馬拉松石油 (MRO) 2008 Q3 法說會逐字稿

Good day, and welcome to Marathon's third quarter conference call. As a reminder, this call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Howard Thill, Vice President of Investor Relations and Public Affairs. Please go ahead.

Thank you, and I, too, would like to welcome everyone to Marathon Oil Corp.'s third quarter 2008 earnings webcast and teleconference. I would like to also remind you that the synchronized slides that accompany this call can be found on our website, Marathon.com, and that a transcript of this call will be on our website shortly after the call concludes.

On the call today are Clarence Cazalot, President and CEO; Janet Clark, Executive Vice President and CFO; Gary Heminger, Marathon, Executive Vice President and President of our Refining, Marketing and Transportation Organization; Dave Roberts, Executive Vice President, Exploration and Production; and Gary Peiffer, Senior Vice President of Finance and Commercial Services Downstream.

Slide two contains the forward-looking statement and other information related to this presentation. Our remarks and answers to questions today will contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. In accordance with Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in its annual report on Form 10-K for the year ended December 31, 2007, and subsequent Forms 10-Q and 8-K cautionary language identifying important factors, but not necessarily all factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

You will note that today our presentation has changed from what we've provided in the past. The appendix to this presentation includes some of the slides utilized in past quarterly calls. Importantly, a reconciliation of net income to adjusted net income by quarter for 2007 and 2008. Preliminary balance sheet information and fourth quarter operating estimates.

Moving to slide three, the third quarter was a record quarter, both for net income, which was just over $2 billion in earnings, and/or $2.90 per share, and for adjusted net income where we posted just under $2 billion in earnings. Adjusted net income of $1.963 billion was a 93% increase compared to the third quarter 2007 and a 27% increase over our previous record for the second quarter last year. Adjusted net income per diluted share increased over 86% from the third quarter 2007 to $2.76. The slight variation in the percentage increase is a result of a higher share count post the Western Oil Sands acquisition completed in October of 2007.

Moving to slide four, key drivers to the year-over-year improvement included strong pricing and increased production in spite of hurricane disruption in the E&P business. Significantly improved R&M gross margins and earnings from our Oil Sands mining segment, which, again, wasn't closed until the fourth quarter of last year. These favorable effects were partially offset by significantly higher income taxes as shown on the slide.

Turning to slide five, E&P segment income increased 96% year-over-year to $939 million. The segment benefited from year-over-year increase in realizations of $31.74 per barrel of oil equivalent. Sales volumes also increased and there was a favorable shift in the sales mix with liquid hydrocarbons increasing to 59% of E&P sales volumes from 54% in the year-ago period due to the ramp-up of volumes at Alvheim and Neptune, as well as the impact of gas sales from the planned down time at the Equatorial Guinea LNG facility. We also had an underlift of about 940,000 barrels of oil equivalent.

Slide six highlights the 4% year over year increase in production available for sale and the production sold volume for the third quarter of 379,000 BOE PD. Excluding hurricane impacts, the year-over-year increase would have been nearly 7% as available for sale was reduced to approximately 9500 barrels of oil equivalent per day as a result of hurricanes Gustav and Ike. Production volumes sold were negatively impacted by the timing of liftings in Norway and Libya and lower seasonal gas sales in Ireland and Alaska.

Turning to slide seven, compared to the same quarter last year, third quarter E&P earnings per BOE increased 92% to $26.98. Compared to the second quarter 2008, E&P income per BOE increased almost 4%, primarily due to higher production volumes. The year-over-year increase in expenses excluding exploration expense was primarily a result of increased DD&A, shipping and handling and higher production taxes. These increases largely relate to the new field production at Alvheim/Vilje, Neptune and Bakken.

Turning to slide eight and Oil Sands Mining, a segment we didn't have in the third quarter last year, the increase over the second quarter was primarily a result of a $190 million after-tax gain on derivative activity and a 15% increase in production due to greater reliability of the mining operation. As a reminder, the last of these derivative instruments expire at the end of the fourth quarter 2009.

