3,777 | |
Related parties | | | 14 | | | | - | | | | - | | | | 14 | |
Total revenues | | $ | 3,412 | | | $ | 379 | | | $ | - | | | $ | 3,791 | |
Segment income | | $ | 477 | | | $ | 41 | | | $ | 4 | | | $ | 522 | |
Income from equity method investments | | | 64 | | | | - | | | | 14 | | | | 78 | |
Depreciation, depletion and amortization | | | 516 | | | | 49 | | | | - | | | | 565 | |
Income tax provision | | | 1,036 | | | | 14 | | | | 1 | | | | 1,051 | |
Capital expenditures | | | 1,001 | | | | 52 | | | | - | | | | 1,053 | |
| | Three Months Ended March 31, 2011 | |
(In millions) | | E&P | | | OSM | | | IG | | | Total | |
| | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Customer | | $ | 3,286 | | | $ | 306 | | | $ | 64 | | | $ | 3,656 | |
Intersegment | | | 26 | | | | - | | | | - | | | | 26 | |
Related parties | | | 15 | | | | - | | | | - | | | | 15 | |
Segment revenues | | | 3,327 | | | | 306 | | | | 64 | | | | 3,697 | |
Elimination of intersegment revenues | | | (26 | ) | | | - | | | | - | | | | (26 | ) |
Total revenues | | $ | 3,301 | | | $ | 306 | | | $ | 64 | | | $ | 3,671 | |
Segment income | | $ | 668 | | | $ | 32 | | | $ | 60 | | | $ | 760 | |
Income from equity method investments | | | 58 | | | | - | | | | 59 | | | | 117 | |
Depreciation, depletion and amortization | | | 586 | | | | 37 | | | | 2 | | | | 625 | |
Income tax provision | | | 612 | | | | 10 | | | | 26 | | | | 648 | |
Capital expenditures | | | 668 | | | | 120 | | | | 1 | | | | 789 | |
The following reconciles segment income to net income as reported in the consolidated statements of income.
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
Segment income | | $ | 522 | | | $ | 760 | |
Items not allocated to segments, net of income taxes: | | | | | | | | |
Corporate and other unallocated items | | | (29 | ) | | | (115 | ) |
Foreign currency remeasurement of taxes | | | (15 | ) | | | (14 | ) |
Loss on early extinguishment of debt | | | - | | | | (176 | ) |
Impairment(a) | | | (167 | ) | | | - | |
Gain on dispositions(b) | | | 106 | | | | - | |
Income from continuing operations | | | 417 | | | | 455 | |
Discontinued operations | | | - | | | | 541 | |
Net income | | $ | 417 | | | $ | 996 | |
(a) | Significant impairments are further discussed, on a pretax basis, in Note 13. |
(b) | Significant dispositions are further discussed, on a pretax basis, in Note 7. |
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
The following reconciles total revenues to sales and other operating revenues as reported in the consolidated statements of income.income:
| | | | Three Months Ended | | Nine Months Ended |
| Three Months Ended March 31, | | September 30, | | September 30, |
(In millions) | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
Total revenues | | $ | 3,791 | | | $ | 3,671 | | $ | 4,034 |
| | $ | 3,649 |
| | $ | 11,556 |
| | $ | 11,014 |
|
Less: Sales to related parties | | | 14 | | | | 15 | | 16 |
| | 16 |
| | 43 |
| | 45 |
|
Sales and other operating revenues | | $ | 3,777 | | | $ | 3,656 | | $ | 4,018 |
| | $ | 3,633 |
| | $ | 11,513 |
| | $ | 10,969 |
|
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
The following reconciles segment income to net income as reported in the consolidated statements of income:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
Segment income | $ | 590 |
| | $ | 477 |
| | $ | 1,593 |
| | $ | 1,950 |
|
Items not allocated to segments, net of income taxes: | |
| | |
| | |
| | |
|
Corporate and other unallocated items | (158 | ) | | (56 | ) | | (267 | ) | | (209 | ) |
Unrealized gain on crude oil derivative instruments | 29 |
| | — |
| | 29 |
| | — |
|
Gain (loss) on dispositions | (11 | ) | | (1 | ) | | 72 |
| | 23 |
|
Impairments | — |
| | — |
| | (167 | ) | | (195 | ) |
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | (176 | ) |
Tax effect of subsidiary restructuring | — |
| | — |
| | — |
| | (122 | ) |
Deferred income tax items | — |
| | (15 | ) | | — |
| | (65 | ) |
Water abatement - Oil Sands | — |
| | — |
| | — |
| | (48 | ) |
Income from continuing operations | 450 |
| | 405 |
| | 1,260 |
| | 1,158 |
|
Discontinued operations | — |
| | — |
| | — |
| | 1,239 |
|
Net income | $ | 450 |
| | $ | 405 |
| | $ | 1,260 |
| | $ | 2,397 |
|
9. Defined Benefit Postretirement Plans
The following summarizes the components of net periodic benefit cost:
| | | | Three Months Ended March 31, | | Three Months Ended September 30, |
| | Pension Benefits | | | Other Benefits | | Pension Benefits | | Other Benefits |
(In millions) | | 2012 | | | 2011 | | | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
Service cost | | $ | 12 | | | $ | 13 | | | $ | 1 | | | $ | 1 | | $ | 12 |
| | $ | 12 |
| | $ | 1 |
| | $ | 1 |
|
Interest cost | | | 16 | | | | 17 | | | | 4 | | | | 4 | | 16 |
| | 17 |
| | 4 |
| | 4 |
|
Expected return on plan assets | | | (16 | ) | | | (17 | ) | | | - | | | | - | | (14 | ) | | (16 | ) | | — |
| | — |
|
Amortization: | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
|
– prior service cost (credit) | | | 2 | | | | 1 | | | | (2 | ) | | | (2 | ) | 2 |
| | 1 |
| | (2 | ) | | (2 | ) |
– actuarial loss | | | 12 | | | | 13 | | | | - | | | | - | | 12 |
| | 12 |
| | — |
| | — |
|
– net settlement loss(a) | | 34 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | | $ | 26 | | | $ | 27 | | | $ | 3 | | | $ | 3 | | $ | 62 |
| | $ | 26 |
| | $ | 3 |
| | $ | 3 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| Pension Benefits | | Other Benefits |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
Service cost | $ | 37 |
| | $ | 35 |
| | $ | 3 |
| | $ | 3 |
|
Interest cost | 48 |
| | 50 |
| | 11 |
| | 12 |
|
Expected return on plan assets | (46 | ) | | (49 | ) | | — |
| | — |
|
Amortization: | |
| | |
| | |
| | |
|
– prior service cost (credit) | 6 |
| | 4 |
| | (5 | ) | | (5 | ) |
– actuarial loss | 37 |
| | 37 |
| | — |
| | — |
|
– net settlement loss(a) | 34 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | $ | 116 |
| | $ | 77 |
| | $ | 9 |
| | $ | 10 |
|
| |
(a) | Settlement losses are recorded when lump sum payments from a plan in a period exceed the plan's total service and interest costs for the period. Such settlements occurred in our U.S. pension plans during the third quarter of 2012. |
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
During the third quarter of 2012, we recorded the effects of partial settlements of our U.S. pension plans. We remeasured the plans' assets and liabilities as of September 30, 2012 and, as a result, recognized settlement expense along with an increase of $103 million in actuarial losses, net of settlement expenses. The net increase in actuarial losses is reported in other comprehensive income.
During the first threenine months of 2012, we made contributions of $51$162 million to our funded pension plans. We expect to make additional contributions up to an estimated $62$2 million to our funded pension plans over the remainder of 2012. Current benefit payments related to unfunded pension and other postretirement benefit plans were $5$7 million and $4$12 million during the first threenine months of 2012.2012.
10. Income Taxes
The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income and the relative magnitude of these sources of income. The provision for income taxes is allocated on a discrete, stand-alone basis to pretax segment income and to individual items not allocated to segments. The difference between the total provision and the sum of the amounts allocated to segments and to individual items not allocated to segments is reported in “Corporate and other unallocated items” shown in Note 8.
Our effective tax rate in the first quarternine months of 2012 is 69 percent. was 72 percent. This rate is higher than the U.S. statutory rate of 35 percent primarily due to earnings from foreign jurisdictions, primarily Norway and Libya, where the tax rate isrates are in excess of the U.S. statutory rate. An increase in earnings and associated taxes from foreign jurisdictions, primarily Norway, as compared to prior periods caused an increase in our valuation allowance on current year foreign tax credits. In Libya, where the statutory tax rate is in excess of 90 percent, limited production resumed in the fourth quarter of 2011 and liquid hydrocarbon sales resumed in the first quarter of 2012. A reliable estimate of 2012 annual ordinary income from our Libyan operations cannot be made and the range of possible scenarios when including ordinary income from our Libyan operations in the worldwide annual effective tax rate calculation demonstrates significant variability. As such, for the threefirst nine months ended March 31,of 2012, an estimated annual effective tax rate was calculated excluding Libya and applied to consolidated ordinary income excluding Libya and the tax provision applicable to Libyan ordinary income was recorded as a discrete item in the period. Excluding Libya, the effective tax rate would be 64 percent for the first quarternine months of 2012.2012.
Our effective tax rate in the first quarternine months of 2011 was 5464 percent which is higher than the U.S. statutory tax rate of 35 percent primarily due to earnings from foreign jurisdictions where the tax rate isrates are in excess of the U.S. statutory rate and the valuation allowance recorded against 2011 foreign tax credits.
MARATHON OIL CORPORATION
Notes In addition, in the second quarter of 2011, we recorded a deferred tax charge related to Consolidated Financial Statements (Unaudited)
an internal restructuring of our international subsidiaries.
The following table summarizes the activity in unrecognized tax benefits:
| | | | Three Months Ended March 31, | | Nine Months Ended September 30, |
(In millions) | | 2012 | | | 2011 | | 2012 | | 2011 |
Beginning balance | | $ | 157 | | | $ | 103 | | $ | 157 |
| | $ | 103 |
|
Additions based on tax positions related to the current year | | | 1 | | | | 1 | | 2 |
| | 3 |
|
Reductions based on tax positions related to the current year | | | - | | | | (1 | ) | (1 | ) | | (3 | ) |
Additions for tax positions of prior years | | | 52 | | | | 36 | | 97 |
| | 71 |
|
Reductions for tax positions of prior years | | | (55 | ) | | | (6 | ) | (66 | ) | | (24 | ) |
Settlements | | | (1 | ) | | | - | | (12 | ) | | (9 | ) |
Ending balance | | $ | 154 | | | $ | 133 | | $ | 177 |
| | $ | 141 |
|
If the unrecognized tax benefits as of March 31,September 30, 2012 were recognized, $104$114 million would affect our effective income tax rate. There were $21$143 million of uncertain tax positions as of March 31,September 30, 2012 for which it is reasonably possible that the amount of unrecognized tax benefits would decrease during the next twelve months.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
11. Inventories
Inventories are carried at the lower of cost or market value.
| | | March 31, | | December 31, | | September 30, | | December 31, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
Liquid hydrocarbons, natural gas and bitumen | | $ | 73 | | | $ | 147 | | $ | 72 |
| | $ | 147 |
|
Supplies and sundry items | | | 223 | | | | 214 | | 252 |
| | 214 |
|
Total inventories | | $ | 296 | | | $ | 361 | | |
Total inventories, at cost | | $ | 324 |
| | $ | 361 |
|
12. Property, Plant and Equipment
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2012 | | 2011 |
E&P | | | |
United States | $ | 22,167 |
| | $ | 19,679 |
|
International | 13,185 |
| | 12,579 |
|
Total E&P | 35,352 |
| | 32,258 |
|
OSM | 10,070 |
| | 9,936 |
|
IG | 38 |
| | 37 |
|
Corporate | 424 |
| | 341 |
|
Total property, plant and equipment | 45,884 |
| | 42,572 |
|
Less accumulated depreciation, depletion and amortization | (18,438 | ) | | (17,248 | ) |
Net property, plant and equipment | $ | 27,446 |
| | $ | 25,324 |
|
| | March 31, | | | December 31, | |
(In millions) | | 2012 | | | 2011 | |
E&P | | | | | | |
United States | | $ | 19,422 | | | $ | 19,679 | |
International | | | 12,717 | | | | 12,579 | |
Total E&P | | | 32,139 | | | | 32,258 | |
OSM | | | 9,988 | | | | 9,936 | |
IG | | | 37 | | | | 37 | |
Corporate | | | 385 | | | | 341 | |
Total property, plant and equipment | | | 42,549 | | | | 42,572 | |
Less accumulated depreciation, depletion and amortization | | | (17,184 | ) | | | (17,248 | ) |
Net property, plant and equipment | | $ | 25,365 | | | $ | 25,324 | |
In the first quarter of 2011, production operations in Libya were suspended. In the fourth quarter of 2011, limited production resumed and duringresumed. Since that time, average net liquid hydrocarbon sales volumes have increased to 49 thousand barrels per day (“mbbld”) in the firstthird quarter of 2012 sales volumes were 17 thousand barrels per day. The returnand 37 mbbld in the first nine months of our operations in Libya to pre-conflict levels is unknown at this time; however, we2012. We and our partners in the Waha concessions are assessingcontinue to assess the condition of our assets in Libya and determining when the full resumption of operations will be viable.uncertainty around sustained production and sales levels remains.
Exploratory well costs capitalized greater than one year after completion of drilling (“suspended”) were $255$207 million as of March 31,September 30, 2012 an increase of $33 million. The net decrease in such costs from December 31, 2011 primarily related to the Caterpillar discoverychanges in three areas. Norway which was drilled in the first quarterexploration costs of 2011. Data from$55 million incurred between 2009 and 2011 have been suspended for greater than one year, pending commencement of the Boyla development which is beingwas submitted to the Norwegian government for approval will be usedin June and approved in October 2012. Drilling on the Shenandoah prospect in the Gulf of Mexico resumed in June 2012. Costs of $38 million related to determineShenandoah are no longer suspended. The Innsbruck well was reentered in September 2012; therefore, costs of $60 million related to the best plan of development for the Caterpillar discovery.prospect are no longer suspended.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
13. Fair Value Measurements
Fair Values –- Recurring
As of March 31, 2012The following table presents assets and December 31, 2011, balances related to interest rate swapsliabilities accounted for at fair value on a recurring basis were noncurrent assetsas of $4 million and $5 million. Foreign currency forwards accounted forSeptember 30, 2012 by fair value hierarchy level.
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2012 |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Collateral | | Total |
Derivative instruments, assets | | | | | | | | | |
Commodity | $ | — |
| | $ | 47 |
| | $ | — |
| | $ | 1 |
| | $ | 48 |
|
Interest rate | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Foreign currency | — |
| | 20 |
| | — |
| | — |
| | 20 |
|
Derivative instruments, assets | — |
| | 89 |
| | — |
| | 1 |
| | 90 |
|
Derivative instruments, liabilities | | | | | | | | | |
Commodity | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
Foreign currency | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
Derivative instruments, liabilities | $ | — |
| | $ | 3 |
| | $ | — |
| | $ | — |
| | $ | 3 |
|
Commodity swaps in Level 2 are measured at fair value onwith a recurring basis were current liabilitiesmarket approach using prices obtained from exchanges or pricing services, which have been corroborated with data from active markets for similar assets and liabilities. Commodity options in Level 2 are valued using The Black-Scholes Model. Inputs to this model include prices as noted above, discount factors, and implied market volatility. The inputs used to estimate fair value are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of $8 million at March 31, 2012.
the instruments. Collateral deposits related to commodity derivatives are in broker accounts covered by master netting agreements.
