Marathon Oil (MRO)

2004 Option/SAR Grants

(1)

SARs were granted to the named executive officers on May 26, 2004. One third of the SARs shown are exercisable on May 26, 2005, another third on May 26, 2006, and the final third on May 26, 2007. If an officer dies, SARs will continue to vest and will remain exercisable until the earlier of May 26, 2014 or three years from the date of death. If an officer retires, SARs will continue to vest and will remain exercisable until the earlier of May 26, 2014, or in the event of Mr. Cazalot's retirement, nine years from the date of retirement; in the event of the retirement of all other named officers, six years from the date of retirement. The terms of the SARs are unaffected by a termination due to disability, but all other terminations result in the forfeiture of unvested SARs.

In addition, all SARs would become immediately exercisable upon a change in control as defined in the 2003 Incentive Compensation Plan. Upon the exercise of a SAR, officers receive an amount in shares equal to the excess of the fair market value of a share on the date the SAR is exercised over the grant price per share.

(2)

As part of the terms of an employment agreement, Ms. Clark was granted 20,000 stock options with tandem stock appreciation rights on January 16, 2004. One third of the options are exercisable on January 16, 2005, another third on January 16, 2006, and the final third on January 16, 2007. If Ms. Clark retires, the options will continue to vest and will remain exercisable until the earlier of January 16, 2014 or six years from the date of retirement. The remaining terms and conditions of the grant are the same as those mentioned in (1) above.

(3)

The Company uses the Black-Scholes option pricing model to value the stock options and SARs as of the date of grant. The Black-Scholes value used for the January 16, 2004 grant is $8.14 and the May 26, 2004 grant is $8.83. The accuracy of this model depends on key assumptions about future interest rates, stock price volatility and dividend yields, among other factors. The grant date present value of these options and SARs was calculated using the variables below:

The ultimate values of the SARs and options will depend on the future market price of the Company's common stock, which cannot be forecasted with reasonable accuracy. The actual value, if any, an employee will realize upon exercise of a SAR or option will depend on the excess of the market value of the Company's common stock over the grant price on the date the SAR or option is exercised.

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The following table sets forth certain information concerning options to purchase Marathon common stock and SARs exercised by each executive officer named in the Summary Compensation Table during 2004 together with the total number of options and SARs outstanding at December 31, 2004 and the value of such options and SARs.