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style="font-family:Times New Roman;font-size:10pt;"><div
style="line-height:120%;padding-bottom:8px;padding-top:20px;text-align:left;font-size:10pt;"><font
style="font-family:inherit;font-size:10pt;font-weight:bold;">Acquisitions</font></div><div
style="line-height:120%;padding-bottom:6px;padding-top:6px;text-align:left;text-indent:24px;font-size:10pt;"><font
style="font-family:inherit;font-size:10pt;">In the fourth
quarter of 2019, we acquired approximately </font><font
style="font-family:inherit;font-size:10pt;">40,000</font><font
style="font-family:inherit;font-size:10pt;"> net acres in a
Texas Delaware oil play in West Texas for </font><font
style="font-family:inherit;font-size:10pt;">$106
million</font><font
style="font-family:inherit;font-size:10pt;">. We accounted for
these transactions as an asset acquisition, allocating the purchase
price to unproved property within property, plant and equipment.
</font></div><div
style="line-height:120%;padding-bottom:6px;padding-top:6px;text-align:left;text-indent:24px;font-size:10pt;"><font
style="font-family:inherit;font-size:10pt;">During the fourth
quarter of 2019, we acquired a 100% working interest in
approximately </font><font
style="font-family:inherit;font-size:10pt;">18,000</font><font
style="font-family:inherit;font-size:10pt;"> net acres in the
Eagle Ford from Rocky Creek Resources, LLC and RCR Midstream, LLC
for </font><font
style="font-family:inherit;font-size:10pt;">$191
million</font><font
style="font-family:inherit;font-size:10pt;"> in cash, subject to
closing adjustments. </font></div></div>
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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(Mark
One)
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☒
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
Quarterly Period Ended
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March 31, 2020
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OR
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
transition period from _____ to _____
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Commission
file number 1-1513
Marathon
Oil Corporation
(Exact name
of registrant as specified in its charter)
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Delaware
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25-0996816
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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5555
San Felipe Street, Houston,
Texas
77056-2723
(Address of
principal executive offices)
(713)
629-6600
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each
class
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Trading Symbol
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Name of each exchange on
which registered
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Common Stock, par value
$1.00
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MRO
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New York Stock
Exchange
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Indicate by
check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90
days. Yes
þ
No
o
Indicate by
check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such
files). Yes þ
No
o
Indicate by
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated
filer
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þ
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Accelerated filer
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o
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Non-accelerated
filer
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o
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Smaller reporting
company
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☐
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Emerging growth
company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. o
Indicate by
check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
☐ No
þ
There
were 790,312,454
shares of
Marathon Oil Corporation common stock outstanding as of
April 30,
2020.
MARATHON OIL CORPORATION
Unless the
context otherwise indicates, references to “Marathon Oil,” “we,”
“our,” or “us” in this Form 10-Q are references to Marathon Oil
Corporation, including its wholly owned and majority-owned
subsidiaries, and its ownership interests in equity method
investees (corporate entities, partnerships, limited liability
companies and other ventures over which Marathon Oil exerts
significant influence by virtue of its ownership
interest).
For certain
industry specific terms used in this Form 10-Q, please see
“Definitions” in our 2019 Annual Report on Form
10-K.
Part I –
FINANCIAL INFORMATION
Item 1.
Financial Statements
MARATHON
OIL CORPORATION
Consolidated
Statements of Income (Unaudited)
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Three Months
Ended
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March
31,
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(In
millions, except per share data)
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2020
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2019
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Revenues and
other income:
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Revenues from contracts with
customers
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$
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1,024
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$
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1,200
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Net gain (loss) on commodity
derivatives
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202
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(91
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)
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Income (loss) from equity
method investments
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(12
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)
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11
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Net gain on disposal of
assets
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9
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42
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Other income
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7
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|
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35
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Total revenues and other
income
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1,230
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1,197
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Costs and
expenses:
|
|
|
|
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Production
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160
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187
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Shipping, handling and other
operating
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144
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154
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Exploration
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28
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59
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Depreciation, depletion and
amortization
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644
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554
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Impairments
|
97
|
|
|
6
|
|
|
Taxes other than
income
|
66
|
|
|
72
|
|
|
General and
administrative
|
76
|
|
|
94
|
|
|
Total costs and
expenses
|
1,215
|
|
|
1,126
|
|
|
Income from
operations
|
15
|
|
|
71
|
|
|
Net interest and
other
|
(64
|
)
|
|
(49
|
)
|
|
Other net periodic benefit
costs
|
—
|
|
|
5
|
|
|
Income
(loss) before income taxes
|
(49
|
)
|
|
27
|
|
|
Benefit for income
taxes
|
(3
|
)
|
|
(147
|
)
|
|
Net income
(loss)
|
