Marathon Oil (MRO)

Oil Sands Mining

Through our acquisition of Western, we hold a 20 percent outside-operated interest in the AOSP, an oil sands mining joint venture located in Alberta, Canada. The joint venture produces bitumen from oil sands deposits in the Athabasca region and upgrades the bitumen to synthetic crude oil. The AOSP’s asset is the mining and extraction operations of the Muskeg River mine located near Fort McMurray, Alberta, which began bitumen production in 2003, together with Scotford upgrading infrastructure located northeast of Edmonton, Alberta. The underlying developed leases are held for the duration of the project, with royalties paid to the province of Alberta. As of December 31, 2008, we have rights to participate in developed and undeveloped leases totaling approximately 215,000 gross (45,000 net) acres. Prior to December 6, 2009, we are entitled to participate in any new land acquisitions by either of the other AOSP owners within a defined area of mutual interest.

Current AOSP operations use established processes to mine oil sands deposits from an open-pit mine, extract the bitumen and upgrade it into synthetic crude oils. Bitumen production from the mine is taken by pipeline to the Scotford upgrader.

Ore is mined using traditional truck and shovel mining techniques. The mined ore passes through primary crushers to reduce the ore chunks in size and is then sent to rotary breakers where the chunks are further reduced to smaller particles. The particles are combined with hot water to create slurry. The slurry moves through a pipeline where it separates into sand, clay and bitumen. Air is introduced to the slurry mixture, which creates a bitumen-rich froth. A solvent is added to the bitumen froth to separate out the remaining solids, water and heavy asphaltenes. The solvent washes the sand and produces clean bitumen that is required for the upgrader to run efficiently. The process yields a mixture of solvent and bitumen, referred to as “dilbit”, which is then transported from the mine to the Scotford upgrader via the approximately 300 mile Corridor Pipeline. The bitumen is upgraded at Scotford using both hydro-treating and a hydro-conversion process to remove sulfur and break the heavy carbon molecules into lighter products. The three major products that the Scotford upgrader produces are Premium Albian synthetic crude oil, Albian Heavy synthetic crude oil and vacuum gas oil. The vacuum gas oil is sold to the operator under a long term contract at market-related prices, and the other products are sold in the marketplace.

The following table sets forth key operating statistics for the last two years.

Oil Sands Mining

Through our acquisition of Western, we hold a 20 percent outside-operated interest in the AOSP, an oil sands mining joint venture located in Alberta, Canada. The joint venture produces bitumen from oil sands deposits in the Athabasca region and upgrades the bitumen to synthetic crude oil. The AOSP’s asset is the mining and extraction operations of the Muskeg River mine located near Fort McMurray, Alberta, which began bitumen production in 2003, together with Scotford upgrading infrastructure located northeast of Edmonton, Alberta. The underlying developed leases are held for the duration of the project, with royalties paid to the province of Alberta. As of December 31, 2008, we have rights to participate in developed and undeveloped leases totaling approximately 215,000 gross (45,000 net) acres. Prior to December 6, 2009, we are entitled to participate in any new land acquisitions by either of the other AOSP owners within a defined area of mutual interest.

Current AOSP operations use established processes to mine oil sands deposits from an open-pit mine, extract the bitumen and upgrade it into synthetic crude oils. Bitumen production from the mine is taken by pipeline to the Scotford upgrader.

Ore is mined using traditional truck and shovel mining techniques. The mined ore passes through primary crushers to reduce the ore chunks in size and is then sent to rotary breakers where the chunks are further reduced to smaller particles. The particles are combined with hot water to create slurry. The slurry moves through a pipeline where it separates into sand, clay and bitumen. Air is introduced to the slurry mixture, which creates a bitumen-rich froth. A solvent is added to the bitumen froth to separate out the remaining solids, water and heavy asphaltenes. The solvent washes the sand and produces clean bitumen that is required for the upgrader to run efficiently. The process yields a mixture of solvent and bitumen, referred to as “dilbit”, which is then transported from the mine to the Scotford upgrader via the approximately 300 mile Corridor Pipeline. The bitumen is upgraded at Scotford using both hydro-treating and a hydro-conversion process to remove sulfur and break the heavy carbon molecules into lighter products. The three major products that the Scotford upgrader produces are Premium Albian synthetic crude oil, Albian Heavy synthetic crude oil and vacuum gas oil. The vacuum gas oil is sold to the operator under a long term contract at market-related prices, and the other products are sold in the marketplace.

The following table sets forth key operating statistics for the last two years.

Oil Sands Mining

FACE="Times New Roman" SIZE="2">Through our acquisition of Western, we hold a 20 percent outside-operated interest in the AOSP, an oil sands mining joint venture located in Alberta, Canada. The joint venture produces bitumen from oil sands deposits
in the Athabasca region and upgrades the bitumen to synthetic crude oil. The AOSP’s asset is the mining and extraction operations of the Muskeg River mine located near Fort McMurray, Alberta, which began bitumen production in 2003, together
with Scotford upgrading infrastructure located northeast of Edmonton, Alberta. The underlying developed leases are held for the duration of the project, with royalties paid to the province of Alberta. As of December 31, 2008, we have rights to
participate in developed and undeveloped leases totaling approximately 215,000 gross (45,000 net) acres. Prior to December 6, 2009, we are entitled to participate in any new land acquisitions by either of the other AOSP owners within a defined
area of mutual interest.

