Sanford C. Bernstein & Co.

Transcription

1 Sanford C. Bernstein & Co. Strategic Decisions Conference 2007 May 31, 2007 Clarence P. Cazalot, Jr. President and CEO

2 Forward Looking Statement Except for historical information, this presentation contains forward-looking information with respect to the timing and levels of the company's worldwide liquid hydrocarbon and natural gas production, projected capital, investment and exploration spending, the Alvheim/Vilje, Volund and other potential developments, exploration and drilling plans, an LNG project in Equatorial Guinea and possible expansion thereof, projected LNG sales, expansion plans for Libya, growth in refining capacity, the Garyville refinery expansion project, heavy oil refining upgrading projects, a possible Canadian oil sands venture, the Company's gas-to-fuels technology, and the common stock repurchase program. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied from such information. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in its Annual Report on Form 10-K for the year ended December 31, 2006, and subsequent 10-Q and 8-K filings, cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements. Cautionary Note to U.S. Investors The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose e only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. Marathon Oil Corporation C uses certain terms in this presentation, such as total and net resources, that the SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely ly the disclosures in Marathon's periodic filings with the SEC, available from us at 5555 San Felipe, Houston, Texas and the Company's Web site at You can also obtain this information from the SEC by calling SEC

3 Outstanding Performance in 2006 Top quartile ROCE performance Percent MRO Rank 10/13 5/13 2/13 Range Group Median Marathon 2 ROCE = (Adjusted Net Income + Tax Adjusted Interest Expense) / ( Cash-Adjusted Long-Term Debt + Equity) See Appendix for a discussion of the non-gaap measure Adjusted Net Income and a reconciliation to Net Income in accordance with GAAP. Source: Marathon internal calculations based on Bloomberg and other public sources Peer group includes: APC, BP, COP, OXY, HES, CVX, MRO, RD, REP, SUN, TOT, VLO, XOM 2004 Excludes certain UK mark-to-market gas sales contract activities

4 Outstanding Performance in 2006 Top quartile ROCE performance Reduced net debt to total capital to 6% Increased quarterly dividend 21% 74 percent increase July 2003 through 2006 Authorized $2.0 billion in share buy backs Increased to $2.5 billion during January, 2007 #1 Total Shareholder Return of XOI companies 3

5 Three-Year Total Shareholder Return December 2003 to December % Total Shareholder Return VLO MRO HES SUN OXY COP XOM REP CVX APC TOT RDS/A BP 4 Source: Bloomberg; MRO s average closing stock price: December 2003 $31.32; December 2006 $93.91 RDS/A - reflects December 31, 2003, closing price for RD compared to December 2006 average closing price for RDS/A TSR = Share price appreciation + dividends paid

6 Challenging Industry Environment Access to conventional resource more difficult Higher costs and greater capacity constraints Expanded government role through increased fiscal take regulations Trained personnel in short supply Increased volatility & uncertainty in commodity prices & margins 5

7 Attributes for Future Success Profitable resource capture Ability to provide fully integrated energy solutions Differentiating technology skills Ability to execute major projects See opportunities in advance of competition Low cost, safe and reliable operator Maintain financial strength through the cycles 6

8 Upstream Focus Areas 7 Production Exploration/exploitation

9 2006 Upstream Highlights Improved net income per BOE vs. competition Peer Group Marathon Income ($/BOE) MRO Rank 8/12 6/12 7/12 5/11 4/9* 8 Source: Marathon internal report based on company 10-K s and earnings releases, excludes certain UK mark-to-market gas sales contract activities *Peer group includes: BP, COP, OXY, HES, CVX, RDS, MRO, MUR, XOM

10 2006 Upstream Highlights Improved net income per BOE vs. competition Increased resource base Exploration success Selective acquisitions 9

11 Total Resources Growth from Total Resources (Billion BOE) YE Production Dispositions Resource Adds 3.9 YE 2006 Resource growth drives future reserve additions 10 Total Resources = Proved + 70% of probable + 30% of possible

12 Reserve Replacement and F&D Costs Outstanding Reserve Replacement Reserve Additions (MMBOE) Reserve Replacement (%) F&D Cost ($/BOE) Reserves 12/31/01 of 1.05 Billion BOE Reserves 12/31/06 of 1.26 Billion BOE 11 Reserve replacement ratio: Net Reserve Additions / Net Production, including discontinued operations. Reserve additions exclude dispositions. F&D Cost includes Asset Retirement Obligation costs.