$
|
(46
|
)
|
|
$
|
174
|
|
|
Net income
(loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
(0.06
|
)
|
|
$
|
0.21
|
|
|
Diluted
|
$
|
(0.06
|
)
|
|
$
|
0.21
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
Basic
|
794
|
|
|
819
|
|
|
Diluted
|
794
|
|
|
820
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
MARATHON
OIL CORPORATION
Consolidated
Statements of Comprehensive Income (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
March
31,
|
|
(In
millions)
|
2020
|
|
2019
|
|
Net income
(loss)
|
$
|
(46
|
)
|
|
$
|
174
|
|
|
Other comprehensive income
(loss), net of tax
|
|
|
|
|
|
Change in
actuarial (loss) for postretirement and postemployment
plans
|
—
|
|
|
(4
|
)
|
|
Change in
derivative hedges unrecognized loss
|
(22
|
)
|
|
—
|
|
|
Other comprehensive
loss
|
(22
|
)
|
|
(4
|
)
|
|
Comprehensive income
(loss)
|
$
|
(68
|
)
|
|
$
|
170
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
MARATHON
OIL CORPORATION
Consolidated
Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
(In
millions, except par value and share amounts)
|
2020
|
|
2019
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
817
|
|
|
$
|
858
|
|
Receivables, less reserve of
$30 and $11
|
703
|
|
|
1,122
|
|
Inventories
|
78
|
|
|
72
|
|
Derivative
assets
|
193
|
|
|
9
|
|
Other current
assets
|
118
|
|
|
74
|
|
Total current
assets
|
1,909
|
|
|
2,135
|
|
Equity method
investments
|
628
|
|
|
663
|
|
Property, plant
and equipment, less accumulated depreciation, depletion and
amortization of $18,641 and $18,003
|
16,903
|
|
|
17,000
|
|
Goodwill
|
—
|
|
|
95
|
|
Other noncurrent
assets
|
275
|
|
|
352
|
|
Total assets
|
$
|
19,715
|
|
|
$
|
20,245
|
|
Liabilities
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
1,104
|
|
|
$
|
1,307
|
|
Payroll and benefits
payable
|
68
|
|
|
112
|
|
Accrued taxes
|
72
|
|
|
118
|
|
Other current
liabilities
|
198
|
|
|
208
|
|
Total current
liabilities
|
1,442
|
|
|
1,745
|
|
Long-term debt
|
5,502
|
|
|
5,501
|
|
Deferred tax
liabilities
|
185
|
|
|
186
|
|
Defined benefit
postretirement plan obligations
|
172
|
|
|
183
|
|
Asset retirement
obligations
|
236
|
|
|
243
|
|
Deferred credits and other
liabilities
|
220
|
|
|
234
|
|
Total
liabilities
|
7,757
|
|
|
8,092
|
|
Commitments and
contingencies
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
Preferred stock -
no shares issued or outstanding (no par value, 26 million shares
authorized)
|
$
|
—
|
|
|
$
|
—
|
|
Common stock:
|
|
|
|
|
|
Issued – 937
million shares (par value $1 per share, 1.925 billion shares
authorized at March 31, 2020 and December 31, 2019)
|
937
|
|
|
937
|
|
Held in treasury, at cost –
146 million shares and 141 million shares
|
(4,059
|
)
|
|
(4,089
|
)
|
Additional paid-in
capital
|
7,102
|
|
|
7,207
|
|
Retained
earnings
|
7,895
|
|
|
7,993
|
|
Accumulated other
comprehensive income
|
83
|
|
|
105
|
|
Total stockholders’
equity
|
11,958
|
|
|
12,153
|
|
Total liabilities and
stockholders’ equity
|
$
|
19,715
|
|
|
$
|
20,245
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
MARATHON
OIL CORPORATION
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
March
31,
|
(In
millions)
|
2020
|
|
2019
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
Operating
activities:
|
|
|
|
|
|
Net income
(loss)
|
$
|
(46
|
)
|
|
$
|
174
|
|
Adjustments to reconcile net
income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation, depletion and
amortization
|
644
|
|
|
554
|
|
Impairments
|
97
|
|
|
6
|
|
Exploratory dry well costs
and unproved property impairments
|
22
|
|
|
49
|
|
Net gain on disposal of
assets
|
(9
|
)
|
|
(42
|
)
|
Deferred income
taxes
|
(1
|
)
|
|
(31
|
)
|
Net (gain) loss on derivative
instruments
|
(202
|
)
|
|
91
|
|
Net settlements of derivative
instruments
|
31
|
|
|
22
|
|
Pension and other post
retirement benefits, net
|
(11
|
)
|
|
(25
|
)
|
Stock-based
compensation
|
15
|
|
|
14
|
|
Equity method investments,
net
|
28
|
|
|
14
|
|
Changes in:
|
|
|
|
|
Current
receivables
|
407
|
|
|
(73
|
)
|
Inventories
|
(6
|
)
|
|
4
|
|
Current accounts payable and
accrued liabilities
|
(234
|
)
|
|
(102
|
)
|
Other current assets and
liabilities
|
(16
|
)
|
|
14
|
|
All other operating,
net
|
(18
|
)
|
|
(154
|
)
|
Net cash provided by
operating activities
|
701
|
|
|
515
|
|
Investing
activities:
|
|
|
|
|
|
Additions to property, plant
and equipment
|
(620
|
)
|
|
(615
|
)
|
Additions to other
assets
|
(1
|
)
|
|
14
|
|
Disposal of assets, net of
cash transferred to the buyer
|
3
|
|
|
13
|
|
Equity method investments -
return of capital
|
7
|
|
|
12
|
|
All other investing,
net
|
—
|
|
|
12
|
|
Net cash used in investing
activities
|
(611
|
)
|
|
(564
|
)
|
Financing
activities:
|
|
|
|
|
|
Purchases of common
stock
|
(92
|
)
|
|
(30
|
)
|
Dividends paid
|
(40
|
)
|
|
(41
|
)
|
All other financing,
net
|
1
|
|
|
(1
|
)
|
Net cash used in financing
activities
|
(131
|
)
|
|
(72
|
)
|
Effect of
exchange rate on cash and cash equivalents
|
—
|
|
|
1
|
|
Net decrease
in cash and cash equivalents
|
(41
|
)
|
|
(120
|
)
|
Cash and
cash equivalents at beginning of period
|
858
|
|
|
1,462
|
|
Cash and
cash equivalents at end of period
|
$
|
817
|
|
|
$
|
1,342
|
|
Reconciliation
of cash and cash equivalents
|
|
|
|
Cash and cash
equivalents
|
$
|
817
|
|
|
$
|
1,019
|
|
Cash and cash equivalents
included in current assets held for sale
|
—
|
|
|
323
|
|
Total cash
and cash equivalents
|
$
|
817
|
|
|
$
|
1,342
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
MARATHON
OIL CORPORATION
Consolidated
Statements of Stockholders’ Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
of Marathon Oil Stockholders
|
(In
millions)
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
Total
Equity
|
Three Months
Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2018 Balance
|
|
$
|
—
|
|
|
$
|
937
|
|
|
$
|
(3,816
|
)
|
|
$
|
7,238
|
|
|
$
|
7,706
|
|
|
$
|
63
|
|
|
12,128
|
|
Cumulative-effect
adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
(31
|
)
|
Shares issued - stock-based
compensation
|
|
—
|
|
|
—
|
|
|
101
|
|
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
62
|
|
Shares
repurchased
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
(50
|
)
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
174
|
|
|
—
|
|
|
174
|
|
Other comprehensive income
(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
Dividends paid (per share
amount of $0.05)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
(41
|
)
|
March 31,
2019 Balance
|
|
$
|
—
|
|
|
$
|
937
|
|
|
$
|
(3,745
|
)
|
|
$
|
7,149
|
|
|
$
|
7,808
|
|
|
$
|
59
|
|
|
$
|
12,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019 Balance
|
|
$
|
—
|
|
|
$
|
937
|
|
|
$
|
(4,089
|
)
|
|
$
|
7,207
|
|
|
$
|
7,993
|
|
|
$
|
105
|
|
|
12,153
|
|
Cumulative-effect adjustment
(Note 2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Shares issued - stock based
compensation
|
|
—
|
|
|
—
|
|
|
121
|
|
|
(83
|
)
|
|
—
|
|
|
—
|
|
|
38
|
|
Shares
repurchased
|
|
—
|
|
|
—
|
|
|
(91
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(91
|
)
|
Stock-based
compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(46
|
)
|
|
—
|
|
|
(46
|
)
|
Other comprehensive income
(loss)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
(22
|
)
|
Dividends paid (per share
amount of $0.05)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
(40
|
)
|
March 31,
2020 Balance
|
|
$
|
—
|
|
|
$
|
937
|
|
|
$
|
(4,059
|
)
|
|
$
|
7,102
|
|
|
$
|
7,895
|
|
|
$
|
83
|
|
|
$
|
11,958
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
These
consolidated financial statements are unaudited; however, in the
opinion of management, these statements reflect all adjustments
necessary for a fair statement of the results for the periods
reported. All such adjustments are of a normal recurring
nature unless disclosed otherwise. These consolidated
financial statements, including notes, have been prepared in
accordance with the applicable rules of the SEC and do not include
all of the information and disclosures required by U.S. GAAP for
complete financial statements.
