Marathon Oil (MRO)

Management Opinion Concerning Derivative Instruments

Management has authorized the use of futures, forwards, swaps and options to manage exposure to market fluctuations in commodity prices, interest rates, and foreign currency exchange rates.

We use commodity-based derivatives to manage price risk related to the purchase, production or sale of crude oil, natural gas, and refined products.  To a lesser extent, we are exposed to the risk of price fluctuations on natural gas liquids and on petroleum feedstocks used as raw materials.

Our strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. We use a variety of derivative instruments, including option combinations, as part of the overall risk management program to manage commodity price risk in our different businesses.  As market conditions change, we evaluate our risk management program and could enter into strategies that assume market risk whereby cash settlement of commodity-based derivatives will be based on market prices.

Our E&P segment primarily uses commodity derivative instruments selectively to protect against price decreases on portions of our future production when deemed advantageous to do so.  We also use derivatives to protect the value of natural gas purchased and injected into storage in support of production operations.  We use financial derivative instruments to manage foreign currency exchange rate exposure on foreign currency denominated capital expenditures, operating expenses and foreign tax payments.

Our RM&T segment uses commodity derivative instruments to:

•      mitigate the price risk between the time foreign and domestic crude oil and other feedstock purchases for refinery supply are priced and when they are actually refined into salable petroleum products,

•      manage the price risk associated with anticipated natural gas purchases for refinery use,

•      protect the value of excess refined product, crude oil and LPG inventories,

•      lock in margins associated with future fixed price sales of refined products to non-retail customers,

•      protect against decreases in future crack spreads,

•      mitigate price risk associated with freight on crude, feedstocks, and refined product deliveries, and

•      take advantage of trading opportunities identified in the commodity markets.

Our IG segment is exposed to market risk associated with the purchase and subsequent resale of natural gas.  We use commodity derivative instruments to mitigate the price risk on purchased volumes and anticipated sales volumes.

We use financial derivative instruments to manage interest rate and foreign currency exchange rate exposures.  As we enter into these derivatives, assessments are made as to the qualification of each transaction for hedge accounting.

We believe that use of derivative instruments along with risk assessment procedures and internal controls does not expose us to material risk. However, the use of derivative instruments could materially affect our results of operations in particular quarterly or annual periods. We believe that use of these instruments will not have a material adverse effect on financial position or liquidity.

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Management Opinion Concerning Derivative Instruments

Management has authorized the use of futures, forwards, swaps and options to manage exposure to market fluctuations in commodity prices, interest rates, and foreign currency exchange rates.

We use commodity-based derivatives to manage price risk related to the purchase, production or sale of crude oil, natural gas, and refined products.  To a lesser extent, we are exposed to the risk of price fluctuations on natural gas liquids and on petroleum feedstocks used as raw materials.

Our strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. We use a variety of derivative instruments, including option combinations, as part of the overall risk management program to manage commodity price risk in our different businesses.  As market conditions change, we evaluate our risk management program and could enter into strategies that assume market risk whereby cash settlement of commodity-based derivatives will be based on market prices.

Our E&P segment primarily uses commodity derivative instruments selectively to protect against price decreases on portions of our future production when deemed advantageous to do so.  We also use financial derivative instruments to manage foreign currency exchange rate exposure on foreign currency denominated capital investment expenditures, operating expenses and foreign tax payments.

Our RM&T segment uses commodity derivative instruments to:

•        mitigate the price risk between the time foreign and domestic crude oil and other feedstock purchases for refinery supply are priced and when they are actually refined into salable petroleum products,

•        manage the price risk associated with anticipated natural gas purchases for refinery use,

•        protect the value of excess refined product, crude oil and LPG inventories,

•        lock in margins associated with future fixed price sales of refined products to non-retail customers,

•        protect against decreases in future crack spreads,

•        mitigate price risk associated with freight on crude, feedstocks, and refined product deliveries, and

•        take advantage of trading opportunities identified in the commodity markets.

Our IG segment is exposed to market risk associated with the purchase and subsequent resale of natural gas.  We use commodity derivative instruments to mitigate the price risk on purchased volumes and anticipated sales volumes.

We use financial derivative instruments to manage interest rate and foreign currency exchange rate exposures.  As we enter into these derivatives, assessments are made as to the qualification of each transaction for hedge accounting.

We believe that use of derivative instruments along with risk assessment procedures and internal controls does not expose us to material risk. However, the use of derivative instruments could materially affect our results of operations in particular quarterly or annual periods. We believe that use of these instruments will not have a material adverse effect on financial position or liquidity.