Interest rate swaps are measured at fair value with a market approach using actionable broker quotes which are Level 2 inputs. Foreign currency forwards are measured at fair value with a market approach using third-party pricing services, such as Bloomberg L.P., which have been corroborated with data from active markets for similar assets and liabilities, and are Level 2 inputs.
As of December 31, 2011, balances related to interest rate swaps accounted for at fair value on a recurring basis were noncurrent assets of $5 million measured at fair value using actionable broker quotes which are Level 2 inputs. There were no other significant recurring fair value measurements as of December 31, 2011.
Fair Values - Nonrecurring
The following is a reconciliation of the net beginning and ending balances recorded for derivative instruments classified as Level 3 in the fair value hierarchy.
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
Beginning balance | | $ | - | | | $ | (2 | ) |
Included in net income | | | - | | | | (1 | ) |
Settlements | | | - | | | | 2 | |
Ending balance | | $ | - | | | $ | (1 | ) |
Net income for the quarter ended March 31, 2011 included unrealized losses of $1 million related to Level 3 derivatives held on that date. See Note 14 for the impacts of all derivative instruments on our consolidated statements of income.
Fair Values – Nonrecurring
The following table showstables show the values of assets, by major category,class, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.
| | | Three Months Ended March 31, | | Three Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
(In millions) | | Fair Value | | | Impairment | | | Fair Value | | | Impairment | | Fair Value | | Impairment | | Fair Value | | Impairment |
| | | | | | | | | | | | | |
Long-lived assets held for use | | | 75 | | | | 262 | | | $ | - | | | $ | - | | $ | 2 |
| | $ | 8 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2012 | | 2011 |
(In millions) | Fair Value | | Impairment | | Fair Value | | Impairment |
Long-lived assets held for use | $ | 77 |
| | $ | 271 |
| | $ | 226 |
| | $ | 282 |
|
Intangible assets | $ | — |
| | $ | — |
| | $ | — |
| | $ | 25 |
|
Our E&P segment’s Ozona development in the Gulf of Mexico began production in December 2011. During the first quarter of 2012, production rates declined significantly and have remained below initial expectations. Accordingly, our reserve engineers performed an evaluation of our future production as well as our reserves which concluded in early April 2012. This resulted in a
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
2 million barrel of oil equivalent reduction in proved reserves and a $261$261 million impairment charge in the first quarter of 2012. The fair value of the Ozona development was determined using an income approach based upon internal estimates of future production levels, prices and discount rate, all Level 3 inputs. Inputs to the fair value measurement included reserve and production estimates made by our reservoir engineers, estimated liquid hydrocarbon prices based on the Louisiana Light Sweet 12-month price range, as we think production will not be significant beyond twelve months, adjusted for quality and location differentials, and forecasted operating expenses for the remaining estimated life of the reservoir.
IncludedIn May 2011, significant water production and reservoir pressure declines occurred at our E&P segment’s Droshky development in the totalGulf of Mexico. Consequently, 3.4 million barrels of oil equivalent of proved reserves were written off and a $273 million impairment of this long-lived asset to fair value was recorded in the second quarter of 2011. The $226 million fair value of the Droshky development was determined using an income approach based upon internal estimates of future production levels, prices and discount rate, all Level 3 inputs.
In the second quarter of 2011, our outlook for U.S. natural gas prices indicated that it was unlikely that sufficient U.S. demand for LNG would materialize by 2021, which is when our rights lapse under arrangements at the Elba Island, Georgia regasification facility. Using an income approach based upon internal estimates of natural gas prices and future deliveries, which are Level 3 inputs, we determined that the contract had no remaining fair value and recorded a full impairment of this intangible asset held in our Integrated Gas segment.
Other impairments above are an additional $1 million in impairments relating to otherof long-lived assets held for use inby our E&P segment thatin the third quarter and first nine months of 2012 and 2011 were a result of reduced drilling expectations, reduction of estimated reserves or declining natural gas prices. The fair values of those assets were measured using an income approach based upon internal estimates of future production levels, commodity prices and discount rate, which are Level 3 inputs. Natural gas prices began declining in September 2011 and have continued to decline in 2012. Should natural gas prices remain depressed, impairment charges related to our natural gas assets may be necessary.
There were no significant impairments in the first quarter of 2011.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
Fair Values – Reported
The following table summarizes financial instruments, excluding the derivative financial instruments reported above, by individual balance sheet line item at March 31, 2012, and December 31, 2011.
| | March 31, 2012 | | | December 31, 2011 | |
| | Fair | | | Carrying | | | Fair | | | Carrying | |
(In millions) | | Value | | | Amount | | | Value | | | Amount | |
Financial assets | | | | | | | | | | | | |
Other current assets | | $ | 142 | | | $ | 143 | | | $ | 146 | | | $ | 148 | |
Other noncurrent assets | | | 107 | | | | 107 | | | | 68 | | | | 68 | |
Total financial assets | | | 249 | | | | 250 | | | | 214 | | | | 216 | |
Financial liabilities | | | | | | | | | | | | | | | | |
Long-term debt, including current portion(a) | | | 5,431 | | | | 4,700 | | | | 5,479 | | | | 4,753 | |
Deferred credits and other liabilities | | | 54 | | | | 53 | | | | 36 | | | | 38 | |
Total financial liabilities | | $ | 5,485 | | | $ | 4,753 | | | $ | 5,515 | | | $ | 4,791 | |
(a) Excludes capital leases.
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivables and payables. We believe the carrying values of these current assetsaccounts receivables and liabilitiespayables approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating, and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. An exception to this assessment is the current portion of our long-term debt, which is
The following table summarizes financial instruments, excluding trade accounts receivables and payables and derivative financial instruments, and their reported with long-term debt abovefair value by individual balance sheet line item at September 30, 2012 and discussed below.December 31, 2011:
|
| | | | | | | | | | | | | | | |
| September 30, 2012 | | December 31, 2011 |
| Fair | | Carrying | | Fair | | Carrying |
(In millions) | Value | | Amount | | Value | | Amount |
Financial assets | | | | | | | |
Other current assets | $ | 135 |
| | $ | 134 |
| | $ | 146 |
| | $ | 148 |
|
Other noncurrent assets | 158 |
| | 158 |
| | 68 |
| | 68 |
|
Total financial assets | 293 |
| | 292 |
| | 214 |
| | 216 |
|
Financial liabilities | |
| | |
| | |
| | |
|
Other current liabilities | 13 |
| | 13 |
| | — |
| | — |
|
Long-term debt, including current portion(a) | 5,639 |
| | 4,653 |
| | 5,479 |
| | 4,753 |
|
Deferred credits and other liabilities | 100 |
| | 101 |
| | 36 |
| | 38 |
|
Total financial liabilities | $ | 5,752 |
| | $ | 4,767 |
| | $ | 5,515 |
| | $ | 4,791 |
|
(a) Excludes capital leases.
Fair values of our remaining financial assets included in other current assets and other noncurrent assets and of our financial liabilities included in other current liabilities and deferred credits and other liabilities are measured using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value.
Over 90 percentMost of our long-term debt instruments are publicly-traded. A market approach based upon quotes from major financial institutions is used to measure the fair value of such debt. Because these quotes cannot be independently verified to the an active
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
market they are considered Level 3 inputs. The fair value of our debt that is not publicly-traded is measured using an income approach. The future debt service payments are discounted using the rate at which we currently expect to borrow. All inputs to this calculation are Level 3.
14. Derivatives
For information regarding the fair value measurement of derivative instruments, see Note 13. The following table presents the gross fair values of derivativederivatives instruments, excluding cash collateral, and where they appear on the consolidated balance sheetsheets as of March 31, 2012.September 30, 2012.
|
| | | | | | | | | | | | | |
| September 30, 2012 | | |
(In millions) | Asset | | Liability | | Net Asset | | Balance Sheet Location |
Fair Value Hedges | | | | | | | |
Foreign currency | $ | 20 |
| | $ | — |
| | $ | 20 |
| | Other current assets |
Interest rate | 22 |
| | — |
| | 22 |
| | Other noncurrent assets |
Total Designated Hedges | 42 |
| | — |
| | 42 |
| | |
| | | | | | | |
Not Designated as Hedges | | | | | | | |
Commodity | 30 |
| | — |
| | 30 |
| | Other current assets |
Commodity | 20 |
| | — |
| | 20 |
| | Other noncurrent assets |
Total Not Designated as Hedges | 50 |
| | — |
| | 50 |
| | |
Total | $ | 92 |
| | $ | — |
| | $ | 92 |
| | |
| March 31, 2012 | | |
(In millions) | Asset | | Liability | | Net Asset | | Balance Sheet Location |
Fair Value Hedges | | | | | | | | | | |
Interest rate | | $ | 4 | | | $ | - | | | $ | 4 | | Other noncurrent assets |
Total Designated Hedges | | | 4 | | | | - | | | | 4 | | |
Total | | $ | 4 | | | $ | - | | | $ | 4 | | |
| | | | | | | | | | | | | |
| March 31, 2012 | | |
(In millions) | | Asset | | | Liability | | | Net Liability | | Balance Sheet Location |
Fair Value Hedges | | | | | | | | | | | | | |
Foreign currency | | $ | - | | | $ | 8 | | | $ | 8 | | Other current liabilities |
Total Designated Hedges | | | - | | | | 8 | | | | 8 | | |
Total | | $ | - | | | $ | 8 | | | $ | 8 | | |
13
|
| | | | | | | | | | | | | |
| September 30, 2012 | | |
(In millions) | Asset | | Liability | | Net Liability | | Balance Sheet Location |
Fair Value Hedges | | | | | | | |
Foreign currency | $ | — |
| | $ | 1 |
| | $ | 1 |
| | Other current liabilities |
Total Designated Hedges | — |
| | 1 |
| | 1 |
| | |
| | | | | | | |
Not Designated as Hedges | | | | | | | |
Commodity | — |
| | 5 |
| | 5 |
| | Other current liabilities |
Total Not Designated as Hedges | — |
| | 5 |
| | 5 |
| | |
Total | $ | — |
| | $ | 6 |
| | $ | 6 |
| | |
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
As of December 31, 2011, our only derivatives outstanding were interest rate swaps that were fair value hedges, which had an asset value of $5$5 million and are located on the consolidated balance sheet in Other noncurrent assets.
Derivatives Designated as Cash Flow Hedges
As of March 31, 2012, no derivatives were designated as cash flow hedges.
Derivatives Designated as Fair Value Hedges
As of March 31,September 30, 2012, we had multiple interest rate swap agreements with a total notional amount of $600$600 million at a weighted average, London Interbank OfferedOffer Rate (“LIBOR”) based,-based, floating rate of 4.73 percent.4.71 percent.
ForeignAs of September 30, 2012, our foreign currency forwards designated as fair value hedges at March 31, 2012 had an aggregate notional amount of 3,9543,939 million Norwegian Kroner at a weighted average forward rate of 5.642.5.911. These forwards hedge our current Norwegian tax liability and have settlement dates April through August 2012.February 2013.
In connection with the debt retired in February and March 2011 discussed in Note 15, we settled interest rate swaps with a notional amount of $1,450 million.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes the pretax effect of derivative instruments designated as hedges of fair value in our consolidated statements of income:income are summarized in the table below.
|
| | | | | | | | | | | | | | | | |
| | Gain (Loss) |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(In millions) | Income Statement Location | 2012 | | 2011 | | 2012 | | 2011 |
Derivative | | | | | | | | |
Interest rate | Net interest and other | $ | 6 |
| | $ | 26 |
| | $ | 17 |
| | $ | 25 |
|
Interest rate | Loss on early extinguishment of debt | — |
| | — |
| | — |
| | 29 |
|
Foreign currency | Provision for income taxes | $ | 22 |
| | $ | — |
| | $ | (18 | ) | | $ | — |
|
Hedged Item | | |
| | |
| | |
| | |
|
Long-term debt | Net interest and other | $ | (6 | ) | | $ | (26 | ) | | $ | (17 | ) | | $ | (25 | ) |
Long-term debt | Loss on early extinguishment of debt | — |
| | — |
| | — |
| | (29 | ) |
Accrued taxes | Provision for income taxes | $ | (22 | ) | | $ | — |
| | $ | 18 |
| | $ | — |
|
| | | Gain (Loss) | |
| | | Three Months Ended March 31, | |
(In millions) | Income Statement Location | | 2012 | | | 2011 | |
Derivative | | | | | | | |
Interest rate | Net interest and other | | $ | (1 | ) | | $ | (4 | ) |
Foreign currency | Provision for income taxes | | | (8 | ) | | | - | |
| | | | (9 | ) | | | (4 | ) |
Hedged Item | | | | | | | | | |
Long-term debt | Net interest and other | | | 1 | | | | 4 | |
Accrued taxes | Provision for income taxes | | | 8 | | | | - | |
| | | $ | 9 | | | $ | 4 | |
Derivatives not Designated as Hedges
AsIn August 2012, we entered crude oil derivatives related to a portion of Marchour forecast U.S. E&P crude oil sales through December 31, 2012,2013. These commodity derivatives were not designated as hedges included a gainand are shown in the table below.
|
| | | |
Term | Bbls per Day | Weighted Average Price per Bbl | Benchmark |
Swaps | | | |
October 2012 - December 2013 | 20,000 | $96.29 | West Texas Intermediate |
October 2012 - December 2013 | 25,000 | $109.19 | Brent |
Option Collars | | | |
October 2012 - December 2013 | 15,000 | $90.00 floor / $101.17 ceiling | West Texas Intermediate |
October 2012 - December 2013 | 15,000 | $100.00 floor / $116.30 ceiling | Brent |
The following table summarizes the effect of $2 million that appears on the sales and other operating revenues line ofall derivative instruments not designated as hedges in our consolidated income statement.statements of income.
|
| | | | | | | | | | | | | | | | |
| | Gain (Loss) |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
(In millions) | Income Statement Location | 2012 | | 2011 | | 2012 | | 2011 |
Commodity | Sales and other operating revenues | $ | 45 |
| | $ | 2 |
| | $ | 46 |
| | $ | 3 |
|
15. Debt
On October 29, 2012, we issued $1 billion aggregate principal amount of senior notes bearing interest at 0.9 percent with a maturity date of November 1, 2015 and $1 billion aggregate principal amount of senior notes bearing interest at 2.8 percent with a maturity date of November 1, 2022. Interest on the senior notes is payable semi-annually beginning May 1, 2013. The proceeds are being used to pay off commercial paper and for general corporate purposes.
At March 31,September 30, 2012, we had no borrowings outstanding against our existing $3 billion revolving credit facility, ordescribed below, and $1,839 million in commercial paper outstanding under our U.S. commercial paper program that is backed by the revolving credit facility. During the first quarter of 2012, $100 million of commercial paper was issued and repaid.
During the first quarter of 2012, $53 million principal amount of debt carrying a 9.375 percent interest rate was repaid at maturity.
