MRO-2014.9.30-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2014

OR

[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____

Commission file number 1-5153

Marathon Oil Corporation
(Exact name of registrant as specified in its charter)

Delaware
 
25-0996816
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
5555 San Felipe Street, Houston, TX  77056-2723
(Address of principal executive offices)

(713) 629-6600
(Registrant’s telephone number, including area code)
 
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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes R No £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer     þ  
Accelerated filer             o
Non-accelerated filer       o        (Do not check if a smaller reporting company) 
Smaller reporting company        o   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         
Yes o No þ
 
There were 674,897,005 shares of Marathon Oil Corporation common stock outstanding as of October 31, 2014.



MARATHON OIL CORPORATION
 
Form 10-Q
 
Quarter Ended September 30, 2014


 
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
Unless the context otherwise indicates, references in this Form 10-Q to “Marathon Oil,” “we,” “our,” or “us” 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).


1


Part I - Financial Information
Item 1. Financial Statements

MARATHON OIL CORPORATION
Consolidated Statements of Income (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions, except per share data)
2014
 
2013
 
2014
 
2013
Revenues and other income:
 
 
 
 
 
 
 
Sales and other operating revenues, including related party
$
2,316

 
$
2,334

 
$
6,735

 
$
7,295

Marketing revenues
554

 
666

 
1,713

 
1,595

Income from equity method investments
89

 
114

 
346

 
309

Net loss on disposal of assets
(3
)
 
(6
)
 
(88
)
 
(4
)
Other income
15

 
19

 
55

 
38

Total revenues and other income
2,971

 
3,127

 
8,761

 
9,233

Costs and expenses:
 

 
 

 
 
 
 

Production
593

 
540

 
1,697

 
1,625

Marketing, including purchases from related parties
554

 
663

 
1,710

 
1,590

Other operating
99

 
115

 
303

 
283

Exploration
96

 
83

 
314

 
665

Depreciation, depletion and amortization
737

 
657

 
2,060

 
1,914

Impairments
109

 
11

 
130

 
49

Taxes other than income
115

 
89

 
319

 
264

General and administrative
160

 
143

 
486

 
465

Total costs and expenses
2,463

 
2,301

 
7,019

 
6,855

Income from operations
508

 
826

 
1,742

 
2,378

Net interest and other
(55
)
 
(71
)
 
(180
)
 
(211
)
Income from continuing operations before income taxes
453

 
755

 
1,562

 
2,167

Provision for income taxes
149

 
359

 
500

 
1,372

Income from continuing operations
304

 
396

 
1,062

 
795

Discontinued operations
127

 
173

 
1,058

 
583

Net income
$
431

 
$
569

 
$
2,120

 
$
1,378

Per basic share:
 

 
 

 
 

 
 

Income from continuing operations
$0.45
 
$0.56
 
$1.56
 
$1.13
Discontinued operations
$0.19
 
$0.24
 
$1.55
 
$0.82
Net income
$0.64
 
$0.80
 
$3.11
 
$1.95
Per diluted share:
 
 
 
 
 
 
 
Income from continuing operations
$0.45
 
$0.56
 
$1.55
 
$1.12
Discontinued operations
$0.19
 
$0.24
 
$1.55
 
$0.82
Net income
$0.64
 
$0.80
 
$3.10
 
$1.94
Dividends per share
$0.21
 
$0.19
 
$0.59
 
$0.53
Weighted average common shares outstanding:
 

 
 

 
 

 
 

Basic
675

 
707

 
681

 
708

Diluted
678

 
711

 
684

 
712

 The accompanying notes are an integral part of these consolidated financial statements.

2


MARATHON OIL CORPORATION
Consolidated Statements of Comprehensive Income (Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(In millions)
2014
 
2013
 
2014
 
2013
Net income
$
431

 
$
569

 
$
2,120

 
$
1,378

Other comprehensive income (loss)
 

 
 

 
 

 
 

Postretirement and postemployment plans
 

 
 

 
 

 
 

Change in actuarial loss and other
3

 
34

 
(40
)
 
180

Income tax benefit (provision)
(2
)
 
(13
)
 
13

 
(67
)
Postretirement and postemployment plans, net of tax
1

 
21

 
(27
)
 
113

Foreign currency translation and other
 

 
 

 
 

 
 

Unrealized gain (loss)
—

 
1

 
1

 
(3
)
Income tax benefit (provision)
—

 
—

 
(1
)
 
1

Foreign currency translation and other, net of tax
—

 
1

 
—

 
(2
)
Other comprehensive income (loss)
1

 
22

 
(27
)
 
111

Comprehensive income
$
432

 
$
591

 
$
2,093

 
$
1,489

 The accompanying notes are an integral part of these consolidated financial statements.


3


MARATHON OIL CORPORATION
Consolidated Balance Sheets (Unaudited)
 
September 30,
 
December 31,
(In millions, except per share data)
2014
 
2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
761

 
$
264

Receivables
2,048

 
2,134

Inventories
379

 
364

Other current assets
143

 
172

Current assets held for sale
873

 
41

Total current assets
4,204

 
2,975

Equity method investments
1,103

 
1,201

Property, plant and equipment, less accumulated depreciation,
 

 
 

depletion and amortization of $21,024 and $21,895
28,658

 
28,145

Goodwill
457

 
499

Other noncurrent assets
988

 
1,153

Noncurrent assets held for sale
1,290

 
1,647

Total assets
$
36,700

 
$
35,620

Liabilities
 

 
 

Current liabilities:
 

 
 

Commercial paper
$
—

 
$
135

Accounts payable
2,430

 
2,206

Payroll and benefits payable
149

 
240

Accrued taxes
181

 
1,445

Other current liabilities
184

 
214

Long-term debt due within one year
68

 
68

Current liabilities held for sale
1,164

 
25

Total current liabilities
4,176

 
4,333

Long-term debt
6,355

 
6,394

Deferred tax liabilities
2,570

 
2,492

Defined benefit postretirement plan obligations
611

 
604

Asset retirement obligations
2,003

 
2,009

Deferred credits and other liabilities
405

 
401

Noncurrent liabilities held for sale
354

 
43

Total liabilities
16,474

 
16,276

Commitments and contingencies


 


