Marathon reported 2008 net income of $3.528 billion, or $4.95 per diluted share. Net income in 2007 was $3.956 billion, or $5.69 per diluted [image-nocss] share. Marathon reported 2008 net income adjusted for special items of $4.613 billion, or $6.47 per diluted share, compared to net income adjusted for special items of $3.771 billion, or $5.43 per diluted share for 2007.
"2008 was a year of extreme market volatility with record high crude prices at midyear, followed by a rapid and steep decline in crude prices," said Clarence P. Cazalot Jr., Marathon president and CEO. "Through this cycle of volatility, Marathon delivered solid upstream production growth and continued high downstream operating reliability, resulting in income from our operating segments increasing 59% for the fourth quarter and 15% for the full year, compared to the fourth quarter and full year of 2007.... We were again able to capture solid operational profitability for the fourth quarter and full year through our fully integrated downstream system, including our seven refineries; extensive pipeline, barge and terminal network; and dual channel marketing assets. In particular, our results benefitted from significant transportation operations and strong retail margins in this period of extreme commodity price volatility."
He added, "As part of our continued focus on enhancing shareholder value, we have evaluated the potential separation of Marathon into two separate companies, one focused on Marathon's upstream, integrated gas and oil sands mining businesses, and the other focused on our downstream business. During our evaluation, the overall business environment has witnessed a period of unprecedented financial and commodity market uncertainty. Given this environment, we have concluded it is in the best interest of our shareholders to remain a fully integrated energy company."
Upstream segment income totaled $264 million in fourth-quarter 2008, compared to $465 million in fourth-quarter 2007. For the year 2008, upstream segment income was $2.715 billion, compared to $1.729 billion for 2007. U.S. upstream reported a loss of $19 million in fourth-quarter 2008, compared to income of $153 million in the same period of 2007.
Downstream segment income was $325 million in fourth-quarter 2008 and $1.179 billion for the year, compared to $4 million and $2.077 billion in the same periods of 2007. The quarterly increase primarily reflects an improved refining and wholesale marketing gross margin, in part attributable to a substantial drop in crude oil prices during fourth-quarter 2008. The refining and wholesale marketing gross margin per gallon was 12.48 cents in fourth-quarter 2008, compared to 4.80 cents in fourth-quarter 2007, and 11.66 cents per gallon for full year 2008, compared to 18.48 cents for 2007.
The decrease in 2008 segment income was primarily attributable to the 37% decline in the refining and wholesale marketing gross margin as the relevant market indicators (Light Louisiana Sweet (LLS) 6-3-2-1 crack spreads) in the Midwest (Chicago) and Gulf Coast were weaker for 2008 compared to 2007.
Marathon's refining and wholesale marketing gross margins included pretax derivatives gains of $64 million for the fourth quarter and losses of $87 million for the full-year 2008, compared to pretax losses of $427 million and $899 million in the same periods of 2007.
The Speedway SuperAmerica LLC (SSA) gasoline and distillate gross margin per gallon averaged 18.21 cents during fourth-quarter 2008, compared to the 11.31 cents realized in fourth-quarter 2007, and averaged 13.87 cents for the full-year 2008, compared to the 11.19 cents realized in 2007. SSA same-store merchandise sales increased 5% during the fourth quarter and 2% for the full-year 2008.
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