We remain obligated (primarily or contingently) for certain debt and other financial arrangements for which United States Steel has assumed responsibility for repayment under the terms of the USX Separation. United States Steel’s obligations to us are general unsecured obligations that rank equal to United States Steel’s accounts payable and other general unsecured obligations. If United States Steel fails to satisfy these obligations, we would become responsible for repayment. Under the Financial Matters Agreement, United States Steel has all of the existing contractual rights under the leases assumed from us, including all rights related to purchase options, prepayments or the grant or release of security interests. However, United States Steel has no right to increase amounts due under or lengthen the term of any of the assumed leases, other than extensions set forth in the terms of the assumed leases.
As of December 31, 2010, we have identified the following obligations that have been assumed by United States Steel: • $198 million of industrial revenue bonds related to environmental improvement projects for current and former
United States Steel facilities, with maturities ranging from 2011 through 2033. Accrued interest payable on these bonds was $4 million at December 31, 2010. The Financial Matters Agreement provides that, on or before December 31, 2011, the tenth anniversary of the USX Separation, Steel shall pay Marathon an amount equal to the principal amount of, all accrued and unpaid debt service then outstanding on, and any premium required to immediately retire each bond. Upon such payment, Marathon shall retire all then outstanding bonds.
• $20 million of sale-leaseback financing under a lease for equipment at United States Steel’s Fairfield Works, with a term extending to 2012, subject to extensions. There was no accrued interest payable on this financing at December 31, 2010.
• $17 million of obligations under a lease for equipment at United States Steel’s Clairton coke-making facility, with a term extending to 2012. There was no accrued interest payable on this financing at December 31, 2010.
• A guarantee with respect to all obligations of United States Steel to the limited partners of the Clairton 1314B Partnership, L.P., which was terminated on October 31, 2008. Upon termination of the partnership, we were not released from our obligations under guarantee. United States Steel has reported that it currently has no unpaid outstanding obligations to the limited partners. See Note 24 to the consolidated financial statements.
• Obligations of $239 million and corresponding receivables from United States Steel were recorded on our consolidated balance sheet as of December 31, 2010, (current portion - $220 million; long-term portion - $19 million).
In its Form 10-K for the year ended December 31, 2010, United States Steel management stated that it believes its liquidity will be adequate to satisfy its obligations for the foreseeable future. During the second quarter of 2010, United States Steel redeemed $89 million of certain industrial development and environmental improvement bonds for which we were liable.
Outlook
Our Board of Directors approved a capital, investment and exploration budget of $5,267 million for 2011, which includes budgeted capital expenditures of $4,837 million. This represents a 9 percent increase from 2010 spending. The focus of our 2011 budget is on exploration and production activities, with an emphasis on oil prospects and increasing our percentage of operated properties.
Exploration and Production
The worldwide exploration and production budget for 2011 is $3,417 million, a 29 percent increase over 2010 capital spending. The exploration and production strategy is based on three key elements: a solid portfolio of base assets, growth assets and impact exploration. The majority of the budget is allocated to projects that offer growth potential, with nearly $1 billion focused on three North America liquids resource plays: the Bakken shale play in North Dakota, the Eagle Ford shale play in Texas and the Anadarko Woodford shale play in Oklahoma. In the Bakken, we plan to drill 70 to 75 operated wells and 50 to 70 outside-operated wells. In the Anadarko Woodford shale, 20 to 25 operated wells and 25 to 50 outside- operated wells are planned. In the Eagle Ford shale, we plan to drill four operated wells. The remaining $900 million will be primarily for the advancement of the PSVM development on Block 31 offshore Angola and in-situ drilling in the Canadian oil sands.
Approximately $1 billion is budgeted for our base assets which include production operations in the Gulf of Mexico, Norway, Equatorial Guinea and other conventional liquid hydrocarbon operations worldwide. The focus of this spending is maintaining high levels of reliability and stable production primarily for conventional oil assets in Norway and the U.S.
Potentially high impact exploration projects receive 14 percent of the budget. Projects for impact exploration include conducting seismic surveys and drilling three to six wells on prospects in the deepwater Gulf of Mexico, Indonesia, the Iraqi Kurdistan Region and Poland.
The above discussion includes forward-looking statements with respect to anticipated future exploratory and development drilling, investments in new and existing resource plays and development projects. Some factors which could potentially affect these forward-looking statements include pricing, supply and demand for petroleum products, the amount of capital available for exploration and development, regulatory constraints, drilling rig availability, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other geological, operating and economic considerations. The foregoing forward-looking statements may be further affected by the inability to obtain or delay in obtaining necessary government and third-party approvals or permits. The offshore developments could further be affected by presently known data concerning size and character of reservoirs, economic recoverability, future drilling success and production experience. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.
Oil Sands Mining
The budget for Oil Sands Mining segment in 2011 is $294 million, less than half of 2010 spending. Our significant investment in this asset is reduced because Expansion 1 at the AOSP was completed in 2010 and continues to ramp up to full capacity through the first quarter of 2011.
Evaluation of the AOSP Quest Carbon Capture and Storage (“CCS”) project continues. A final investment decision on the Quest CCS project will be made at a later date, and is subject to regulatory approvals, stakeholder engagement, detailed engineering studies, as well as a final joint venture partner agreement.
The above discussion includes forward-looking statements concerning the start-up of the expanded upgrader. Factors which could affect this project include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions and delays or other risks customarily associated with start-up projects.
Refining, Marketing and Transportation
The 2011 budget includes $1,238 million for RM&T segment projects, a 16 percent increase over 2010 spending. The Detroit refinery heavy oil upgrading and expansion project continues in 2011, accounting for about half of the budget. The Detroit project which is targeted for start-up in the second half of 2012, will increase the refinery’s heavy oil, including Canadian bitumen blends, upgrading capacity by about 80 mbpd, and will increase its total crude oil refining capacity by approximately 15 mbpd.
The remainder of the budget is allocated across segment operations and to comply with the Mobile Source Air Toxics (“MSAT II”) regulations that were effective January 1, 2011.
The above discussion includes forward-looking statements concerning the Detroit refinery heavy oil upgrading and expansion project and MSAT II regulations compliance costs. Some factors that could affect the Detroit and MSAT II projects include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, other risks customarily associated with construction projects. These factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.