These interim
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in
our 2019 Annual Report on Form
10-K. The results of operations for the first quarter of
2020
are not
necessarily indicative of the results to be expected for the full
year.
2. Accounting
Standards
Recently Adopted
Financial instruments – credit losses
In June 2016, the
FASB issued a new accounting standards update that changes the
impairment model for trade receivables, net investments in leases,
debt securities, loans and certain other instruments. On January 1,
2020 we adopted this standard using the modified retrospective
transition method through a cumulative-effect adjustment of
$12
million to
retained earnings as of the beginning of the adoption period. The
standard requires the use of a forward-looking “expected loss”
model as opposed to the “incurred loss” model used previously.
See
Note 8 for more information on
credit losses.
3. Income
(loss) and
Dividends per Common Share
Basic
income
(loss) per
share is based on the weighted average number of common shares
outstanding. Diluted income (loss)
per share assumes
exercise of stock options in all periods, provided the effect is
not antidilutive. The per share calculations below exclude
6
million and 5 million
of stock options
for the three months
ended
March 31,
2020 and 2019 that were
antidilutive.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
(In
millions, except per share data)
|
2020
|
|
2019
|
|
Net income
(loss)
|
$
|
(46
|
)
|
|
$
|
174
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding
|
794
|
|
|
819
|
|
|
Effect of dilutive
securities
|
—
|
|
|
1
|
|
|
Weighted average common
shares, diluted
|
794
|
|
|
820
|
|
|
Net income
(loss) per share:
|
|
|
|
|
Basic
|
$
|
(0.06
|
)
|
|
$
|
0.21
|
|
|
Diluted
|
$
|
(0.06
|
)
|
|
$
|
0.21
|
|
|
|
|
|
|
|
Dividends
per share
|
$
|
0.05
|
|
|
$
|
0.05
|
|
|
4. Dispositions
International Segment
In the first
quarter of 2019, we entered into an agreement to sell our U.K.
business (Marathon Oil U.K. LLC and Marathon Oil West of Shetlands
Limited). This transaction closed on July 1, 2019 for proceeds
of $95
million which reflects the assumption
by RockRose Energy PLC (“RockRose”) of the U.K. business’ cash
equivalent balance and working capital balance as of year-end
2018. Our
income before taxes relating to our U.K. business for the three
months ended March 31,
2019,
was $10
million.
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
5. Revenues
The majority of
our revenues are derived from the sale of crude oil and condensate,
NGLs and natural gas under spot and term agreements with our
customers in the United States and various international
locations.
As of
March 31,
2020 and December 31,
2019,
receivables from contracts with customers, included in receivables,
less reserves were $477
million and $837
million, respectively.
The following
tables present our revenues from contracts with customers
disaggregated by product type and geographic areas for the
three months
ended March 31 as
follows:
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
(In
millions)
|
Eagle
Ford
|
|
Bakken
|
|
Oklahoma
|
|
Northern
Delaware
|
|
Other
U.S.
|
|
Total
|
Crude oil and
condensate
|
$
|
307
|
|
|
$
|
330
|
|
|
$
|
84
|
|
|
$
|
74
|
|
|
$
|
33
|
|
|
$
|
828
|
|
Natural gas
liquids
|
16
|
|
|
10
|
|
|
21
|
|
|
3
|
|
|
2
|
|
|
52
|
|
Natural gas
|
23
|
|
|
8
|
|
|
29
|
|
|
3
|
|
|
3
|
|
|
66
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
24
|
|
Revenues from contracts with
customers
|
$
|
348
|
|
|
$
|
348
|
|
|
$
|
134
|
|
|
$
|
80
|
|
|
$
|
60
|
|
|
$
|
970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
(In
millions)
|
Eagle
Ford
|
|
Bakken
|
|
Oklahoma
|
|
Northern
Delaware
|
|
Other
U.S.
|
|
Total
|
Crude oil and
condensate
|
$
|
318
|
|
|
$
|
372
|
|
|
$
|
77
|
|
|
$
|
64
|
|
|
$
|
28
|
|
|
$
|
859
|
|
Natural gas
liquids
|
35
|
|
|
10
|
|
|
22
|
|
|
8
|
|
|
2
|
|
|
77
|
|
Natural gas
|
34
|
|
|
12
|
|
|
45
|
|
|
6
|
|
|
6
|
|
|
103
|
|
Other
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21
|
|
|
23
|
|
Revenues from contracts with
customers
|
$
|
389
|
|
|
$
|
394
|
|
|
$
|
144
|
|
|
$
|
78
|
|
|
$
|
57
|
|
|
$
|
1,062
|
|
International
|
|
|
|
|
|
|
March 31,
2020
|
(In
millions)
|
E.G.