13 2006 Upstream Highlights Improved net income per BOE vs. competition Expanded resource base Exploration success U.S. resource leasehold acquisitions Achieved production growth targets Confirmed and extended production growth 12

14 Upstream Production Outlook 600 Net Production (MBOE/D) High Low 6-9% CAGR Alvheim/Norway Libya re-entry Vilje/Norway EG-Train 1 Neptune/GOM Resource Plays High Side Low Side Corrib/Ireland Volund/Norway Libya Growth Resource Plays Resource Plays Production growth driven by defined projects 13 CAGR production growth rate referenced to 2006 production Volumes from continuing operations Does not assume any contribution from future exploration successes

15 Building Further Growth Beyond 2010 Gulf of Mexico 14

16 U.S. Gulf of Mexico Exploration Plan MRO Acreage Scale 5 Drill-ready prospects 2007 Plan Dev. / Prod. Appraisal Well/Discovery Exploration Well ( 06-08) Deepwater Focus Area Lower Tertiary Trend 25 mi. Shelf Ermine Petronius Andromeda Stones appraisal Flathead* 2007 Y-T-D Droshky discovery Lobster Blackwater Troika Droshky Flathead Stones Deepwater Atlanta Neptune Wells/year Jack Discovery Stones SW Petronius Neptune Deepwater Focus Area >50% of acreage available at lease sales 15 *Rig availability uncertain

17 Building Further Growth Beyond 2010 Gulf of Mexico Angola 16

18 Angola Moving Discoveries to Production 24 Discoveries announced Over 250 MMBO net to Marathon 4 Potential development hubs Progressing developments Block 31NE Block 31 SE Block 31 Mid Block 32 Eastern Significant production potential Potential NE Development Area Terra BLOCK 31 Titania 10% WI Miranda Ceres Cordelia Hebe Potential Mid Development Area Potential SE Development Area BLOCK 32 30% WI Marte Plutao Urano Potential Eastern Development Area Venus Saturno Palas Juno Cohminos Manjericao Caril Astraea Gindungo Canela Gengibre Mostarda Louro MRO Acreage Oil Discovery Salsa 17

19 Building Further Growth Beyond 2010 Gulf of Mexico Angola U.S. Resource Plays 18

20 U.S. Onshore New Resource Play Summary Bakken, Piceance and Barnett Exposure to ~285 mmboe net resources Net production >50 mboe/d by 2011 Leverages Marathon core technical competencies Drilling Completion Project execution 19

21 Building Further Growth Beyond 2010 Gulf of Mexico Angola U.S. Resource Plays Libya Norway Indonesia Other opportunities Canadian Oil Sands West Africa gas 20

22 Key Upstream Takeaways Competitive and improving margin performance Increased resource base Defined 6-9% production CAGR Dependable base Commissioning new development projects U.S. resource plays to provide new stable production Inventory of development opportunities beyond 2010 Well-defined, profitable and sustainable growth 21

23 Downstream Operations Refinery Pipeline Terminal Coastal Terminal Inland Terminal St. Paul Park Robinson Detroit Canton Catlettsburg Texas City Garyville 22 A comprehensive, integrated focus

24 2006 Downstream Highlights Highest unit profitability vs. competition 23

25 Marathon vs. Competitors Adjusted Downstream Operating Income Before Taxes Per Barrel of Crude Oil Throughput MRO Competitor Average # Rank Among Competitors 2 $/BBL Competitors ranked Source: Company Reports Competitors: BP, COP, CVX, MRO, SUN, TSO, VLO, XOM

26 2006 Downstream Highlights Highest unit profitability vs. competition Maintained high refinery mechanical availability Increased refined product and merchandise sales Transitioned to new clean fuels successfully Continued investment in strategic midstream assets 25

27 Marathon Midstream Assets Pipelines Utilized Inland Water Terminal Terminals Utilized Coastal Water Terminal 87 owned and operated terminals, 29 leased light product and asphalt terminals 15 inland waterway tow boats and 184 barges Owns, operates, leases or has interest in 9,900 miles of pipeline 26

28 2006 Downstream Highlights Highest unit profitability vs. competition Maintained high refinery mechanical availability Increased refined product and merchandise sales Transitioned to new clean fuels successfully Continued investment in strategic midstream assets Reached FID on Garyville expansion 27

29 Garyville Major Expansion - 180,000 B/D Estimated $3.2 Billion project 4Q 2009 start-up Leverages our most efficient and profitable downstream asset Ability to process wide crude slate Average annual after tax: Cash Flow ~ $350MM Net Income ~ $225 MM Based on average prices / margins WTI - $31 / BBL WTI Crack - $4.70 / BBL 28