Stockholders’ Equity
 

 
 

Preferred stock – no shares issued or outstanding (no par value,
 
 
 
26 million shares authorized)
—

 
—

Common stock:
 

 
 

Issued – 770 million and 770 million shares (par value $1 per share,
 
 
 
1.1 billion shares authorized)
770

 
770

Securities exchangeable into common stock – no shares issued or
 

 
 

outstanding (no par value, 29 million shares authorized)
—

 
—

Held in treasury, at cost – 95 million and 73 million shares
(3,644
)
 
(2,903
)
Additional paid-in capital
6,523

 
6,592

Retained earnings
16,854

 
15,135

Accumulated other comprehensive loss
(277
)
 
(250
)
Total stockholders' equity
20,226

 
19,344

Total liabilities and stockholders' equity
$
36,700

 
$
35,620

 The accompanying notes are an integral part of these consolidated financial statements.

4


MARATHON OIL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended
 
September 30,
(In millions)
2014
 
2013
Increase (decrease) in cash and cash equivalents
 
 
 
Operating activities:
 

 
 

Net income
$
2,120

 
$
1,378

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Discontinued operations
(1,058
)
 
(583
)
Deferred income taxes
337

 
(2
)
Depreciation, depletion and amortization
2,060

 
1,914

Impairments
130

 
49

Pension and other postretirement benefits, net
(27
)
 
41

Exploratory dry well costs and unproved property impairments
220

 
553

Net loss on disposal of assets
88

 
4

Equity method investments, net
51

 
12

Changes in:
 
 
 

Current receivables
(270
)
 
(133
)
Inventories
(32
)
 
(11
)
Current accounts payable and accrued liabilities
(115
)
 
(20
)
All other operating, net
(28
)
 
98

Net cash provided by continuing operations
3,476

 
3,300

Net cash provided by discontinued operations
856

 
741

Net cash provided by operating activities
4,332

 
4,041

Investing activities:
 

 
 

Acquisitions, net of cash acquired
(12
)
 
(74
)
Additions to property, plant and equipment
(3,639
)
 
(3,383
)
Disposal of assets
2,237

 
402

Investments - return of capital
46

 
45

Investing activities of discontinued operations
(356
)
 
(435
)
All other investing, net
(24
)
 
34

Net cash used in investing activities
(1,748
)
 
(3,411
)
Financing activities:
 

 
 

Commercial paper, net
(135
)
 
—

Debt repayments
(34
)
 
(148
)
Purchases of common stock
(1,000
)
 
(500
)
Dividends paid
(401
)
 
(376
)
All other financing, net
150

 
70

Net cash used in financing activities
(1,420
)
 
(954
)
Effect of exchange rate on cash and cash equivalents:
 
 
 
Continuing operations
(1
)
 
(3
)
Discontinued operations
(11
)
 
(3
)
Cash held for sale
(655
)
 
—

Net increase (decrease) in cash and cash equivalents
497

 
(330
)
Cash and cash equivalents at beginning of period
264

 
684

Cash and cash equivalents at end of period
$
761

 
$
354

 The accompanying notes are an integral part of these consolidated financial statements.

5

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)



1.    Basis of Presentation
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 Securities and Exchange Commission ("SEC") and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements.
As the result of the sale of our Angola assets in the first quarter of 2014 and the sale our Norway business, which closed October 15, 2014 (see Note 6), these businesses are reflected as discontinued operations in all periods presented. The disclosures in this report related to results of operations and cash flows are presented on the basis of continuing operations, unless otherwise noted. Assets and liabilities are presented as held for sale in the consolidated balance sheets as of December 31, 2013 for our Angola business and September 30, 2014 for our Norway business.
These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Marathon Oil Corporation 2013 Annual Report on Form 10-K.  The results of operations for the third quarter and first nine months of 2014 are not necessarily indicative of the results to be expected for the full year.
2.   Accounting Standards
Not Yet Adopted
In August 2014, the Financial Accounting Standards Board ("FASB") issued an update that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in United States ("U.S.") auditing standards.  This standard is effective for us in the first quarter of 2017 and early adoption is permitted. We do not expect the adoption of this standard to have a significant impact on our consolidated results of operations, financial position or cash flows.
In May 2014, the FASB issued an update that supersedes the existing revenue recognition requirements. This standard includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Among other things, the standard also eliminates industry-specific revenue guidance, requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. This standard is effective for us in the first quarter of 2017 and should be applied retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the update recognized at the date of initial application. Early adoption is not permitted. We are evaluating the provisions of this accounting standards update and assessing the impact, if any, it may have on our consolidated results of operations, financial position or cash flows.
In April 2014, the FASB issued an amendment to accounting standards that changes the criteria for reporting discontinued operations while enhancing related disclosures. Under the amendment, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include disposal of a major geographic area, a major line of business, or a major equity method investment.  Expanded disclosures about the assets, liabilities, income and expenses of discontinued operations will be required.  In addition, disclosure of the pretax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting will be made in order to provide users with information about the ongoing trends in an organization’s results from continuing operations.  The amendments are effective for us in the first quarter of 2015 and early adoption is permitted. We did not elect early adoption of this amendment and do not expect its future adoption to have a significant impact on our consolidated results of operations, financial position or cash flows.
Recently Adopted
In June 2013, the FASB ratified the Emerging Issues Task Force consensus which requires that an unrecognized tax benefit (or a portion thereof) be presented as a reduction to a deferred tax asset for an available net operating loss carryforward, a similar tax loss or tax credit carryforward. This accounting standards update was effective for us beginning in the first quarter of 2014 and is required to be applied prospectively. Adoption of this standard did not have a significant impact on our consolidated results of operations, financial position or cash flows.

