January 31, 2008 / 5:06 PM / 10 years ago

UPDATE 3-Marathon 4th-qtr profit falls on refining margins

(Adds details from conference call, updates with closing stock price)

NEW YORK, Jan 31 (Reuters) - Marathon Oil Corp MRO.N, the oil producer and refiner, said on Thursday its fourth-quarter earnings fell 38 percent on declining margins at its refineries.

The lower-than-expected results coupled with a relatively weak production forecast for 2008 drove its shares down 8 percent.

Profit in the quarter dropped to $668 million, or 94 cents per diluted share, from $1.08 billion, or $1.53 per diluted share in the same quarter a year earlier.

Excluding one-time items, the company said it earned 70 cents a share, well below the average analysts’ estimate of 83 cents a share, according to Reuters Estimates.

Aside from the lower refining margins, the quarter was also hurt by delays at the company’s Alvheim project in the North Sea, unscheduled downtime at its LNG project in Equitorial Guinea and Athabasca oil sands project in Canada, and higher exploration costs.

Marathon also said it added 88 million barrels of oil equivalent to its proved reserves in 2007, just 70 percent of the 125 million barrels of oil equivalent it produced over the course of the year.

However, that excludes the company’s 20 percent share in the Athabasca project, added through its acquisition of Western Oil Sands last year, as oil sands reserves are reported separately.

Marathon estimates its share of proved reserves at the Athabasca project is 421 billion barrels of bitumen -- the tar-like substance in oil sands that can be processed to make fuel.

Revenue climbed 33 percent to $17.7 billion, boosted by higher oil and natural gas prices.

REVIEWING ASSETS FOR SALE

Marathon said Wednesday its 2008 capital spending budgetwould increase to $8 billion from its previous forecast of $5.2 billion, mostly due to refinery expansions and spending on the Athabasca project.

In light of the increased spending level, and in order to increase financial flexibility, the company has started a review of its portfolio of assets. It plans to sell mature or nonstrategic assets, Chief Financial Officer Janet Clark said on a conference call with analysts.

She said any proceeds from potential sales would likely come in the second half of the year, but did not disclose any details about which assets are being considered for sale.

The company posted earnings from its refining, marketing and transportation business of only $4 million, down from $533 million last year.

Profit margins from refining fell year over year as gasoline prices failed to keep pace with oil prices that soared to record levels.

Earnings from its exploration and production business rose more than 50 percent to $465 million. But its sales volumes fell slightly to 354,000 barrels of oil equivalent per day.

By the end of the first quarter, Marathon expects production to start from its Neptune project in the Gulf of Mexico and, weather permitting, its Alvheim project.

The company expects 2008 production available for sale to rise to between 380,000 and 420,000 barrels of oil equivalent per day, excluding oil sands production. It expects net bitumen production of 30,000 barrels of oil equivalent per day.

It had previously forecast production between 450,000 to 480,000 barrels of oil equivalent per day in the quarter, but said its output would be hurt by project delays at Alvheim and in the Gulf of Mexico.

Shares of Marathon Oil closed down $4.06 to $46.85 on the New York Stock Exchange. (Reporting by Michael Erman; editing by Jeffrey Benkoe)

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