Marathon Oil (MRO)

Other Environmental Proceedings

The following is a summary of proceedings involving us that were pending or contemplated as of December 31, 2008, under federal and state environmental laws. Except as described herein, it is not possible to predict accurately the ultimate outcome of these matters; however, management’s belief set forth in the first paragraph under Legal Proceedings above takes such matters into account.

Claims under CERCLA and related state acts have been raised with respect to the clean-up of various waste disposal and other sites. CERCLA is intended to facilitate the clean-up of hazardous substances without regard to fault. Potentially responsible parties (“PRPs”) for each site include present and former owners and operators of, transporters to and generators of the substances at the site. Liability is strict and can be joint and several. Because of various factors including the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and clean-up costs and the time period during which such costs may be incurred, we are unable to reasonably estimate our ultimate cost of compliance with CERCLA.

The projections of spending for and/or timing of completion of specific projects provided in the following paragraphs are forward-looking statements. These forward-looking statements are based on certain assumptions including, but not limited to, the factors provided in the preceding paragraph. To the extent that these assumptions prove to be inaccurate, future spending for and/or timing of completion of environmental projects may differ materially from those stated in the forward-looking statements.

As of December 31, 2008, we had been identified as a PRP at a total of nine CERCLA waste sites and we may be a PRP at four additional sites where we have received information requests or other indications but we do not have sufficient information to establish liability. We are at various stages of case development at the nine PRP sites with some site information being preliminary and incomplete and subject to change, but we currently estimate our liability will be under $200,000 at four sites, under $1 million at one site, under $2 million at two sites, and under $4 million at the remaining two sites.

There are also 119 sites, excluding retail marketing outlets, where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. Based on currently available information, which is in many cases preliminary and

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Index to Financial Statements

incomplete, we believe that liability for clean-up and remediation costs in connection with six of these sites will be under $100,000 per site, that 58 sites have potential costs between $100,000 and $1 million per site and that 29 sites may involve remediation costs between $1 million and $5 million per site. Ten sites have incurred remediation costs of more than $5 million per site. There are 16 of these sites for which Ashland retains responsibility to us for remediation, subject to caps and other requirements contained in the agreements with Ashland related to the acquisition of Ashland’s minority interest in Marathon Petroleum Company LLC in 2005. We estimate that we will be responsible for nearly $18 million in remediation costs at these sites which will not be reimbursed by Ashland, and we have included this amount in our accrued environmental remediation liabilities.

There is one site that involves a remediation program in cooperation with the Michigan Department of Environmental Quality (“MDEQ”) at a closed and dismantled refinery site located near Muskegon, Michigan. During the next 28 years, we anticipate spending approximately $4.8 million in remediation costs at this site. In 2009, interim remediation measures will continue to occur and appropriate site characterization and risk-based assessments necessary for closure will be refined and may change the estimated future expenditures for this site. The closure strategy being developed for this site and ongoing work at the site are subject to approval by the MDEQ. Expenditures for remedial measures in 2008 and 2007 were $434,000 and $524,000, respectively, with expenditures for remedial measures in 2009 expected to be approximately $1.6 million.

We are subject to a pending enforcement matter with the Illinois Environmental Protection Agency and the Illinois Attorney General’s Office since 2002 concerning self-reporting of possible emission exceedences and permitting issues related to storage tanks at the Robinson, Illinois, refinery. There were no developments in this matter in 2008.

During 2001, we entered into a New Source Review consent decree and settlement of alleged Clean Air Act (“CAA”) and other violations with the U.S. EPA covering all of our refineries. The settlement committed us to specific control technologies and implementation schedules for environmental expenditures and improvements to our refineries over approximately an eight-year period, which are now substantially complete. In addition, we have been working on certain agreed-upon supplemental environmental projects as part of this settlement of an enforcement action for alleged CAA violations and these have been completed. As part of this consent decree, we were required to conduct evaluations of refinery benzene waste air pollution programs (benzene waste “NESHAPS”). Subject to entering a formal consent decree or further amendment of the New Source Review consent decree to memorialize our understanding, we have agreed with the U.S. Department of Justice and U.S. EPA to pay a civil penalty of $408,000 and conduct supplemental environmental projects of approximately $1.1 million, as part of a settlement of an enforcement action for alleged CAA violations relating to benzene waste NESHAPS. We hope to enter into a formal consent decree or amendment to resolve these matters in 2009.