6

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


In February 2013, an accounting standards update was issued to provide guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date, except for obligations such as asset retirement and environmental obligations, contingencies, guarantees, income taxes and retirement benefits, which are separately addressed within U.S. GAAP. This accounting standards update was effective for us beginning in the first quarter of 2014 and is required to be applied retrospectively. Adoption of this standard did not have a significant impact on our consolidated results of operations, financial position or cash flows.
3.   Variable Interest Entity
The owners of the Athabasca Oil Sands Project, in which we hold a 20 percent undivided interest, contracted with a wholly owned subsidiary of a publicly traded Canadian limited partnership (“Corridor Pipeline”) to provide materials transportation capabilities among the Muskeg River and Jackpine mines, the Scotford upgrader and markets in Edmonton.  Costs under this contract are accrued and recorded on a monthly basis, with current liabilities of $3 million recorded at September 30, 2014, consistent with December 31, 2013.  This contract qualifies as a variable interest contractual arrangement, and the Corridor Pipeline qualifies as a variable interest entity (“VIE”).  We hold a variable interest but are not the primary beneficiary because our shipments are only 20 percent of the total; therefore, the Corridor Pipeline is not consolidated by us.  Our maximum exposure to loss as a result of our involvement with this VIE is the amount we expect to pay over the contract term, which was $586 million as of September 30, 2014.  The liability on our books related to this contract at any given time will reflect amounts due for the immediately previous month’s activity, which is substantially less than the maximum exposure over the contract term.
4.    Income per Common Share
Basic income per share is based on the weighted average number of common shares outstanding.  Diluted income per share assumes exercise of stock options, provided the effect is not antidilutive. The per share calculations below exclude 2 million and 4 million stock options for the third quarters of 2014 and 2013 and 4 million and 5 million stock options for the first nine months of 2014 and 2013 as they were antidilutive.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions, except per share data)
2014
 
2013
 
2014
 
2013
Income from continuing operations
$
304

 
$
396

 
$
1,062

 
$
795

Discontinued operations
127

 
173

 
1,058

 
583

Net income
$
431

 
$
569

 
$
2,120

 
$
1,378

 
 
 
 
 
 
 
 
Weighted average common shares outstanding
675

 
707

 
681

 
708

Effect of dilutive securities
3

 
4

 
3

 
4

Weighted average common shares, including
 
 
 
 
 
 
 
dilutive effect
678

 
711

 
684

 
712

Per basic share:
 

 
 

 
 
 
 
Income from continuing operations

$0.45

 

$0.56

 

$1.56

 

$1.13

Discontinued operations

$0.19

 

$0.24

 

$1.55

 

$0.82

Net income

$0.64

 

$0.80

 

$3.11

 

$1.95

Per diluted share:
 
 
 
 
 
 
 
Income from continuing operations

$0.45

 

$0.56

 

$1.55

 

$1.12

Discontinued operations

$0.19

 

$0.24

 

$1.55

 

$0.82

Net income

$0.64

 

$0.80

 

$3.10

 

$1.94



7

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


5. Acquisitions
2014 - North America Exploration and Production ("E&P") Segment
In an asset acquisition that closed August 2014, we added acreage to our Oklahoma resource position at a cost of approximately $80 million before final settlement adjustments.
2013 - North America E&P Segment
In July 2013, we acquired additional acreage in the Eagle Ford in a transaction valued at $97 million, including a carried interest of $23 million which was fully satisfied as of September 30, 2014. The pro forma impact of this transaction is not material to our consolidated statements of income for any periods presented.
The transaction was accounted for as a business combination with the fair values of assets acquired and liabilities assumed measured primarily using an income approach, specifically utilizing a discounted cash flow model. The estimated fair values were based on significant inputs not observable in the market, and therefore represent Level 3 measurements. Significant inputs included estimated reserve volumes, the expected future production profile, estimated commodity prices, assumptions regarding future operating and development costs and a discount rate of approximately 10 percent. The entire up-front cash consideration of $74 million was allocated to property, plant and equipment at the acquisition date.
6. Dispositions
2014 - International E&P Segment

In June 2014, we entered into an agreement to sell our Norway business, including the operated Alvheim floating production, storage and offloading vessel, 10 operated licenses and a number of non-operated licenses on the Norwegian Continental Shelf in the North Sea, with an effective date of January 1, 2014.  The transaction closed on October 15, 2014. After adjustment for debt, net working capital and interest on the net purchase price, we received proceeds of approximately $2.1 billion and expect to record a pretax gain of approximately $1.4 billion in the fourth quarter of 2014.
Our Norway business is reflected as discontinued operations in the consolidated statements of income and the consolidated statements of cash flows for all periods presented. Select amounts reported in discontinued operations were as follows:
 
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2014
 
2013
2014
 
2013
Revenues applicable to discontinued operations
$
528

 
$
699

$
1,901

 
$
2,431

Pretax income from discontinued operations
$
487

 
$
523

$
1,617

 
$
1,945

After-tax income from discontinued operations
$
127

 
$
122

$
449

(a) 
$
502

(a) 
Includes a tax benefit of $26 million related to a decrease in the valuation allowance on U.S. foreign tax credits from the Norway operations.
Assets and liabilities presented as held for sale in the September 30, 2014 consolidated balance sheet reflect the Norway business.
 
 
In the first quarter of 2014, we closed the sales of our non-operated 10 percent working interests in the Production Sharing Contracts and Joint Operating Agreements for Angola Blocks 31 and 32 for aggregate proceeds of approximately $2 billion. Included in the after-tax gain is a deferred tax benefit reflecting our ability to utilize foreign tax credits that otherwise would have needed a valuation allowance.

