Marathon Oil (MRO)

For the year we’d expect on a barrel of oil equivalent basis international field level expenses to be approximately $3.45 per boe, DD&A of around $7, and all other excluding production taxes to be about $4.25. At current prices, international production taxes are approximately $2 per barrel of oil equivalent.

Slide 14 shows that international upstream income per boe fell 13% compared to the second quarter, largely the result of the higher exploration expenses and previously discussed higher production taxes and our change in mix quarter over quarter. Concluding the upstream segment discussion, despite losing approximately 20,000 barrels of oil equivalent per day as a result of the storm activity in the Gulf of Mexico, production available for sale was within 1,000 barrels a day of the estimated production range for the quarter, as a result of strong performance from other regions, primarily in Russia, and Equatorial Guinea.

Moving to our downstream business in Slide 15, third quarter segment income of $814 million was more than double the $391 million third quarter 2004 segment income. And because of the seasonality in the downstream business, I will compare the third quarter 2005 results against the same quarter in 2004. The single largest factor contributing to the downstream improvement was a significant improvement in crack spreads. On a two-thirds Chicago and one-third U.S. Gulf Coast basis, the WTI 3-2-1 average for the third quarter was $17.53 per barrel, compared to $7.37 per barrel in the same quarter last year. The WTI 6-3-2-1 crack spread, which better approximates Marathon’s total production rate, also improved substantially, increasing from about $3.02 per barrel in the the third quarter of 2004, on a two-thirds Chicago and one-third U.S. Gulf Coast basis, to $10.70 per barrel in the third quarter.

Just the improvement in the WTI 6-3-2-1 crack spread would have added about $800 million to downstream earnings compared to the third quarter of 2004. However, the rapid increase in spot market prices used in these indicator crack spreads, particularly in September, was only partially passed along to our wholesale and branded customers. In addition, the price of our non-gasoline and non-distillate products traditionally lags light product spot market price changes. These two factors had a negative effect of approximately $500 million when compared to the indicated WTI 6-3-2-1 crack spread increases.