Marathon Oil (MRO)

Capital, Investment and Exploration Budget

Our Board of Directors approved a capital, investment and exploration budget of $5,738 million for 2009, which includes budgeted capital expenditures of $5,547 million. This represents a 24 percent decrease from 2008 spending. The focus of our 2009 budget is to maintain solid production performance, enhance our downstream business and provide necessary investments in mid- and long-term growth projects.

The budget includes worldwide exploration and production spending of $2,468 million. A significant amount of this budget, 45 percent, is targeted on projects that will sustain and grow production in the short-term, including domestic assets such as those in the Bakken Shale and Piceance Basin and international development projects like Volund in Norway. Mid-term production growth projects such as Droshky and Ozona in the Gulf of Mexico and emerging resource plays in the Marcellus and Woodford Shales account for 34 percent of the 2009 budget. Long-term projects will require about 20 percent of budgeted funds in 2009. The PSVM development on Angola Block 31, the Gudrun development in Norway, as well as exploration in the Gulf of Mexico, Angola, Norway and Indonesia are our significant long-term projects.

The budget includes $887 million for the Oil Sands Mining segment in 2009, primarily for the continuation of Expansion 1. This is slightly lower than 2008 spending due in part to the stronger U.S. dollar and to the expected deferral of some nonessential projects.

The budget includes $1,944 million for RM&T projects, with about 52 percent budgeted for the Garyville refinery expansion and 17 percent for the Detroit refinery heavy oil upgrading and expansion project. The remainder of the budget is allocated to maintaining facilities and meeting regulatory requirements, notably the Mobile Source Air Toxics (“MSAT”) regulations that will be effective at the beginning of 2011.

The remaining $439 million relates to capitalized interest and corporate activities.

The forward-looking statements about our capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially include prices of and demand for crude oil, natural gas and refined products, actions of competitors, disruptions or interruptions of our production or refining operations due to the shortage of skilled labor and unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other operating and economic considerations.

Capital, Investment and Exploration Budget

Our Board of Directors approved a capital, investment and exploration budget of $5,738 million for 2009, which includes budgeted capital expenditures of $5,547 million. This represents a 24 percent decrease from 2008 spending. The focus of our 2009 budget is to maintain solid production performance, enhance our downstream business and provide necessary investments in mid- and long-term growth projects.

The budget includes worldwide exploration and production spending of $2,468 million. A significant amount of this budget, 45 percent, is targeted on projects that will sustain and grow production in the short-term, including domestic assets such as those in the Bakken Shale and Piceance Basin and international development projects like Volund in Norway. Mid-term production growth projects such as Droshky and Ozona in the Gulf of Mexico and emerging resource plays in the Marcellus and Woodford Shales account for 34 percent of the 2009 budget. Long-term projects will require about 20 percent of budgeted funds in 2009. The PSVM development on Angola Block 31, the Gudrun development in Norway, as well as exploration in the Gulf of Mexico, Angola, Norway and Indonesia are our significant long-term projects.

The budget includes $887 million for the Oil Sands Mining segment in 2009, primarily for the continuation of Expansion 1. This is slightly lower than 2008 spending due in part to the stronger U.S. dollar and to the expected deferral of some nonessential projects.

The budget includes $1,944 million for RM&T projects, with about 52 percent budgeted for the Garyville refinery expansion and 17 percent for the Detroit refinery heavy oil upgrading and expansion project. The remainder of the budget is allocated to maintaining facilities and meeting regulatory requirements, notably the Mobile Source Air Toxics (“MSAT”) regulations that will be effective at the beginning of 2011.

The remaining $439 million relates to capitalized interest and corporate activities.

The forward-looking statements about our capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially include prices of and demand for crude oil, natural gas and refined products, actions of competitors, disruptions or interruptions of our production or refining operations due to the shortage of skilled labor and unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other operating and economic considerations.