8

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


Our Angola operations are reflected as discontinued operations in the consolidated statements of income and the consolidated statements of cash flows for all periods presented. Select amounts reported in discontinued operations were as follows:
 
Three Months Ended September 30,
Nine Months Ended September 30,
(In millions)
2014
 
2013
2014
 
2013
Revenues applicable to discontinued operations
$
—

 
$
89

$
58

 
$
254

Pretax income from discontinued operations, before gain
$
—

 
$
78

$
51

 
$
156

Pretax gain on disposition of discontinued operations
$
—

 
$
—

$
470

 
$
—

After-tax income from discontinued operations
$
—

 
$
51

$
609

(a) 
$
81

(a) 
Includes an after-tax gain on disposition of discontinued operations of $576 million.
Assets and liabilities presented as held for sale in the December 31, 2013 consolidated balance sheet reflect the Angola business.
 
 
2014 - North America E&P Segment
In June 2014, we closed the sale of non-core acreage located in the far northwest portion of the Williston Basin for proceeds of $90 million. A pretax loss of $91 million was recorded in the second quarter of 2014.
2013 - North America E&P Segment
In June 2013, we closed the sale of our interests in the DJ Basin for proceeds of $19 million. A pretax loss of $114 million was recorded in the second quarter of 2013.
In February 2013, we conveyed our interests in the Marcellus natural gas shale play to the operator. A $43 million pretax loss on this transaction was recorded in the first quarter of 2013.
In February 2013, we closed the sale of our interest in the Neptune gas plant, located onshore Louisiana, for proceeds of $166 million. A $98 million pretax gain on this sale was recorded in the first quarter of 2013.
In January 2013, we closed the sale of our remaining assets in Alaska, for proceeds of $195 million, subject to a six-month escrow of $50 million which was collected in July 2013. After closing adjustments were made in the second quarter of 2013, the pretax gain on this sale was $55 million.
 
 
7.    Segment Information
  We have three reportable operating segments.  Each of these segments is organized based upon both geographic location and the nature of the products and services it offers.
•
North America E&P ("N.A. E&P") – explores for, produces and markets liquid hydrocarbons and natural gas in North America;
•
International E&P ("Int'l E&P") – explores for, produces and markets liquid hydrocarbons and natural gas outside of North America and produces and markets products manufactured from natural gas, such as liquefied natural gas ("LNG")and methanol, in Equatorial Guinea; and
•
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.
Information regarding assets by segment is not presented because it is not reviewed by the chief operating decision maker (“CODM”).  Segment income represents income from continuing operations excluding certain items not allocated to segments, net of income taxes, attributable to the operating segments. Our corporate and operations support general and administrative costs are not allocated to the operating segments. These costs primarily consist of employment costs (including pension effects), professional services, facilities and other costs associated with corporate and operations support activities. Unrealized gains or losses on crude oil derivative instruments, certain impairments, gains or losses on dispositions or other items that affect comparability (as determined by the CODM) also are not allocated to operating segments.
As discussed in Note 5, we sold our Angola assets in the first quarter of 2014 and our Norway business on October 15, 2014. The Angola and Norway businesses are reflected as discontinued operations and are excluded from the International E&P segment in all periods presented.

9

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


 
Three Months Ended September 30, 2014
 
 
 
Not Allocated
 
 
(In millions)
N.A. E&P
 
Int'l E&P
 
OSM
 
to Segments
 
Total
Sales and other operating revenues
$
1,586

 
$
273

 
$
457

 
$
—

 
$
2,316

Marketing revenues
506

 
46

 
2

 
—

 
554

Total revenues
2,092

 
319

 
459

 
—

 
2,870

Income from equity method investments
—

 
89

 
—

 
—

 
89

Net gain (loss) on disposal of assets and other income
(1
)
 
12

 
—

 
1

 
12

Less:
 
 
 
 
 
 
 
 
 
Production expenses
233

 
108

 
252

 
—

 
593

Marketing costs
507

 
45

 
2

 
—

 
554

Exploration expenses
55

 
41

 
—

 
—

 
96

Depreciation, depletion and amortization
609

 
55

 
62

 
11

 
737

Impairments
—

 
—

 
—

 
109

(c) 
109

Other expenses (a)
118

 
26

 
14

 
101

(d) 
259

Taxes other than income
109

 
—

 
5

 
1

 
115

Net interest and other
—

 
—

 
—

 
55

 
55

Income tax provision (benefit)
168

 
39

 
31

 
(89
)
 
149

Segment income/Income from continuing operations
$
292

 
$
106

 
$
93

 
$
(187
)
 
$
304

Capital expenditures (b)
$
1,277

 
$
166

 
$
49

 
$
16

 
$
1,508

(a) 
Includes other operating expenses and general and administrative expenses.
(b)
Includes accruals.
(c)
Proved property impairments (see Note 13).
(d) 
Includes pension settlement loss of $22 million.
 
Three Months Ended September 30, 2013
 
 
 
Not Allocated
 
 
(In millions)
N.A. E&P
 
Int'l E&P
 
OSM
 
to Segments
 
Total
Sales and other operating revenues
$
1,321

 
$
611

 
$
463

 
$
(61
)
(c) 
$
2,334

Marketing revenues
607

 
56

 
3

 
—

 
666

Total revenues
1,928

 
667

 
466

 
(61
)
 
3,000

Income from equity method investments
—

 
114

 
—

 
—

 
114

Net gain (loss) on disposal of assets and other income
9

 
7

 
2

 
(5
)
 
13

Less:
 
 
 
 
 
 
 
 
 
Production expenses
205

 
108

 
227

 
—

 
540

Marketing costs
605

 
55

 
3

 
—

 
663

Exploration expenses
48

 
35

 
—

 
—

 
83

Depreciation, depletion and amortization
490

 
116

 
54

 
(3
)
 
657

Impairments
11

 
—

 
—

 
—

 
11

Other expenses (a)
111

 
35

 
38

 
74

(d) 
258

Taxes other than income
82

 
—

 
5

 
2

 
89

Net interest and other
—

 
—

 
—

 
71

 
71

Income tax provision (benefit)
143

 
247

 
35

 
(66
)
 
359

Segment income/Income from continuing operations
$
242

 
$
192

 
$
106

 
$
(144
)
 
$
396

Capital expenditures (b)
$
832

 
$
120

 
$
66

 
$
7

 
$
1,025

(a)Includes other operating expenses and general and administrative expenses.
(b)Includes accruals.
(c)Unrealized loss on crude oil derivative instruments.
(d)Includes pension settlement loss of $15 million.