Current AOSP operations use established processes to mine oil sands deposits from an open-pit mine, extract the
bitumen and upgrade it into synthetic crude oils. Bitumen production from the mine is taken by pipeline to the Scotford upgrader.

Ore is
mined using traditional truck and shovel mining techniques. The mined ore passes through primary crushers to reduce the ore chunks in size and is then sent to rotary breakers where the chunks are further reduced to smaller particles. The particles
are combined with hot water to create slurry. The slurry moves through a pipeline where it separates into sand, clay and bitumen. Air is introduced to the slurry mixture, which creates a bitumen-rich froth. A solvent is added to the bitumen froth to
separate out the remaining solids, water and heavy asphaltenes. The solvent washes the sand and produces clean bitumen that is required for the upgrader to run efficiently. The process yields a mixture of solvent and bitumen, referred to as
“dilbit”, which is then transported from the mine to the Scotford upgrader via the approximately 300 mile Corridor Pipeline. The bitumen is upgraded at Scotford using both hydro-treating and a hydro-conversion process to remove sulfur and
break the heavy carbon molecules into lighter products. The three major products that the Scotford upgrader produces are Premium Albian synthetic crude oil, Albian Heavy synthetic crude oil and vacuum gas oil. The vacuum gas oil is sold to the
operator under a long term contract at market-related prices, and the other products are sold in the marketplace.

The following table sets
forth key operating statistics for the last two years.

Oil Sands Mining

Oil Sands Mining segment revenues correlate with prevailing market prices for the various qualities of synthetic crude oil and vacuum gas oil we produce. Roughly two-thirds of the normal output mix will track movements in WTI and one-third will track movements in the Canadian heavy sour crude oil marker, primarily Western Canadian Select. Output mix can be impacted by operational problems or planned unit outages at the mine or upgrader. During 2008, our average realized price for synthetic crude oil and vacuum gas oil was $91.90 per barrel, up from 2007, but ended the year at $24.97 per barrel impacted by a heavier yield in December and a seasonal decrease in the value of our heavy output.

The operating cost structure of the oil sands mining operations is predominantly fixed, and therefore many of the costs incurred in times of full operation continue during production downtime. Per unit costs are sensitive to production rates. Key variable costs are natural gas and diesel fuel, which track commodity markets such as the Canadian AECO natural gas sales index and crude prices respectively.

The table below shows benchmark prices that impact both our revenues and variable costs, listing high and low spot prices during the year.

Our OSM segment reported income of $258 million for 2008, reflecting synthetic crude oil and vacuum gas oil sales averaging 32 mboepd. Derivative instruments intended to hedge price risk on future sales have impacted revenues in the periods presented, with net gains of $48 million in 2008 and net losses of $53 million in 2007. In the first quarter of 2009, we entered into derivative instruments which effectively offset certain of our open derivative positions.

Oil Sands Mining

Oil Sands Mining segment revenues correlate with prevailing market prices for the various qualities of synthetic crude oil and vacuum gas oil we produce. Roughly two-thirds of the normal output mix will track movements in WTI and one-third will track movements in the Canadian heavy sour crude oil marker, primarily Western Canadian Select. Output mix can be impacted by operational problems or planned unit outages at the mine or upgrader. During 2008, our average realized price for synthetic crude oil and vacuum gas oil was $91.90 per barrel, up from 2007, but ended the year at $24.97 per barrel impacted by a heavier yield in December and a seasonal decrease in the value of our heavy output.

The operating cost structure of the oil sands mining operations is predominantly fixed, and therefore many of the costs incurred in times of full operation continue during production downtime. Per unit costs are sensitive to production rates. Key variable costs are natural gas and diesel fuel, which track commodity markets such as the Canadian AECO natural gas sales index and crude prices respectively.

The table below shows benchmark prices that impact both our revenues and variable costs, listing high and low spot prices during the year.

Our OSM segment reported income of $258 million for 2008, reflecting synthetic crude oil and vacuum gas oil sales averaging 32 mboepd. Derivative instruments intended to hedge price risk on future sales have impacted revenues in the periods presented, with net gains of $48 million in 2008 and net losses of $53 million in 2007. In the first quarter of 2009, we entered into derivative instruments which effectively offset certain of our open derivative positions.

Oil Sands Mining

Oil Sands Mining segment revenues correlate with prevailing market prices for the various qualities of synthetic crude oil and
vacuum gas oil we produce. Roughly two-thirds of the normal output mix will track movements in WTI and one-third will track movements in the Canadian heavy sour crude oil marker, primarily Western Canadian Select. Output mix can be impacted by
operational problems or planned unit outages at the mine or upgrader. During 2008, our average realized price for synthetic crude oil and vacuum gas oil was $91.90 per barrel, up from 2007, but ended the year at $24.97 per barrel impacted by a
heavier yield in December and a seasonal decrease in the value of our heavy output.

