Marathon Oil (MRO)

Proposed Acquisition

In July 2007, we entered an agreement to purchase Western Oil Sands Inc. (“Western”).  Under the terms of the agreement, Western shareholders will receive cash of 3.808 billion Canadian dollars and 34.3 million shares of Marathon common stock and securities exchangeable for Marathon common stock.  We will also assume Western’s debt at closing.  Based on the exchange rate and our stock price on July 27, 2007, the total transaction value would be approximately $6 billion.    The agreement requires Western to spin off a wholly-owned subsidiary with interests in the Federal Region of Kurdistan in northern Iraq prior to closing.  The transaction is contingent upon Western shareholder approval and applicable regulatory approvals and is anticipated to close in the fourth quarter of 2007.

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Western’s primary asset is a 20 percent outside-operated interest in the Athabasca Oil Sands Project, which includes the operating Muskeg River Mine and the Scotford Upgrader, located in the province of Alberta, Canada.  Western’s current net bitumen production from the Muskeg River Mine is approximately 31 mbpd.  The bitumen production from the Muskeg River Mine is taken by pipeline to the Scotford Upgrader, which uses hydro-conversion technology to upgrade the bitumen into a range of high-quality, synthetic crude oils.  A key attribute of this proposed acquisition is the ability to link future production from the Athabasca Oil Sands Project developments with heavy oil upgrade projects at our refineries.

The above discussion contains forward-looking statements concerning the anticipated acquisition of Western and potential heavy oil refining upgrading projects.  This forward-looking information may prove to be inaccurate and actual results may differ materially from those presently anticipated.  Factors, but not necessarily all factors, that could adversely affect the anticipated acquisition of Western include the inability or delay in obtaining necessary government and third-party approvals and approval by Western’s shareholders.  Factors that could affect the potential heavy oil refining upgrading projects include results of front-end engineering and design work, approval of our Board of Directors, inability or delay in obtaining necessary government and third-party approvals, continued favorable investment climate, and other geological, operating and economic considerations.

14.  Proposed Acquisition

Marathon has entered into an agreement, as amended, which would result in the acquisition of the 38 percent ownership interest in MAP currently held by Ashland Inc. (“Ashland”).  In addition, Marathon would acquire a portion of Ashland’s Valvoline Instant Oil Change business and its maleic anhydride business.  As a result of the transaction, MAP will become a wholly owned subsidiary of Marathon.

As part of the amended transaction, Ashland will receive approximately $900 million in cash and accounts receivable from MAP to redeem a portion of its interest in MAP.  Marathon will assume approximately $1.9 billion of debt, which is expected to be repaid immediately following closing.  Additionally, Ashland shareholders will receive $915 million in Marathon common stock.  Ashland’s liabilities under certain existing environmental indemnification obligations related to MAP will be capped at $50 million.  Marathon has agreed to indemnify a portion of Ashland’s tax liability arising from the transaction. A tax under Section 355(e) of the Internal Revenue Code will be imposed if, as of the date of the closing of the transaction, the fair market value of the New Ashland common stock exceeds Ashland’s tax basis in the New Ashland common stock.  That tax basis cannot be determined with precision at this time because it depends, in part, on the amount of taxable income Ashland generates before the closing of the transaction.  Under the tax matters agreement among the parties, Marathon will bear the first portion of Section 355(e) tax, if any, up to $200 million (which may be increased under certain circumstances), New Ashland will bear the next $175 million of any Section 355(e) tax, and New Ashland and Marathon will each bear 50% of any remaining Section 355(e) tax.

The MAP Limited Liability Company Agreement has been amended to eliminate the requirement for MAP to make quarterly cash distributions to Marathon and Ashland between the date the principal transaction agreements were signed and the closing of the transaction.  As a result, the redemption proceeds to Ashland (cash and accounts receivable) will be increased by an amount equal to approximately 38 percent of the cash accumulated from MAP’s operations during that period, subject to certain adjustments.  At March 31, 2005, Ashland’s share of distributable cash would have been $560 million, if the agreement had been modified as of that date.  In the event of a termination of the acquisition agreement, MAP’s obligation to make cash distributions to Marathon and Ashland would be restored.

On June 1, 2004, the United States Federal Trade Commission (“FTC”) granted early termination of the pre-closing waiting period mandated by the Hart-Scott-Rodino Act, thereby indicating that it had no present intent to challenge the acquisition and permitting the parties to proceed toward closing.  Since the transaction will not close within one year after early termination was granted, Marathon and Ashland have filed a new request for early termination with the FTC.  Additionally, Marathon and Ashland submitted a request for a private letter ruling to the United States Internal Revenue Service (“IRS”) on the tax-free status of the proposed acquisition.  Also related to the proposed acquisition, Marathon filed a registration statement on Form S-4 with the United States Securities and Exchange Commission (“SEC”) on October 12, 2004, and Amendment No. 1 to the Form S-4 on May 2, 2005.  Ashland filed a preliminary proxy statement on Schedule 14A on June 21, 2004, and Amendment No. 1 to Schedule 14A on August 31, 2004.  ATB Holdings, Inc. and New EXM Inc. filed a Form S-4 with the SEC on October 12, 2004, and Amendment No. 1 to the Form S-4 on May 2, 2005.  The completion of the acquisition is subject to a number of conditions, including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Act, the receipt of a private letter ruling or entering into a closing agreement with the IRS, Ashland shareholder approval and Ashland public debt holder consents.

29. Proposed Acquisition

Marathon has entered into an agreement which would result in the acquisition of the 38 percent ownership interest in MAP currently held by Ashland. In addition, Marathon would acquire a portion of Ashland's Valvoline Instant Oil Change business and its maleic anhydride business. As a result of the transaction, MAP will become a wholly owned subsidiary of Marathon.

        As part of the transaction, Ashland will receive approximately $800 million in cash and accounts receivable from MAP to redeem a portion of its interest in MAP. Marathon will assume approximately $1.9 billion of debt, which is expected to be repaid immediately following closing. Additionally, Ashland shareholders will receive $315 million in Marathon common stock. Ashland's liabilities under certain existing environmental indemnification obligations related to MAP will be capped at $50 million.

        The MAP Limited Liability Company Agreement has been amended to eliminate the requirement for MAP to make quarterly cash distributions to Marathon and Ashland between the date the principal transaction agreements were signed and the closing of the transaction. As a result, the redemption proceeds to Ashland (cash and accounts receivable) will be increased by an amount equal to approximately 38 percent of the cash accumulated from MAP's operations during that period, subject to certain adjustments. At December 31, 2004, Ashland's share of distributable cash was $574 million. In the event of a termination of the acquisition agreement, MAP's obligation to make cash distributions to Marathon and Ashland would be restored.

        On June 1, 2004, the United States Federal Trade Commission granted early termination of the pre-closing waiting period mandated by the Hart-Scott-Rodino Act, thereby indicating that it had no present intent to challenge the acquisition and permitting the parties to proceed toward closing. Additionally, Marathon and Ashland submitted a request for a letter ruling to the United States Internal Revenue Service ("IRS") on the tax-free status of the proposed acquisition. Related to the proposed acquisition, Marathon filed a registration statement on Form S-4 with the United States Securities and Exchange Commission on October 12, 2004, subsequent to Ashland filing a preliminary proxy statement on Schedule 14A on June 21, 2004, and Amendment No. 1 to Schedule 14A on August 31, 2004. The completion of the acquisition is subject to a number of conditions, including favorable private letter rulings from the IRS, Ashland shareholder approval and Ashland public debt holder consents.