10

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


 
Nine Months Ended September 30, 2014
 
 
 
Not Allocated
 
 
(In millions)
N.A. E&P
 
Int'l E&P
 
OSM
 
to Segments
 
Total
Sales and other operating revenues
$
4,518

 
$
1,000

 
$
1,217

 
$
—

 
$
6,735

Marketing revenues
1,486

 
177

 
50

 
—

 
1,713

Total revenues
6,004

 
1,177

 
1,267

 
—

 
8,448

Income from equity method investments
—

 
346

 
—

 
—

 
346

Net gain (loss) on disposal of assets and other income
17

 
44

 
3

 
(97
)
(c) 
(33
)
Less:
 
 
 
 
 
 
 
 
 
Production expenses
661

 
307

 
729

 
—

 
1,697

Marketing costs
1,484

 
176

 
50

 
—

 
1,710

Exploration expenses
194

 
120

 
—

 
—

 
314

Depreciation, depletion and amortization
1,674

 
201

 
152

 
33

 
2,060

Impairments
21

 
—

 
—

 
109

(d) 
130

Other expenses (a)
354

 
98

 
40

 
297

(e) 
789

Taxes other than income
301

 
—

 
16

 
2

 
319

Net interest and other
—

 
—

 
—

 
180

 
180

Income tax provision (benefit)
496

 
178

 
71

 
(245
)
 
500

Segment income/Income from continuing operations
$
836

 
$
487

 
$
212

 
$
(473
)
 
$
1,062

Capital expenditures (b)
$
3,246

 
$
386

 
$
172

 
$
29

 
$
3,833

(a) 
Includes other operating expenses and general and administrative expenses.
(b) 
Includes accruals.
(c) 
Primarily related to the sale of non-core acreage located in the far northwest portion of the Williston Basin (see Note 6).
(d) 
Proved property impairments (see Note 13).
(e) 
Includes pension settlement loss of $93 million.
 
Nine Months Ended September 30, 2013
 
 
 
Not Allocated
 
 
(In millions)
N.A. E&P
 
Int'l E&P
 
OSM
 
to Segments
 
Total
Sales and other operating revenues
$
3,820

 
$
2,332

 
$
1,204

 
$
(61
)
(c) 
$
7,295

Marketing revenues
1,391

 
192

 
12

 
—

 
1,595

Total revenues
5,211

 
2,524

 
1,216

 
(61
)
 
8,890

Income from equity method investments
—

 
309

 
—

 
—

 
309

Net gain (loss) on disposal of assets and other income
15

 
30

 
5

 
(16
)
 
34

Less:
 
 
 
 
 
 
 
 
 
Production expenses
584

 
269

 
772

 
—

 
1,625

Marketing costs
1,390

 
188

 
12

 
—

 
1,590

Exploration expenses
559

 
106

 
—

 
—

 
665

Depreciation, depletion and amortization
1,458

 
284

 
154

 
18

 
1,914

Impairments
34

 
—

 
—

 
15

(d) 
49

Other expenses (a)
311

 
99

 
48

 
290

(e) 
748

Taxes other than income
244

 
—

 
16

 
4

 
264

Net interest and other
—

 
—

 
—

 
211

 
211

Income tax provision (benefit)
242

 
1,282

 
55

 
(207
)
 
1,372

Segment income/Income from continuing operations
$
404

 
$
635

 
$
164

 
$
(408
)
 
$
795

Capital expenditures (b)
$
2,706

 
$
314

 
$
209

 
$
47

 
$
3,276

(a) 
Includes other operating expenses and general and administrative expenses.
(b) 
Includes accruals.
(c) 
Unrealized loss on crude oil derivative instruments.
(d) 
Proved property impairments (see Note 13).
(e) 
Includes pension settlement loss of $32 million.


11

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


8.    Defined Benefit Postretirement Plans
The following summarizes the components of net periodic benefit cost:
 
Three Months Ended September 30,
  
Pension Benefits
 
Other Benefits
(In millions)
2014
 
2013
 
2014
 
2013
Service cost
$
12

 
$
12

 
$
—

 
$
1

Interest cost
15

 
16

 
4

 
3

Expected return on plan assets
(16
)
 
(17
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

– prior service cost (credit)
1

 
2

 
(1
)
 
(2
)
– actuarial loss
7

 
9

 
—

 
—

Net settlement loss(a)
22

 
15

 
—

 
—

Net periodic benefit cost
$
41

 
$
37

 
$
3

 
$
2


 
Nine Months Ended September 30,
  
Pension Benefits
 
Other Benefits
(In millions)
2014
 
2013
 
2014
 
2013
Service cost
$
35

 
$
38

 
$
2

 
$
3

Interest cost
46

 
47

 
10

 
9

Expected return on plan assets
(48
)
 
(50
)
 
—

 
—

Amortization:
 

 
 

 
 

 
 

– prior service cost (credit)
4

 
5

 
(3
)
 
