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  arathon
continued its worldwide exploration success in 2004 with the
announcement of six discoveries in Norway, Angola, the Gulf
of Mexico and Equatorial Guinea, and moved forward on major
international projects that position the Company to continue
delivering long-term value growth. Most notably, Marathon reached
a significant milestone in Norway with the approval of the
plan for development and operation (PDO) of the Alvheim project.
In addition, the Company continued to progress its condensate
recovery and LPG expansion projects in Equatorial Guinea.
Marathon and its partners also received final permit approval to move forward with the Corrib development
in Ireland. Finally, Marathon had another outstanding year
replacing reserves.
Exploration Success
Marathon continued its successful exploration program that reflects the Company’s
balanced exploration strategy, which places emphasis on near-term and lower-risk
opportunities, while retaining an appropriate exposure to longer-term exploration options.
Offshore Equatorial Guinea, the Company participated in two natural gas and condensate discoveries on the Alba Block: the Deep Luba discovery well and the Gardenia discovery well. These discoveries reinforce
the additional resource potential of the Alba field in which Marathon holds
a 63 percent interest. The Company is evaluating development scenarios for
both, including production through the Alba field infrastructure and the LNG facility under construction on Bioko Island.
In Norway, the Company announced its Hamsun discovery, which is approximately six miles
south of the Alvheim area on the Norwegian Continental Shelf. Well results
are being used to analyze development options, including a tie-back to the
Alvheim development. Marathon holds a 65 percent interest in Hamsun and serves as operator. In addition, Marathon acquired five new
Norwegian exploration licenses (four operated) during 2004.
Offshore Angola, Marathon participated in the Canela-1 discovery, the second
discovery on Block 32. Also on Block 32, a well on the Cola prospect reached
total depth and encountered hydrocarbons; further seismic and drilling activity
will be required to determine commerciality. Also, a well on the Gengibre
prospect reached total depth, and results will be announced following government
approval. Marathon holds a 30 percent interest in Block 32.
 Marathon also participated in its fourth successful well on Angola Block
31 with the Venus-1 discovery, which along with three previously announced discoveries on Block
31, form the basis for a planned development of the northeast portion of the block. In
addition, Marathon participated in the recently announced Palas discovery in the southern portion of Block 31. In the central portion of the block,
a well has reached total depth on the Ceres prospect and results will be
announced upon government approval. Marathon holds a 10 percent interest in Block 31.
In the Gulf of Mexico, Marathon and its partners
in the Neptune unit announced the results of the Neptune-7 appraisal well,
which along with data from other Neptune wells, is being used to assess development
options for the field. Front-end engineering and design for a Neptune development
commenced and is anticipated to result in project sanction in 2005. Marathon
holds a 30 percent interest in the Neptune unit.
Project Milestones
Marathon made substantial progress in advancing key development projects
that will help serve as the basis for the Company’s production growth
profile.
In Norway, Marathon continued to build momentum since re-establishing its
presence as an operator in 2002. Marathon has interest in 19 offshore licenses,
10 of which Marathon is the designated operator, and drilled five exploration
wells resulting in four successes. Plans to develop these discoveries progressed
in October with approval from the Norwegian Ministry of Petroleum and Energy
of the Alvheim PDO, submitted by Marathon and its project partners. The development
comprises three fields — Kneler, Boa and Kameleon — in which
Marathon holds a 65 percent interest and serves as operator. The Alvheim
group also reached agreement to tie-in the nearby Vilje discovery, in which
Marathon holds a 46.9 percent interest. The tie-in is subject to approval
of the Vilje PDO, which was submitted to the Norwegian government in December
2004.
The Alvheim development plans include the use of a floating production, storage
and offloading vessel (FPSO) with subsea infrastructure consisting of five
drill centers and associated flow lines. During 2004, Marathon purchased
a multipurpose shuttle tanker, which will be converted to an FPSO. In January
2005, Marathon and its Alvheim partners awarded contracts for FPSO topsides
construction, and tendering for all remaining major construction contracts is nearing completion. Oil production will be transported by shuttle tanker and produced natural gas via the existing
U.K. SAGE pipeline
system using a new 24-mile cross border pipeline. Production from a combined
Alvheim/Vilje development is expected to reach more than 50,000 net boepd
with production starting in 2007.