In April 2012, we terminated our $3.0$3.0 billion five-year revolving credit facility and replaced it with a new $2.5$2.5 billion unsecured five-year revolving credit facility (the “Credit Facility”). The Credit Facility matures in April 2017 but allows us to request two one-year extensions. It contains an option to increase the commitment amount by up to an additional $1.0$1.0 billion, subject to the consent of any increasing lenders, and includes sub-facilities for swing-line loans and letters of credit up to an aggregate amount of $100$100 million and $500$500 million, respectively. Fees on the unused commitment of each lender range from 10 basis points to 25 basis points per year depending on our credit ratings. Borrowings under the Credit Facility bear interest, at our option,
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
at either (a) thean adjusted LIBOR rate plus a margin ranging from 87.5 basis points to 162.5 basis points per year depending on our credit ratings or (b) the Base Rate plus a margin ranging from 0.0 basis points to 62.5 basis points depending on our credit ratings. Base Rate is defined as a per annum rate equal to the greatest of (a) the prime rate, (b) the federal funds rate plus one-half of one percent and (c) LIBOR for a one-month interest period plus 1 percent.percent.
The agreement contains a covenant that requires our ratio of total debt to total capitalization not to exceed 65 percent as of the last day of each fiscal quarter. If an event of default occurs, the lenders may terminate the commitments under the Credit Facility and require the immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit under the Credit Facility.
In the second quarter of 2012, we retired the remaining $23 million principal amount of our 5.375 percent revenue bonds due December 2013. No gain or loss was recorded on this early extinguishment of debt. During the first quarter of 2012, $53 million principal amount of debt carrying a 9.375 percent interest rate was repaid at maturity.
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited
In February and MarchDuring the first quarter of 2011, we retired $2,948$2,498 million principle aggregate principal amount of debt at a weighted average price equal to 1.12112 percent of face value. A $279$279 million loss on early extinguishment of debt was recognized in the first quarter of 2011. The loss includedincludes related deferred financing and premium costs partially offset by the gain on settled interest rate swaps.
16. Incentive Based Compensation
Stock Option and Restricted Stock Awards
The following table presents a summary of stock option award and restricted stock award activity for the three-month period ended March 31, 2012:first nine months of 2012:
| | Stock Options | | | Restricted Stock | |
| | | | | Weighted | | | | | | Weighted | |
| | Number of | | | Average | | | Number of | | | Average Grant | |
| | Shares | | | Exercise Price | | | Awards | | | Date Fair Value | |
Outstanding at December 31, 2011 | | | 21,370,715 | | | $ | 24.41 | | | | 3,703,978 | | | $ | 25.88 | |
Granted (a) | | | 1,462,779 | | | | 35.06 | | | | 1,167,013 | | | | 34.95 | |
Options exercised/Stock vested | | | (720,897 | ) | | | 19.55 | | | | (208,135 | ) | | | 18.42 | |
Canceled | | | (131,524 | ) | | | 27.05 | | | | (51,966 | ) | | | 25.54 | |
Outstanding at March 31, 2012 | | | 21,981,073 | | | $ | 25.27 | | | | 4,610,890 | | | $ | 28.51 | |
|
| | | | | | | | | | | | | |
| Stock Options | | Restricted Stock |
| Number of Shares | | Weighted Average Exercise Price | | Awards | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2011 | 21,370,715 |
| |
| $24.41 |
| | 3,703,978 |
| |
| $25.88 |
|
Granted | 1,858,872 |
| (a) |
| $33.52 |
| | 2,169,744 |
| |
| $31.61 |
|
Options Exercised/Stock Vested | (1,256,318 | ) |
|
| $18.25 |
| | (1,142,195 | ) | |
| $25.18 |
|
Cancelled | (509,748 | ) |
|
| $28.29 |
| | (287,278 | ) | |
| $27.96 |
|
Outstanding at September 30, 2012 | 21,463,521 |
| |
| $25.47 |
| | 4,444,249 |
| |
| $28.72 |
|
(a)(a) The weighted average grant date fair value of stock option awards granted was $11.62$9.94 per share.
Performance Unit Awards
Performance unit awards
During the first quarter of 2012, we granted 13 million performance units to executive officers. These units have a 36-month performance period.
17. Supplemental Cash Flow Information
| | | | Three Months Ended March 31, | | Nine Months Ended September 30, |
(In millions) | | 2012 | | | 2011 | | 2012 | | 2011 |
Net cash provided from operating activities: | | | | | | | | | |
Interest paid (net of amounts capitalized) | | $ | 50 | | | $ | 69 | | $ | 164 |
| | $ | 197 |
|
Income taxes paid to taxing authorities | | | 828 | | | | 605 | | 3,457 |
| | 2,183 |
|
Commercial paper and revolving credit arrangements, net: | | | | | | | | | |
Commercial paper, net: | | |
| | |
|
Commercial paper - issuances | | $ | 100 | | | $ | - | | $ | 10,420 |
| | $ | — |
|
- repayments | | | (100 | ) | | | - | | (8,581 | ) | | — |
|
Total | | $ | - | | | $ | - | | |
Noncash investing activities: | | | | | | | | | |
| | |
|
Debt payments made by United States Steel | | $ | 19 |
| | $ | 18 |
|
Liabilities assumed in acquisition | | 85 |
| | — |
|
Change in capital expenditure accrual | | $ | 46 | | | $ | (24 | ) | 170 |
| | (61 | ) |
MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
18. Commitments and Contingencies
We are a defendant in a number of lawsuits arising in the ordinary course of business, including, but not limited to, royalty claims, contract claims and environmental claims. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe the resolution of these proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. Certain of these matters are discussed below.
Litigation -– In March 2011, Noble Drilling (U.S.) LLC (“Noble”) filed a lawsuit against us in the District Court of Harris County, Texas, alleging, among other things, breach of contract, breach of the duty of good faith and fair dealing, and negligent misrepresentation, relating to a multi-year drilling contract for a newly constructed drilling rig to be deployed in the U.S. Gulf of Mexico. We filed an answer in April 2011, contending, among other things, failure to perform, failure to comply with material obligations, failure to mitigate alleged damages and that Noble failed to provide the rig according to the operating, performance and safety requirements specified in the drilling contract. Noble is seeking an unspecified amount offor damages. We are vigorously defending this litigation. The ultimate outcome of this lawsuit, including any financial effect on us, remains uncertain. We do not believe an estimate of a reasonably probable loss (or range of loss) can be made for this lawsuit at this time.
Guarantees– After our 2009 sale of the subsidiary holding our interest in the Corrib natural gas development offshore Ireland, one guarantee of that entity's performance related to asset retirement obligations remains issued to certain Irish government entities until the Irish government and the current Corrib partners agree to release our guarantee and accept the purchaser's guarantee to replace it. The maximum potential undiscounted payments related to asset retirement obligations under this guarantee as of September 30, 2012 are $40 million.
Contractual commitments– –At MarchSeptember 30, 2012 and December 31, 2012, our2011, Marathon’s contract commitments to acquire property, plant and equipment totaled $2,775 million.were $974 million and $664 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are an international energy company with operations in the U.S., Canada, Africa, the Middle East and Europe. Our operations are organized into three reportable segments:
Exploration and Production (“E&P”) which explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis.
w | Exploration and Production (“E&P”) which explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis. |
w | Oil Sands Mining (“OSM”) which mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil. |
w | Oil Sands Mining (“OSM”) which mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil. Integrated Gas (“IG”) which produces and markets products manufactured from natural gas, such as liquefied natural gas (“LNG”) and methanol, in Equatorial Guinea. |
Certain sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements typically contain words such as “anticipates,” “believes,” “estimates,” “expects,” “targets,” “plans,” “projects,” “could,” “may,” “should,” “would” or similar words indicating that future outcomes are uncertain. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in the forward-looking statements. For additional risk factors affecting our business, see Item 1A. Risk Factors in our 2011 Annual Report on Form 10-K.
Key Operating and Financial Activities
In the firstthird quarter of 2012, notable items were:
· | Net liquid hydrocarbon and natural gas sales volumes of 383 thousand barrels of oil equivalent per day (“mboed”), of which 62 percent was liquid hydrocarbons |
· | Net international liquid hydrocarbon sales volumes, for which average realizations have exceeded West Texas Intermediate (“WTI”) crude oil, were 62 percent of total liquid hydrocarbon sales |
· | Resumed liftings from Libya for average net sales of 17 mboed and production available for sale of 35 mboed |
· | Net synthetic crude oil sales of 44 thousand barrels per day (“mbbld”), a 19 percent increase over the same period of last year |
· | Average net sales volumes of 26 mboed from the Bakken shale, an 86 percent increase over the same quarter of last year |
· | Average net sales volumes of 14 mboed from the Eagle Ford shale, with 17 dedicated drilling rigs and 4 dedicated hydraulic fracturing crews working in the Eagle Ford shale |
· | Gulf of Mexico Ozona development impairment of $261 million due to a 2 million barrels of oil equivalent (“mmboe”) reduction in estimated proved reserves |
· | Cash-adjusted debt-to-capital ratio of 20 percent |
· | Disposed of our interests in several Gulf of Mexico crude oil pipeline systems for a pretax gain of $166 million |
Some significant April 2012 activities include:
· | Replaced existing revolving credit facility with a new $2.5 billion facility maturing April 2017 |
· | Entered an agreement to dispose of all of our assets in Alaska |
· | Entered multiple agreements to expand holdings in the core of the Eagle Ford shale by approximately 20,000 net acres |
Overview and Outlook
Exploration and Production
Production
Net liquid hydrocarbon and natural gas sales volumes of 452 thousand barrels of oil equivalent per day (“mboed”), of which 65 percent was liquid hydrocarbons
Net international liquid hydrocarbon sales volumes, for which average realizations have exceeded West Texas Intermediate (“WTI”) crude oil, were 62 percent of total liquid hydrocarbon sales
Eagle Ford shale average net sales volumes of 40 mboed, an increase of 90 percent from the second quarter of 2012
Production from Libya increased over the second quarter of 2012, with average net sales of 53 mboed
Bakken shale average net sales volumes of 30 mboed, a 87 percent increase over the same quarter of last year
Closed the acquisition of Paloma Partners II, LLC
Assumed operatorship of the Vilje field offshore Norway
Some significant fourth quarter activities through November 7, 2012 include:
Closed acquisition of an additional 4,300 net acres in the core of the Eagle Ford shale
Signed agreement for a 20 percent non-operated interest in the South Omo concession onshore Ethiopia
Reentered Gabon by acquiring an interest in an exploration license
Acquired interests in two onshore exploration blocks in Kenya
Farmed out 35 percent working interests in the Harir and Safen blocks in the Kurdistan Region of Iraq
Issued $2 billion of senior notes
Overview and Outlook
Exploration and Production
Production
Net liquid hydrocarbon and natural gas sales averaged 383452 mboed during the third quarter and 414 mboed in the first quarternine months of 2012 compared to 400349 mboed and 362 mboed in the same quarterperiods of 2011. Net liquid hydrocarbon sales volumes increased in the U.S. for both the third quarter and first nine months of 2012, reflecting the impact of production from the Eagle Ford shale assets acquired in the fourth quarter of 2011 and our ongoing development programs in the Eagle Ford, Bakken and other U.S. unconventionalAnadarko Woodford shale resource plays. NetThe resumption of sales from Libya in the first quarter of 2012 after production had ceased there in February of 2011 was the most significant increase in international sales volumes. In addition, net liquid hydrocarbon sales volumes from the U.K. were lower in the first quarter of 2012 periods than in the same periodperiods of 2011 due to unplanned repairs at Foinaventurnarounds in the third quarter and the timing of liftings.
In 2012, we continued to ramp up operations in the core of the Eagle Ford shale play in Texas. Average net sales volumes from the Eagle Ford shale were 40 mboed and 25 mboed in the third quarter and first nine months of 2012. As announced in August, we had 17have reduced our rig count to 18 operated rigs drilling andwhile maintaining four dedicated hydraulic fracturing crews working asand two more on a spot basis. During the third quarter of March 31, 2012. Net liquid hydrocarbon2012, we drilled 78 gross wells and brought 73 gross wells to sales were 14 mboed for a total of 180 gross wells drilled in the first quarternine months of 2012. Our average time to drill a well in the Eagle Ford shale has decreased to approximately 24 days; therefore, we now expect to drill 250 to 260 gross Eagle Ford wells during 2012, an increase of approximately 20 wells from previous estimates. In addition to the improvements in the speed and efficiency in drilling and completions, we continue to optimize well spacing which could significantly increase drillable locations and recoverable resources. We have been performing spacing pilot programs in the Eagle Ford shale which will complete early in 2013 so that we will have applicable technical results by mid-year. To complement drilling and completionscompletion activity in the Eagle Ford shale, we continue to build infrastructure to support production growth across the operating area. Approximately 90 milesWe are now able to transport approximately 60 percent of gathering lines were installed in the first quarter of 2012, in addition to two new central gathering and treating facilities, with six additional facilities currently under construction. our Eagle Ford production by pipeline.
First quarter 2012 average Average net sales volumes from the Bakken shale were 2630 mboed and 27 mboed in the third quarter and first nine months of 2012 compared to 1417 mboed and 15 mboed in the same quarterperiods of 2011. Our Bakken shale liquid hydrocarbon volumes averageaveraged approximately 9590 percent crude oil. We have eight drilling rigsoil, 5 percent natural gas liquids and three hydraulic fracturing crews working5 percent natural gas in the play. Additionally,first nine months of 2012. During the third quarter and first nine months of 2012, we drilled 25 gross and 72 gross wells with seven rigs, with a total of 30 gross and 77 gross wells brought to sales in the third quarter and the first nine months of 2012. By the end of October 2012, we had reduced our drilling pace has exceeded expectations this year with improved “spud-to-spud” drilling times.operated rig count in the Bakken shale to five. We continue to focus on downspacing and development in the Three Forks area.
In the Anadarko Woodford shale, net sales volumes averaged 510 mboed and 7 mboed during the third quarter and first quarternine months of 2012 compared to 12 mboed and 2 mboed in the same periods of 2011. During the thirdquarter of 2011. We2012, eight gross wells were brought to sales, with 14 gross wells brought to sales in the first nine months of 2012. As announced in August, in response to the continued decline in natural gas liquids prices and low natural gas prices, we have six drilling rigs workingreduced our rig count in the Anadarko Woodford play from six to two. Other areas of potential growth exist in Oklahoma and we are currently evaluating opportunities on legacy assets where performancethe acreage is being drivenheld by continued strong resultsproduction. Future activity in these Oklahoma resource basins will be dependent upon the Cana core area,recovery of natural gas and additional operated activity on our Knox acreage position. We are planning to begin an 80-acre infill project in the Knox area in May 2012.natural gas liquids prices.
In the first quarter 2011, production operations in Libya were suspended. In the fourth quarter of 2011, limited production resumed and has increased during 2012 so that during the third quarter and first quarternine months of 2012, net sales volumes were 17averaged 53 mboed and 51 mboed. The return of our operations in Libya to pre-conflict levels is unknown at this time; however, weWe and our partners in the Waha concessions are assessingcontinue to assess the condition of our assets.assets in Libya and uncertainty around sustained production and sales levels remains.