(5
)
– actuarial loss
23

 
38

 
—

 
—

Net settlement loss(a)
93

 
32

 
—

 
—

Net periodic benefit cost
$
153

 
$
110

 
$
9

 
$
7

(a)     Settlements are recognized as they occur, once it is probable that lump sum payments from a plan for a given year will exceed the plan's total service and interest cost for that year.
During the first nine months of 2014 and 2013, we recorded the effects of partial settlements of our U.S. pension plans and we remeasured the plans’ assets and liabilities as of the applicable balance sheet dates. As a result, we recognized a pretax increase of $10 million and a pretax decrease of $22 million in actuarial losses in other comprehensive income for the third quarter and first nine months of 2014 and a pretax decrease of $24 million and $163 million in actuarial losses in other comprehensive income for the third quarter and first nine months of 2013.
During the first nine months of 2014, we made contributions of $94 million to our funded pension plans.  We expect to make additional contributions up to an estimated $24 million to our funded pension plans over the remainder of 2014.  Current benefit payments related to unfunded pension plans were $83 million, and payments related to other postretirement benefit plans were $11 million during the first nine months of 2014.
9.   Income Taxes
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 7.
Our effective income tax rates on continuing operations for the first nine months of 2014 and 2013 were 32 percent and 63 percent.  The decrease in the effective tax rate on continuing operations in the first nine months of 2014 is primarily due to a decrease in pretax income from Libya operations, where the tax rate is in excess of 90 percent.
The tax provision (benefit) applicable to Libyan ordinary income (loss) was recorded as a discrete item in the first nine months of 2014 and 2013.  Excluding Libya, the effective tax rates on continuing operations would be 32 percent and 36 percent for the first nine months of 2014 and 2013. In Libya, there remains uncertainty around future production and sales levels. Reliable estimates of 2014 and 2013 Libyan annual ordinary income from our operations could not be made and the range of possible

12

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


scenarios in the worldwide annual effective tax rate calculation demonstrates significant variability.  Thus, for the first nine months of 2014 and 2013, estimated annual effective tax rates were calculated excluding Libya and applied to consolidated ordinary income.
In the second quarter of 2014, we reviewed our foreign operations, including the disposition of Norway, and concluded that our foreign operations do not have the same level of immediate capital needs as previously expected.  Therefore, we no longer intend for previously unremitted foreign earnings of $746 million associated with our United Kingdom ("U.K.") operations to be permanently reinvested outside the U.S.  Foreign tax credits associated with these earnings would be sufficient to offset any incremental U.S. tax liabilities.  The remaining undistributed income of certain consolidated foreign subsidiaries for which no U.S. deferred income tax provision has been recorded because we intend to permanently reinvest such income in our foreign operations amounted to $994 million at September 30, 2014.  If such income were not permanently reinvested, income tax expense of approximately $348 million would be recorded, not including potential utilization of foreign tax credits.
10.   Inventories
 Inventories are carried at the lower of cost or market value.
 
September 30,
 
December 31,
(In millions)
2014
 
2013
Liquid hydrocarbons, natural gas and bitumen
$
80

 
$
55

Supplies and other items
299

 
309

Inventories, at cost
$
379

 
$
364

11.  Property, Plant and Equipment
 
September 30,
 
December 31,
(In millions)
2014
 
2013
North America E&P
$
16,298

 
$
14,973

International E&P (a)
2,754

 
3,590

Oil Sands Mining
9,486

 
9,447

Corporate
120

 
135

Net property, plant and equipment
$
28,658


$
28,145

(a) 
International E&P decrease is due to Norway assets reflected as held for sale in the September 30, 2014 consolidated balance sheet.
In the third quarter of 2013, our production in Libya was interrupted by third-party labor strikes at the port facilities, which later resulted in a blockade of the Es Sider terminal from which we export oil.  In July 2014, Libya's National Oil Corporation rescinded force majeure associated with these third-party labor strikes at the Es Sider terminal. Our first 2014 lifting occurred in August, and was sourced from existing inventory at the terminal.  Production from the Waha concessions resumed in August 2014; however, considerable uncertainty remains around future production and sales levels.  As of September 30, 2014, our net property, plant and equipment investment in Libya is approximately $771 million. We and our partners in the Waha concessions continue to assess the situation and the condition of our assets in Libya. Our periodic assessment of the carrying value of our net property, plant and equipment in Libya specifically considers the net investment in the assets, the duration of our concessions and the reserves anticipated to be recoverable in future periods.
Exploratory well costs capitalized greater than one year after completion of drilling were $155 million as of September 30, 2014 (including $29 million related to Norway project costs which are reflected in noncurrent assets held for sale) and $281 million as of December 31, 2013 (including $70 million related to Norway project costs). This $126 million net decrease was the result of a $153 million reduction due to the sale of our interests in Angola Blocks 31 and 32 and a decrease of $39 million due to the commencement of drilling at the Boyla development and sanction of the Viper project offshore Norway, partially offset by an increase of $66 million for Diaba License G4-223 offshore Gabon where the Diaman-1B well reached total depth in the third quarter of 2013. We are analyzing new 3D seismic, integrated with existing technical data, in order to finalize the next steps in the exploration program on the Diaba License.

13

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


12. Asset Retirement Obligations
The following summarizes the changes in asset retirement obligations during the first nine months of 2014:
(In millions)
 
Beginning balance(a)
$
2,096

Incurred, including acquisitions
39

Settled, including dispositions
(110
)
Accretion expense (included in depreciation, depletion and amortization)
87

Revisions to previous estimates(b)
231

Held for sale
(309
)
Ending balance(a)
$
2,034

(a)
Includes asset retirement obligations of $87 million and $31 million classified as short-term at December 31, 2013 and September 30, 2014.
(b)
Estimated abandonment and other costs increased for Gulf of Mexico and U.K. assets.
13.  Fair Value Measurements
 Fair Values - Recurring
The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 by fair value hierarchy level.
 
September 30, 2014
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Derivative instruments, assets
 
 
 
 
 
 
 
     Interest rate
$
—

 
$
5

 
$
—

 
$
5

Derivative instruments, assets
$
—

 
$
5

 
$
—

 
$
5

Derivative instruments, liabilities
 
 
 
 
 
 
 
     Foreign currency
$
—

 
$
17

 
$
—

 
$
17

Derivative instruments, liabilities
$
—

 
$
17

 
$
—

 
$
17

 
December 31, 2013
(In millions)
Level 1
 
Level 2
 
Level 3
 
Total
Derivative instruments, assets
 
 
 
 
 
 
 
Interest rate
$
—

 
$
8

 
$
—

 
$
8

Foreign currency
—

 
2

 
—

 
2

Derivative instruments, assets
$
—

 
$
10

 
$
—

 
$
10

Derivative instruments, liabilities
 
 
 
 
 
 
 
     Foreign currency
$
—

 
$
4

 
$
—

 
$
4

Derivative instruments, liabilities
$
—

 
$
4

 
$
—

 
$
4

Interest rate swaps are measured at fair value with a market approach using actionable broker quotes which are Level 2 inputs.  Foreign currency forwards are measured at fair value with a market approach using third-party pricing services, such as Bloomberg L.P., which have been corroborated with data from active markets for similar assets or liabilities, and are Level 2 inputs.