Moving to our downstream business, as noted on slide nine, third quarter 2008 segment income increased almost 60% year-over-year to $771 million, primarily reflecting an increase in the refining and marketing gross margin of $0.08 per gallon. The substantial drop in crude oil prices and the improvement in the average sweet/sour differentials were the primary factors contributing to this improvement. The increase in gross margin was achieved despite the 19% decline in LLS 6-3-2-1 crack spread on a two-thirds Chicago and one third US Gulf Coast basis. Total refinery crude oil throughput was down 8% year-over-year to 1.144 million barrels per day, primarily a result of weather-related impacts. Additionally, our downstream business increased its volume of ethanol blending by approximately 50% compared to the prior year period.

The refining and wholesale marketing gross margin for the third quarter includes a pretax derivative gain of $156 million compared to a loss of $360 million in the third quarter 2008. While we no longer use derivatives to mitigate domestic crude oil acquisition price risks, we do selectively continue the practice of using derivatives to protect the carrying value of seasonal inventories and long haul foreign crude oil spot purchases.

Slide 10 provides historical performance indicators for the downstream business and historical crack spreads.

Turning to slide 11, the integrated gas segment saw a $13 million increase in segment earnings from a year ago for the third quarter to $65 million, primarily a result of higher EG LNG price realizations. Segment income decreased from second quarter 2008, largely due to lower Henry Hub gas prices, as well as lower volumes. Worldwide LNG net sales volumes of 6048 metric tonnes per day in the third quarter 2008 were slightly lower than the 6137 metric tonnes per day recorded in the second quarter 2008, due to down time associated with planned turnaround activity in EG. Post turnaround, the facility has delivered increased reliability and throughputs have exceeded nameplate capacity. Year to date, the facilities operated at 97.8% of rated capacity. Pretax earnings from our 45% interest in Atlantic Methanol Production Company LLC were approximately $5 million in the third quarter compared to nearly $15 million in the third quarter of 2007. The decrease was largely due to lower methanol volumes as a result of a series of planned and unplanned maintenance events.

Slide 12 provides a summary of select financial data. At the end of the third quarter 2008, our cash adjusted debt to total capital ratio was 23%, a reduction of 1 percentage point from the second quarter and as a reminder, includes 48 -- 485 million of debt serviced by US Steel. The effective tax rate for the third quarter was 44% compared to a rate of 51% in the second quarter. The decrease was primarily due to the increase in the downstream segments percent of third quarter income. We expect our full year tax rate to be in the previously disclosed range of 46 to 49%. Third quarter net debt increased $255 million, while both cash flow from operations and capital expenditures were approximately $1.8 billion.

At the bottom of this slide is a summary of certain metrics related to cash flows and uses of cash for the third quarter and first nine months of the year. Operating cash flow for the first nine months of 2008 amounted to approximately $4.8 billion, while capital spending during the period was approximately $5.2 billion. $402 million was expended on share repurchases and $511 million on dividends. Our net debt increased approximately $1.3 billion during this period. Now I would turn the call over to Clarence Cazalot, who will provide a summary and comments on the outlook for the fourth quarter and beyond.

Thank you, Howard, and good afternoon, everyone. I would ask you to turn to slide 13 and I'll just briefly recap the third quarter of 2008. We had record quarterly earnings driven by very solid operations across our business segments and I frankly want to say I'm very proud of what Marathon employees achieved in a challenging and rapidly changing environment. We saw E&P segment rise 96% from the third quarter of 2007, and as Howard has said, our production available for sale was up 4% year on year and indeed would have been up 7% were it not for the two hurricanes in the Gulf of Mexico. Our Oil Sands Mining operation saw improved reliability and as a result, 15% higher production. Our downstream segment income was up 60% year on year. Our integrated gas segment income, up 25% year on year, and consistent with our asset sale program, we entered into sales agreements. The Heimdal and related assets in Norway transactions, we expect to close tomorrow. And the sale of our 50% interest in Poly Travel Centers LLC was closed in early October. And finally, we received government approval for the first development in Angola, the block 31 northeast PSDM development.