Marathon continues to develop its Equatorial Guinea assets into a significant
core area for the Company. At year end, Equatorial Guinea accounted for approximately
40 percent of Marathon’s proven reserve base and 9 percent of its worldwide
oil and gas production.
Marathon’s Equatorial Guinea net production during 2004 averaged 18,900
bpd of liquids and 77 mmcfd of natural gas. Marathon made progress on two important production
expansion projects to create a major onshore gas processing facility on Bioko
Island. The initial phase is projected to triple condensate production to
54,000 gross bpd and is essentially complete. Production has been ramping
up since August 2004, with current rates of approximately 46,000 gross bpd
of condensate. An additional phase will increase production of LPG to approximately
21,000 gross bpd — six times higher than the LPG production rate at
the time of acquisition. This phase will also increase condensate recovery
an additional 4,000 gross bpd. This phase is expected to start up in the
second quarter of 2005. By the end of 2005, the Company expects liquid hydrocarbon
production to have risen to 79,000 gross bpd (44,500 net bpd), an increase
of nearly 150 percent over average 2004 production rates.
In Ireland, Marathon, along with its partners, is moving forward with construction of an onshore natural gas terminal to
process gas from the offshore Corrib field. Planning approval was granted
for the terminal at Bellanaboy Bridge, County Mayo, in October — a
major step forward for the project in which Marathon holds an 18.5 percent interest. First production is expected
in 2007. In 2004, Marathon’s net production in Ireland averaged 58
mmcfd.
In Libya, Marathon continues to work with its partners, including the Libyan
government, to finalize the terms of the group’s re-entry agreement
following the lifting of U.S. sanctions in early 2004. The parties continue
to make progress toward a final agreement and are optimistic that it will
be finalized in the near future. Marathon holds a 16.3 percent interest in
the approximately 13-million-acre Waha Concession.
Production Milestones
In the United States, Marathon maintained strong performance from its base
assets, which are anchored by onshore gas production and production from
the Gulf of Mexico. Marathon’s U.S. production during 2004 averaged
81,000 bpd of liquid hydrocarbons, 48 percent of worldwide liquid hydrocarbon
production, and 631 mmcfd of natural gas, which is 63 percent of the Company’s
worldwide natural gas production. The strong gas market in the United States
is attracting increased capital to core producing areas in the Anadarko Basin,
Green River Basin, East Texas, the Powder River Basin and the Cook Inlet.
Marathon is pursuing business development and partnership opportunities to
strengthen existing plays focused in the mid-America gas corridor, where
Marathon’s geophysical, drilling
and completions skills can be effectively leveraged. The Company is employing
state-of-the-art drilling and completion technologies to reduce costs and
speed development throughout its U.S. operations. Marathon’s U.S. natural
gas drilling activity is expected to significantly increase during 2005,
resulting in the Company maintaining its net natural gas production at about current levels for several years.
The Gulf of Mexico continues to be a core area for Marathon with the potential
to add new reserves and increase production. During 2004, Marathon’s
Gulf of Mexico production averaged 36,000 net bpd of liquid hydrocarbons
and 100 net mmcfd of natural gas, representing 44 percent and 16 percent of Marathon’s total U.S. liquid
hydrocarbon and natural gas production, respectively. In 2004, production
was affected by four hurricanes in the Gulf of Mexico. Marathon’s Petronius platform
suffered significant damage from Hurricane Ivan, with production expected
to resume during the second quarter of 2005.
In Russia, Marathon’s newest core area, development programs have successfully
increased production from 15,000 bpd in May 2003 to a current rate of 25,000
bpd. Our focus in Western Siberia is on development of oil reservoirs and
recovery enhancements through water flooding. Marathon has applied state-of-the-art
drilling and completion techniques in Russia, allowing the Company to reduce drilling times by as much as 50
percent and improve the effectiveness of completions.
Strengthened Proved Reserve Base
During 2004, Marathon added net proved reserves of 221 mmboe, excluding 2
mmboe of dispositions, while producing 122 mmboe. These additions reflect
the progress being made on major projects in Norway, Equatorial Guinea and
Ireland, as well as opportunities in the United States. This strong performance will serve
as the basis for the Company’s production growth profile in the coming
years. At year end, Marathon had estimated proved reserves of 1,139 mmboe. |
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