In May 2008, the Texas Commission on Environmental Quality (“TCEQ”) performed a benzene waste NESHAPS inspection at the Texas City Refinery. The TCEQ subsequently issued a notice of enforcement and a proposed agreed order seeking $143,000 in penalties. We hope to resolve this matter with the TCEQ in 2009.

The U.S. Occupational Safety and Health Administration (“OSHA”) previously announced a National Emphasis Program to inspect most domestic oil refineries. The inspections began in 2007 and focused on compliance with the OSHA Process Safety Management requirements. OSHA or state-equivalent agencies have conducted inspections at the Canton, Robinson, Catlettsburg, Detroit and Texas City refineries with agreed–to penalties of $321,500 and $135,000 imposed in Canton (2007) and Texas City (2008), respectively. No penalties were imposed as a result of the other inspections. Inspections at St. Paul Park (2009) and Garyville (2010) may occur and further enforcement action by OSHA or equivalent state agency may result

In November 2008, the U.S. EPA issued a notice of violation for oil spills occurring at the Catlettsburg Refinery in 2004 and 2008. Subject to entering a formal consent decree to memorialize our understanding, we have agreed with the U.S. EPA to pay a civil penalty of $118,000. We hope to enter into a formal consent decree to resolve these matters in 2009.

Other Environmental Proceedings

The following is a summary of proceedings involving us that were pending or contemplated as of December 31, 2008, under federal and state environmental laws. Except as described herein, it is not possible to predict accurately the ultimate outcome of these matters; however, management’s belief set forth in the first paragraph under Legal Proceedings above takes such matters into account.

Claims under CERCLA and related state acts have been raised with respect to the clean-up of various waste disposal and other sites. CERCLA is intended to facilitate the clean-up of hazardous substances without regard to fault. Potentially responsible parties (“PRPs”) for each site include present and former owners and operators of, transporters to and generators of the substances at the site. Liability is strict and can be joint and several. Because of various factors including the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and clean-up costs and the time period during which such costs may be incurred, we are unable to reasonably estimate our ultimate cost of compliance with CERCLA.

The projections of spending for and/or timing of completion of specific projects provided in the following paragraphs are forward-looking statements. These forward-looking statements are based on certain assumptions including, but not limited to, the factors provided in the preceding paragraph. To the extent that these assumptions prove to be inaccurate, future spending for and/or timing of completion of environmental projects may differ materially from those stated in the forward-looking statements.

As of December 31, 2008, we had been identified as a PRP at a total of nine CERCLA waste sites and we may be a PRP at four additional sites where we have received information requests or other indications but we do not have sufficient information to establish liability. We are at various stages of case development at the nine PRP sites with some site information being preliminary and incomplete and subject to change, but we currently estimate our liability will be under $200,000 at four sites, under $1 million at one site, under $2 million at two sites, and under $4 million at the remaining two sites.

There are also 119 sites, excluding retail marketing outlets, where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. Based on currently available information, which is in many cases preliminary and

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Index to Financial Statements

incomplete, we believe that liability for clean-up and remediation costs in connection with six of these sites will be under $100,000 per site, that 58 sites have potential costs between $100,000 and $1 million per site and that 29 sites may involve remediation costs between $1 million and $5 million per site. Ten sites have incurred remediation costs of more than $5 million per site. There are 16 of these sites for which Ashland retains responsibility to us for remediation, subject to caps and other requirements contained in the agreements with Ashland related to the acquisition of Ashland’s minority interest in Marathon Petroleum Company LLC in 2005. We estimate that we will be responsible for nearly $18 million in remediation costs at these sites which will not be reimbursed by Ashland, and we have included this amount in our accrued environmental remediation liabilities.

There is one site that involves a remediation program in cooperation with the Michigan Department of Environmental Quality (“MDEQ”) at a closed and dismantled refinery site located near Muskegon, Michigan. During the next 28 years, we anticipate spending approximately $4.8 million in remediation costs at this site. In 2009, interim remediation measures will continue to occur and appropriate site characterization and risk-based assessments necessary for closure will be refined and may change the estimated future expenditures for this site. The closure strategy being developed for this site and ongoing work at the site are subject to approval by the MDEQ. Expenditures for remedial measures in 2008 and 2007 were $434,000 and $524,000, respectively, with expenditures for remedial measures in 2009 expected to be approximately $1.6 million.