Now, in terms of recent announcements and an outlook, turning first to E&P, I'm on slide 14, we approved the Droshky and Ozona projects in the deepwater Gulf of Mexico and announced those two projects this morning. We've been awarded our second block in Indonesia, which we will operate with a 49% interest. We've participated in the deepwater Gulf of Mexico Gunflint discovery, which found over 550 feet of net pay. We have a 12.5% interest in that discovery. We've announced our 28th deepwater discovery in Angola. In the lower tertiary trend of the Gulf of Mexico, the Stones appraisal well has now completed coring operations, is drilling ahead and will be completed by the end of the year and we have a 25% interest in that well.

We've now narrowed our estimate for 2008 production available for sale to between 385,000 and 395,000 BOE per day and consistent with what we said last quarter, we can confirm now and narrow the year end production exit rate to be between 425,000 and 435,000 BOE per day and that includes the Norway disposition and also includes the fact that two of our Gulf of Mexico fields are likely to remain shut in through year end.

In the Oil Sands Mining segment, expansion one is moving forward. That's 100,000-barrel a day expansion that we expect to be online in 2010, 2011. The partners will indeed focus on debottlenecking and increasing the reliability and production from both the existing mine and expansion 1 when it's completed, and this morning, as most of you know, the operator here, Shell, has announced that in light of current -- of the current high cost environment, we've postponed sanction or FID on AOSP expansion 2.

Turning to slide 15, in the R&M segment, the Garyville major expansion project is on time for a fourth quarter 2009 startup and is within 5% of the original budget. And we're beginning to see a rebound in the demand for transportation fuels in our markets. In the integrated gas segment, EG LNG continues to be an outstanding asset, operating above nameplate capacity and discussions continue on the potential for a second train. Our gas to fuels demonstration plant is complete and now in the commissioning phase and we expect the commercialization decision on that technology and that process by the middle of 2009.

Turning to slide 16 and corporate and financial matters, we can now say that our 2000(Sic- Presentation slides) outlook for capital is approximately $8 billion, which is consistent with our original budget, and that outlook includes about $277 million of Gulf of Mexico lease acquisition costs that was not in the original budget. We're in a very solid current financial position, strong liquidity, about $4.5 billion of which there's a $1.5 billion cash balance and that does not include the pending Norway sale. We're still going through our budget process for 2009, but we're sufficiently confident to say that our preliminary 2009 CapEx will be a greater than 15% reduction from 2008 CapEx. And to give you a sense in terms of the mix, about 60% of that 2009 CapEx will be in what we consider overall upstream, which would be E&P, integrated gas and Oil Sands Mining. The remainder will be in our downstream businesses, as well as corporate CapEx.

I can also tell you that we expect very little impact from this capital spending level on our 2009 oil and gas production. I can also say that we see no impact on our major projects from this lower CapEx other than the Detroit heavy oil upgrading project, or DHOU. In addition to capital, we'll be focused on controlling our expense in 2009. And finally, as we have said earlier, there will be a Board decision on the potential separation of the Company into two independent publicly traded companies here in the fourth quarter of 2008, and before we take questions, I'll just indicate there's probably not much more that I can or will say around that matter than what we've said in the release and what I've said here. But with that, I will turn it to Howard and take your questions.

Thanks, Clarence. Before we open the call to questions, I would just like to remind our participants that to accommodate all who want to ask questions, we ask that you limit yourself to one question plus a follow-up. And you may reprompt then for additional questions as time permits. And for the benefit of all listeners, we ask that you identify yourself and your affiliation. With that, we'll turn it over to you, please.

(OPERATOR INSTRUCTIONS) We'll go now to Mark Flannery with Credit Suisse.

Yes. Clarence, can I just clarify I think I just heard you say about the Detroit heavy upgrading project. Are you effectively telling us that that is part of the $1.2 billion plus of CapEx that you'll be spending -- not be spending, I mean, in 2009 versus 2010? Versus 2008.

Yes, we have factored in a slowdown of that project into our 2009 plans, Mark. But let me let Gary comment on the process they are going through.

Yes, Mark. We are right now in a stage of reevaluating our engineering and really we believe we can optimize the project construction schedule and the fabrication shops that are available, the labor pool that is available, and really benefit the project by optimizing that schedule and not trying to accelerate it into a very short time window. So we're finalizing that and Clarence was correct in that we factored that into the reduction that he spoke to and we'll be able to give more color on that as we finish, as you can expect on a major project such as that. We're going in and resetting all the base lines and what the planned labor, materials and stuff will be over time and we'll give you more color on that in the next call.