30 2006 Downstream Highlights Highest unit profitability vs. competition Maintained high refinery mechanical availability Increased refined product and merchandise sales Transitioned to new clean fuels successfully Reached FID on Garyville expansion Studying heavy oil upgrading opportunities 29

31 Oil Integration Options Global Potential Canadian Oil Sands Potential Solutions Detroit, Robinson, Catlettsburg, St. Paul Park COS GME 180,000 b/d expansion Other Other Other Integration Solutions? Garyville Major Expansion: multiple options for integration 30

32 Detroit Heavy Oil Upgrade Project Capacity to process 100,000 b/d of heavy Canadian crude oil New units include: 28 MBD Coker 35 MMSCFD Hydrogen plant Two 140 LTPD sulfur plants 12 MBD Coker naphtha hydrotreater Logistics Projected study completion 4Q

33 2006 Downstream Highlights Highest unit profitability vs. competition Maintained high refinery mechanical availability Increased refined product and merchandise sales Transitioned to new clean fuels successfully Reached FID on Garyville expansion Studying heavy oil upgrading opportunities Expanding biofuels businesses 32

34 E10 Infrastructure Investment April 30, 2007 E10 Ethanol Infrastructure Program June 1, 2008 E10 Ethanol Infrastructure Program Terminals Greenville Ethanol Plant 74% 890mm GPY Poised to enter Southeast 100% 1.2 billion GPY 33

35 Key Downstream Messages Comprehensive integrated value chain Expanding strategic midstream assets Enhancing industry-leading asset in Garyville Pursuing step-change in heavy oil upgrading Committing to biofuels opportunities 34

36 Marathon s Integrated Gas Strategy Maximizing value through value chain skills Upstream Liquefaction Shipping Re-Gas Historic Returns 15-20% or above 8-12% if tolling 8-10% 8-10% 10-20% otherwise Utility businesses Highest participation in greatest value aspects 35 Source: Wood MacKenzie

37 Equatorial Guinea World-Class Gas Processing Acquired < 40,000 BOE/D Gross Condensate >60,000 B/D Gross LPG >20,000 B/D Gross Methanol >20,000 BOE/D Gross First Cargo 2007 LNG 75,000 BOE/D Gross Total >175,000 BOE/D Gross 36 Capturing the value of gas integration

38 EG LNG Train 1 Long-Term Cash Flow & Earnings Contributor 3.7 MMTPA LNG facility Marathon 60% WI 17-Year BG agreement 3.4 mmtpa (~487 MMBTU/D) First sales 2Q 2007 FOB Bioko Island, indexed to Henry Hub At $6.00 Henry Hub net back $3.45 per MMBTU Net cash flow to MRO ~ $200 million/year Net income to MRO ~ $180 million/year 37

39 38 First Cargo Loads at EG May 23, 2007

40 EG LNG Train 1 Delivering a world-class project 4 Million Tonnes Per Annum BG Contract 3 TCF certified reserves Train 1 Capacity Stable, long-life life source of cash & earnings 39

41 EG LNG Train 2 The next stage to growth Potential Regional Gas Hub Space for multiple LNG Trains Multiple gas resources Nigeria and Cameroon Discovered EG gas resources Continued EG exploration Bonny OML 11 OML 13 OPL 290 OML 69 Government HOA s signed EG - Nigeria EG - Cameroon N i g e r i a Alba Field PSC and Satellite Discoveries Punta Europa 0 K 5 M 0 40 Source: IHS, Wood MacKenzie and Marathon internal estimates

42 Gas-To-Fuels TM Marathon proprietary technology Conversion of natural gas to high-octane gasoline 110+ Octane; suitable for blending/feedstock Eliminates costly syngas and upgrading steps Demonstrated operations Patent applications published (patent pending) Easily scaleable Plan forward 2007/ Install and startup 10 b/d demonstration plant Commercialization plans Lower cost than alternative gas conversion technologies Lower temperatures/pressures 41

43 Marathon Delivering Shareholder Value Focused on delivering top quartile TSR Integrated solutions broaden opportunity set Financial strength to fund program in volatile price environment Defined growth across all segments 42

44 Defined Growth Across All Segments Strong upstream volume growth and margins World-class LNG facility with significant growth potential Best-in-class downstream with solid growth opportunities Upstream Production 6-9% CAGR LNG Sales >400% Refinery Capacity 18% MBOE/D MMTPA MB/D 43 Marathon: well positioned for a strong future

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