In June 2012, we submitted a plan for the development and operation of the Boyla field (PL 340) in the North Sea to the Norwegian Ministry of Petroleum and Energy, which was approved in October 2012. The Boyla field is located approximately 17 miles south of our operated Alvheim field. We hold a 65 percent working interest in the field. First production from Boyla is expected in the fourth quarter of 2014.
In the second quarter of 2012, we completed a four-day turnaround in Norway that was originally scheduled for 14 days in the third quarter. During the third quarter of 2012, we became operator of the Vilje field offshore Norway in which we own a 47 percent interest.
A 28-day turnaround began at our production operations in Equatorial Guinea on March 23, 2012. It was completed in April 2012, seven days ahead of schedule and below budget.
Our E&P segment’s Ozona development in the Gulf of Mexico began production in December 2011. During the first quarter of 2012, production rates declined significantly and have remained below initial expectations. Accordingly, our reserve engineers performed
an evaluation of our future production as well as our reserves which concluded in early April 2012. This resulted in a 2 mmboemillion barrels of oil equivalent reduction in proved reserves and a $261 million impairment charge in the first quarter of 2012.
Exploration
The appraisal well on the Shenandoah prospect located on Walker Ridge Block 51 in the Gulf of Mexico, in which we have a 10 percent outside-operated working interest, is currently drilling. In the third quarter of 2012, we resumed drilling the exploration well on the Gulf of Mexico Innsbruck prospect on Mississippi Canyon Block 993 in which we hold a 45 percent operated working interest. Through September 30, 2012, our net costs related to the well were $71 million. The well has drilled through multiple horizons with no commercial hydrocarbons found as of November 6, 2012. We anticipate reaching total depth within the next few days at a total net cost, including asset retirement obligations and leasehold costs, of approximately $100 million.
In the second quarter of 2012, a Gunflint prospect appraisal well confirmed expected reservoir properties and continuity, establishing the commercial viability of the field. The Gunflint discovery is located on Mississippi Canyon Block 948 and we have a 15 percent outside-operated working interest in the prospect. During the second quarter of 2012, the well costs and related unproved property costs related to the Kilchurn well were charged to exploration expenses.
We continue exploratory drilling in Poland where we hold a 51 percent working interest in 10 operated concessions and a 100 percent working interest in one concession. We have drilled 4 exploratory wells and are currently drilling a fifth well. We have collected extensive data, including well logs and core samples, which are being evaluated. We plan to begin a sixth well by year end 2012 which should reach total depth in 2013.
A 28-day turnaroundIn the Kurdistan Region of Iraq, we began atdrilling our production operationsfirst operated exploration well on the Harir block in Equatorial GuineaJuly 2012 and plan to drill an operated exploration well on March 23,the Safen block in the first quarter of 2013. After the farm out discussed below, we have 45 percent working interests in both the Harir and Safen blocks. On the non-operated Atrush block, we participated in an appraisal well during the third quarter of 2012. It was completedAdditionally, we participated in April 2012 seven days ahead of schedulea non-operated well that commenced drilling on the Sarsang block in September 2012. We hold a 20 percent working interest in the Atrush block and below budget.
Exploration
a 25 percent working interest in the Sarsang block.
During the first quarter of 2012, on the Birchwood oil sands lease located in Alberta, Canada, we conducted a seismic survey and drilled six water wells. We also submitted a regulatory application for a proposed 12 mbbldthousand barrel per day (“mbbld”) steam assisted gravity drainage (“SAGD”("SAGD") project at Birchwood. Pending regulatory approval, constructionproject sanction is expected to begin in 2014, with first oil projected in 2016.2017. We have a 100 percent working interest in Birchwood.
Acquisitions and DivestituresDispositions
We continually evaluate ways to optimize our portfolio for profitable growth through acquisitions and dispositions, with a previously stated goal of divesting between $1.5 billion and $3 billion over the period of 2011 through 2013. To date, we have entered into agreements for approximately $1.1 billion in divestitures, of which more than $700 million have been completed. Included in the $1.1 billion noted above is the pending sale of our Alaska assets which is discussed below.
On November 1, 2012, we closed the acquisition of an additional 4,300 net acres in the core of the Eagle Ford shale at a transaction cost of approximately $232 million before closing adjustments. This acquisition increased our average working interest by 5 to 7 percent in four core areas of mutual interest, included wells producing 3 net mboed at closing, and added 40 net drilling locations to our inventory. The closing of this transaction combined with the acquisition of Paloma Partners II, LLC ("Paloma acquisition"), brings our acquisitions thus far in 2012 in the core of the play to almost 25,000 additional net acres at an approximate cost of $1 billion. The Paloma acquisition closed in August 2012 as discussed below. We now have approximately 230,000 net acres in the core of the Eagle Ford shale. The unproved property costs related to an additional 100,000 non-core net acres were impaired in the third quarter of 2012 as discussed below in Results of Operations.
In October 2012, we entered into an agreement to acquire a 20 percent non-operated working interest in the South Omo concession onshore Ethiopia with an effective date of August 17, 2012. An exploration well is anticipated to commence drilling in South Omo during the fourth quarter of 2012. Cash consideration for this transaction will be $40 million, before closing adjustments, with an additional payment of $10 million due upon declaration of a commercial discovery. We expect to close the transaction, subject to necessary Ethiopian government approvals, before the end of 2012.
We acquired approximately 20,000 net acres in the core of the Eagle Ford shale during the first nine months of 2012. The largest transaction was the acquisition of Paloma Partners II, LLC, which closed August 1, 2012 for cash consideration of $768 million. In addition to the over 17,100 net acres acquired, at closing 17 gross operated and 9 gross non-operated wells were producing an average of 9 net mboed, of which 70 percent was liquid hydrocarbons. Smaller transactions closed during the second quarter of 2012. See Note 6 to the consolidated financial statements for further details of the Paloma acquisition.
In the third quarter of 2012, we sold approximately 5,800 net undeveloped acres located outside the core of the Eagle Ford shale for proceeds of $9 million, recording a loss of $18 million.
In July 2012, we entered into an agreement to acquire outside-operated positions in two onshore exploration blocks in northwest Kenya. Upon closing the $35 million transaction in October 2012, we now hold a 50 percent working interest in Block 9, where an exploration well is currently planned in mid-2013, and a 15 percent working interest in Block 12A.
Also in July 2012, we agreed to farm out interests in the Harir and Safen blocks in the Kurdistan Region of Iraq. The transaction closed in October 2012 and we received cash proceeds of $140 million, so that we now have a 45 percent working interest and carry the KRG for an additional 11 percent in each of the two blocks.
OnIn June 2012, we entered an agreement to acquire a 21 percent outside-operated working interest in the Diaba License G4-223 and its related permit onshore Gabon. The transaction closed in October 2012. The start of exploration drilling is expected in the first quarter of 2013.
During June 2012, we signed a new production sharing contract with the government of Equatorial Guinea for the exploration of Block A-12 offshore Bioko Island, located immediately west of our operated Alba Field. We have an 80 percent operated working interest in this block. The contract was ratified by the government in the third quarter of 2012. We also acquired an additional interest in Block D, bringing our working interest to 80 percent.
In May 2012, we executed agreements to relinquish our E&P segment’s operatorship of and participating interests in the Bone Bay and Kumawa exploration licenses in Indonesia. As a result, we accrued and reported a $36 million loss on disposal of assets in the second quarter of 2012. Government ratification of the agreements was received during the third quarter of 2012, which released us from our obligations and further commitments related to these licenses, and we paid the amount accrued.
In April 2012, we entered agreements to sell our Alaska assets. One transaction closed in the second quarter of 2012 with proceeds and a net gain of $7 million. The remaining transaction, with a value of $375 million before closing adjustments, is currently under review by the Federal Trade Commission and the Alaska Attorney General's office, which could impact the closing of this transaction.
In January 3, 2012, we closed on the sale of our interests in several Gulf of Mexico crude oil pipeline systems for proceeds of $206 million. This includes our equity method interests in Poseidon Oil Pipeline Company, L.L.C. and Odyssey Pipeline L.L.C., as well as certain other oil pipeline interests, including the Eugene Island pipeline system. A pretax gain of $166 million was recorded in the first quarter of 2012.
In April 2012, we entered agreements to sell all our assets in Alaska. The transactions are expected to close in the second half of 2012, pending regulatory approval and closing conditions.
In April 2012, we entered multiple agreements to acquire approximately 20,000 net acres in the core of the Eagle Ford shale formation in transactions valued at $767 million, subject to closing adjustments. The majority of the transactions in terms of value are expected to close in the third quarter of 2012. In addition to undeveloped acreage, on the date of the agreements, these transactions included 13 gross wells producing 7 net mboed. Approximately 45 percent of the acreage is held by production.
The above discussions include forward-looking statements with respect to the expected production in the Eagle Ford, Anadarko Woodford and Bakken plays, timing of first production from the Boyla field, anticipated drilling rig and drilling activity, the sale of our Alaska assets, possible increased recoverable resources from optimized well spacing in the Eagle Ford resource play, the expected closing of an agreement in Ethiopia, anticipated exploration activity in Ethiopia, Gabon, Poland and the Kurdistan Region of Iraq and the timing of the commencement of construction and first oil on the SAGD project,project. The projected asset dispositions through 2013 are based on current expectations, estimates, and projections and are not guarantees of future performance. Factors that could potentially affect the sale of the Alaska assets, and acquisitionsexpected production in the Eagle Ford, shale.Anadarko Woodford and Bakken plays, timing of first production from the Boyla field, exploratory activity in Ethiopia, Gabon, Poland and the Kurdistan Region of Iraq, possible increased recoverable resources from optimized well spacing in the Eagle Ford resource play and anticipated drilling rig and drilling activity include pricing, supply and demand for liquid hydrocarbons and natural gas, the amount of capital available for exploration and development, regulatory constraints, timing of commencing production from new wells, drilling rig availability, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto, and other geological, operating and economic considerations. The completion of the sale of our Alaska assets is subject to necessary government and regulatory approvals and customary closing conditions. The agreement in Ethiopia is subject to government approvals. The timing of the commencement of construction and first oil on the SAGD project can be affected by delays in obtaining and conditions imposed by necessary government and third-party approvals, board approval, transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, and the other risks associated with construction projects. The completion of the sale of substantially all of the Alaska assets is subject to necessary governmentActual results may differ materially from these expectations, estimates and regulatory approvalsprojections and customary closing conditions. The sale of the Alaska drilling rig is subject to the buyer’s exercise of its purchase right under the purchase and sale agreement. The acquisitions in the Eagle Ford shale are subject to customary closing conditions.certain risks, uncertainties and other factors, some of which are beyond the our control and difficult to predict. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.
Oil Sands Mining
Our OSM operations consist of a 20 percent non-operated working interest in the Athabasca Oil Sands Project (“AOSP”). As announced in October 2012, we have engaged in discussions with respect to a potential sale of a portion of our 20 percent interest. Given the uncertainty of such a transaction, potential proceeds have not been included in our previously stated goal of divesting between $1.5 billion and $3 billion between 2011 and 2013.
Our net synthetic crude oil sales were 4453 mbbld and 47 mbbld in the third quarter and first quarternine months of 2012 compared to 3750 mbbld and 43 mbbld in the same periods of 2011. The upgrader expansion was completed and commenced operations in the third quarter of 2011. This2011 and subsequent periods’ sales increase is primarily due to less downtime for planned and unplanned maintenance in the 2012 period.
volumes have increased as a result. With production capacity at the AOSP
now at 255,000 gross barrels per day, the focus will be on improving operating efficiencies and adding capacity through debottlenecking.
The Energy and Resources Conservation Board, Alberta’s primary energy regulator, conditionally approved the AOSP’s Quest Carbon Capture and Storage (“Quest CCS”) project in July 2012. The AOSP partners approved Quest CCS in the third quarter of 2012.
The above discussion contains forward-looking statements with regard to discussions with respect to a potential sale of a portion of our 20 percent interest in the AOSP. The potential sale of a portion of our interest in the AOSP is subject to successful negotiations and execution of definitive agreements. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.
Integrated Gas
LNG and methanol sales from Equatorial Guinea are conducted through equity method investees that purchase dry gas from our E&P assets in Equatorial Guinea. Our share of LNG sales totaled 6,2917,065 metric tonnes per day (“mtd”) for the third quarter and 6,277 mtd for the first quarternine months of 2012 compared to 7,8226,935 mtd and 7,121 mtd in the same periods of 2011. For the first quarter of 2011.nine months, LNG sales volumes are downbelow the prior year due to a turnaround in the second quarter of 2012 at the facility in Equatorial Guinea, but primarily because the first quarternine months of 2011 also included LNG sales from Alaska, which were conducted through a consolidated subsidiary. LNG sales from Alaska ceased when our interest in that production facility was sold in the third quarter of 2011. Also, a 30-day turnaround began at the LNG facility in Equatorial Guinea on March 23, 2012. Full production resumed ahead of schedule on April 17, 2012.
Market Conditions
Exploration and Production
Prevailing prices for the various qualities of crude oil and natural gas that we produce significantly impact our revenues and cash flows. Prices have been volatile in recent years. The following table lists the benchmark crude oil and natural gas price averages in the third quarter and first quarter in nine months of 2012 compared to the same periodperiods in 2011.2011.
| | Three Months Ended March 31, | |
| | 2012 | | | 2011 | |
West Texas Intermediate ("WTI") crude oil (Dollars per bbl) | | $ | 103.03 | | | $ | 94.60 | |
Brent (Europe) crude oil (Dollars per bbl) | | $ | 118.49 | | | $ | 104.96 | |
Henry Hub natural gas (Dollars per million British thermal units ("mmbtu"))(a) | | $ | 2.74 | | | $ | 4.11 | |
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Benchmark | 2012 | | 2011 | | 2012 | | 2011 |
WTI crude oil (Dollars per barrel) | $92.20 | | $89.54 | | $96.16 | | $95.47 |
Brent (Europe) crude oil (Dollars per barrel) | $109.61 | | $113.46 | | $112.17 | | $111.93 |
Henry Hub natural gas (Dollars per million | | | | | | | |
British thermal units ("mmbtu"))(a) | $2.81 | | $4.19 | | $2.59 | | $4.16 |
| |
(a) | Settlement date average. |
In the first quarter of 2012, averageAverage WTI crude oil benchmark prices increased 3 percent in the third quarter of 2012 compared to the same quarter of 2011. The average differential of Brent to WTI was a premium of approximately $15 per barrel in the first quarter of 2012.2011. Our international crude oil production is relatively sweet and a majority is sold in relation to the Brent crude oil benchmark.benchmark, which was 3 percent lower in the third quarter of 2012 than the same quarter of 2011. Both crude benchmarks were relatively flat on average when comparing the nine-month periods of 2012 and 2011.
Our domestic crude oil production was about 4735 percent sour in the third quarter and 42 percent sour in the first quarternine months of 2012 compared to 7064 percent and 62 percent in the first quartersame periods of 2011.2011. Reduced production from the Gulf of Mexico and increased onshore production from the Bakken and Eagle Ford shalesshale plays contributed to the lower sour crude percentage.percentage in 2012. Sour crude oil contains more sulfur than light sweet WTI. Sour crude oil also tends to be heavier than and sells at a discount to light sweet crude oil because of its higher refining costs and lower refined product values.