We are subject to a pending enforcement matter with the Illinois Environmental Protection Agency and the Illinois Attorney General’s Office since 2002 concerning self-reporting of possible emission exceedences and permitting issues related to storage tanks at the Robinson, Illinois, refinery. There were no developments in this matter in 2008.

During 2001, we entered into a New Source Review consent decree and settlement of alleged Clean Air Act (“CAA”) and other violations with the U.S. EPA covering all of our refineries. The settlement committed us to specific control technologies and implementation schedules for environmental expenditures and improvements to our refineries over approximately an eight-year period, which are now substantially complete. In addition, we have been working on certain agreed-upon supplemental environmental projects as part of this settlement of an enforcement action for alleged CAA violations and these have been completed. As part of this consent decree, we were required to conduct evaluations of refinery benzene waste air pollution programs (benzene waste “NESHAPS”). Subject to entering a formal consent decree or further amendment of the New Source Review consent decree to memorialize our understanding, we have agreed with the U.S. Department of Justice and U.S. EPA to pay a civil penalty of $408,000 and conduct supplemental environmental projects of approximately $1.1 million, as part of a settlement of an enforcement action for alleged CAA violations relating to benzene waste NESHAPS. We hope to enter into a formal consent decree or amendment to resolve these matters in 2009.

In May 2008, the Texas Commission on Environmental Quality (“TCEQ”) performed a benzene waste NESHAPS inspection at the Texas City Refinery. The TCEQ subsequently issued a notice of enforcement and a proposed agreed order seeking $143,000 in penalties. We hope to resolve this matter with the TCEQ in 2009.

The U.S. Occupational Safety and Health Administration (“OSHA”) previously announced a National Emphasis Program to inspect most domestic oil refineries. The inspections began in 2007 and focused on compliance with the OSHA Process Safety Management requirements. OSHA or state-equivalent agencies have conducted inspections at the Canton, Robinson, Catlettsburg, Detroit and Texas City refineries with agreed–to penalties of $321,500 and $135,000 imposed in Canton (2007) and Texas City (2008), respectively. No penalties were imposed as a result of the other inspections. Inspections at St. Paul Park (2009) and Garyville (2010) may occur and further enforcement action by OSHA or equivalent state agency may result

In November 2008, the U.S. EPA issued a notice of violation for oil spills occurring at the Catlettsburg Refinery in 2004 and 2008. Subject to entering a formal consent decree to memorialize our understanding, we have agreed with the U.S. EPA to pay a civil penalty of $118,000. We hope to enter into a formal consent decree to resolve these matters in 2009.

Other Environmental Proceedings

Other Environmental Proceedings

The following is a summary of proceedings involving Marathon that were pending or contemplated as of December 31, 2007 under federal and state environmental laws. Except as described herein, it is not possible to predict accurately the ultimate outcome of these matters; however, management’s belief set forth in the first paragraph under Legal Proceedings above takes such matters into account.

Claims under CERCLA and related state acts have been raised with respect to the clean-up of various waste disposal and other sites. CERCLA is intended to facilitate the clean-up of hazardous substances without regard to fault. Potentially responsible parties (“PRPs”) for each site include present and former owners and operators of, transporters to and generators of the substances at the site. Liability is strict and can be joint and several. Because of various factors including the difficulty of identifying the responsible parties for any particular site, the complexity of determining the relative liability among them, the uncertainty as to the most desirable remediation techniques and the amount of damages and clean-up costs and the time period during which such costs may be incurred, Marathon is unable to reasonably estimate its ultimate cost of compliance with CERCLA.

The projections of spending for and/or timing of completion of specific projects provided in the following paragraphs are forward-looking statements. These forward-looking statements are based on certain assumptions including, but not limited to, the factors provided in the preceding paragraph. To the extent that these assumptions prove to be inaccurate, future spending for and/or timing of completion of environmental projects may differ materially from those stated in the forward-looking statements.