|
|
Crude oil and
condensate
|
$
|
45
|
|
|
Natural gas
liquids
|
1
|
|
|
Natural gas
|
8
|
|
|
Revenues from contracts with
customers
|
$
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
(In
millions)
|
E.G.
|
|
U.K.
|
|
Other
Int’l
|
|
Total
|
Crude oil and
condensate
|
$
|
47
|
|
|
$
|
56
|
|
|
$
|
10
|
|
|
$
|
113
|
|
Natural gas
liquids
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Natural gas
|
7
|
|
|
8
|
|
|
—
|
|
|
15
|
|
Other
|
—
|
|
|
8
|
|
|
—
|
|
|
8
|
|
Revenues from contracts with
customers
|
$
|
55
|
|
|
$
|
73
|
|
|
$
|
10
|
|
|
$
|
138
|
|
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
6. Segment
Information
We have
two
reportable
operating segments. Both of these segments are organized and
managed based upon geographic location and the nature of the
products and services offered.
|
|
•
|
United States
(“U.S.”)
– explores for, produces and markets crude oil and condensate, NGLs
and natural gas in the United
States
|
|
|
•
|
International
(“Int’l”) – explores for, produces and markets crude oil and
condensate, NGLs and natural gas outside of the United States
as well as
produces and markets products manufactured from natural gas, such
as LNG and methanol, in Equatorial Guinea (“E.G.”)
|
Segment income
represents income which excludes certain items not allocated to our
operating segments, net of income taxes. A portion of our corporate
and operations general and administrative support costs are not
allocated to the operating segments. These unallocated costs
primarily consist of employment costs (including pension effects),
professional services, facilities and other costs associated with
corporate and operations support activities. Additionally, items
which affect comparability such as: gains or losses on
dispositions, certain property and goodwill impairments, unrealized
gains or losses on commodity derivative instruments, pension
settlement losses or other items (as determined by the chief
operating decision maker (“CODM”)) are not allocated to operating
segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2020
|
(In
millions)
|
U.S.
|
|
Int’l
|
|
Not
Allocated to Segments
|
|
Total
|
Revenues from contracts with
customers
|
$
|
970
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
1,024
|
|
Net gain (loss) on commodity
derivatives
|
31
|
|
|
—
|
|
|
171
|
|
(b)
|
202
|
|
Income (loss) from equity
method investments
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
Net gain on disposal of
assets
|
—
|
|
|
—
|
|
|
9
|
|
|
9
|
|
Other income
|
4
|
|
|
2
|
|
|
1
|
|
|
7
|
|
Less costs and
expenses:
|
|
|
|
|
|
|
|
Production
|
143
|
|
|
17
|
|
|
—
|
|
|
160
|
|
Shipping, handling and other
operating
|
140
|
|
|
3
|
|
|
1
|
|
|
144
|
|
Exploration
|
28
|
|
|
—
|
|
|
—
|
|
|
28
|
|
Depreciation, depletion and
amortization
|
617
|
|
|
21
|
|
|
6
|
|
|
644
|
|
Impairments
|
—
|
|
|
—
|
|
|
97
|
|
(c)
|
97
|
|
Taxes other than
income
|
66
|
|
|
—
|
|
|
—
|
|
|
66
|
|
General and
administrative
|
32
|
|
|
4
|
|
|
40
|
|
|
76
|
|
Net interest and
other
|
—
|
|
|
—
|
|
|
64
|
|
|
64
|
|
Other net periodic benefit
costs
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Income tax
benefit
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(3
|
)
|
Segment loss
|
$
|
(20
|
)
|
|
$
|
(1
|
)
|
|
$
|
(25
|
)
|
|
$
|
(46
|
)
|
Total assets
|
$
|
17,453
|
|
|
$
|
1,405
|
|
|
$
|
857
|
|
|
$
|
19,715
|
|
Capital
expenditures(a)
|
$
|
561
|
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
568
|
|
|
|
(b)
|
Unrealized gain on
commodity derivative instruments (See
Note 15).
|
|
|
(c)
|
Includes the full
impairment of the International reporting unit goodwill of
$95 million
(See
Note 14).
|
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31, 2019
|
(In
millions)
|
U.S.
|
|
Int’l
|
|
Not
Allocated to Segments
|
|
Total
|
Revenues from contracts with
customers
|
$
|
1,062
|
|
|
$
|
138
|
|
|
$
|
—
|
|
|
$
|
1,200
|
|
Net gain (loss) on commodity
derivatives
|
22
|
|
|
—
|
|
|
(113
|
)
|
(b)
|
(91
|
)
|
Income from equity method
investments
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Net gain on disposal of
assets
|
—
|
|
|
—
|
|
|
42
|
|
(c)
|
42
|
|
Other income
|
1
|
|
|
3
|
|
|
31
|
|
(d)
|
35
|
|
Less costs and
expenses:
|
|
|
|
|
|
|
|
Production
|
139
|
|
|
50
|
|
|
(2
|
)
|
|
187
|
|
Shipping, handling and other
operating
|
140
|
|
|
13
|
|
|
1
|
|
|
154
|
|
Exploration
|
59
|
|
|
—
|
|
|
—
|
|
|
59
|
|
Depreciation, depletion and
amortization
|
514
|
|
|
34
|
|
|
6
|
|
|
554
|
|
Impairments
|
—
|
|
|
—
|
|
|
6
|
|
(e)
|
6
|
|
Taxes other than
income
|
74
|
|
|
—
|
|
|
(2
|
)
|
|
72
|
|
General and
administrative
|
29
|
|
|
7
|
|
|
58
|
|
|
94
|
|
Net interest and
other
|
—
|
|
|
—
|
|
|
49
|
|
|
49
|
|
Other net periodic benefit
costs
|
—
|
|
|
(2
|
)
|
|
(3
|
)
|
|
(5
|
)
|
Income tax
benefit
|
(2
|
)
|
|
(11
|
)
|
|
(134
|
)
|
(f)
|
(147
|
)
|
Segment income
(loss)
|
$
|
132
|
|
|
$
|
61
|
|
|
$
|
(19
|
)
|
|
$
|
174
|
|
Total assets
|
$
|
17,503
|
|
|
$
|
2,668
|
|
|
$
|
1,239
|
|
|
$
|
21,410
|
|
Capital
expenditures(a)
|
$
|
606
|
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
614
|
|
|
|
(b)
|
Unrealized loss on
commodity derivative instruments (See
Note 15).