A significant portion of our natural gas production in the lower 48 states of the U.S. is sold at bid-week prices, or first-of-month indices relative to our specific producing areas. Average Henry Hub settlement prices for natural gas were lower for the third quarter and first quarternine months of 2012 compared to the same quarterperiods of the prior year. A decline in average settlement date Henry Hub natural gas prices began in September 2011 and has continued beyond the first quarter of 2012 with April averaging $2.19 per mmbtu. Should U.S. natural gasinto 2012. Although prices remain depressed, impairment charges related to our natural gas assets may be necessary.have stabilized recently, they have not increased appreciably.
Our other major natural gas-producing regions are Europe and Equatorial Guinea. Natural gas prices in Europe have been higher than in the U.S. in recent periods. In the case of Equatorial Guinea, our natural gas sales are subject to term contracts, making realized prices in these areas less volatile. The natural gas sales from Equatorial Guinea are at fixed prices; therefore, our reported average natural gas realized prices may not fully track market price movements.
Oil Sands Mining
OSM segment revenues correlate with prevailing market prices for the various qualities of synthetic crude oil and vacuum gas oil we produce. Roughly two-thirds of our normal output mix will track movements in WTI and one-third will track movements in the Canadian heavy sour crude oil market, primarily Western Canadian Select.Select (“WCS”). In 2012, the WCS discount from WTI has increased, bringing down our average price realizations. Output mix can be impacted by operational problems or planned unit outages at the minemines or upgrader.
The operating cost structure of the oil sands mining operations is predominantly fixed, and therefore many of the costs incurred in times of full operation continue during production downtime. Perdowntime, making per unit costs are sensitive to production rate. Key variable costs are natural gas and diesel fuel, which track commodity markets such as the Canadian Alberta Energy Company (“AECO”) natural gas sales index and crude prices respectively. Recently AECO prices have declined, much as Henry Hub prices have. We would expect a significant, continued decline in natural gas prices to have a favorable impact on OSM operating costs.
The table below shows benchmark prices that impacted both our revenues and variable costs for the third quarter and first quarternine months of 2012 compared to first quarter of 2011. and 2011:
| | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
Benchmark | | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
WTI crude oil (Dollars per barrel) | | $ | 103.03 | | | $ | 94.60 | | $92.20 | | $89.54 | | $96.16 | | $95.47 |
Western Canadian Select (Dollars per barrel)(a) | | $ | 81.51 | | | $ | 71.24 | | $70.49 | | $72.14 | | $74.21 | | $76.10 |
AECO natural gas sales index (Dollars per mmbtu)(b) | | $ | 2.18 | | | $ | 3.85 | | $2.27 | | $3.70 | | $2.03 | | $3.86 |
| |
(a) | Monthly pricing based upon average WTI adjusted for differentials unique to western Canada. |
| |
(b) | Monthly average AECO day ahead index. |
Integrated Gas
Our integrated gas operations include marketing and transportation of products manufactured from natural gas, such as LNG and methanol, in Equatorial Guinea
We have a 60 percent ownership in an LNGa production facility in Equatorial Guinea, which sells LNG under a long-term contract at prices tied toprincipally based upon Henry Hub natural gas prices.
We own a 45 percent interest in a methanol plant located in Equatorial Guinea through our investment in Atlantic Methanol Production Company LLC (“AMPCO”).Guinea. Methanol demand has a direct impact on AMPCO’sthe plant’s earnings. Because global demand for methanol is rather limited, changes in the supply-demand balance can have a significant impact on sales prices. AMPCO’sThe plant capacity of 1.1 million tonestonnes is about 2 percent of 2011 estimated world demand.
Results of Operations
Consolidated Results of OperationsOperation
Due to the spin-off of our downstream business on June 30, 2011, which is reported as discontinued operations, income from continuing operations is more representative of Marathon Oil as an independent energy company. Consolidated income from continuing operations before income taxes in the firstthird quarter of 2012 was 3633 percent higher than in the same period of 2011 primarily due to the previously discussed resumption of our operations in Libya. The effective tax rate was 74 percent in the thirdquarter of 2012 compared to 69 percent in the third quarter of 2011, with the increase related to higher income from continuing operations in higher tax jurisdictions, primarily Libya.
Consolidated income from continuing operations before income taxes in the first nine months of 2012 was 40 percent higher than in the same period of 2011 primarily due to increased liquid hydrocarbon prices.income in Libya. As a result of increased income from continuing operations before tax in higher tax jurisdictions, primarily Norway and Libya, the effective tax rate was 6972 percent infor the first quarternine months of 2012 compared to 5464 percent infor the first quartersame period of 2011.2011.
Revenues are summarized by segment in the following table:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
E&P | $ | 3,519 |
| | $ | 3,212 |
| | $ | 10,327 |
| | $ | 9,788 |
|
OSM | 470 |
| | 427 |
| | 1,184 |
| | 1,180 |
|
IG | — |
| | 16 |
| | — |
| | 93 |
|
Segment revenues | 3,989 |
| | 3,655 |
| | 11,511 |
| | 11,061 |
|
Unrealized gain on crude oil derivative instruments | 45 |
| | — |
| | 45 |
| | — |
|
Elimination of intersegment revenues | — |
| | (6 | ) | | — |
| | (47 | ) |
Total revenues | $ | 4,034 |
| | $ | 3,649 |
| | $ | 11,556 |
| | $ | 11,014 |
|
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
E&P | | $ | 3,412 | | | $ | 3,327 | |
OSM | | | 379 | | | | 306 | |
IG | | | - | | | | 64 | |
Segment revenues | | | 3,791 | | | | 3,697 | |
Elimination of intersegment revenues | | | - | | | | (26 | ) |
Total revenues | | $ | 3,791 | | | $ | 3,671 | |
E&P segment revenues increased $85$307 million in the third quarter and $539 million in the first quarternine months of 2012 from the comparable prior-year period.periods. Included in our E&P segment are supply optimization activities which include the purchase of commodities from third parties for resale. Supply optimization serves to aggregate volumes in order to satisfy transportation commitments and to achieve flexibility within product types and delivery points. Volumes associated with supply optimization have been decreasing in 2012 due to market dynamics and related commodity prices have also been lower in 2012. See the Cost of revenues discussion as revenues from supply optimization approximate the related costs. Higher average crude oil prices in the first quarter of 2012 increased revenues related to supply optimization.
Revenues from the sale of our U.S. production are higher in the third quarter and first quarternine months of 2012 primarily as a result of higherincreased liquid hydrocarbon sales volumes from our U.S. shale plays. Lower liquid hydrocarbon and pricenatural gas realizations partially offset by decreased natural gas sales volumes and price realizations.the volume impact. The following table gives details of net sales and average realizations of our U.S. operations.
19
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
United States Operating Statistics | | | | | | | |
Net liquid hydrocarbon sales (mbbld) (a) | 111 |
| | 69 |
| | 98 |
| | 73 |
|
Liquid hydrocarbon average realizations (per bbl) (b) | $ | 83.80 |
| | $ | 88.89 |
| | $ | 86.98 |
| | $ | 91.53 |
|
| | | | | | | |
Net natural gas sales (mmcfd) | 366 |
| | 296 |
| | 343 |
| | 326 |
|
Natural gas average realizations (per mcf)(b) | $ | 3.61 |
| | $ | 4.85 |
| | $ | 3.73 |
| | $ | 5.04 |
|
(a)Includes crude oil, condensate and natural gas liquids.(b)Excludes gains and losses on derivative instruments
| | Three Months Ended March 31, | |
| | 2012 | | | 2011 | |
United States Operating Statistics | | | | | | |
Net liquid hydrocarbons sales (mbbld) (a) | | | 90 | | | | 78 | |
Liquid hydrocarbon average realizations (per bbl) (b) | | $ | 93.63 | | | $ | 86.42 | |
| | | | | | | | |
Net natural gas sales (mmcfd) | | | 344 | | | | 368 | |
Natural gas average realizations (per mcf) (b) | | $ | 4.13 | | | $ | 5.15 | |
(a) | Includes crude oil, condensate and natural gas liquids. |
(b) | Excludes gains and losses on derivative instruments. |
LiquidRevenues from our international operations are higher in the third quarter and first nine months of 2012 primarily as a result of the previously discussed resumption of liquid hydrocarbon sales volumes increased infrom Libya. Higher average liquid hydrocarbon realizations during the third quarter and first quarternine months of 2012 reflecting our ongoing development programs primarily in also contributed to the Eagle Ford and Bakken shale plays, partially offset by decreased production in the Gulf of Mexico.revenue increase for both periods.
The following table gives details of net sales and average realizations of our international operations.
| | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
International Operating Statistics | | | | | | | | | | | | | |
Net liquid hydrocarbon sales (mbbld)(a) | | | | | | | | | | | | | |
Europe | | | 97 | | | | 111 | | 94 |
| | 108 |
| | 97 |
| | 102 |
|
Africa | | | 52 | | | | 58 | | 88 |
| | 34 |
| | 73 |
| | 44 |
|
Total International | | | 149 | | | | 169 | | 182 |
| | 142 |
| | 170 |
| | 146 |
|
Liquid hydrocarbon average realizations (per bbl) (b) | | | | | | | | | | | | | | | |
Europe | | $ | 123.76 | | | $ | 109.85 | | $ | 112.34 |
| | $ | 117.05 |
| | $ | 115.73 |
| | $ | 115.91 |
|
Africa | | | 94.41 | | | | 81.47 | | 98.65 |
| | 63.51 |
| | 97.00 |
| | 75.38 |
|
Total International | | $ | 113.55 | | | $ | 100.10 | | $ | 105.71 |
| | $ | 104.24 |
| | $ | 107.69 |
| | $ | 103.75 |
|
| | | | | | | | | | | | | | | |
Net natural gas sales (mmcfd) | | | | | | | | | | | | | | | |
Europe(c) | | | 104 | | | | 102 | | 100 |
| | 79 |
| | 102 |
| | 92 |
|
Africa | | | 418 | | | | 446 | | 485 |
| | 453 |
| | 434 |
| | 440 |
|
Total International | | | 522 | | | | 548 | | 585 |
| | 532 |
| | 536 |
| | 532 |
|
Natural gas average realizations (per mcf) (b) | | | | | | | | | | | | | | | |
Europe | | $ | 9.99 | | | $ | 10.29 | | $ | 10.10 |
| | $ | 9.81 |
| | $ | 10.05 |
| | $ | 10.07 |
|
Africa | | | 0.24 | | | | 0.25 | | 0.63 |
| | 0.24 |
| | 0.39 |
| | 0.24 |
|
Total International | | $ | 2.19 | | | $ | 2.12 | | $ | 2.25 |
| | $ | 1.67 |
| | $ | 2.23 |
| | $ | 1.95 |
|
| |
(a) | Includes crude oil, condensate and natural gas liquids. The amounts correspond with the basis for fiscal settlements with governments, representing equity tanker liftings and direct deliveries of liquid hydrocarbons. |
| |
(b) | Excludes gains and losses on derivative instruments. |
(c) | |
(c) | Includes natural gas acquired for injection and subsequent resale of 1418 mmcfd and 16 mmcfd for the third quarters of 2012 and 2011, and 16 mmcfd and 15 mmcfd infor the first quartersnine months of 2012 and 2011.2011. |
Compared to the first quarter of 2011, international liquid hydrocarbon sales volumes were lower for the first quarter of 2012 primarilyOSM segment revenuesincreased $43 million in the U.K. This was due to unplanned downtime at Foinaventhird quarter and the timing of liftings.
OSM segmentrevenues increased $73$4 million in the first nine months of 2012 compared to the same periods of 2011. The upgrader expansion was completed and commenced operations in the thirdquarter of 2012 from2011, resulting in higher sales volumes in both periods. However, an increase in the comparable prior-year period. The increase was driven primarily by a 7 percent increasediscount of WCS to WTI resulted in the decreases in average realizations during the third quarter and an 18 percent increase in sales volumes as shown infirst nine months of 2012, partially offsetting the table below.positive volume variance.
The following table gives details of net sales and average realizations of our OSM operations.
| | Three Months Ended March 31, | |
| | 2012 | | | 2011 | |
OSM Operating Statistics | | | | | | |
Net synthetic crude oil sales (mbbld)(a) | | | 44 | | | | 37 | |
Synthetic crude oil average realizations (per bbl) | | $ | 90.88 | | | $ | 84.98 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
OSM Operating Statistics | | | | | | | |
Net synthetic crude oil sales (mbbld) (a) | 53 |
| | 50 |
| | 47 |
| | 43 |
|
Synthetic crude oil average realizations (per bbl) | $ | 81.13 |
| | $ | 87.29 |
| | $ | 83.58 |
| | $ | 90.91 |
|
(a) | |
(a) | Includes blendstocks. |
The increased sales volumes are a result of the upgrader expansion which was completed IG segment revenuesdecreased $16 millionin the secondthird quarter of 2011 and longer periods of downtime for planned and unplanned maintenance in the first quarter of 2011.
IG segmentrevenues decreased $64$93 million in the first quarternine months of 2012 compared to the same periodperiods of 2011.2011. Sales of LNG from our Alaska operations ceased completely in the third quarter of 2011 because when we sold our equity interest in this production facility.
Unrealized gain on crude oil derivative instruments is included in total revenues but not segment revenues. In the facility.third quarter and first nine months of 2012, the net unrealized gain on crude oil derivative instruments was $45 million and there was no comparable derivative activity in similar periods of 2011. See Note 14 to the consolidated financial statements and Item 3. Quantitative and Qualitative Disclosures About Market Risk for additional information about our derivative positions.
Income from equity method investments decreased $39$100 million in the first quarternine months of 2012 from the comparable prior-year period. The decline is a result ofperiod, primarily due to lower natural gas prices and lower volumes as a result of a scheduled turnaroundturnarounds early in 2012 at our LNG facilityfacilities in Equatorial Guinea. Also, in January 2012, we sold our equity investments in several Gulf of Mexico crude oil pipelines.
Net gain (loss) on disposal of assetsNetin the third quarter of 2012 primarily reflects an $18 million loss on the sale of undeveloped acreage outside the core of the Eagle Ford shale resource play. The net gain on disposal of assets in the first quarternine months of 2012 was consists primarily of the $166 million gain on the sale of our interests in several Gulf of Mexico crude oil pipeline systems.systems, reduced by the $36 million loss on the assignment of our Bone Bay and Kumawa exploration licenses in Indonesia and the $18 million loss on the Eagle Ford acreage. See Note 7 to the consolidated financial statements for information about these dispositions.
Cost of revenues increased $3decreased $304 million and $666 million in the third quarter and first quarternine months of 2012 from the comparable prior-year period,periods of 2011 primarily due to our supply optimization activities. CostsVolumes associated with supply optimization have been decreasing in 2012 due to market dynamics and related commodity prices have also been lower in 2012. Comparatively, costs related to supply optimization were $775lower by $438 million infor the third quarter and by $677 million for the first quarternine months of 2012 compared to $738 million in. Excluding the first quarterimpact of 2011. Excluding costs related to supply optimization the overall decreaseactivities, E&P segment operating expenses have increased in proportion to our increased production from U.S. shale plays. Additionally, Integrated Gas segment costs is primarily the result ofare lower liquid hydrocarbon sales in the U.K.2012 due to the timingsale of liftings.our interest in the Alaska LNG facility in the third quarter of 2011.
