Marathon Oil (MRO)

5. Business Combinations

On May 12, 2003, Marathon acquired Khanty Mansiysk Oil Corporation ("KMOC") for $285 million, including the assumption of $31 million in debt. KMOC is currently evaluating or developing nine oil fields in the Khanty-Mansiysk region of western Siberia in the Russian Federation. Results of operations for 2003 include the results of KMOC from May 12, 2003. The allocation of purchase price is final. There was no goodwill associated with the purchase.

        The following table summarizes the allocation of the purchase price of KMOC to the assets acquired and liabilities assumed at the date of acquisition:

        The following unaudited pro forma data for Marathon includes the results of operations of KMOC giving effect to the acquisition as if it had been consummated at the beginning of the period presented. The pro forma data is based on historical information and does not necessarily represent the actual results that would have occurred nor is it necessarily indicative of future results of operations.

        During 2002, in two separate transactions, Marathon acquired interests in the Alba Field offshore Equatorial Guinea, West Africa, and certain other related assets.

        On January 3, 2002, Marathon acquired certain interests from CMS Energy Corporation for $1.005 billion. Marathon acquired three entities that own a combined 52.4 percent working interest in the Alba Production Sharing Contract and a net 43.2 percent interest in an onshore liquefied petroleum gas processing plant through an equity method investee. Additionally, Marathon acquired a 45.0 percent net interest in an onshore methanol production plant through an equity method investee. Results of operations for 2002 include the results of the interests acquired from CMS Energy from January 3, 2002.

        On June 20, 2002, Marathon acquired 100 percent of the outstanding stock of Globex Energy, Inc. ("Globex") for $155 million. Globex owned an additional 10.9 percent working interest in the Alba Production Sharing Contract and an additional net 9.0 percent interest in the onshore liquefied petroleum gas processing plant. Globex also held oil and gas interests offshore Australia, which were sold on October 28, 2003. Results of operations include the results of the interests acquired from Globex from June 20, 2002.

        The CMS and Globex allocations of purchase price are final. The goodwill arising from the allocations was $175 million, which was assigned to the E&P segment. Significant factors that resulted in the recognition of goodwill include: the ability to acquire an established business with an assembled workforce and a proven track record and a strategic acquisition in a core geographic area.

        Additionally, the purchase price allocated to equity method investments was $224 million higher than the underlying net assets of the investees. This excess will be amortized over the expected useful life of the underlying assets except for $81 million of goodwill relating to equity method investments.