Capital, Investment and Exploration Budget

Our Board of Directors approved a capital, investment and exploration budget of $7.993 billion for 2008, which includes budgeted capital expenditures of $7.651 billion. This represents a 67 percent increase over 2007 spending. The focus of the 2008 budget is to grow our refining capacity through the Garyville refinery expansion, further develop our long-life Canadian oil sands assets, capitalize on the ownership of those oil sands assets by upgrading and expanding our Detroit refinery, fund our ongoing exploration activities and develop existing fields, including new developments in Angola and the Gulf of Mexico. The budget includes worldwide production spending of $2.144 billion, primarily in the United States for expansion of the Bakken shale and Piceance Basin resource plays and development of the Droshky prospect in the Gulf of Mexico, but also in Norway and Angola. The worldwide exploration budget of $1.045 billion includes plans to drill six to ten exploration or appraisal wells. It also includes $150 million related to our high bids on leases from the October 2007 Gulf of Mexico lease sale which were awarded in early 2008. Other exploration plans include activity within or adjacent to our onshore producing properties in the United States, appraisal drilling and pre-FEED costs in Angola, and evaluation drilling and feasibility studies of the in-situ recovery projects in Canada. The budget includes $910 million for the Oil Sands Mining segment, primarily for the Phase 1 expansion of the AOSP which includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine, expansion of the Scotford upgrader and development of associated infrastructure. The budget includes $3.528 billion for RM&T, primarily for the Garyville refinery expansion and the Detroit refinery heavy oil upgrading and expansion project. The RM&T budget also includes increased investments in transportation, logistics and marketing assets. The Integrated Gas segment budget of $20 million is substantially lower than 2007 because construction on the LNG production facility in Equatorial Guinea was completed and the facility began operations in 2007. The remaining $346 million is designated for capitalized interest and corporate activities.

This capital, investment and exploration budget represents a significant increase over our 2007 spending. Consistent with our philosophy of maintaining financial discipline and flexibility, we have commenced a review of our portfolio of assets with the intent of monetizing those assets which are either mature or otherwise non-strategic, thus allowing us to re-deploy our capital into the projects included in our capital, investment and exploration budget. We are in the early stage of this review process, so we expect that the majority of proceeds from any such asset sales would be received in the second half of 2008.

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Table of Contents

Index to Financial Statements

The forward-looking statements about our capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance. Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Some factors that could cause actual results to differ materially include prices of and demand for crude oil, natural gas and refined products, actions of competitors, disruptions or interruptions of our production or refining operations due to the shortage of skilled labor and unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other operating and economic considerations. The discussion above also contains forward-looking statements regarding a review of our portfolio of assets. Factors that could affect the review of our portfolio of assets include the identification of buyers and the negotiation of acceptable prices and other terms, as well as other customary closing conditions.

Capital, Investment and Exploration Budget

Capital, Investment and Exploration Budget

We have increased our capital, investment and exploration budget for 2007, excluding major acquisitions, from our original estimate of $4.242 billion to $5.198 billion, which includes budgeted capital expenditures of $4.861 billion. Total E&P spending is projected to be $2.979 billion, an increase of $748 million.  This increase is primarily related to an increase in the cost of the Alvheim/Vilje development, the net investment associated with the Gulf of Mexico lease sale discussed above and general inflationary pressures.  RM&T spending is expected to increase by $193 million to $1.657 billion, largely due to acceleration of certain aspects of the Garyville refinery expansion, while the projected total cost for the Garyville expansion remains unchanged at $3.2 billion (excluding capitalized interest). Integrated gas spending is expected to be $240 million less than the original estimate of $331 million, reflecting EGHoldings being accounted for under the equity method upon start of production.  Also contributing to the overall budget increase is the estimated capital spending of $194 million for oil sands mining activities as a result of the Western acquisition discussed above.  Capitalized interest and corporate spending is expected to be $61 million higher than originally anticipated as a result of the delay of the Alvheim/Vilje project.

The forward-looking statements about our capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance.  Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict.  Some factors that could cause actual results to

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Capital, Investment and Exploration Budget

