Marathon Oil (MRO)

Net Realizable Value of Receivables from United States Steel

        As described further in "Management's Discussion and Analysis of Financial Condition, Cash Flows and Liquidity – Obligations Associated with the Separation of United States Steel" on page 42, we remain obligated (primarily or contingently) for certain debt and other financial arrangements for which United States Steel has assumed responsibility for repayment under the terms of the Separation. As of December 31, 2004, we have reported receivables from United States Steel of $602 million, representing the amount of principal and accrued interest on Marathon debt for which United States Steel has assumed responsibility for repayment. We must assess the realizability of these receivables, based on our expectations of United States Steel's ability to satisfy its obligations. To make this assessment, we must rely on public information about United States Steel. As of December 31, 2004, we have judged the entire receivable to be realizable.

        We may continue to be exposed to the risk of nonpayment by United States Steel on a significant portion of this receivable until December 31, 2011. Of the $602 million, $472 million, or 78 percent, relates to industrial revenue bonds that are due in 2011 or later. The Financial Matters Agreement between Marathon and United States Steel provides that, on or before the tenth anniversary of the Separation, which is December 31, 2011, United States Steel will provide for our discharge from any remaining liability under any of the assumed industrial revenue bonds.

        As of December 31, 2004, our cash-adjusted debt-to-capital ratio (which includes debt for which United States Steel has assumed responsibility for repayment and suspended cash distributions to Ashland) was 8 percent. The assessment of our liquidity and capital resources may be impacted by expectations concerning United States Steel's ability to satisfy its obligations.

        If the debt for which United States Steel has assumed responsibility for repayment were excluded from the computation, our cash-adjusted debt-to-capital ratio as of December 31, 2004 would have been approximately 1 percent. On the other hand, if the receivable from United States Steel had been written off as unrealizable, the cash-adjusted debt-to-capital ratio as of December 31, 2004 would have been approximately 8 percent. (If United States Steel were unable to satisfy its obligations, other adjustments in addition to the write-off of the receivable may be necessary.)