Great thanks. My follow-up would be, Clarence, you mentioned that you don't expect any impact on the 2009 oil and gas output and that seems reasonable. What do you think the impact would be on the, say, medium term growth rate? Would you be nudging us towards the lower end of your previous guidance for medium-term upstream production growth?

Mark, this is Dave Roberts. We -- right now, because most of our production growth is delivered by the major projects, which Clarence indicated we are not slowing down on, we don't expect at this time to have a significant impact on the guidance we've given previously. Any impact will be de minimis in my view.

Great.

Question from Robert Kessler with Simmons and Company.

Good afternoon, gentlemen. I just was -- thank you for the additional color, first of all, on your preliminary 2009 capital budget plans. I'm curious if there's a way to break it out between what's sort of committed at this point, given the proximity to 2009, and what's flexible. How much -- what's the sort of minimum level, would you say, at this point in the year?

Robert, it's probably -- we've given, I think, a good deal more color on 2009 CapEx than anyone else has and given the fact we're still in a preliminary phase, I don't want to give any more detailed breakdowns than what I have. But suffice it to say, we are always looking at what flexibility we've got in what is indeed a very dynamic and challenging environment.

Okay.

There will be more to come when we announce our capital program in January, once again, after the Board approves it.

Okay, quick, maybe more long-term oriented follow-up, then. The AOSP deferral of expansion, given that that's a longer-term project, I'm assuming there's nothing in your 2008 to 2012 budget that really included that in the first place, is there?

This is Gary. We did have some of the front end engineering in our budget and going back to what Clarence said before, we will be able to give more color on that later. This is in a dynamic position again, the operator just announced this morning, the deferral of this project. But it would be -- the engineering would be in the front years, Robert, and then, we never got as precise in the real later years how much we already had in the budget for expansion too, but we'll get that color to you in January.

Sure, okay. Thank you very much.

Next to Neil McMahon with Sanford Bernstein.

Hi, I've got two questions. The first one is maybe an update on the divestments that have been going on. It seems that they are increasingly related to the split in the Company and it seems that your updated guidance that you think you're going to get 2 billion to $4 billion through the middle of 2009. And in particular, I'm thinking about Angola block 20 -- block 32, sorry.

Yes, Neil, I'm not sure of the connection you made between the asset sales and the separation evaluation. We've announced sometime before the 2 billion to $4 billion of asset sales and that is the guidance we continue to give and, again, achieving that by the middle of 2009. So I'm not sure of the connection there. And then again, we've not said that we're selling any interest in Angola block 32. Certainly been rumored in the press, but what we've said is you see the asset sales that we've announced and those that we're closing, and as other asset sales come about and when we sign sale and purchase agreements, we'll certainly announce those at the time.

Okay. Maybe as another question, just looking at -- for forward modeling, some of the costs and volumes in your upstream unit, it looks like during the third quarter, you've had quite a big jump in terms of the US E&P barrel of oil equivalents costs. Maybe this is due to Neptune coming on or due to increased effects of the hurricanes. And secondly looking at the international space, Libyan volumes still remain pretty, pretty low versus where you may have expected them. So maybe an update on both the costs in the US and also international volumes, specifically Libya?

Neil, this is Dave Roberts. Actually, Libya production is going up. We're currently over 360,000 barrels a day gross there and we are moving forward with the first of the development projects we've talked about historically, the Faregh II project. As you know, Marathon has recently been named to be the -- to the Chairmanship of the 2P operator group and we expect that together with our partners, Conoco and Hess, we'll be able to move that project to even higher levels of performance. Right now we're very pleased with how things are going in Libya. To your question of domestic expenses, I think the easiest way to do that is compare this quarter to the quarter of last year, and indeed there is a $10 increase in our expenses that you've indicated. Basically, $2 of that, or 20%, is related to the tax line, higher ad valorem taxes because of the increase in commodity price, and indeed the majority of the remainder, $5 in DD&A and roughly $1.50 in expenses, is related to our new projects, Neptune, Bakken, the Arnold project, and additional activities in the Powder River.