        We approved a capital, investment and exploration budget of $4.242 billion for 2007, which includes budgeted capital expenditures of $3.886 billion. This represents a 16 percent increase over 2006 actual spending. The primary focus of the 2007 budget is to find additional oil and natural gas reserves, develop existing fields, strengthen RM&T assets and continue implementation of the integrated gas strategy. The budget includes worldwide production spending of $1.429 billion primarily in the United States, Norway, Libya and Ireland. The worldwide exploration budget of $802 million includes plans to drill 14 to 17 significant exploration or appraisal wells. Other activities will focus primarily on areas within or adjacent to our onshore producing properties in the United States. The budget includes $1.464 billion for RM&T, primarily for refining projects including the 180 mbpd Garyville refinery expansion project and the FEED for a potential Detroit refinery heavy oil upgrading project which would allow us to process increased volumes of Canadian oil sands production. The RM&T budget also includes increased investments in transportation and logistics, a strategically important area of the business, including the expansion of our ethanol blending capabilities at terminals in the Midwest and Southeast. The integrated gas budget of $331 million is primarily for completion of the LNG processing facility in Equatorial Guinea, as well as FEED expenditures associated with a potential expansion of that facility. The remaining $216 million is designated for capitalized interest and corporate activities.

Capital, Investment and Exploration Budget

We have increased our capital, investment and exploration budget for 2007, excluding major acquisitions, from $4.242 billion to $4.683 billion, which includes budgeted capital expenditures of $4.295 billion. Total E&P spending is now projected to be $2.614 billion, an increase of $383 million.  This increase is approximately evenly divided between an increase in the cost of the Alvheim/Vilje development and general inflationary pressures.  RM&T spending is expected to increase by $202 million to $1.666 billion, largely due to acceleration of certain aspects of the Garyville refinery expansion, while the projected total cost for the Garyville expansion remains unchanged at $3.2 billion. Integrated gas spending is now expected to be $209 million less than the original estimate of $331 million, reflecting EGHoldings being accounted for under the equity method upon start of production.   Capitalized interest and corporate spending is expected to be $65 million higher than originally anticipated as a result of the delay of the Alvheim/Vilje project.

The forward-looking statements about our capital, investment and exploration budget are based on current expectations, estimates and projections and are not guarantees of future performance.  Actual results may differ materially from these expectations, estimates and projections and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict.  Some factors that could cause actual results to differ materially include prices of and demand for crude oil, natural gas and refined products, actions of competitors, disruptions or interruptions of our production or refining operations due to the shortage of skilled labor and unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other operating and economic considerations.

Capital, Investment and Exploration Budget

        We approved a capital, investment and exploration budget of $4.242 billion for 2007, which includes budgeted capital expenditures of $3.886 billion. This represents a 16 percent increase over 2006 actual spending. The primary focus of the 2007 budget is to find additional oil and natural gas reserves, develop existing fields, strengthen RM&T assets and continue implementation of the integrated gas strategy. The budget includes worldwide production spending of $1.429 billion primarily in the United States, Norway, Libya and Ireland. The worldwide exploration budget of $802 million includes plans to drill 14 to 17 significant exploration or appraisal wells. Other activities will focus primarily on areas within or adjacent to our onshore producing properties in the United States. The budget includes $1.464 billion for RM&T, primarily for refining projects including the 180 mbpd Garyville refinery expansion project and the FEED for a potential Detroit refinery heavy oil upgrading project which would allow us to process increased volumes of Canadian oil sands production. The RM&T budget also includes increased investments in transportation and logistics, a strategically important area of the business, including the expansion of our ethanol blending capabilities at terminals in the Midwest and Southeast. The integrated gas budget of $331 million is primarily for completion of the LNG processing facility in Equatorial Guinea, as well as FEED expenditures associated with a potential expansion of that facility. The remaining $216 million is designated for capitalized interest and corporate activities.

Capital, Investment and Exploration Budget

        We approved a capital, investment and exploration budget of $2.98 billion for 2005. The primary focus of the 2005 budget is to find additional oil and gas reserves, develop existing fields, strengthen RM&T assets and continue implementation of the integrated gas strategy. The budget includes worldwide production capital spending of $1.219 billion primarily in U.S, Norway, Russia, Equatorial Guinea, Ireland, and the U.K. The worldwide exploration budget of $364 million includes plans to drill 15 significant exploration wells in the Gulf of Mexico, Angola, Norway and other areas. Other activities will focus on projects primarily in the United States. The budget includes $804 million for RM&T projects, primarily for refinery expansion and upgrading projects, as well as investments necessary to meet required low sulfur (Tier II) gasoline and ultra-low sulfur diesel fuel specifications. The integrated gas budget of $481 million is primarily for the ongoing construction of the LNG plant in Equatorial Guinea. The remaining $111 million balance is designated for corporate activities and capitalized interest.