14

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


Fair Values - Nonrecurring
The following table shows the values of assets, by major category, measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition.
 
Three Months Ended September 30,
 
2014
 
2013
(In millions)
Fair Value
 
Impairment
 
Fair Value
 
Impairment
Long-lived assets held for use
$
43

 
$
109

 
$
5

 
$
11

 
Nine Months Ended September 30,
 
2014
 
2013
(In millions)
Fair Value
 
Impairment
 
Fair Value
 
Impairment
Long-lived assets held for use
$
43

 
$
130

 
$
5

 
$
49

All long-lived assets held for use that were impaired in the first nine months of 2014 and 2013 were held by our North America E&P segment. The fair values of each were measured using an income approach based upon internal estimates of future production levels, prices and discount rate, all of which are Level 3 inputs.  Inputs to the fair value measurement included reserve and production estimates made by our reservoir engineers, estimated commodity prices adjusted for quality and location differentials, and forecasted operating expenses for the remaining estimated life of the reservoir.
The Ozona development in the Gulf of Mexico ceased producing in the first quarter of 2013 and a $21 million impairment was recorded. In the first nine months of 2014, we recorded additional impairments of $30 million at Ozona as a result of estimated abandonment cost revisions.
In the third quarter of 2014, impairments of $53 million were recorded to certain other Gulf of Mexico properties, as a result of estimated abandonment cost and other revisions, to an aggregate fair value of $19 million.
Also in the third quarter of 2014, two additional fields were impaired a total of $47 million to an aggregate fair value of $24 million primarily due to lower forecasted commodity prices.
In the first quarter of 2013, as a result of our decision to wind down operations in the Powder River Basin due to poor economics, an impairment of $15 million was recorded.
Other impairments of long-lived assets held for use by our North America E&P segment in the first nine months of 2013 were a result of reduced drilling expectations, reductions of estimated reserves or declining commodity prices.
Crude oil prices began declining in the third quarter of 2014 and continued to decrease in October 2014. A period of sustained low commodity prices could result in additional non-cash impairment charges related to our assets in future periods.
Fair Values – Financial Instruments
Our current assets and liabilities include financial instruments, the most significant of which are receivables, commercial paper and payables. We believe the carrying values of our receivables, commercial paper and payables approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating, and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

15

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


The following table summarizes financial instruments, excluding current receivables, commercial paper, current payables, capital leases and derivative financial instruments, and their reported fair value by individual balance sheet line item at September 30, 2014 and December 31, 2013.
 
September 30, 2014
 
December 31, 2013
 
Fair
 
Carrying
 
Fair
 
Carrying
(In millions)
Value
 
Amount
 
Value
 
Amount
Financial assets
 
 
 
 
 
 
 
Other noncurrent assets
$
194

 
$
189

 
$
154

 
$
147

Total financial assets  
194

 
189

 
154

 
147

Financial liabilities
 

 
 

 
 

 
 

     Other current liabilities
13

 
13

 
13

 
13

     Long-term debt, including current portion (a)
7,057

 
6,394

 
6,922

 
6,427

Deferred credits and other liabilities
94

 
150

 
149

 
147

Total financial liabilities  
$
7,164

 
$
6,557

 
$
7,084

 
$
6,587

(a)    Excludes capital leases.
Fair values of our financial assets included in other noncurrent assets and of our financial liabilities included in other current liabilities and deferred credits and other liabilities are measured using an income approach. Most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value.
Most of our long-term debt instruments are publicly-traded. A market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value of such debt. The fair value of our debt that is not publicly-traded is measured using an income approach. The future debt service payments are discounted using the rate at which we currently expect to borrow. All inputs to this calculation are Level 3.
14. Derivatives
For further information regarding the fair value measurement of derivative instruments, see Note 13. All of our interest rate derivatives are subject to enforceable master netting arrangements or similar agreements under which we may report net amounts. Netting is assessed by counterparty, and as of September 30, 2014 and December 31, 2013, there were no offsetting amounts. Positions by contract were all either assets or liabilities.
The following tables present the gross fair values of derivative instruments, excluding cash collateral, and the reported net amounts along with where they appear on the consolidated balance sheets as of September 30, 2014 and December 31, 2013.
 
September 30, 2014
 
 
(In millions)
Asset
 
Liability
 
Net Asset
 
Balance Sheet Location
Fair Value Hedges
 
 
 
 
 
 
 
     Interest rate
$
5

 
$
—

 
$
5

 
Other noncurrent assets
Total Designated Hedges
$
5

 
$
—

 
$
5

 
 
 
September 30, 2014
 
 
(In millions)
Asset
 
Liability
 
Net Liability
 
Balance Sheet Location
Fair Value Hedges
 
 
 
 
 
 
 
     Foreign currency
$
—

 
$
17

 
$
17

 
Current liabilities held for sale
Total Designated Hedges
$
—

 
$
17

 
$
17

 
 

16

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


 
December 31, 2013
 
 
(In millions)
Asset
 
Liability
 
Net Asset
 
Balance Sheet Location
Fair Value Hedges
 
 
 
 
 
 
 
     Interest rate
$
8

 
$
—

 
$
8

 
Other noncurrent assets
     Foreign currency
2

 
—

 
2

 
Other current assets
Total Designated Hedges
$
10

 
$
—

 
$
10

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
(In millions)
Asset
 
Liability
 
Net Liability
 
Balance Sheet Location
Fair Value Hedges
 
 
 
 
 
 
 
     Foreign currency
$
—

 
$
4

 
$
4

 
Current liabilities
Total Designated Hedges
$
—

 
$
4

 
$
4

 
 
Derivatives Designated as Fair Value Hedges
The following table presents, by maturity date, information about our interest rate swap agreements as of September 30, 2014 and December 31, 2013, including the weighted average, London Interbank Offer Rate (“LIBOR”)-based, floating rate.
 
