Marathon Oil (MRO)

Natural Gas Technology

We are developing a range of natural gas conversion technologies that can connect stranded natural gas to both conventional and transportation fuel markets. Our proprietary Gas-to-Fuels (“GTF^™”) process offers the ability to convert natural gas into premium fuels while bypassing conventional intermediate synthetic gasification technology. The base patent for this technology was awarded in 2007.

During 2008, we entered into agreements with GRT, Inc., a Delaware corporation, to cooperate on the advancement of gas-to-fuels-related technology. This transaction provides us with access to additional specialized technical and research personnel and lab facilities, and significantly expanded the portfolio of patents available to us via license and through a cooperative development program. In addition, we have acquired a 20 percent interest in GRT, Inc.

Also, during 2008, we completed construction of a facility to demonstrate operation of the fully integrated GTF^™ process at a practical scale. We are evaluating the commercialization of this technology and have engaged an engineering contractor to provide engineering and design services for using the GTF^™ technology on a commercial scale.

In addition to GTF^™, we continue to evaluate the application of other natural gas technologies, including LNG technology enhancements, gas hydrates and gas-to-liquids technology.

The above discussion of the Integrated Gas segment contains forward-looking statements with respect to the possible expansion of the LNG production facility and expectations for a GTF^™ demonstration facility. Factors that could potentially affect the possible expansion of the LNG production facility include partner and government approvals, access to sufficient natural gas volumes through exploration or commercial negotiations with other resource owners and access to sufficient regasification capacity. Factors that could potentially affect the GTF^™ demonstration facility include construction delays, start-up difficulties relating to scale-up in the process and unforeseen difficulties in our testing program related to moving from laboratory to practical scale. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

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Table of Contents

Index to Financial Statements

Natural Gas Technology

We are developing a range of natural gas conversion technologies that can connect stranded natural gas to both conventional and transportation fuel markets. Our proprietary Gas-to-Fuels (“GTF^™”) process offers the ability to convert natural gas into premium fuels while bypassing conventional intermediate synthetic gasification technology. The base patent for this technology was awarded in 2007.

During 2008, we entered into agreements with GRT, Inc., a Delaware corporation, to cooperate on the advancement of gas-to-fuels-related technology. This transaction provides us with access to additional specialized technical and research personnel and lab facilities, and significantly expanded the portfolio of patents available to us via license and through a cooperative development program. In addition, we have acquired a 20 percent interest in GRT, Inc.

Also, during 2008, we completed construction of a facility to demonstrate operation of the fully integrated GTF^™ process at a practical scale. We are evaluating the commercialization of this technology and have engaged an engineering contractor to provide engineering and design services for using the GTF^™ technology on a commercial scale.

In addition to GTF^™, we continue to evaluate the application of other natural gas technologies, including LNG technology enhancements, gas hydrates and gas-to-liquids technology.

The above discussion of the Integrated Gas segment contains forward-looking statements with respect to the possible expansion of the LNG production facility and expectations for a GTF^™ demonstration facility. Factors that could potentially affect the possible expansion of the LNG production facility include partner and government approvals, access to sufficient natural gas volumes through exploration or commercial negotiations with other resource owners and access to sufficient regasification capacity. Factors that could potentially affect the GTF^™ demonstration facility include construction delays, start-up difficulties relating to scale-up in the process and unforeseen difficulties in our testing program related to moving from laboratory to practical scale. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

18

Table of Contents

Index to Financial Statements

Natural Gas Technology

Natural Gas Technology

We invest in natural gas technology research, including proprietary Gas-To-Fuels™ (“GTF”) technology which offers the ability to convert natural gas into premium fuels while bypassing conventional intermediate synthetic gasification technology. The base patent for this technology was awarded in 2007. We have designed and are constructing a 10-bpd demonstration facility for this technology, with initial startup scheduled for the second half of 2008. Expectations for the demonstration plant include the ability to demonstrate operations of the fully integrated process at a practical scale and to measure the conversion efficiencies of the total process, catalyst performance and materials durability. This critical performance data will support scale-up cost estimates for a commercial installation and provide the basis for continued technical developments in this area. In addition to GTF, we continue to evaluate the application of other natural gas technologies, including LNG technology enhancements, gas hydrates and gas-to-liquids (“GTL”) technology.

The above discussion of the Integrated Gas segment contains forward-looking statements with respect to the possible expansion of the LNG production facility and expectations for a GTF demonstration facility. Factors that could potentially affect the possible expansion of the LNG production facility include partner and government approvals, access to sufficient natural gas volumes through exploration or commercial negotiations with other resource owners and access to sufficient regasification capacity. Factors that could potentially affect the GTF demonstration facility include construction delays, start-up difficulties relating to scale-up in the process and unforeseen difficulties in our testing program related to moving from laboratory to practical scale. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

Natural Gas Technology

FACE="Times New Roman" SIZE="2">We invest in natural gas technology research, including proprietary Gas-To-Fuels™ (“GTF”) technology which offers the ability to convert natural gas into premium fuels while bypassing conventional
intermediate synthetic gasification technology. The base patent for this technology was awarded in 2007. We have designed and are constructing a 10-bpd demonstration facility for this technology, with initial startup scheduled for the second half of
2008. Expectations for the demonstration plant include the ability to demonstrate operations of the fully integrated process at a practical scale and to measure the conversion efficiencies of the total process, catalyst performance and materials
durability. This critical performance data will support scale-up cost estimates for a commercial installation and provide the basis for continued technical developments in this area. In addition to GTF, we continue to evaluate the application of
other natural gas technologies, including LNG technology enhancements, gas hydrates and gas-to-liquids (“GTL”) technology.

The
above discussion of the Integrated Gas segment contains forward-looking statements with respect to the possible expansion of the LNG production facility and expectations for a GTF demonstration facility. Factors that could potentially affect the
possible expansion of the LNG production facility include partner and government approvals, access to sufficient natural gas volumes through exploration or commercial negotiations with other resource owners and access to sufficient regasification
capacity. Factors that could potentially affect the GTF demonstration facility include construction delays, start-up difficulties relating to scale-up in the process and unforeseen difficulties in our testing program related to moving from
laboratory to practical scale. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

SIZE="2">Competition and Market Conditions

Strong competition exists in all sectors of the oil and gas industry and, in particular,
in the exploration for and development of new reserves. We compete with major integrated and independent oil and gas companies, as well as national oil companies, for the acquisition of oil and natural gas leases and other properties. We compete
with these companies for the equipment and labor required to develop and operate those properties and in the marketing of oil and natural gas to end-users. Many of our competitors have financial and other resources greater than those available to
us. Acquiring the more attractive exploration opportunities frequently requires competitive bids involving front-end bonus payments or commitments-to-work programs. We also compete in attracting and retaining personnel, including geologists,
geophysicists and other specialists. Based on industry sources, we rank eighth among U.S.-based petroleum companies on the basis of 2006 worldwide liquid hydrocarbon and natural gas production.