|
|
|
(c)
|
Primarily related
to the sale of our working interest in the Droshky field (Gulf of
Mexico), which closed during the first quarter of
2019.
|
|
|
(d)
|
Primarily related
to the indemnification of certain tax liabilities in connection
with the 2010-2011 Federal Tax Audit with the IRS (See
Note 7).
|
|
|
(e)
|
Due to the
anticipated sale of non-operated interest in the Atrush block in
Kurdistan (See
Note 11).
|
|
|
(f)
|
Primarily relates
to the settlement of the 2010-2011 Federal Tax Audit (See
Note 7).
|
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
7. Income
Taxes
Effective Tax Rate
The effective
income tax rate is influenced by a variety of factors including the
geographic and functional sources of income and the relative
magnitude of these sources of income. The difference between the
total provision and the sum of the amounts allocated to segments is
reported in the “Not Allocated to Segments” column of the tables
in
Note 6.
For the
three months
ended March 31, 2020
and
2019, our effective income tax
rates were as follows:
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
|
2020
|
|
2019
|
|
Effective income tax
rate(a)
|
6
|
%
|
|
(544
|
)%
|
|
|
|
(a)
|
In all periods
presented, we maintained our valuation allowance on our net federal
deferred tax assets in the U.S.
|
The following
items caused the effective income tax rates to be different from
our U.S. statutory tax rate of 21% for 2020 and 2019:
|
|
•
|
Income taxes for the
first quarter of
2020 were
impacted by the income mix within E.G. between equity method
investees and subsidiaries, which reduces the annual effective tax
rate below the statutory tax rate.
|
|
|
•
|
Income taxes for the
three
months ended March 31, 2019
were impacted by
the settlement of the 2010-2011 U.S. Federal Tax Audit (“IRS
Audit”) in the first quarter of 2019, resulting in a tax benefit
of $126
million. Additionally, in the first
quarter of 2019, we recorded a non-cash deferred tax benefit
of $18
million in the U.K. related to an
internal restructuring. These two items are discrete to the first
quarter of 2019. Excluding these discrete adjustments, the
effective income tax rate for the first quarter of 2019 was an
expense of 8%.
|
On March 27,
2020, the U.S. enacted the Coronavirus
Aid, Relief, and Economic Security Act, commonly referred to as the
CARES Act. This legislation included certain provisions which
accelerate income tax refunds, and as a result, in the first
quarter of 2020, long term receivable balances related to
alternative minimum tax credits have been reclassified as short
term. We expect to receive cash tax refunds of $86
million related to alternative
minimum tax credits in 2020.
8. Credit
Losses
The majority of
our receivables are from purchasers of commodities or joint
interest owners in properties we operate, both of which are
recorded at estimated or invoiced amounts and do not bear interest.
The majority of these receivables have payment terms of 30 days or
less. At the end of each reporting period, we assess the
collectability of our receivables and estimate the expected credit
losses using historical data, current market conditions and
reasonable and supportable forecasts of future economic
conditions.
We are exposed to
credit losses through the receivables generated from sales of crude
oil, NGLs and natural gas to our customers. When dealing with the
commodity purchasers, we conduct a credit review to assess each
counterparty’s ability to pay. The credit review considers our
expected billing exposure, timing for payment and the
counterparty’s established credit rating with the rating agencies
or our internal assessment of the counterparty’s creditworthiness
based on our analysis of their financial statements. Our evaluation
also considers contract terms and other factors, such as country
and/or political risk. A credit limit is established for each
counterparty based on the outcome of this review. We may require a
bank letter of credit or a prepayment to mitigate credit risk. We
monitor our ongoing credit exposure through active review of
counterparty balances against contract terms and due dates. The
expected credit losses related to receivables with the commodity
purchasers were determined using the weighted average probability
of default method. We also collect revenues from our non-operated
joint properties where other oil and gas exploration and production
companies operate the properties and market our share of production
and remit payments to us. The current expected credit losses
related to these receivables were determined using the loss rate
method applied to aging pools.
We are exposed to
credit losses from joint interest billings to other joint interest
owners for properties we operate. For this group of receivables,
the expected credit losses are determined using the loss rate
method applied to aging pools. Our counterparties in this group
include numerous large, mid-size and small oil and gas exploration
and production companies. Although we may have the ability to
withhold future revenue disbursements to recover any non-payment of
joint interest billings or require a prepayment of future costs
through cash calls, our credit loss exposure with this group is
more significant due to inherent ownership or billing adjustments.
Also, some of our counterparties may experience liquidity problems
and may
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
not be able to
meet their financial obligations to us. We expect that liquidity
problems will increase in the future as a result of the recent
demand and pricing decline for hydrocarbons. Our current-period
provision reflects the anticipated effects caused by the recent
market deterioration.
Changes in the
allowance for doubtful accounts balance for the three months
ended were as
follows:
|
|
|
|
|
|
March
31,
|
(In
millions)
|
2020
|
Beginning
balance
|
$
|
11
|
|
Cumulative-effect
adjustment
|
12
|
|
Current period
provision (a)
|
8
|
|
Recoveries of amounts
previously written off
|
(1
|
)
|
Ending balance
|
$
|
30
|
|
|
|
(a)
|
Consists of
$6
million of joint interest receivables
and $2 million
of trade
receivables.
|
9. Inventories
Crude oil and
natural gas are recorded at weighted average cost and carried at
the lower of cost or net realizable value. Supplies and other items
consist principally of tubular goods and equipment which are valued
at weighted average cost and reviewed periodically for obsolescence
or impairment when market conditions indicate. The continued
decline in crude oil and natural gas prices could affect the
value of our
inventories and result in future impairments.
|
|
|
|
|
|
|
|
|
(In
millions)
|
March 31,
2020
|
|
December 31,
2019
|
Crude oil and natural
gas
|
$
|
12
|
|
|
$
|
10
|
|
Supplies and other
items
|
66
|
|
|
62
|
|
Inventories
|
$
|
78
|
|
|
$
|
72
|
|
10. Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
(In
millions)
|
March 31,
2020
|
|
December 31,
2019
|
United States
|
$
|
16,352
|
|
|
$
|
16,427
|
|
International
|
471
|
|
|
493
|
|
Corporate
|
80
|
|
|
80
|
|
Net property, plant and
equipment
|
$
|
16,903
|
|
|
$
|
17,000
|
|
We had
no
exploratory well
costs capitalized greater than one year as of March 31, 2020
and
December 31,
2019.