Depreciation, depletion and amortization (“DD&A”) increased decreased $61$108 million in the third quarter and $63 million in the first quarternine months of 2012 compared to from the same quarter of 2011.comparable prior-year periods. Because both our E&P and OSM segments apply the units-of-production method to the majority of their assets, the previously discussed increases or decreases in sales volumes generally result in similar changes in DD&A. Decreased DD&A in the first quarter reflects the impact of lower E&P segment sales volumes, partially offset by increases in the OSM segment. The DD&A rate (expense per barrel of oil equivalent), which is impacted by changes in reserves and capitalized costs, can also cause changes in our DD&A. Lower U.S. and International E&P DD&A rates per barrel in our E&P operations contributedthe third quarter and first nine months of 2012 compared to the overall lower DD&A.same periods in 2011 partially offset the impact of higher sales volumes in those periods. Also, there was no depletion of our Alaska assets in the second and third quarters of 2012 because they are held for sale. The following table provides DD&A rates for our E&P and OSM segments.
| | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
($ per boe) | | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
DD&A rate | | | | | | | |
| | |
| | |
| | |
|
E&P Segment | | | | | | | | | |
| | |
| | |
|
United States | | $ | 24 | | | $ | 28 | | $ | 23 |
| | $ | 24 |
| | $ | 23 |
| | $ | 26 |
|
International | | $ | 9 | | | $ | 10 | | 8 |
| | 10 |
| | 9 |
| | 10 |
|
OSM Segment | | $ | 18 | | | $ | 16 | | $ | 6 |
| | $ | 6 |
| | $ | 6 |
| | $ | 6 |
|
Impairments in the first quarternine months of 2012 relate related primarily to the Ozona development in the Gulf of Mexico. Impairments in the first nine months of 2011 related primarily to the Droshky development in the Gulf of Mexico (seeand an intangible asset for an LNG delivery contract at Elba Island. See Note 13 to the consolidated financial statements).statements for information about these impairments.
General and administrative expenses decreased during increased $35 million in the third quarter and $18 million in the firstnine months of 2012 compared to the same periods in 2011. The third quarter of 2012 fromincludes pension settlement expense of $34 million. See Note 9 to the comparable prior yearconsolidated financial statements for information about the pension settlement. The cost increase for the nine-month period of 2012 is lower because 2011 included higher incentive compensation expense due to the increase in Marathon’s stock price in the period leading up to the spin-off.
Exploration expenseswere higher in the third quarter of 2012 than in the same quarter of 2011, primarily due to decreased incentive compensation expense.
larger unproved property impairments. The third quarter of 2012 included $51 million related to unproved property impairments associated with approximately 100,000 net non-core acres in the Eagle Ford shale. Exploration expenses were lower in the first quarternine months of 2012 than in the same period of 2011,previous year, primarily due to higher dry well costs in the prior period. Dry well costs in the first quarter of 2011 primarily related to the Flying Dutchmanwells in the Gulf of Mexico, Norway and Indonesia in 2011 compared to one dry Gulf of Mexico well plus various U.S. onshore dry wells in 2012; however, higher unproved property impairments in the Marcellus shale, Eagle Ford shale and Indonesia in 2012 partially offset this decrease. Geological and geophysical (“G&G”) costs increased in the nine months of 2012 primarily related to activity in the Kurdistan Region of Iraq and the Romeo prospect in Indonesia.seismic survey on our Birchwood oil sands in-situ lease.
The following table summarizes the components of exploration expenses.
| | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | | 2012 | | | 2011 | | 2012 | | 2011 | | 2012 | | 2011 |
Dry well and unproved property impairment | | $ | 58 | | | $ | 172 | | |
Geological, geophysical, seismic | | | 43 | | | | 15 | | |
Unproved property impairments | | $ | 79 |
| | $ | 16 |
| | $ | 149 |
| | $ | 59 |
|
Dry well costs | | 35 |
| | 31 |
| | 138 |
| | 252 |
|
G&G | | 24 |
| | 39 |
| | 94 |
| | 67 |
|
Other | | | 41 | | | | 43 | | 38 |
| | 43 |
| | 110 |
| | 126 |
|
Total exploration expenses | | $ | 142 | | | $ | 230 | | $ | 176 |
| | $ | 129 |
| | $ | 491 |
| | $ | 504 |
|
Net interest and otherincreased $23 million and $98 million in the third quarter and first nine months of 2012 from the comparable periods of 2011. Foreign currency gains were lower in the third quarter of 2012 than in the same quarter of 2011. In addition, capitalized interest has been lower in both periods of 2012.
Loss on early extinguishment of debtrelates to debt retirements in February and March of 2011. See Note 15 to the consolidated financial statements for additional discussion of these transactions.
Provision for income taxes increased $391$381 million and $1,180 million in the third quarter and first quarternine months of 2012 from the comparable periodperiods of 2011 primarily due to the increase in pretax income andin high tax rate jurisdictions, including the impact of the previously discussed resumption of sales in Libya in the first quarter of 2012.
The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income and the relative magnitude of these sources of income. The provision for income taxes is allocated on a discrete, stand-alone basis to pretax segment income and to individual items not allocated to segments. The difference between the total provision and the sum of the amounts allocated to segments and to individual items not allocated to segments is reported in “Corporate and other unallocated items” shown in Note 8 to the consolidated financial statements.
Our effective tax rate in the first quarternine months of 2012 is 69 was 72 percent. This rate is higher than the U.S. statutory rate of 35 percent primarily due to earnings from foreign jurisdictions, primarily Norway and Libya, where the tax rate isrates are in excess of the U.S. statutory rate. An increase in earnings and associated taxes from foreign jurisdictions, primarily Norway, as compared to prior periods caused an increase in our valuation allowance on current year foreign tax credits. In Libya, where the statutory tax rate is in excess of 90 percent, limited production resumed in the fourth quarter of 2011 and liquid hydrocarbon sales resumed in the first quarter of 2012. A reliable estimate of 2012 annual ordinary income from our Libyan operations cannot be made and the range of possible scenarios when including ordinary income from our Libyan operations in the worldwide annual effective tax rate calculation demonstrates significant variability. As such, for the threefirst nine months ended March 31,of 2012, an estimated annual effective tax rate was calculated excluding Libya and applied to consolidated ordinary income excluding Libya and the tax provision applicable to Libyan ordinary income was recorded as a discrete item in the period. Excluding Libya, the effective tax rate would be 64 percent for the first quarternine months of 2012.2012.
Our effective tax rate in the first quarternine months of 2011 was 5464 percent which is higher than the U.S. statutory tax rate of 35 percent primarily due to earnings from foreign jurisdictions where the tax rate isrates are in excess of the U.S. statutory rate and the valuation allowance recorded against 2011 foreign tax credits. In addition, in the second quarter of 2011, we recorded a deferred tax charge related to an internal restructuring of our international subsidiaries.
Discontinued operationsreflect the June 30, 2011 spin-off of our downstream business and the historical results of those operations, net of tax, for all periods presented.
Segment Results
Segment Results
Segment income is summarized in the following table.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
E&P | |
| | |
| | |
| | |
|
United States | $ | 110 |
| | $ | 81 |
| | $ | 289 |
| | $ | 237 |
|
International | 376 |
| | 249 |
| | 1,091 |
| | 1,362 |
|
E&P segment | 486 |
| | 330 |
| | 1,380 |
| | 1,599 |
|
OSM | 65 |
| | 92 |
| | 157 |
| | 193 |
|
IG | 39 |
| | 55 |
| | 56 |
| | 158 |
|
Segment income | 590 |
| | 477 |
| | 1,593 |
| | 1,950 |
|
Items not allocated to segments, net of income taxes: | |
| | |
| | |
| | |
|
Corporate and other unallocated items | (158 | ) | | (56 | ) | | (267 | ) | | (209 | ) |
Unrealized gain on crude oil derivative instruments | 29 |
| | — |
| | 29 |
| | — |
|
Gain (loss) on dispositions | (11 | ) | | (1 | ) | | 72 |
| | 23 |
|
Impairments | — |
| | — |
| | (167 | ) | | (195 | ) |
Loss on early extinguishment of debt | — |
| | — |
| | — |
| | (176 | ) |
Tax effect of subsidiary restructuring | — |
| | — |
| | — |
| | (122 | ) |
Deferred income tax items | — |
| | (15 | ) | | — |
| | (65 | ) |
Water abatement - Oil Sands | — |
| | — |
| | — |
| | (48 | ) |
Income from continuing operations | 450 |
| | 405 |
| | 1,260 |
| | 1,158 |
|
Discontinued operations | — |
| | — |
| | — |
| | 1,239 |
|
Net income | $ | 450 |
| | $ | 405 |
| | $ | 1,260 |
| | $ | 2,397 |
|
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
E&P | | | | | | |
United States | | $ | 109 | | | $ | 30 | |
International | | | 368 | | | | 638 | |
E&P segment | | | 477 | | | | 668 | |
OSM | | | 41 | | | | 32 | |
IG | | | 4 | | | | 60 | |
Segment income | | | 522 | | | | 760 | |
Items not allocated to segments, net of income taxes: | | | | | | | | |
Corporate and other unallocated items | | | (29 | ) | | | (115 | ) |
Foreign currency remeasurement of taxes | | | (15 | ) | | | (14 | ) |
Loss on early extinguishment of debt | | | - | | | | (176 | ) |
Impairment | | | (167 | ) | | | - | |
Gain on dispositions | | | 106 | | | | - | |
Income from continuing operations | | | 417 | | | | 455 | |
Discontinued operations | | | - | | | | 541 | |
Net income | | $ | 417 | | | $ | 996 | |
United States E&P income increased $79$29 million in the third quarter and increased $52 million in the first quarternine months of 2012 compared to the same periodperiods of 2011. The income increase in both periods was primarily the result of higher liquid hydrocarbon sales volumes as previously discussed, partially offset by lower liquid hydrocarbon realizations and the impact of increased production operations on DD&A and operating expenses. In addition, exploration expenses were higher primarily due to higher unproved property impairments.
International E&P incomeincreased $127 million in the third quarter and decreased $271 million in the first nine months of 2012 compared to the same periods of 2011. IncreasedSegment income, before taxes, increased in both periods primarily due to the previously discussed higher liquid hydrocarbon sales volumes and price realizations, and, lower dry well costs and DD&A in the Gulf of Mexico, were partially offset by higherincreased operating costs associated with increased activities in the Eagle Ford and Bakken shale plays in the first quarter of 2012.
International E&P income decreased $270 million in the first quarter of 2012 compared to the same period of 2011.costs. As previously discussed, increased income before tax in higher tax jurisdictions resulted in a higher effective tax rate in the first quarternine months of 2012 compared to the same period of 2011. Increased liquid hydrocarbon2011.
OSM segment incomedecreased $27 million and $36 million in the third quarter and first nine months of 2012. As previously discussed, lower synthetic crude oil price realizations were mostlythe primary reason for the decrease in income. This was partially offset by decreased costs on a per unit basis and higher sales volumes.
IG segment incomedecreased $16 million and $102 million in the declinesthird quarter and first nine months of 2012 compared to the same periods of 2011 primarily due to lower natural gas prices and turnarounds early in2012 at our facilities in Equatorial Guinea. In addition, LNG sales volumes previously discussed. DD&A wasare lower in the first quarternine months of 2012 as a result of lower sales volumes, as well as lower exploration costs in Indonesia.
OSM segment income increased $9 million in the first quarter of 2012 compared to the same period of 2011 primarily as a result of the higher realizations and increased sales volumes.
IG segment income decreased $56 million in the first quarter of 2012 compared to the same period of 2011, primarily as a result of weaker natural gas prices in 2012 and lower LNG sales volumes due to the sale of our interest in the Alaska LNG facility in the third quarter of 2011.
Critical Accounting Estimates
There have been no changes to our critical accounting estimates subsequent to December 31, 2011.
Cash Flows and Liquidity
Cash Flows
Cash Flows
Net cash provided by continuing operationswas $973$2,812 million in the first threenine months of 2012, compared to $1,633$4,400 million in the first threenine months of 2011 primarily reflecting primarily the impact of lower E&P segment sales volumes, lowerU.S. liquid hydrocarbon and natural gas realizationsprices on operating income and a negative change in working capital.higher cash tax payments. See Note 17 to the consolidated financial statements for amounts of the cash tax payments.
Net cash used in investing activities totaled $806$4,031 million in the first quarternine months of 2012, compared to $711$2,118 million related to continuing operations in the first quarternine months of 2011.2011. Significant investing activities are additions to property, plant and equipment and disposal of assets. In the first quarternine months of 2012, most of the additions to property, plant and equipment were related to our increasedin the E&P segment with continued spending inon U.S. unconventional resource plays, particularly the Eagle Ford shale and the resumption of drilling in the Gulf of Mexico.shale. This compares to additions in the first quarternine months of 2011 when which also included spending on U.S. unconventional resource plays, though at a lower level, and drilling in Norway, Indonesia and the Iraqi Kurdistan Region accounted for most of the property, plant and equipment additions.Iraq. In the first quarternine months of 2012, proceeds from the sale of assets were $208expenditures for acquisitions totaled $806 million primarily related to the sale of our interests in several Gulf of Mexico crude oil pipeline systems.
Net cash used in financing activities was $157acquiring additional Eagle Ford shale properties. Deposits totaling $120 million were paid in the first quarternine months of 2011 related to the Eagle Ford shale acreage acquisitions that closed later that year.
For further information regarding capital expenditures by segment, see Supplemental Statistics.
Net cash provided by financing activitieswas $1,385 million in the first nine months of 2012, compared to net cash used of $2,937 millionin financing activities related to continuing operations of $5,098 millionin the first quarternine months of 2011.2011. During the first quarternine months of 2012, we drew a net $1,839 million under our commercial paper program, retired $23 million principal amount of debt before it was due and repaid $53$88 million of debt upon its maturity. During the first quarternine months of 2011, we retired $2.5 billion aggregate principal amount of our debt before it was due.due and distributed $1.6 billion to Marathon Petroleum Corporation in connection with the spin-off of the downstream business. Dividends paid were a significant use of cash in both periods.
Liquidity and Capital Resources
Our main sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, the issuance of notes, our committed revolving credit facility, and sales of non-corenon-strategic assets. Our working capital requirements are supported by these sources and we may issue commercial paper backed by our $2.5 billion revolving credit facility to meet short-term cash requirements. We issued $10.4 billion and repaid $100 million$8.6 billion of commercial paper in the first quarternine months of 2012. 2012 leaving a balance of $1.8 billion outstanding at September 30, 2012. After September 30, 2012, we continued to utilize our sources of liquidity, including additional issuances of commercial paper and notes as discussed below, to fund working capital requirements. Because of the alternatives available to us including internally generated cash flowas discussed above and access to capital markets, we believe that our short-term and long-term liquidity is adequate to fund not only our current operations, but also our near-term and long-term funding requirements including our capital spending programs, dividend payments, defined benefit plan contributions, repayment of debt maturities, share repurchase program, and other amounts that may ultimately be paid in connection with contingencies.
