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MRO » Topics » Overview

This excerpt taken from the MRO 10-K filed Feb 27, 2009.

Overview

FACE="Times New Roman" SIZE="2">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 were extremely volatile in 2008 with the following table listing high and low spot prices during the year for key benchmarks.

STYLE="font-size:12px;margin-top:0px;margin-bottom:0px"> 



































































Benchmark   High    Date  Low  Date

WTI crude oil (Dollars per barrel)

  $ 145.29 July 3  $33.87  December 19

Brent crude oil (Dollars per barrel)

  $ 144.22 July 3  $33.66  December 24

Henry Hub natural gas (Dollars per mcf)SIZE="1">(a)

  $   13.11 July 1  $6.47  November 1




(a)

First-of-month price index.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">On average, crude oil prices in 2008 were higher than in 2007. Crude oil prices climbed rapidly through the first half of 2008 based upon expected strong
global demand, a declining dollar, ongoing concerns about supplies of

 


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Table of Contents


Index to Financial Statements



crude oil, and political unrest in the Middle East and elsewhere. Later in 2008, crude oil prices dropped more rapidly than they had climbed as the U.S.
dollar rebounded and other countries entered recessions which decreased demand.

During 2008, the average spot price per barrel for WTI was
$99.75, up from an average of $72.41 in 2007, but ended the year at $44.60. The average spot price per barrel for Brent was $97.26 in 2008, up from an average of $72.39 in 2007, but ended the year at $36.55. The differential between WTI and Brent
average prices widened to $2.49 in 2008 from $0.02 in 2007. Our domestic crude oil production is on average heavier and higher in sulfur content than light sweet WTI. Heavier and higher sulfur crude oil (commonly referred to as heavy sour crude oil)
sells at a discount to light sweet crude oil. Our international crude oil production is relatively sweet and is generally sold in relation to the Brent crude oil benchmark.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">Natural gas prices on average were higher in 2008 than in 2007. A significant portion of our U.S. lower 48 states natural gas production is sold at
bid-week prices or first-of-month indices relative to our specific producing areas. The average Henry Hub first-of-month price index was $2.18 per thousand cubic feet (“mcf”) higher in 2008 than the 2007 average. Natural gas sales in
Alaska are subject to term contracts. Our other major natural gas-producing regions are Europe and Equatorial Guinea, where large portions of our natural gas sales are subject to term contracts, making realized prices in these areas less volatile.
As we sell larger quantities of natural gas from these regions, to the extent that these fixed prices are lower than prevailing prices, our reported average natural gas prices realizations may decrease.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:3%">E&P segment income during 2008 was up 57 percent from 2007, with revenue increases tied to these increases in average commodity prices accounting for
almost half of the income improvement. Liquid hydrocarbon and natural gas sales volumes were also higher in 2008 than 2007.

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