The operating cost structure of the oil sands mining
operations is predominantly fixed, and therefore many of the costs incurred in times of full operation continue during production downtime. Per unit costs are sensitive to production rates. Key variable costs are natural gas and diesel fuel, which
track commodity markets such as the Canadian AECO natural gas sales index and crude prices respectively.

The table below shows benchmark
prices that impact both our revenues and variable costs, listing high and low spot prices during the year.

Oil Sands Mining

The AOSP Expansion 1 continues in 2009 and is expected to begin operations in the 2010 to 2011 timeframe. The expansion includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine and expansion of the Scotford upgrader, along with construction of common infrastructure sized to support future mining expansions.

The above discussion includes forward-looking statements with respect to anticipated completion of the AOSP expansion. Factors which could affect the expansion include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, delays in obtaining or conditions imposed by necessary government and third-party approvals and other risks customarily associated with construction projects.

Oil Sands Mining

The AOSP Expansion 1 continues in 2009 and is expected to begin operations in the 2010 to 2011 timeframe. The expansion includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine and expansion of the Scotford upgrader, along with construction of common infrastructure sized to support future mining expansions.

The above discussion includes forward-looking statements with respect to anticipated completion of the AOSP expansion. Factors which could affect the expansion include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, delays in obtaining or conditions imposed by necessary government and third-party approvals and other risks customarily associated with construction projects.

Oil Sands Mining

FACE="Times New Roman" SIZE="2">The AOSP Expansion 1 continues in 2009 and is expected to begin operations in the 2010 to 2011 timeframe. The expansion includes construction of mining and extraction facilities at the Jackpine mine, expansion of
treatment facilities at the existing Muskeg River mine and expansion of the Scotford upgrader, along with construction of common infrastructure sized to support future mining expansions.

Oil Sands Mining

FACE="Times New Roman" SIZE="2">Through our acquisition of Western, we hold a 20 percent outside-operated interest in the AOSP, an oil sands mining joint venture located in Alberta, Canada. The joint venture produces bitumen from certain oil sands
deposits in the Athabasca region and upgrades the bitumen to synthetic crude oil. The AOSP’s initial asset is the mining and extraction operations of the Muskeg River mine located 45 miles north of Fort McMurray, Alberta,

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Table of Contents

Index to Financial Statements

which began bitumen production in 2003, together with upgrading infrastructure located northeast of Edmonton, Alberta. The underlying developed leases are
held for the duration of the project, with royalties paid to the province. As of December 31, 2007, we have rights to participate in developed and undeveloped leases totaling 46,000 net acres. We are entitled to participate in future expansion
opportunities on other nearby oil sands leases owned by the operator and, prior to December 6, 2009, on any new lands acquired by either of the other AOSP owners within a defined area of mutual interest.

Oil Sands Mining

The AOSP’s Phase 1 expansion is under construction and we expect that it will be complete in late 2010. The expansion includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine and expansion of the Scotford upgrader, along with construction of common infrastructure sized to support future mining expansions.

The Scotford upgrader returned to full operation in December 2007 after a mid-November fire and the completion of maintenance that had originally been scheduled for the first quarter of 2008 and was completed in conjunction with the necessary repairs. We anticipate our net bitumen production will be approximately 30 mbpd in 2008. Projected bitumen production is based upon a number of assumptions, including pricing, supply and demand for petroleum products, regulatory constraints, unforeseen hazards such as weather conditions, acts of war or terrorist acts and government or military response thereto, and other geological, operating and economic considerations.

The above discussion includes forward-looking statements with respect to the anticipated completion of the AOSP expansion. Factors which could affect the expansion include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, delays in obtaining or conditions imposed by necessary government and third-party approvals and other risks customarily associated with construction projects.

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Index to Financial Statements

Oil Sands Mining

The Oil Sands Mining segment reported a loss of $63 million for the fourth quarter of 2007, which includes a $39 million after-tax unrealized loss on derivative instruments held by Western at the acquisition date intended to mitigate price risk related to future sales of synthetic crude oil. Segment income was also impacted during the fourth quarter due to a mid-November fire and subsequent curtailment of operations at the Scotford upgrader, which upgrades the mined bitumen to synthetic crude oil. Maintenance work scheduled for the first quarter of 2008 was accelerated and the Scotford upgrader returned to operation in late December.

Marathon Oil Corporation Reports Fourth Quarter and Full-Year 2007 Financial Results  page  5

Marathon estimates that its net bitumen production in 2008 will be approximately 30 mboepd. Marathon estimates its net share of the AOSP’s proven bitumen reserves to be 421 million barrels of bitumen.

Marathon reached a $155 million settlement during the fourth quarter of 2007 to resolve certain insurance claims by Western dating back to the startup of the mine. The settlement had no impact on segment income for the fourth quarter of 2007.

The AOSP Phase 1 Expansion is currently under construction and Marathon anticipates that the expansion will be complete in late 2010. The expansion 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 related infrastructure.