Capital Resources
Capital Resources
At March 31,September 30, 2012, we had no borrowings against our revolving credit facility, described below, and no$1.8 billion in commercial paper outstanding under our U.S. commercial paper program that is backed by the revolving credit facility.
On October 29, 2012, we issued $1 billion aggregate principal amount of senior notes bearing interest at 0.9 percent with a maturity date of November 1, 2015 and $1 billion aggregate principal amount of senior notes bearing interest at 2.8 percent with a maturity date of November 1, 2022. Interest on the senior notes is payable semi-annually beginning May 1, 2013. The proceeds are being used to pay off commercial paper and for general corporate purposes.
In April 2012, we terminated our $3.0 billion five-year revolving credit facility and replaced it with a new $2.5 billion unsecured five-year revolving credit facility (the “Credit Facility”). The Credit Facility matures in April 2017 but allows us to request two one-year extensions. It contains an option to increase the commitment amount by up to an additional $1.0 billion, subject to the consent of any increasing lenders, and includes sub-facilities for swing-line loans and letters of credit up to an aggregate amount of $100 million and $500 million, respectively. Fees on the unused commitment of each lender range from 10 basis points to 25 basis points per year depending on our credit ratings. Borrowings under the Credit Facility bear interest, at our option, at either (a) thean adjusted London Interbank Offered Rate (LIBOR)(“LIBOR”) plus a margin ranging from 87.5 basis points to 162.5 basis points per year depending on our credit ratings or (b) the Base Rate plus a margin ranging from 0.0 basis points to 62.5 basis points depending on our credit ratings. Base Rate is defined as a per annum rate equal to the greatest of (a) the prime rate, (b) the federal funds rate plus one-half of one percent and (c) LIBOR for a one-month interest period plus 1 percent.
The agreement contains a covenant that requires our ratio of total debt to total capitalization not to exceed 65 percent as of the last day of each fiscal quarter. If an event of default occurs, the lenders may terminate the commitments under the Credit Facility and require the immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit under the Credit Facility.
We have a universal shelf registration statement filed with the Securities and Exchange Commission under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of various types of debt and equity securities.
Our cash-adjusted debt-to-capital ratio (total debt-minus-cash to total debt-plus-equity-minus-cash) was 25 percent at September 30, 2012, compared to 20 percent at March 31, 2012 and December 31, 2011.2011.
|
| | | | | | | |
| September 30, | | December 31, |
(In millions) | 2012 | | 2011 |
Commercial paper | $ | 1,839 |
| | $ | — |
|
Long-term debt due within one year | 183 |
| | 141 |
|
Long-term debt | 4,518 |
| | 4,674 |
|
Total debt | 6,540 |
| | 4,815 |
|
Cash | 671 |
| | 493 |
|
Equity | $ | 18,064 |
| | $ | 17,159 |
|
Calculation: | |
| | |
|
Total debt | $ | 6,540 |
| | $ | 4,815 |
|
Minus cash | 671 |
| | 493 |
|
Total debt minus cash | 5,869 |
| | 4,322 |
|
Total debt | 6,540 |
| | 4,815 |
|
Plus equity | 18,064 |
| | 17,159 |
|
Minus cash | 671 |
| | 493 |
|
Total debt plus equity minus cash | $ | 23,933 |
| | $ | 21,481 |
|
Cash-adjusted debt-to-capital ratio | 25 | % | | 20 | % |
| | March 31, | | | December 31, | |
(In millions) | | 2012 | | | 2011 | |
Long-term debt due within one year | | $ | 197 | | | $ | 141 | |
Long-term debt | | | 4,559 | | | | 4,674 | |
Total debt | | $ | 4,756 | | | $ | 4,815 | |
Cash | | $ | 513 | | | $ | 493 | |
Equity | | $ | 17,506 | | | $ | 17,159 | |
Calculation: | | | | | | | | |
Total debt | | $ | 4,756 | | | $ | 4,815 | |
Minus cash | | | 513 | | | | 493 | |
Total debt minus cash | | $ | 4,243 | | | $ | 4,322 | |
Total debt | | | 4,756 | | | | 4,815 | |
Plus equity | | | 17,506 | | | | 17,159 | |
Minus cash | | | 513 | | | | 493 | |
Total debt plus equity minus cash | | $ | 21,749 | | | $ | 21,481 | |
Cash-adjusted debt-to-capital ratio | | | 20 | % | | | 20 | % |
Capital Requirements
On April 25,October 31, 2012, our Board of Directors approved a dividend of 17 cents per share dividend,for the third quarter of 2012, payable June 11,December 10, 2012 to stockholders of record at the close of business on May 16,November 21, 2012.
In October and early November 2012, we paid $264 million for closed acquisition transactions.
As discussed in Note 6 toIn the consolidated financial statements, the majority of the transactions, in terms of value, related to the Eagle Ford shale are expected to close in the thirdfirst quarter of 2012, at which time the purchase price of approximately $767 million, before closing adjustments, will be paid.
We havewe increased our 2012 capital, investment and exploration budget, excluding acquisition costs, from $4.8 billion to $5.0 billion, of which $4.6 billion will be used for capital expenditures. The increase is a result ofreflects development plans for the additional acreage being acquired in the Eagle Ford shale and other adjustments.
Our opinions concerning liquidity and our ability to avail ourselves in the future of the financing options mentioned in the above forward-looking statements and the capital, investment and exploration budget are based on currently available information. If this information proves to be inaccurate, future availability of financing may be adversely affected. Estimates may differ from actual results. Factors that affect the availability of financing include our performance (as measured by various factors including cash provided from operating activities), the state of worldwide debt and equity markets, investor perceptions and expectations of past and future performance, the global financial climate, and, in particular, with respect to borrowings, the levels of our outstanding debt and credit ratings by rating agencies. The above discussions also contain forward-looking statements about our 2012 capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance.budget. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially are changes in prices of and demand for crude oilliquid hydrocarbons and natural gas, actions of competitors, disruptions or interruptions of our production and mining operations due to unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response thereto, and other operating and economic considerations.
The above discussion also contains forward-looking statements with respect to acquisitions in the Eagle Ford shale. These acquisitions are subject to customary closing conditions. The failure to satisfy these closing conditions could cause actual results to differ materially from those set forth in the forward-looking statements.
Contractual Cash Obligations
As of March 31, 2012, The table below provides aggregated information on our consolidated contractual cash obligations have increased by $128 million from December 31, 2011, primarily related to make future payments under existing contracts to acquire property, plant and equipment.as of September 30, 2012.
Critical Accounting Estimates
There have been no changes to our critical accounting estimates subsequent to December 31, 2011. |
| | | | | | | | | | | | | | | | | | | |
| | | | | 2013- | | 2015- | | Later |
(In millions) | Total | | 2012 | | 2014 | | 2016 | | Years |
Short and long-term debt (excludes interest) | $ | 6,504 |
| | $ | 1,874 |
| | $ | 250 |
| | $ | 69 |
| | $ | 4,311 |
|
Lease obligations | 281 |
| | 39 |
| | 80 |
| | 65 |
| | 97 |
|
Purchase obligations: | |
| | |
| | |
| | |
| | |
|
Oil and gas activities(a) | 993 |
| | 351 |
| | 505 |
| | 59 |
| | 78 |
|
Service and materials contracts(b) | 909 |
| | 45 |
| | 227 |
| | 131 |
| | 506 |
|
Transportation and related contracts | 1,301 |
| | 63 |
| | 317 |
| | 190 |
| | 731 |
|
Drilling rigs and fracturing crews | 894 |
| | 139 |
| | 730 |
| | 25 |
| | — |
|
Other | 234 |
| | 57 |
| | 93 |
| | 27 |
| | 57 |
|
Total purchase obligations | 4,331 |
| | 655 |
| | 1,872 |
| | 432 |
| | 1,372 |
|
Other long-term liabilities reported | |
| | |
| | |
| | |
| | |
|
in the consolidated balance sheet(c) | 1,122 |
| | 174 |
| | 272 |
| | 253 |
| | 423 |
|
Total contractual cash obligations(d) | $ | 12,238 |
| | $ | 2,742 |
| | $ | 2,474 |
| | $ | 819 |
| | $ | 6,203 |
|
| |
(a) | Oil and gas activities include contracts to acquire property, plant and equipment and commitments for oil and gas exploration such as costs related to contractually obligated exploratory work programs that are expensed immediately. |
| |
(b) | Service and materials contracts include contracts to purchase services such as utilities, supplies and various other maintenance and operating services. |
| |
(c) | Primarily includes obligations for pension and other postretirement benefits including medical and life insurance, which we have estimated through 2021. Also includes amounts for uncertain tax positions. |
| |
(d) | This table does not include the estimated discounted liability for dismantlement, abandonment and restoration costs of oil and gas properties of $1,516 million. |
24
Environmental Matters
We have incurred and will continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our operating results will be adversely affected. We believe that substantially all of our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, marketing areas and production processes.
There have been no other significant changes to our environmental matters subsequent to December 31, 2011.
Other Contingencies
We are defendant in a number of lawsuits arising in the ordinary course of business, including, but not limited to, royalty claims, contract claims and environmental claims. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe the resolution of these proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Litigation – In March 2011, Noble Drilling (U.S.) LLC (“Noble”) filed a lawsuit against us in the District Court of Harris County, Texas alleging, among other things, breach of contract, breach of the duty of good faith and fair dealing, and negligent misrepresentation, relating to a multi-year drilling contract for a newly constructed drilling rig to be deployed in the U.S. Gulf of Mexico. We filed an answer in April 2011, contending, among other things, failure to perform, failure to comply with material obligations, failure to mitigate alleged damages and that Noble failed to provide the rig according to the operating, performance and safety requirements specified in the drilling contract. Noble is seeking an unspecified amount of damages. We are vigorously defending this litigation. The ultimate outcome of this lawsuit, including any financial effect on us, remains uncertain. We do not believe an estimate of a reasonably probable loss (or range of loss) can be made for this lawsuit at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a detailed discussion of our risk management strategies and our derivative instruments, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2011 Annual Report on Form 10-K.
In August 2012, we entered crude oil derivatives related to a portion of our forecast U.S. E&P crude oil sales through December 31, 2013. Disclosures about how derivatives are reported in our consolidated financial statements and how the fair values of our derivative instruments are measured may be found in NoteNotes 13 and Note 14 to the consolidated financial statements.
Sensitivity analysis of the incremental effects on income from operations (“IFO”) of hypothetical 10 percent and 25 percent increases and decreases in commodity prices on our open commodity derivative instruments, by contract type as of September 30, 2012 is provided in the following table.
|
| | | | | | | | | | | | | | | |
| Incremental Change in IFO from a Hypothetical Price Increase of
| | Incremental Change in IFO from a Hypothetical Price Decrease of
|
| 10% | | 25% | | 10% | | 25% |
Crude oil | | | | | | | |
Swaps | $ | (207 | ) | | $ | (519 | ) | | $ | 207 |
| | $ | 519 |
|
Option Collars | (105 | ) | | (277 | ) | | 103 |
| | 275 |
|
Total crude oil | (312 | ) | | (796 | ) | | 310 |
| | 794 |
|
Natural gas | | | | | | | |
Futures | (1 | ) | | (2 | ) | | 1 |
| | 2 |
|
Total natural gas | (1 | ) | | (2 | ) | | 1 |
| | 2 |
|
Total | $ | (313 | ) | | $ | (798 | ) | | $ | 311 |
| | $ | 796 |
|
Sensitivity analysis of the projected incremental effect of a hypothetical 10 percent change in interest rates on financial assets and liabilities as of March 31,September 30, 2012 is provided in the following table.
|
| | | | | | | |
| | | Incremental |
| | | Change in |
(In millions) | Fair Value | | Fair Value |
Financial assets (liabilities): (a) | | | |
Interest rate swap agreements | $ | 22 |
| (b) | $ | 1 |
|
Long-term debt, including amounts due within one year | $ | (5,639 | ) | (b) | $ | (206 | ) |
| | | | | Incremental Change in Fair Value |
(In millions) | Fair Value | |
Financial assets (liabilities): (a)
| | | | | | | | |
Interest rate swap agreements | | $ | 4 (b)
| | | $ | 4 | |
Long-term debt, including amounts due within one year | | $ | (5,431)(b)
| | | $ | (226) | |
(a) | Fair values of cash and cash equivalents, receivables, commercial paper, accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table. |
| |
(b) | Fair value was based on market prices where available, or current borrowing rates for financings with similar terms and maturities. |
The aggregate cash flow effect on foreign currency derivative contracts of a hypothetical 10 percent change in exchange rates at March 31,September 30, 2012 would be $63$69 million.
These quantitative and qualitative disclosures about market risk include forward-looking statements with respect to management’s opinion about risks associated with the use of derivative instruments. These statements are based on certain assumptions with respect to interest rates, foreign currency exchange rates, commodity prices and industry supply of and demand for natural gas and liquid hydrocarbons. If these assumptions prove to be inaccurate, future outcomes with respect to our use of derivative instruments may differ materially from those discussed in the forward-looking statements.
Item 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. As of the end of the period covered by this report based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
In 2012, we began a project to update our existing ERP system. The project includes implementation of a new general ledger, consolidations system and reporting tools. This project is currently in testing phases and we expect full implementation in the first half of 2013. We believe that controls over project development and implementation are adequate to assure there will be no material effect, or a reasonable likelihood of a material effect, on our internal control over financial reporting.
