Marathon Oil Corporation was originally organized in 2001 as USX HoldCo, Inc., a wholly-owned subsidiary of the former USX Corporation. As a result of a reorganization completed in July 2001, USX HoldCo, Inc. (1) became the parent entity of the consolidated enterprise (the former USX Corporation was merged into a subsidiary of USX HoldCo, Inc.) and (2) changed its name to USX Corporation. In connection with the transaction described in the next paragraph (the “USX Separation”), USX Corporation changed its name to Marathon Oil Corporation.
Before December 31, 2001, Marathon had two outstanding classes of common stock: USX-Marathon Group common stock, which was intended to reflect the performance of our energy business, and USX-U.S. Steel Group common stock (“Steel Stock”), which was intended to reflect the performance of our steel business. On December 31, 2001, we disposed of our steel business through a tax-free distribution of the common stock of our wholly-owned subsidiary United States Steel Corporation (“United States Steel”) to holders of Steel Stock in exchange for all outstanding shares of Steel Stock on a one-for-one basis.
In connection with the USX Separation, our certificate of incorporation was amended on December 31, 2001, and Marathon has had only one class of common stock authorized since that date.
On June 30, 2005, we acquired the 38 percent ownership interest in Marathon Ashland Petroleum LLC (“MAP”) previously held by Ashland Inc. (“Ashland”). In addition, we acquired a portion of Ashland’s Valvoline Instant Oil Change business, its maleic anhydride business, its interest in LOOP LLC which owns and operates the only U.S. deepwater oil port, and its interest in LOCAP LLC which owns a crude oil pipeline. As a result of the transactions, MAP is wholly owned by Marathon and its name was changed to Marathon Petroleum Company LLC (“MPC”) effective September 1, 2005.
On October 18, 2007, we acquired all the outstanding shares of Western Oil Sands Inc. (“Western”). Western’s primary asset was a 20 percent interest in the outside-operated Athabasca Oil Sands Project (“AOSP”), an oil sands mining joint venture located in the province of Alberta, Canada. The acquisition was accounted for under the purchase method of accounting and, as such, our results of operations include Western’s results from October 18, 2007. Western’s oil sands mining and bitumen upgrading operations are reported as a separate Oil Sands Mining segment, while its ownership interests in leases where in-situ recovery techniques are expected to be utilized are included in the Exploration and Production segment.
Segment and Geographic Information
Our operations consist of four reportable operating segments: 1) Exploration and Production (“E&P”) – explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis; 2) Oil Sands Mining (“OSM”) – mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil; 3) Integrated Gas (“IG”) – markets and transports products manufactured from natural gas, such as liquefied natural gas (“LNG”) and methanol, on a worldwide basis; and 4) Refining, Marketing and Transportation (“RM&T”) – refines, transports and markets crude oil and petroleum products, primarily in the Midwest, upper Great Plains, Gulf Coast and southeastern regions of the United States. For operating segment and geographic financial information, see Note 9 to the consolidated financial statements.
The E&P, OSM and IG segments comprise our upstream operations. The RM&T segment comprises our downstream operations.
Exploration and Production
In the discussion that follows regarding our exploration and production operations, references to “net” wells, sales or investment indicate our ownership interest or share, as the context requires.
At the end of 2009, we were conducting oil and gas exploration, development and production activities in eight countries: the United States, Angola, Canada, Equatorial Guinea, Indonesia, Libya, Norway and the United Kingdom. During 2009, we exited Gabon and Ireland. We plan to begin exploration activities in Poland during 2010.
Our 2009 worldwide net liquid hydrocarbon sales averaged 243 thousand barrels per day (“mbpd”). Our 2009 worldwide net natural gas sales, including natural gas acquired for injection and subsequent resale, averaged 941 million cubic feet per day (“mmcfd”). In total, our 2009 worldwide net sales averaged 400 thousand barrels of oil equivalent per day (“mboepd”). For purposes of determining barrels of oil equivalent (“boe”), natural gas volumes are converted to approximate liquid hydrocarbon barrels by dividing the natural gas volumes expressed in thousands of cubic feet (“mcf”) by six. The liquid hydrocarbon volume is added to the barrel equivalent of natural gas volume to obtain boe. These volumes exclude 7 mboepd related to discontinued operations.
In the United States during 2009, we drilled 76 gross (50 net) exploratory wells of which 72 gross (48 net) wells encountered commercial quantities of hydrocarbons. Of these 72 wells, 6 were temporarily suspended or in the process of being completed at year end. Internationally, we drilled 9 gross (1 net) exploratory wells of which 6 gross (1 net) wells encountered commercial quantities of hydrocarbons. All 6 wells were temporarily suspended or were in the process of being completed at December 31, 2009.
Oil Sands Mining
Through our acquisition of Western in 2007, we hold a 20 percent outside-operated interest in the AOSP, an oil sands mining joint venture located in Alberta, Canada. The joint venture produces bitumen from oil sands deposits in the Athabasca region utilizing mining techniques and upgrades the bitumen to synthetic crude oils and vacuum gas oil. The AOSP’s mining and extractions assets are located near Fort McMurray, Alberta and include the Muskeg River mine which began bitumen production in 2003 and the Jackpine mine which is currently under construction and anticipated to commence bitumen production in the second half of 2010. The underlying developed leases are held for the duration of the project, with royalties payable to the province of Alberta. The upgrading assets are located at Fort Saskatchewan, northeast of Edmonton, Alberta. Additional upgrading capacity is being constructed with an anticipated startup in late 2010 or early 2011.
In December 2008, the Securities and Exchange Commission (“SEC”) announced revisions to its regulations on oil and gas reporting. In January 2010, the Financial Accounting Standards Board issued an accounting standards update which was intended to harmonize the accounting literature with the SEC’s new regulations. See Item 8. Financial Statements and Supplementary Data – Note 2 to the consolidated financial statements for a summary of the changes. The revised regulations were applied in estimating and reporting our reserves as of December 31, 2009, which totaled 1,679 mmboe.
Our integrated gas operations include natural gas liquefaction and regasification operations and methanol production operations. Also included in the financial results of the Integrated Gas segment are the costs associated with ongoing development of projects to link stranded natural gas resources with key demand areas.
Refining, Marketing and Transportation
We have refining, marketing and transportation operations concentrated primarily in the Midwest, upper Great Plains, Gulf Coast and Southeast regions of the U.S. We rank as the fifth largest crude oil refiner in the U.S. and the largest in the Midwest. Our operations include a seven-plant refining network and an integrated terminal and transportation system which supplies wholesale and Marathon-brand customers as well as our own retail operations. Our wholly-owned retail marketing subsidiary Speedway SuperAmerica LLC (“SSA”) is the third largest chain of company-owned and -operated retail gasoline and convenience stores in the U.S. and the largest in the Midwest.
We had 28,855 active employees as of December 31, 2009. Of that number, 18,325 were employees of SSA, most of who were employed at our retail marketing outlets.