The Marathon Group, a unit of USX Corp., has reviewed progress of the strategic re-organization of its upstream business to security analysts in New York.
In addressing the upstream business, Marathon Oil Company president Clarence Cazalot reviewed the strategic targets and achievements to-date towards Marathon's upstream commitment to significantly improve shareholder return.
Clarence Cazalot introduced the new senior leadership team, announced in September, and invited each to review their respective areas of responsibility and outline the performance metrics that their businesses would be judged by.
In his introductory remarks, he noted that the reorganization and consolidation of the upstream business announced in October was largely complete. Early retirement programs in the U.S. and the U.K. have resulted in a little over 500 eligible employees electing to retire, while further job reductions underway in the U.S., U.K. and Canada will eliminate 250 additional positions.
"Overall, we expect Marathon's worldwide exploration and production headcount to fall below 3,000, some 24 percent lower than at the end of 1999," noted Cazalot.
Commenting on the company's target of implementing $150 million of annual repeatable efficiencies by the end of 2001, Cazalot added, "We are on track to deliver a $75 million reduction in above-the-field costs and we have made substantial progress towards cutting exploration expenses by $50 million.
As we also realize annual savings of $25 million through global procurement, we are well on our way to meet our ambitious overall target."
Phil Behrman, senior vice president of Worldwide Exploration discussed Marathon's plans to enhance near-term production in 2001 with a program targeting U.S. prospects in Oklahoma and Texas and international prospects in Western Canada and Norway.
Regarding the mid to long-term, Behrman noted that Marathon's emphasis would be on high impact exploration targeting access to the best prospects adjacent to, or within proven trends.
"We aim to grow and enhance our inventory of quality opportunities,'' noted Behrman. ``Towards this objective, we have a focused deepwater program in 2001 targeting at least two wells offshore Angola, one to two off Eastern Canada and five to six in the Gulf of Mexico."
Steve Lowden, senior vice president of Business Development highlighted Marathon's renewed emphasis on resource capture within the upstream value chain.
Lowden saw niche opportunities for Marathon where the Company could leverage its size by combining the technical competence of a 'super-major' allied with the agility of an independent. "We're looking to build three or four new international core areas, starting with at least one next year.
We see our prime opportunities in North and West Africa, the Middle East and Southeast Asia," noted Lowden. "Marathon intends to accelerate its business development effort to acquire producing and development assets that enable us to balance growth in both the near and medium term."
Dave Golder, senior vice president of Commercialization and Development gave an overview of Marathon's current development projects. He discussed Petronius and Camden Hills in the Gulf of Mexico, the Corrib development off the West Coast of Ireland, Foinaven in the U.K. Atlantic Margin and the Vale field in the Norwegian sector of the North Sea.
Golder highlighted the positive experience Marathon gained on the Sakhalin project where the trade to Shell, in exchange for production interests in the U.K. and Gulf of Mexico, is expected to be completed in December. "Marathon has made a major contribution to this world-class project," noted Golder.
"The technical and project management expertise that we have established, combined with valuable experience working with diverse cultures and political systems, are transferable skills we can use to our advantage in progressing future opportunities."
Steve Hinchman, senior vice president of Worldwide Production Operations provided an update of current production activities.
He estimated that 2000 production rates would average around 416,000 barrels of oil equivalent per day and forecast that 2001 rates would average slightly over three percent higher at 430,000 BOE/d. Hinchman noted that Marathon anticipated making a downward revision of previous reserve estimates at year-end of approximately 100 million barrels of oil equivalent as a result of production performance and disappointing drilling results.
Of this total, about half will move from the proven reserve category to other, non-proven categories. This downward revision will result in an asset impairment under FAS 121, which is presently estimated to be approximately $200 million on a pre-tax basis.
"As we move forward, we will maintain our emphasis on top quartile safety and environmental performance while continuing to drive down controllable costs," noted Hinchman.
"Our near term focus in the U.S. will be to leverage production in core production areas such as the Gulf of Mexico, the Permian Basin in Texas and the Anadarko gas basin in Oklahoma. Internationally, the emphasis will be in Europe by maximizing our returns from the Brae infrastructure and the newly acquired Foinaven asset in the Atlantic Margin."
John Mills, senior vice president of Finance and Administration, reviewed the financial performance metrics for the Marathon Group. He noted that the upstream business would target income per barrel of $4 in a $19/barrel WTI spot price environment, while the downstream business would continue to target top quartile peer group performance for income per barrel of crude oil processed.
"The Marathon Group is working hard at optimizing its financial structure to provide for future resource opportunities," Mills noted. "Our focus is on maintaining financial discipline with the flexibility to pursue profitable growth." Marathon pointed out that through the first three- quarters of 2000, the Group's debt to total capital had fallen to 34 percent.
Mills also noted that since USX announced a $450 million buy back plan in July 2000, approximately 3 million Marathon Group shares had been repurchased.
© 2000 Mena Report (www.menareport.com)