September 30, 2014
 
December 31, 2013
 
Aggregate Notional Amount
Weighted Average, LIBOR-Based,
 
Aggregate Notional Amount
Weighted Average, LIBOR-Based,
Maturity Dates
(in millions)
Floating Rate
 
(in millions)
Floating Rate
October 2, 2017
$
600

4.64
%
 
$
600

4.65
%
March 15, 2018
$
300

4.49
%
 
$
300

4.50
%
As of September 30, 2014 and December 31, 2013, our foreign currency forwards had an aggregate notional amount of 2,246 million and 2,387 million Norwegian Kroner at weighted average forward rates of 6.149 and 6.060. These forwards hedge the current Norwegian tax liability of the subsidiary that holds our Norway business. Those outstanding at September 30, 2014 have settlement dates through February 2015 and were transfered to the purchaser of our Norway business upon closing of the sale on October 15, 2014.
The pretax effects of derivative instruments designated as hedges of fair value in our consolidated statements of income are summarized in the table below. There is no ineffectiveness related to the fair value hedges.
 
 
Gain (Loss)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
Income Statement Location
2014
 
2013
 
2014
 
2013
Derivative
 
 
 
 
 
 
 
 
Interest rate
Net interest and other
$
(6
)
 
$
5

 
$
(3
)
 
$
(9
)
Foreign currency
Discontinued operations
$
(18
)
 
$
5

 
$
(29
)
 
$
(41
)
Hedged Item
 
 

 
 

 
 

 
 

Long-term debt
Net interest and other
$
6

 
$
(5
)
 
$
3

 
$
9

Accrued taxes
Discontinued operations
$
18

 
$
(5
)
 
$
29

 
$
41

 Derivatives not Designated as Hedges
The impact of all commodity derivative instruments not designated as hedges appears in sales and other operating revenues in our consolidated statements of income and were net losses of $86 million and $73 million in the third quarter and first nine months of 2013. There were no crude oil derivatives in the third quarter and first nine months of 2014.

17

MARATHON OIL CORPORATION
Notes to Consolidated Financial Statements (Unaudited)


15.    Incentive Based Compensation
 Stock option and restricted stock awards
  The following table presents a summary of stock option and restricted stock award activity for the first nine months of 2014: 
 
Stock Options
 
Restricted Stock
 
Number of
Shares
 
Weighted
Average
Exercise Price
 
Awards
 
Weighted
Average Grant
Date Fair Value
Outstanding at December 31, 2013
18,104,887

 

$27.27

 
4,031,888

 

$31.80

Granted
1,935,423

(a) 

$34.48

 
1,935,888

 

$34.96

Options Exercised/Stock Vested
(5,882,065
)
 

$23.45

 
(1,557,101
)
 

$30.06

Canceled
(559,254
)
 

$33.97

 
(448,358
)
 

$32.02

Outstanding at September 30, 2014
13,598,991

 

$29.67

 
3,962,317

 

$34.00

(a)    The weighted average grant date fair value of stock option awards granted was $10.50 per share.
Stock-based performance unit awards
 During the first nine months of 2014, we granted 221,491 stock-based performance units to certain officers. The grant date fair value per unit was $34.28.
16.    Debt
As of September 30, 2014, we had no borrowings against our revolving credit facility, as described below, or under our U.S. commercial paper program that is backed by the revolving credit facility.
In May 2014, we amended our $2.5 billion unsecured revolving credit facility (the "Credit Facility"), and extended the maturity to May 2019. Terms of this amended Credit Facility include the ability to request two one-year extensions and an option to increase the commitment amount by up to an additional $1.0 billion, subject to the consent of any increasing lenders, and sub-facilities for swing-line loans and letters of credit up to an aggregate amount of $100 million and $500 million.  Fees on the unused commitment of each lender range from 8 basis points to 22.5 basis points depending on our credit ratings. Borrowings under the Credit Facility bear interest, at our option, at either (a) an adjusted LIBOR rate plus a margin ranging from 87.5 basis points to 150 basis points depending on our credit ratings or (b) the Base Rate plus a margin ranging from 0 basis points to 50 basis points depending on our credit ratings.  Base Rate is defined as a per annum rate equal to the greatest of (a) the prime rate, (b) the federal funds rate plus one-half of one percent or (c) LIBOR for a one-month interest period plus 1 percent.
The agreement contains a covenant that requires our ratio of total debt to total capitalization not to exceed 65 percent as of the last day of each fiscal quarter.  If an event of default occurs, the lenders holding more than half of the commitments may terminate the commitments under the Credit Facility and require the immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit under the Credit Facility.
17.  Reclassifications Out of Accumulated Other Comprehensive Loss
The following table presents a summary of amounts reclassified from accumulated other comprehensive loss to net income in their entirety:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
 
(In millions)
2014
2013
2014
2013
 
Income Statement Line
Accumulated Other Comprehensive Loss Components
 
 
 
 
Income (Expense)
 
 
Postretirement and postemployment plans
 
 
 
 
 
Amortization of actuarial loss
$
(7
)
$
(9
)
$
(23
)
$
(38
)
 
General and administrative
Net settlement loss
(22
)
(15
)
(93
)
(32
)
 
General and administrative
 
(29
)
(24
)
(116
)
(70
)
 
Income from operations
 
10

9

38

26

 
Provision for income taxes
Other insignificant, net of tax
—

—

(1
)
(1
)
 
 
Total reclassifications
$
(19
)
$
(15
)
$
(79
)