11. Impairments
During the first
quarter of 2020, a global pandemic caused a substantial
deterioration in the worldwide demand of hydrocarbons. We reviewed
our long-lived assets for indicators of impairment by conducting a
sensitivity analysis of the most impactful inputs to their
undiscounted cash flows, including commodity prices, capital spend
and reductions in production volumes to correspond with lower
capital spending. Our review concluded that the carrying
amounts of our long-lived assets are recoverable, with our most at
risk asset having undiscounted cash flows that exceeded its
$461
million carrying value by
approximately 90%. However,
further deterioration or a more sustained decline of commodity
prices may result in impairment charges in future
periods.
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
The following
table summarizes impairment charges of proved properties and
goodwill and their corresponding fair values.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
(In
millions)
|
Fair
Value
|
|
Impairment
|
|
Fair
Value
|
|
Impairment
|
Long-lived assets held for
use
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
37
|
|
|
$
|
6
|
|
Goodwill
|
$
|
—
|
|
|
$
|
95
|
|
|
N/A
|
|
|
$
|
—
|
|
|
|
•
|
2020 –
Impairments included $95
million of goodwill impairment in the
International reporting unit. See
Note 14 for further
information.
|
|
|
•
|
2019 –
During the three months
ended
March 31,
2019, we
recorded a proved property impairment charge of $6
million, as a result of the
anticipated sale of our non-operated interest in the Atrush block
(Kurdistan) in our International segment. The related fair value
was measured using the market approach, based upon anticipated
sales proceeds less costs to sell which resulted in a Level 2
classification.
|
12. Asset
Retirement Obligations
Asset retirement
obligations primarily consist of estimated costs to remove,
dismantle and restore land or seabed at the end of oil and gas
production operations. Changes in asset retirement obligations for
the three
months ended were as
follows:
|
|
|
|
|
|
|
|
|
|
March
31,
|
(In
millions)
|
2020
|
|
2019
|
Beginning
balance
|
$
|
254
|
|
|
$
|
1,145
|
|
Incurred liabilities,
including acquisitions
|
1
|
|
|
12
|
|
Settled liabilities,
including dispositions
|
(2
|
)
|
|
(109
|
)
|
Accretion expense (included
in depreciation, depletion and amortization)
|
3
|
|
|
13
|
|
Revisions of
estimates
|
(9
|
)
|
|
11
|
|
Held for sale
|
—
|
|
|
(862
|
)
|
Ending balance
|
$
|
247
|
|
|
$
|
210
|
|
March 31, 2020
|
|
•
|
Ending balance includes $11
million classified as short-term
at March 31,
2020.
|
March 31, 2019
|
|
•
|
Settled liabilities primarily relate to the sale
of our working interest in the Droshky field (Gulf of Mexico),
which closed during the first quarter of 2019.
|
|
|
•
|
Held for sale includes the asset retirement
obligations associated with the sale of our U.K. business, which
was partially offset by settled liabilities for dispositions
primarily related to the Droshky field in the first quarter of
2019. See
Note 4 for discussion of the
divestitures in further detail.
|
|
|
•
|
Ending balance includes $18
million classified as short-term
at March 31,
2019.
|
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
13.
Leases
We enter into
various lease agreements to support our operations including
drilling rigs, well fracturing equipment, compressors, buildings,
aircraft, vessels, vehicles and miscellaneous field equipment. We
primarily act as a lessee in these transactions and all of our
existing leases are classified as either short-term or long-term
operating leases.
Supplemental
balance sheet information related to leases was as follows:
|
|
|
|
|
|
(In
millions)
|
|
March 31,
2020
|
Operating
Leases:
|
Balance
Sheet Location:
|
|
ROU asset
|
Other noncurrent
assets
|
$
|
162
|
|
Current portion of long-term
lease liability
|
Other current
liabilities
|
$
|
83
|
|
Long-term lease
liability
|
Deferred credits and other
liabilities
|
$
|
86
|
|
Our wholly-owned
subsidiary, Marathon E.G. Production Limited, is a lessor for
residential housing in Equatorial Guinea, which is occupied by
EGHoldings, a related party equity method investee
–
see
Note 24. The lease was
classified as an operating lease and expires in 2024, with a lessee
option to extend through 2034. Lease payments are fixed for
the entire duration of the agreement at approximately
$6
million per year. Our lease
income is reported in other income in our consolidated statements
of income for all periods presented. The undiscounted cash flows to
be received under this lease agreement are summarized
below.
|
|
|
|
|
(In
millions)
|
Operating
Lease Future Cash Receipts
|
2020
|
$
|
5
|
|
2021
|
6
|
|
2022
|
6
|
|
2023
|
6
|
|
2024
|
6
|
|
Thereafter
|
60
|
|
Total
undiscounted cash flows
|
$
|
89
|
|
In 2018, we
signed an agreement with an owner/lessor to construct and lease a
new build-to-suit office building in Houston, Texas. The new
Houston office location is expected to be completed in
2021. The lessor and other participants are providing
financing for up to $380
million, to fund the estimated
project costs. As of March 31,
2020,
project costs incurred totaled approximately $70
million, primarily for land
acquisition and initial design costs. The initial lease term
is five
years and will commence once
construction is substantially complete and the new Houston office
is ready for occupancy. At the end of the initial lease term, we
can negotiate to extend the lease term for an additional
five
years, subject to the approval of
the participants; purchase the property subject to certain
terms and conditions; or remarket the property to an unrelated
third party. The lease contains a residual value guarantee of
approximately 89%
of the total
acquisition and construction costs.