So, David, it's fair to say that we should be seeing Libyan volumes coming up in the fourth quarter and through next year?

I think you'll see that -- you would argue the difference between 360 and 345, 350, is going to be difficult to see in each of our lines, but I think what we're saying is and have said consistently is we'll start seeing some of the impact of the --Faregh development project probably 2010, 2011.

Thanks.

We'll go next to Paul Sankey with Deutsche Bank.

Your previous clear guidance regarding the split was the decision would be in Q4, you've obviously repeated that. The second part was that the split would likely occur in Q1 of '09. That's not on the slide anymore. Is that -- is there a specific reason for that?

I think, Paul, we've basically said we'll make an announcement in the fourth quarter and I think that announcement would incorporate and include any potential timing of the separation if indeed that's the decision made. But, that's about all I'm going to say on it at this point.

Thanks, Clarence. Is there a specific -- this is obviously a huge announcement, is there a specific date this quarter that you can point to or a Board meeting that we can wait for?

No, there really isn't, Paul. Fourth quarter is about as specific as we'll be.

Fair enough. You mentioned on a separate subject, but very specifically, you've seen a rebound in transportation fuel demand. Gary, could you talk a little bit more about that? It's not very clear in the government data that that's what we're seeing at all.

Right, and the government data is always a little bit in arrears, but we have been pleased here recently. You see the Q3 numbers that Howard spoke to in the slides and our exit from Q3 into early October started out suggesting about the same type of reduction on a same-store basis in the 5 to 5.5% range. Since the -- and we think there are two reasons. First of all, the price side, since the price has retreated to below $2.50 a gallon and system-wide we're around $2.30 a gallon today, we have seen a remarkable improvement in our gasoline demand. And it's on a same-store basis I've talked to you about every quarter to where we're now expecting to be down only somewhere around 1 to in between 1 and 2%. I'll just leave it at that.

So we've had over the last three weeks a marked improvement in demand and as prices continue to retreat every day we're seeing improvement. So that's the rebounding and also on the distillate side, we've seen a rebound. I think part of it is because the harvest season was a little later this year than it was last year, but nevertheless, we've seen a rebound in distillate, diesel sales as well.

Paul, Paul, I'm going to have to ask this to be your last question.

Sure, just a follow-up on the demand, on the gasoline side, the rate to change is ethanol is neutral there, Gary, there's no greater penetration of ethanol this year than there was on the comparable basis previously?

Not that would affect our same-store sales. We're pretty much at the same rate of ethanol blend this year as we would have been last year, where SSA markets.

All right. I'll leave it there. Thanks.

We'll take our next question from Paul Cheng with Barclays Capital.

Hey, guys.

Hi, Paul.

Quick question, maybe this is for Janet, maybe or for Clarence, if we exclude M&A activity, when we're looking at how you manage your cash flow for 2009, the preliminary budget is $6.9 billion. Should we assume that you are really going to manage it so that you're not going to incur any additional debt or you're [going to it at intermediate] commodity price is going to be lower, are you going to cut it further?

Paul, as Clarence said, we're really just in the process of putting our budget together for next year and obviously there is a lot of volatility in commodity prices, et cetera. We are sitting here today with a very substantial cash balance as well as our, essentially our $3 billion credit facility undrawn, and we do anticipate additional asset sale proceeds to be coming in. So, I don't know that you can exclude those things when you look at what 2009 is going to be in terms of having to incur additional debt.

Janet, what's your minimum level of the required spending in 2009 maybe? Is there a number you guys can share?

I think, Paul, you're probably trying to find what's committed level versus discretionary.

That's correct.

And that's kind of an earlier question we've got. I think at this point, it's too early to begin to give that kind of detail. I think once we finalize the plans and we announce the final CapEx in January, we can give you that kind of detail, but again, as I say, I think we're being a little bit more forthcoming on '09 CapEx than others have, and largely because as we're working through our business plans, we feel comfortable in the overall level, but we'll continue to look at optimizing the capital as well as overall cash flows in terms of what we see in 2009 and being prepared for, I think, as you've indicated what could indeed be even lower price assumptions or price environment than what we've built in.