27

Management Opinion Concerning Derivative Instruments

Management has authorized the use of futures, forwards, swaps and options to manage exposure to market fluctuations in commodity prices, interest rates, and foreign currency exchange rates.

We use commodity-based derivatives to manage price risk related to the purchase, production or sale of crude oil, natural gas, and refined products.  To a lesser extent, we are exposed to the risk of price fluctuations on natural gas liquids and on petroleum feedstocks used as raw materials.

Our strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. We will use a variety of derivative instruments, including option combinations, as part of the overall risk management program to manage commodity price risk in our different businesses.  As market conditions change, we evaluate our risk management program and could enter into strategies that assume market risk whereby cash settlement of commodity-based derivatives will be based on market prices.

Our E&P segment primarily uses commodity derivative instruments selectively to protect against price decreases on portions of our future production when deemed advantageous to do so.  We also use financial derivative instruments to manage foreign currency exchange rate exposure on foreign currency denominated capital investment expenditures, operating expenses and foreign tax payments.

Our RM&T segment uses commodity derivative instruments:

•             to mitigate the price risk between the time foreign and domestic crude oil and other feedstock purchases for refinery supply are priced and when they are actually refined into salable petroleum products,

•             to manage the price risk associated with anticipated natural gas purchases for refinery use,

•             to protect the value of excess refined product, crude oil and LPG inventories,

•             to lock in margins associated with future fixed price sales of refined products to non-retail customers,

•             to protect against decreases in future crack spreads,

•             to mitigate price risk associated with freight on crude, feedstocks, and refined product deliveries, and

•             to take advantage of trading opportunities identified in the commodity markets.

Our IG segment is exposed to market risk associated with the purchase and subsequent resale of natural gas.  We use commodity derivative instruments to mitigate the price risk on purchased volumes and anticipated sales volumes.

We use financial derivative instruments to manage interest rate and foreign currency exchange rate exposures.  As we enter into these derivatives, assessments are made as to the qualification of each transaction for hedge accounting.

We believe that use of derivative instruments along with risk assessment procedures and internal controls does not expose us to material risk. However, the use of derivative instruments could materially affect our results of operations in particular quarterly or annual periods. We believe that use of these instruments will not have a material adverse effect on financial position or liquidity.

20

Management Opinion Concerning Derivative Instruments

        Management has authorized the use of futures, forwards, swaps and options to manage exposure to market fluctuations in commodity prices, interest rates, and foreign currency exchange rates.

        We use commodity-based derivatives to manage price risk related to the purchase, production or sale of crude oil, natural gas, and refined products. To a lesser extent, we are exposed to the risk of price fluctuations on natural gas liquids and on petroleum feedstocks used as raw materials.

        Our strategy has generally been to obtain competitive prices for our products and allow operating results to reflect market price movements dictated by supply and demand. We will use a variety of derivative instruments, including option combinations, as part of the overall risk management program to manage commodity price risk in our different businesses. As market conditions change, we evaluate our risk management program and could enter into strategies that assume market risk whereby cash settlement of commodity-based derivatives will be based on market prices.

        Our E&P segment primarily uses commodity derivative instruments selectively to protect against price decreases on portions of our future production when deemed advantageous to do so. We also use financial derivative instruments to manage foreign currency exchange rate exposure on foreign currency denominated capital investment expenditures, operating expenses and foreign tax payments.

        Our RM&T segment uses commodity derivative instruments:

•

to mitigate the price risk between the time foreign and domestic crude oil and other feedstock purchases for refinery supply are priced and when they are actually refined into salable petroleum products,



•

to manage the price risk associated with anticipated natural gas purchases for refinery use,



•

to protect the value of excess refined product, crude oil and LPG inventories,



•

to lock in margins associated with future fixed price sales of refined products to non-retail customers,



•

to protect against decreases in future crack spreads,



•

to mitigate price risk associated with freight on crude, feedstocks, and refined product deliveries, and



•

to take advantage of trading opportunities identified in the commodity markets.

        Our IG segment is exposed to market risk associated with the purchase and subsequent resale of natural gas. We use commodity derivative instruments to mitigate the price risk on purchased volumes and anticipated sales volumes.

        We use financial derivative instruments to manage interest rate and foreign currency exchange rate exposures. As we enter into these derivatives, assessments are made as to the qualification of each transaction for hedge accounting.

        We believe that use of derivative instruments along with risk assessment procedures and internal controls does not expose us to material risk. However, the use of derivative instruments could materially affect our results of operations in particular quarterly or annual periods. We believe that use of these instruments will not have a material adverse effect on financial position or liquidity.

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