14.
Goodwill
As
of December 31, 2019, our consolidated balance sheet
included goodwill of $95
million in the
International
reporting unit. Goodwill is tested for impairment on an annual
basis, or between annual tests when events or changes in
circumstances indicate the fair value of a reporting unit with
goodwill may have been reduced below its carrying value. During the
first quarter of 2020, a global pandemic caused a substantial
deterioration in the worldwide demand of hydrocarbons. This demand
loss resulted in a significant decline in hydrocarbon prices. The
commensurate decline in our market capitalization during the first
quarter indicated that it was more likely than not that the fair
value of the International reporting unit was less than its
carrying value.
We estimated the
fair value of our International reporting unit using a combination
of market and income approaches. The market approach referenced
observable inputs specific to us and our industry, such as the
price of our common equity, our enterprise value, and valuation
multiples of us and peers from the investor analyst community. The
income approach utilized discounted cash flows, which were based on
forecasted assumptions. Key assumptions to the income approach
include future liquid hydrocarbon and natural gas pricing,
estimated quantities of liquid hydrocarbons and natural gas proved
and probable reserves, estimated timing of production, discount
rates, future capital requirements, operating expenses and tax
rates. The
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
assumptions used
in the income approach are consistent with those that management
uses to make business decisions. These valuation methodologies
represent Level 3 fair value measurements. Based on the results, we
concluded our goodwill was fully impaired, and recorded an
impairment of $95
million in the consolidated
statements of income for the quarter ended March 31,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
March
31,
|
(In
millions)
|
|
2020
|
|
2019
|
Beginning balance,
gross
|
|
$
|
95
|
|
|
$
|
95
|
|
Less: accumulated
impairments
|
|
—
|
|
|
—
|
|
Beginning balance,
net
|
|
95
|
|
|
95
|
|
Impairment
|
|
(95
|
)
|
|
—
|
|
Ending balance,
net
|
|
$
|
—
|
|
|
$
|
95
|
|
15.
Derivatives
For further
information regarding the fair value measurement of derivative
instruments, see
Note 16. All of our commodity
derivatives are subject to enforceable master netting arrangements
or similar agreements under which we report net amounts. The
following tables present the gross fair values of derivative
instruments and the reported net amounts along with where they
appear on the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
|
(In
millions)
|
Asset
|
|
Liability
|
|
Net Asset
(Liability)
|
|
Balance
Sheet Location
|
Not
Designated as Hedges
|
|
|
|
|
|
|
|
Commodity
|
$
|
176
|
|
|
$
|
1
|
|
|
$
|
175
|
|
|
Derivative
assets
|
Total Not Designated as
Hedges
|
$
|
176
|
|
|
$
|
1
|
|
|
$
|
175
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
Interest Rate
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
(20
|
)
|
|
Other noncurrent
liabilities
|
Total Designated
Hedges
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
(20
|
)
|
|
|
Total
|
$
|
176
|
|
|
$
|
21
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
|
(In
millions)
|
Asset
|
|
Liability
|
|
Net Asset
(Liability)
|
|
Balance
Sheet Location
|
Not
Designated as Hedges
|
|
|
|
|
|
|
|
Commodity
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
8
|
|
|
Derivative
assets
|
Commodity
|
1
|
|
|
—
|
|
|
1
|
|
|
Other noncurrent
assets
|
Commodity
|
—
|
|
|
5
|
|
|
(5
|
)
|
|
Other current
liabilities
|
Total Not Designated as
Hedges
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
|
|
|
|
|
|
Interest Rate
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
Other noncurrent
assets
|
Total Designated
Hedges
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
|
Total
|
$
|
12
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
Derivatives Not Designated as Hedges
We have entered
into multiple crude oil derivatives indexed to the respective
indices as noted in the table below, related to a portion of our
forecasted United States
sales
through 2021. These derivatives consist
of three-way collars, fixed price swaps, basis swaps and NYMEX roll
basis swaps. Three-way collars consist of a sold call (ceiling), a
purchased put (floor) and a sold put. The ceiling price is the
maximum we will receive for the contract volumes; the floor is the
minimum price we will receive, unless the market price falls below
the sold put strike price. In this case, we receive the NYMEX WTI
price plus the difference between the floor and the sold put price.
These crude oil derivatives were not designated as
hedges.
The following
table sets forth outstanding derivative contracts as of
March 31,
2020, and
the weighted average prices for those contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2021
|
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
Full
Year
|
Crude Oil
|
|
|
|
|
|
|
|
|
|
NYMEX WTI Three-Way Collars
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
80,000
|
|
|
80,000
|
|
|
80,000
|
|
|
|
—
|
|
Weighted average price per
Bbl:
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
$
|
66.12
|
|
|
$
|
64.40
|
|
|
$
|
64.40
|
|
|
|
$
|
—
|
|
Floor
|
|
$
|
55.00
|
|
|
$
|
55.00
|
|
|
$
|
55.00
|
|
|
|
$
|
—
|
|
Sold
put
|
|
$
|
47.75
|
|
|
$
|
48.00
|
|
|
$
|
48.00
|
|
|
|
$
|
—
|
|
Basis Swaps - Argus WTI Midland (a)
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
15,000
|
|
|
15,000
|
|
|
15,000
|
|
|
|
—
|
|
Weighted average price per
Bbl
|
|
$
|
(0.94
|
)
|
|
$
|
(0.94
|
)
|
|
$
|
(0.94
|
)
|
|
|
$
|
—
|
|
Basis Swaps - NYMEX WTI / ICE Brent
(b)
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
5,000
|
|
|
5,000
|
|
|
5,000
|
|
|
|
808
|
|
Weighted average price per
Bbl
|
|
$
|
(7.24
|
)
|
|
$
|
(7.24
|
)
|
|
$
|
(7.24
|
)
|
|
|
$
|
(7.24
|
)
|
Basis Swaps - Argus WTI Houston
(c)
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
26,813
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Weighted average price per
Bbl
|
|
$
|
(0.75
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
NYMEX Roll Basis Swaps
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
43,571
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Weighted average price per
Bbl
|
|
$
|
(1.62
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
Fixed Price Swaps
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
20,000
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
Weighted average price per
Bbl
|
|
$
|
24.61
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
(a)
|
The basis
differential price is indexed against Argus WTI
Midland.
|
|
|
(b)
|
The basis
differential price is indexed against Intercontinental Exchange
(“ICE”) Brent and NYMEX WTI.
|
|
|
(c)
|
The basis
differential price is indexed against Argus WTI
Houston.
|
Subsequent to
March 31, 2020, we terminated our 80,000
bbls/day NYMEX
WTI three-way collars and replaced them with 40,000
bbls/day
of two-way
collars with an average ceiling price
of $40.31
and an average
floor price of $32.89
and
40,000
bbls/day
of fixed
price swaps with an average price
of $33.79.