During the quarter ended March 31,September 30, 2012, there were no changes in our internal control over financial reporting that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
MARATHON OIL CORPORATION
Supplemental Statistics (Unaudited)
26 |
| | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In millions) | 2012 | | 2011 | | 2012 | | 2011 |
Segment Income | | | | | | | |
Exploration and Production | |
| | |
| | |
| | |
|
United States | $ | 110 |
| | $ | 81 |
| | $ | 289 |
| | $ | 237 |
|
International | 376 |
| | 249 |
| | 1,091 |
| | 1,362 |
|
E&P segment | 486 |
| | 330 |
| | 1,380 |
| | 1,599 |
|
Oil Sands Mining | 65 |
| | 92 |
| | 157 |
| | 193 |
|
Integrated Gas | 39 |
| | 55 |
| | 56 |
| | 158 |
|
Segment income | 590 |
| | 477 |
| | 1,593 |
| | 1,950 |
|
Items not allocated to segments, net of income taxes | (140 | ) | | (72 | ) | | (333 | ) | | (792 | ) |
Income from continuing operations | 450 |
| | 405 |
| | 1,260 |
| | 1,158 |
|
Discontinued operations(a) | — |
| | — |
| | — |
| | 1,239 |
|
Net income | $ | 450 |
| | $ | 405 |
| | $ | 1,260 |
| | $ | 2,397 |
|
Capital Expenditures(b) | |
| | |
| | |
| | |
|
Exploration and Production | |
| | |
| | |
| | |
|
United States | $ | 1,046 |
| | $ | 502 |
| | $ | 2,891 |
| | $ | 1,407 |
|
International | 228 |
| | 182 |
| | 568 |
| | 694 |
|
E&P segment | 1,274 |
| | 684 |
| | 3,459 |
| | 2,101 |
|
Oil Sands Mining | 41 |
| | 36 |
| | 136 |
| | 236 |
|
Integrated Gas | 1 |
| | 1 |
| | 2 |
| | 2 |
|
Corporate | 23 |
| | 7 |
| | 82 |
| | 37 |
|
Total | $ | 1,339 |
| | $ | 728 |
| | $ | 3,679 |
| | $ | 2,376 |
|
Exploration Expenses | |
| | |
| | |
| | |
|
United States | $ | 132 |
| | $ | 75 |
| | $ | 369 |
| | $ | 280 |
|
International | 44 |
| | 54 |
| | 122 |
| | 224 |
|
Total | $ | 176 |
| | $ | 129 |
| | $ | 491 |
| | $ | 504 |
|
| Supplemental Statistics (Unaudited) |
(a)
| | Three Months Ended March 31, | |
(In millions) | | 2012 | | | 2011 | |
| | | | | | |
Segment Income (Loss) | | | | | | |
Exploration and Production | | | | | | |
United States | | $ | 109 | | | $ | 30 | |
International | | | 368 | | | | 638 | |
E&P segment | | | 477 | | | | 668 | |
Oil Sands Mining | | | 41 | | | | 32 | |
Integrated Gas | | | 4 | | | | 60 | |
Segment income | | | 522 | | | | 760 | |
Items not allocated to segments, net of income taxes | | | (105 | ) | | | (305 | ) |
Income from continuing operations | | | 417 | | | | 455 | |
Discontinued Operations(a) | | | - | | | | 541 | |
Net income | | $ | 417 | | | $ | 996 | |
Capital Expenditures(b) | | | | | | | | |
Exploration and Production | | | | | | | | |
United States | | $ | 862 | | | $ | 349 | |
International | | | 139 | | | | 319 | |
E&P segment | | | 1,001 | | | | 668 | |
Oil Sands Mining | | | 52 | | | | 120 | |
Integrated Gas | | | - | | | | 1 | |
Corporate | | | 42 | | | | 6 | |
Total | | $ | 1,095 | | | $ | 795 | |
Exploration Expenses | | | | | | | | |
United States | | $ | 93 | | | $ | 151 | |
International | | | 49 | | | | 79 | |
Total | | $ | 142 | | | $ | 230 | |
(a) | The spin-off of our downstream business was completed on June 30, 2011, and has been reported as discontinued operations in 2011. |
| |
(b) | Capital expenditures include changes in accruals. |
MARATHON OIL CORPORATION
Supplemental Statistics (Unaudited)
27 |
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2012 | | 2011 | | 2012 | | 2011 |
E&P Operating Statistics | |
| | |
| | |
| | |
|
Net Liquid Hydrocarbon Sales (mbbld) | |
| | |
| | |
| | |
|
United States | 111 |
| | 69 |
| | 98 |
| | 73 |
|
| | | | | | | |
Europe | 94 |
| | 108 |
| | 97 |
| | 102 |
|
Africa | 88 |
| | 34 |
| | 73 |
| | 44 |
|
Total International | 182 |
| | 142 |
| | 170 |
| | 146 |
|
Worldwide | 293 |
| | 211 |
| | 268 |
| | 219 |
|
Net Natural Gas Sales (mmcfd) | |
| | |
| | |
| | |
|
United States | 366 |
| | 296 |
| | 343 |
| | 326 |
|
| | | | | | | |
Europe(c) | 100 |
| | 79 |
| | 102 |
| | 92 |
|
Africa | 485 |
| | 453 |
| | 434 |
| | 440 |
|
Total International | 585 |
| | 532 |
| | 536 |
| | 532 |
|
Worldwide | 951 |
| | 828 |
| | 879 |
| | 858 |
|
Total Worldwide Sales (mboed) | 452 |
| | 349 |
| | 414 |
| | 362 |
|
Average Realizations (d) | |
| | |
| | |
| | |
|
Liquid Hydrocarbons (per bbl) | |
| | |
| | |
| | |
|
United States | $83.80 | | $88.89 | | $86.98 | | $91.53 |
| | | | | | | |
Europe | $112.34 | | $117.05 | | $115.73 | | $115.91 |
Africa | $98.65 | | $63.51 | | $97.00 | | $75.38 |
Total International | $105.71 | | $104.24 | | $107.69 | | $103.75 |
Worldwide | $97.40 | | $99.24 | | $100.10 | | $99.68 |
Natural Gas (per mcf) | | | | | | | |
United States | $3.61 | | $4.85 | | $3.73 | | $5.04 |
| | | | | | | |
Europe | $10.10 | | $9.81 | | $10.05 | | $10.07 |
Africa(e) | $0.63 | | $0.24 | | $0.39 | | $0.24 |
Total International | $2.25 | | $1.67 | | $2.23 | | $1.95 |
Worldwide | $2.77 | | $2.81 | | $2.81 | | $3.12 |
OSM Operating Statistics | |
| | |
| | |
| | |
|
Net Synthetic Crude Oil Sales (mbbld) (f) | 53 |
| | 50 |
| | 47 |
| | 43 |
|
Synthetic Crude Oil Average Realizations (per bbl)(d) | $ | 81.13 |
| | $ | 87.29 |
| | $ | 83.58 |
| | $ | 90.91 |
|
IG Operating Statistics | |
| | |
| | |
| | |
|
Net Sales (mtd) (g) | |
| | |
| | |
| | |
|
LNG | 7,065 |
| | 6,935 |
| | 6,277 |
| | 7,121 |
|
Methanol | 1,146 |
| | 1,366 |
| | 1,242 |
| | 1,310 |
|
(c) | Supplemental Statistics (Unaudited) |
| | Three Months Ended March 31, | |
| | 2012 | | | 2011 | |
| | | | | | |
E&P Operating Statistics | | | | | | |
Net Liquid Hydrocarbon Sales (mbbld) | | | | | | |
United States | | | 90 | | | | 78 | |
| | | | | | | | |
Europe | | | 97 | | | | 111 | |
Africa | | | 52 | | | | 58 | |
Total International | | | 149 | | | | 169 | |
Worldwide | | | 239 | | | | 247 | |
| | | | | | | | |
Natural Gas Sales (mmcfd)(c) | | | | | | | | |
United States | | | 344 | | | | 368 | |
| | | | | | | | |
Europe | | | 104 | | | | 102 | |
Africa | | | 418 | | | | 446 | |
Total International | | | 522 | | | | 548 | |
Worldwide | | | 866 | | | | 916 | |
| | | | | | | | |
Total Worldwide Sales (mboed) | | | 383 | | | | 400 | |
| | | | | | | | |
Average Realizations (d) | | | | | | | | |
Liquid Hydrocarbons (per bbl) | | | | | | | | |
United States | | $ | 93.63 | | | $ | 86.42 | |
| | | | | | | | |
Europe | | | 123.76 | | | | 109.85 | |
Africa | | | 94.41 | | | | 81.47 | |
Total International | | | 113.55 | | | | 100.10 | |
Worldwide | | $ | 106.06 | | | $ | 95.79 | |
| | | | | | | | |
Natural Gas (per mcf) | | | | | | | | |
United States | | $ | 4.13 | | | $ | 5.15 | |
| | | | | | | | |
Europe | | | 9.99 | | | | 10.29 | |
Africa(e) | | | 0.24 | | | | 0.25 | |
Total International | | | 2.19 | | | | 2.12 | |
Worldwide | | $ | 2.96 | | | $ | 3.34 | |
OSM Operating Statistics | | | | | | | | |
Net Synthetic Crude Oil Sales (mbbld) (f) | | | 44 | | | | 37 | |
Synthetic Crude Oil Average Realizations (per bbl)(d) | | $ | 90.88 | | | $ | 84.98 | |
| | | | | | | | |
IG Operating Statistics | | | | | | | | |
Net Sales (mtd) (g) | | | | | | | | |
LNG | | | 6,291 | | | | 7,822 | |
Methanol | | | 1,312 | | | | 1,318 | |
(c) | Includes natural gas acquired for injection and subsequent resale of 1418 mmcfd and 16 mmcfd for the third quarters of 2012 and 2011, and 16 mmcfd and 15 mmcfd for the first threenine months of 2012 and 2011.2011. |
| |
(d) | Excludes gains and losses on derivative instruments. |
| |
(e) | Primarily represents a fixed price under long-term contracts with Alba Plant LLC, Atlantic Methanol Production Company LLC (“AMPCO”) and Equatorial Guinea LNG Holdings Limited (“EGHoldings”), equity method investees. We include our share of Alba Plant LLC’s income in our E&P segment and we include our share of AMPCO’s and EGHoldings’ income in our Integrated Gas segment. |
| |
(g) | Includes both consolidated sales volumes and our share of the sales volumes of equity method investees.investees in 2011. LNG sales from Alaska, conducted through a consolidated subsidiary, ceased when these operations were sold in the third quarter of 2011. LNG and methanol sales from Equatorial Guinea are conducted through equity method investees. |
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
We are defendant in a number of lawsuits arising in the ordinary course of business, including, but not limited to, royalty claims, contract claims and environmental claims. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe that the resolution of these proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows. There have been no significant changes in legal or environmental proceedings during the first quarternine months of 2012.2012.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Item 1A. Risk Factors in our 2011 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases by Marathon Oil and its affiliated purchaser during the quarter ended March 31,September 30, 2012, of equity securities that are registered by Marathon Oil pursuant to Section 12 of the Securities Exchange Act of 1934.
| | Column (a) | | | Column (b) | | | Column (c) | | | Column (d) | |
| | | | | | | | Total Number of | | | Approximate Dollar | |
| | | | | | | | Shares Purchased as | | | Value of Shares that | |
| | | | | | | | Part of Publicly | | | May Yet Be Purchased | |
| | Total Number of | | | Average Price Paid | | | Announced Plans or | | | Under the Plans or | |
Period | | Shares Purchased (a)(b) | | | per Share | | | Programs (c) | | | Programs (c) | |
| | | | | | | | | | | | |
01/01/12 – 01/31/12 | | | 4,959 | | | $ | 30.52 | | | | - | | | $ | 1,780,609,536 | |
02/01/12 – 02/29/12 | | | 49,757 | | | $ | 34.65 | | | | - | | | $ | 1,780,609,536 | |
03/01/12 – 03/31/12 | | | 32,482 | | | $ | 33.56 | | | | - | | | $ | 1,780,609,536 | |
Total | | | 87,198 | | | $ | 34.01 | | | | - | | | | | |
|
| | | | | | | | |
| Column (a) | | Column (b) | | Column (c) | | Column (d) |
| Total Number of | | Average Price | | Total Number of Shares Purchased as Part of Publicly Announced | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the |
Period | Shares Purchased (a)(b) | | Paid per Share | | Plans or Programs(c) | | Plans or Programs(c) |
07/01/12 – 07/31/12 | 12,285 | | $25.62 | | — |
| | $1,780,609,536 |
08/01/12 – 08/31/12 | 143,642 | | $27.59 | | — |
| | $1,780,609,536 |
09/01/12 – 09/30/12 | 38,963 | | $28.43 | | — |
| | $1,780,609,536 |
Total | 194,890 | | $27.63 | | — |
| | |
(a) | 58,812 |
(a) | 162,184 shares of restricted stock were delivered by employees to Marathon Oil, upon vesting, to satisfy tax withholding requirements. |
| |
(b) | In MarchSeptember 2012, 28,38632,706 shares were repurchased in open-market transactions to satisfy the requirements for dividend reinvestment under the Marathon Oil Corporation Dividend Reinvestment and Direct Stock Purchase Plan (the “Dividend Reinvestment Plan”) by the administrator of the Dividend Reinvestment Plan. Shares needed to meet the requirements of the Dividend Reinvestment Plan are either purchased in the open market or issued directly by Marathon Oil. |
| |
(c) | We announced a share repurchase program in January 2006, and amended it several times in 2007 for a total authorized program of $5 billion. As of March 31,September 30, 2012, 78 million split-adjusted common shares had been acquired at a cost of $3,222 million, which includes transaction fees and commissions that are not reported in the table above. Of this total, 66 million shares had been acquired at a cost of $2,922 million prior to the spin-off of the downstream business (see Note 2 to the consolidated financial statements).business. |
Item 4. Mine Safety Disclosures
Not applicable.
Item 6. Exhibits
| | | | Incorporated by Reference | | | | |
Exhibit Number | | Exhibit Description | | Form | | | Exhibit | | Filing Date | SEC File No. | | Filed Herewith | | Furnished Herewith |
| | | | | | | | | | | | | | |
| 4.1 | | Credit Agreement, dated as of April 5, 2012, among Marathon Oil Corporation, The Royal Bank of Scotland plc, as syndication agent, Citibank, N.A., Morgan Stanley Senior Funding, Inc. and UBS Securities LLC, as documentation agents, JP Morgan Chase Bank, N.A., as administrative agent, and certain other commercial lending institutions named therein. | | | 8-K | | | | 4.1 | | 4/10/2012 | | | | | |
| | | | | | | | | | | | | | | | | |
| 10.1 | | Marathon Oil Corporation 2012 Incentive Compensation Plan. | | DEF 14A | | | App. III | | 3/8/2012 | | | | | |
| | | | | | | | | | | | | | | | | |
| 10.2 | | Form of Performance Unit Award Agreement (2012-2014 Performance Cycle) granted under Marathon Oil Corporation’s 2007 Incentive Compensation Plan. | | | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | | | | |
| 10.3 | | First Amendment to the Marathon Oil Corporation Executive Change in Control Severance Benefits Plan, effective October 26, 2011. | | | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | | | | |
| 10.4 | | Marathon Oil Corporation 2011 Officer Change in Control Severance Benefits Plan (For Officers Hired or Promoted after October 26, 2011). | | | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | | | | |
| 12.1 | | Computation of Ratio of Earnings to Fixed Charges. | | | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | | | | |
| 31.1 | | Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934. | | | | | | | | | | | | | X | | |
| 31.2 | | Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934. | | | | | | | | | | | | | X | | |
| 32.1 | | Certification of Chairman, President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350. | | | | | | | | | | | | | X | | |
| 32.2 | | Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | | | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | | | | |
The following exhibits are filed as a part of this report:
|
| | | | | | | | | | | | | | |
| | | | Incorporated by Reference | | | | |
| Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | SEC File No. | | Filed Herewith | | Furnished Herewith |
3.1 | | Amended By-laws of Marathon Oil Corporation, effective January 1, 2013. | | | | | | | | | | X | | |
12.1 | | Computation of Ratio of Earnings to Fixed Charges. | | | | | | | | | | X | | |
31.1 | | Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934. | | | | | | | | | | X | | |
31.2 | | Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934. | | | | | | | | | | X | | |
32.1 | | Certification of Chairman, President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350. | | | | | | | | | | X | | |
32.2 | | Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. | | | | | | | | | | X | | |
101.INS | | XBRL Instance Document. | | | | | | | | | | X | | |
| 101.SCH | | XBRL Taxonomy Extension Schema. | | | | | | | | | | X | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. | | | | | | | | | | X | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. | | | | | | | | | | X | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. | | | | | | | | | | X | | |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase. | | | | | | | | | | X | | |
| | | | | | | | | | | | | | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
May 4, |
| | |
November 7, 2012 | | MARATHON OIL CORPORATION |
| | |
| By: | /s/ Michael K. Stewart |
| | Michael K. Stewart |
| | Vice President, Finance and Accounting, Controller and Treasurer |