A final one for Gary, Gary, in the third quarter, you have a derivative hedging gain of $156 million. Is there any derivative hedging position still open for the fourth quarter?

Paul, this is Gary Peiffer. Yes, and as we've said, we continue to hedge selectively all of our excess, or our temporary builds of inventory, so we've still got more inventory on hand now than we do at year end, or expect to have at year end, so we're hedging some of those inventories and although it's not very significant, we do also hedge some of our long haul spot foreign crude purchases. So basically we've got a minimal amount, but there is some still there, yes.

Gary, can you either tell us that -- the volume of the hedge or comparing to the third quarter as a percentage?

No, I can't really tell you that at the moment. I -- the only thing I can tell you though, in the third quarter, the price of crude obviously moved about $40 a barrel down and we only had or recorded about $150 million of gain, which equates to about 4 million-barrel inventory position, which we generally have 70 to 75 million on a year end basis. So not a lot of volume out there for that type of change in price, so unless we were to see a change in price again of that level, which we don't expect, you wouldn't see that big a inventory effect, I don't think, in the fourth quarter.

(OPERATOR INSTRUCTIONS) We'll go next to Eric Mielke with Merrill Lynch.

Good afternoon. My first question relates to the Norwegian tax credit. It's probably either for Janet or for Dave. Can you comment on how that's affecting your underlying cash flows now that Alvheim and Vilje are ramping up production?

Yes, we had a $1.2 billion NOL in Norway at the beginning of the year and then another about 400 million or $500 million related to the special petroleum tax. So until we run through that amount on pretax Norwegian income, we wouldn't be paying any Norwegian cash taxes.

And what are you saying roughly then at current prices?

You mean timing wise? I think that would probably take us well into 2009.

Okay. My second question is on disposals, and you said last quarter that you expected to make a disposal in the third quarter and you did in fact sell the pilot business in late September. Are you expecting to make further disposals in the fourth quarter?

Well, as you know, we do expect to close on the non-core Norwegian assets tomorrow.

In terms of announcing new ones?

If new ones get signed in the fourth quarter, we'll announce them. We've got, as I said, we've had an overview, a review of our portfolio going on over the course of the year, so, we would expect to continue to make announcements as we have definitive agreements signed.

Okay, thanks.

We'll take our next question from Mark Gilman with The Benchmark Company.

Guys, good afternoon. A little bit more perspective perhaps on this 2009 capital program. It would be my thinking that just given project timing that barring any discretionary adjustment, the '09 program probably would have been down from '08 anyway, given completion of Alvheim, completion of Neptune, where you stand with respect to Garyville, is that an accurate observation?

Well, I guess, Mark, to your point, if you look back at the last capital guidance we gave, which I think was our analyst meeting earlier this year, you're correct. 2009 spending was below that of 2008, but certainly, in the timeframe since that was put together, we've continued to see pretty dramatic cost inflation in the business. Now, how much that begins to back off with lower prices that have come about, but it's -- it remains to be seen. But to your point going back to that last reference point, 2009 was lower than '08, but again, we think we've taken a hard look at our investment program; and as Dave indicated, we are maintaining our production growth and our investments in major projects both upstream and downstream with this more constrained capital spend.

Okay. Just one other unrelated, admittedly, follow-up. What are the sanctioned resource numbers underlying Droshky and Ozona at this point? Droshky still looking at about 80 and Ozona something in the 10 to 20 range, gross?

Mark, this is Dave. I appreciate you asking the question, because there's been a lot of chatter around the announcement this morning, given the difficulty we have with the way the FCC requires us to report things. We have consistently said that Droshky was an 80 million to 90 million-barrel gross resource play. That's still within our estimating ranges. Basically what the Board approved yesterday was a sanctioned booking of about 25 million barrels and I can tell you that on a 2P basis that's about 34 million barrels and you could expect the 3P number would be even bigger than that, and that kind of mitigates some of the back of the envelope DD&A calculations that people have been making.

In Ozona, just to do some comparative math on it, on a gross resource base, that's about 15 million to 20 million barrels. We sanctioned it on 4 and on a 2P basis, a little over 7 million barrels, so, again, within the same type of DD&A range that we would expect from projects like this in the Gulf of Mexico.