As of December 31, 2007, Marathon had been identified as a PRP at a total of ten CERCLA waste sites. Based on currently available information, which is in many cases preliminary and incomplete, Marathon believes that its liability for clean-up and remediation costs in connection with five of these sites will be under $1 million per site (with four of these five sites being under $100,000 each). As to the remaining five sites, Marathon believes that its liability for clean-up and remediation costs in connection with two of these sites will be under $4 million per site. Marathon is not far enough along in the process to determine the cost for the remaining three sites, but two of the sites may be $1 million to $2 million or more each and the other may be under $1 million. In addition, there are two sites for which Marathon has received information requests or other indications that it may be a PRP under CERCLA, but for which sufficient information is not presently available to confirm the existence of liability.

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Index to Financial Statements

There are also 119 sites, excluding retail marketing outlets, related to Marathon where remediation is being sought under other environmental statutes, both federal and state, or where private parties are seeking remediation through discussions or litigation. Based on currently available information, which is in many cases preliminary and incomplete, Marathon believes that its liability for clean-up and remediation costs in connection with 17 of these sites will be under $100,000 per site, that 54 sites have potential costs between $100,000 and $1 million per site and that 19 sites may involve remediation costs between $1 million and $5 million per site. Nine sites have incurred remediation costs of more than $5 million per site and there are six sites with insufficient information to estimate future remediation costs. There are 14 other sites for which Ashland retains responsibility to Marathon for remediation, subject to caps and other requirements contained in the agreements with Ashland related to Marathon’s acquisition of Ashland’s minority interest in MPC in 2005. Marathon estimates that it will be responsible for nearly $8 million in remediation costs at these sites which will not be reimbursed by Ashland, and Marathon has included this amount in its accrued environmental remediation liabilities.

There is one site that involves a remediation program in cooperation with the Michigan Department of Environmental Quality (“MDEQ”) at a closed and dismantled refinery site located near Muskegon, Michigan. During the next 29 years, Marathon anticipates spending approximately $6 million in remediation costs at this site. In 2008, interim remediation measures will continue to occur and appropriate site characterization and risk-based assessments necessary for closure will be refined and may change the estimated future expenditures for this site. The closure strategy being developed for this site and ongoing work at the site are subject to approval by the MDEQ. Expenditures for remedial measures in 2007 and 2006 were $524,000 and $461,000, with expenditures for remedial measures in 2008 expected to be approximately $2 million.

MPC has had a pending enforcement matter with the Illinois Environmental Protection Agency and the Illinois Attorney General’s Office since 2002 concerning self-reporting of possible emission exceedences and permitting issues related to storage tanks at the Robinson, Illinois refinery.

During 2001, Marathon entered into a New Source Review consent decree and settlement of alleged Clean Air Act and other violations with the EPA covering all of its refineries. The settlement committed Marathon to specific control technologies and implementation schedules for environmental expenditures and improvements to its refineries over approximately an eight-year period. In addition, Marathon has been working on certain agreed-upon supplemental environmental projects as part of this settlement of an enforcement action for alleged CAA violations and these have been substantially completed. As part of this consent decree, Marathon was required to conduct evaluations of its refinery benzene waste air pollution programs. These evaluations resulted in disclosure of benzene waste compliance issues at the Canton and Catlettsburg refineries. The U.S. Department of Justice has informed Marathon that it will seek several hundred thousand dollars of civil penalties (potentially to include supplemental environmental projects) for these matters. No formal enforcement action has been brought but Marathon will attempt to resolve these matters in 2008.

The U.S. Occupational Safety and Health Administration (“OSHA”) has announced a National Emphasis Program where it plans to inspect most of the domestic oil refinery locations. The inspections began in 2007 and focus on compliance with the OSHA Process Safety Management requirements. OSHA conducted an inspection at the Canton refinery over several months in 2007. This inspection resulted in an informal settlement agreement with OSHA in December 2007 under which a penalty of $321,500 was paid and Marathon agreed to various abatement measures. OSHA is scheduled to conduct an inspection of the Robinson refinery in the first quarter of 2008 and may conduct inspections of other Marathon refineries during that year. Further enforcement actions by OSHA may result from these inspections.

Other Environmental Proceedings