Marathon Oil (MRO)

Net cash used in investing activities totaled $8.102 billion in 2007, compared with $2.955 billion in 2006 and $3.127 billion in 2005. Significant investing activities include capital expenditures, acquisitions of businesses and asset disposals.

Capital expenditures by segment for continuing operations for each of the last three years are summarized in the following table.

The majority of the $1.033 billion increase in capital expenditures in 2007 over 2006 was in our RM&T segment and primarily related to the expansion of our Garyville, Louisiana refinery. Spending on E&P projects increased $342 million over 2006, primarily as a result of continued work on the Alvheim/Vilje development offshore Norway and exploration activities in Angola and the Gulf of Mexico. The decrease in integrated gas spending from 2006 reflects the completion of the LNG production facility in Equatorial Guinea in May 2007. The $637 million increase in capital expenditures in 2006 over 2005 primarily resulted from increased spending in the E&P segment and primarily related to significant acreage acquisitions in the Williston Basin of North Dakota and eastern Montana (the Bakken Shale formation) and the Piceance Basin of Colorado, as well as to the Alvheim/Vilje development and to the Neptune development in the Gulf of Mexico. The $264 million decrease in integrated gas spending from 2005 reflected the fact that the LNG production facility in Equatorial Guinea was nearing completion in 2006.

Acquisitions in 2007 consist primarily of the $3.907 billion cash portion of the Western acquisition purchase price, net of the $44 million of Western’s cash acquired. In 2006, acquisitions primarily included cash payments of $718 million associated with our re-entry into Libya and in 2005 included cash payments of $506 million for the acquisition of Ashland’s 38 percent ownership interest in MPC. See Note 6 to the consolidated financial statements.

Disposal of assets and of discontinued operations totaled $137 million, $966 million and $131 million in 2007, 2006 and 2005. Proceeds of $832 million from the disposal of discontinued operations in 2006 related to the sale of our Russian exploration and production businesses in June 2006. See Note 7 to the consolidated financial statements. Disposal of assets included proceeds from the sale of our interests in two LNG tankers in Alaska in 2007 and proceeds from the sale of 90 percent of our interest in Syrian natural gas fields in 2006. Disposals for all years included proceeds from the sale of various domestic producing properties and SSA stores.

Net cash provided from financing activities totaled $184 million in 2007, compared with cash used in financing activities of $2.581 billion in 2006 and $2.345 billion in 2005. Sources of cash in 2007 included the issuance of $1.5 billion in senior notes and borrowings of $578 million from the Norwegian export credit agency. Significant uses of cash in financing activities during both 2007 and 2006 were common stock repurchases under our share repurchase plan discussed below, dividend payments and debt repayments including the early extinguishment of portions of our outstanding debt. The most significant use of cash in 2005 was related to the repayment of $1.920 billion of debt assumed as a part of the acquisition of Ashland’s 38 percent interest in MPC.

Significant noncash transactions during 2007 included the issuance of $1.0 billion of 5.125 percent Fixed Rate Revenue Bonds (Marathon Oil Corporation Project) Series 2007A, with a maturity date of June 1, 2037. The proceeds from the bonds are held in trust to be disbursed to us upon our request for reimbursement of expenditures related to our Garyville, Louisiana refinery expansion. Through December 31, 2007, such reimbursements have totaled $280 million. The $1.0 billion obligation is reflected as long-term debt and the remaining $744 million of trusteed funds, including interest income earned to date, is reflected as other noncurrent assets in the consolidated balance sheet as of December 31, 2007.

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Table of Contents

Index to Financial Statements

Net cash used in investing activities totaled $8.102 billion in 2007, compared with $2.955 billion
in 2006 and $3.127 billion in 2005. Significant investing activities include capital expenditures, acquisitions of businesses and asset disposals.

FACE="Times New Roman" SIZE="2">Capital expenditures by segment for continuing operations for each of the last three years are summarized in the following table.