That's 100% numbers for Ozona, Dave?

When I was giving you the resource numbers, it's gross. The barrels booking numbers were net to Marathon.

Okay, thanks very much.

(OPERATOR INSTRUCTIONS) We'll go next to William Farrah with W.H. Reeves and Company.

Good afternoon. I hate to continue this trend on CapEx, but just for clarification, you mentioned that Royal Dutch delayed the expansion of the Oil Sands project. Was that previously in the CapEx number or was that delay -- did that have any effect on your announced CapEx reduction?

This is Gary. There would not have been anything significant in that 2009 number that Clarence was speaking to.

Okay, and--.

We're still very, we're still very early in the concept and pre-engineering phase.

Okay, and with -- I know that there is not going to be a great discussion of whether or not the Company splits or not until it's announced, but under different circumstances, Marathon has a history of both increasing dividends as earnings grow. Certainly this last quarter was a strong one, and separately, Marathon has a history of selective acquisitions, particularly, say, in the US E&P side. Would those kinds of decisions normally be taken between now and a decision on the split, or would you foresee just kind of waiting, having clarity, if, for example, you split, having all the management aspects determined and then making those kinds of decisions, or how independent might those two be?

Well, I can tell you that we look at the dividend quarterly. We discussed it with our Board. We do believe the dividend is a very important part of total shareholder return, and we think it very important that we have a competitive dividend. If you look at our yield today, it's somewhere around 4%, which I think you would agree is quite competitive. If we look at our payout ratios--.

Not nearly competitive enough, but that's another issue. Go ahead. Sorry.

Okay. Look at payout ratios yield, et cetera, so I can tell you that it's something that our Board recognizes the importance of.

Would a low equity price for assets or a distressed equity price for assets or equities themselves be a decision that would await a separation decision by the Company? Either upstream or downstream?

Well, again, I think what we have said is, a decision in the fourth quarter to be announced, that's really two months from now, so I don't think we're talking about a lot of time here to do other things. But we certainly remain cognizant of what opportunities are available to us. I think as Janet has said, maintaining a competitive dividend, we may differ on how competitive it is, but it's extremely important to us. But suffice it to say, I think once a decision is made, the courses of action either as one integrated Company or two separate Companies will be clear.

Thanks very much.

Now back to Mark Gilman with a follow-up question.

What was the crude in transit number in the third quarter, please?

Gary? Just a second, Gary's looking it up.

Mark, it was a positive, about $170 million effect versus the last year same quarter was a negative about 30. Pre-tax, all pre-tax.

Okay, so a big swing. Just one other, one other follow-up. Can you take a shot at what the fourth quarter shut-ins in the Gulf of Mexico are going to be?

Well, just speaking for Marathon, we currently have 6000 barrels net shut in. 5000-plus is from outside operated parties. We have not been given an indication of when that will be back on. Our production, the 1000 barrels, plus/minus Marathon operates will be back on by the middle of the November.

Well, Dave, wait a minute. I thought there were comments in the release suggesting, a longer shut in on several of--?

Mark, we've not been given an estimate by the outside operators for the 5000 barrels, but our estimates are that we will not see it this year.

Okay, Dave. Thanks.

We'll take our next question from Faisel Khan with Citi.

Good afternoon. I had a follow-up question on the NOL with regard to Norway. The tax -- the income tax provision that you guys have in the fourth quarter, the international E&P of roughly $826 million, I take it that's a GAAP number, so your NOL would actually be -- the impact of your NOL would be a cash add-back on your cash flow statement; is that the right way I should look at it?

Yes, we're going to be booking a 35% booked tax rate on Norway until Norwegian taxes kick in, in which case, obviously, ultimately we would be booking a 78% tax rate.

Okay, got it.

That will conclude today's question and answer session. I would now like to turn the presentation back over to Mr. Howard Thill for any additional or closing remarks.

We appreciate it. We appreciate the attendance by all of you on our call today. If you have any further questions, please give any one of us in Investor Relations a call. Have a great afternoon.

That will conclude today's presentation. We do appreciate your participation in today's conference. Have a wonderful day.