This termination and subsequent replacement applies only to
derivative positions for the second quarter of 2020. Thus, the
NYMEX WTI three-way collars for the third and fourth quarters of
2020 remain as presented in the schedule above.
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
The following
table sets forth outstanding derivative contracts as of May 4,
2020, and the weighted average prices for those
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2021
|
|
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
Full
Year
|
|
Crude Oil
|
|
|
|
|
|
|
|
|
|
|
NYMEX WTI Three-Way Collars
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
—
|
|
|
80,000
|
|
|
80,000
|
|
|
|
—
|
|
|
Weighted average price per
Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
$
|
—
|
|
|
$
|
64.40
|
|
|
$
|
64.40
|
|
|
|
$
|
—
|
|
|
Floor
|
|
$
|
—
|
|
|
$
|
55.00
|
|
|
$
|
55.00
|
|
|
|
$
|
—
|
|
|
Sold
put
|
|
$
|
—
|
|
|
$
|
48.00
|
|
|
$
|
48.00
|
|
|
|
$
|
—
|
|
|
NYMEX WTI Two-Way Collars
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
40,000
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average price per
Bbl:
|
|
|
|
|
|
|
|
|
|
|
Ceiling
|
|
$
|
40.31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Floor
|
|
$
|
32.89
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Fixed Price WTI Swaps
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
76,703
|
|
|
10,000
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average price per
Bbl:
|
|
$
|
28.99
|
|
|
$
|
32.77
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Basis Swaps - Argus WTI Midland
(a)
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
15,000
|
|
|
15,000
|
|
|
15,000
|
|
|
|
—
|
|
|
Weighted average price per
Bbl
|
|
$
|
(0.94
|
)
|
|
$
|
(0.94
|
)
|
|
$
|
(0.94
|
)
|
|
|
$
|
—
|
|
|
Basis Swaps - NYMEX WTI / ICE Brent
(b)
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
5,000
|
|
|
5,000
|
|
|
5,000
|
|
|
|
808
|
|
|
Weighted average price per
Bbl
|
|
$
|
(7.24
|
)
|
|
$
|
(7.24
|
)
|
|
$
|
(7.24
|
)
|
|
|
$
|
(7.24
|
)
|
|
Basis Swaps - NYMEX WTI / MEH
(c)
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
26,813
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average price per
Bbl
|
|
$
|
(0.75
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
NYMEX Roll Basis Swaps
|
|
|
|
|
|
|
|
|
|
|
Volume
(Bbls/day)
|
|
43,571
|
|
|
60,000
|
|
|
10,000
|
|
|
|
—
|
|
|
Weighted average price per
Bbl
|
|
$
|
(1.62
|
)
|
|
$
|
(1.58
|
)
|
|
$
|
(1.94
|
)
|
|
|
$
|
—
|
|
|
|
|
(a)
|
The basis
differential price is indexed against Argus WTI
Midland.
|
|
|
(b)
|
The basis
differential price is indexed against Intercontinental Exchange
(“ICE”) Brent and NYMEX WTI.
|
|
|
(c)
|
The basis
differential price is indexed against Argus WTI
Houston.
|
The
mark-to-market impact and settlement of our commodity derivative
instruments appears in the table below and is reflected in net gain
(loss) on commodity derivatives in the consolidated statements of
income.
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended March 31,
|
|
(In
millions)
|
2020
|
|
2019
|
|
Mark-to-market gain
(loss)
|
$
|
171
|
|
|
$
|
(113
|
)
|
|
Net settlements of commodity
derivative instruments
|
$
|
31
|
|
|
$
|
22
|
|
|
Derivatives Designated as Cash Flow Hedges
In March 2020, we
entered into forward starting interest rate swaps with a notional
amount of $350
million to hedge variations in cash
flows arising from fluctuations in the London Interbank Offered
Rate (“LIBOR”) benchmark interest rate related to forecasted
interest payments of a future debt issuance in 2022; and an
additional $100 million
of notional for
our future debt issuance in 2025. We expect to refinance both of
the debt maturities in 2022 and 2025. The swaps will terminate
on
MARATHON
OIL CORPORATION
Notes to
Consolidated Financial Statements (Unaudited)
or prior to the
refinancing of the debt and the final value will be reclassified
from accumulated other comprehensive income into earnings with each
future interest payment. Subsequent to March 31, 2020, we entered
into additional forward starting interest rate swaps with a
notional amount of $150
million to hedge variations in cash
flows related to the same LIBOR interest rate for our debt due in
2022 and $150
million notional for our debt due in
2025.
During 2019, we
entered into forward starting interest rate swaps with a total
notional amount of $320
million to hedge variations in cash
flows related to the 1-month LIBOR component of future lease
payments of our future Houston office. These swaps will settle
monthly on the same day the lease payment is made with the first
swap settlement occurring in January 2022. We expect the first
lease payment to commence sometime in the period from December 2021
to May 2022. The last swap will mature on September 9, 2026.
See
Note 13 for further details regarding
the lease of the new Houston office.
The following
table presents, by maturity date, information about our interest
rate swap agreements, including the weighted average LIBOR-based,
fixed rate.
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|
|
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|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Maturity
Date
|
Aggregate
Notional Amount
(in
millions)
|
|
Weighted
Average, LIBOR
|
|
Aggregate
Notional Amount
(in
millions)
|
|
|