Marathon Oil (MRO)

1.                          On June 30, 2005, Marathon acquired the 38 percent ownership interest in Marathon Ashland Petroleum LLC (MAP) previously held by Ashland Inc.  In addition, Marathon acquired a portion of Ashland’s Valvoline Instant Oil Change business and its maleic anhydride business.  As a result, MAP is now wholly owned by Marathon.  On September 1, 2005, subsequent to the acquisition, Marathon Ashland Petroleum LLC changed its name to Marathon Petroleum Company LLC.  In this press release, references to Marathon Petroleum Company LLC (“MPC”) are references to the entity formerly known as Marathon Ashland Petroleum LLC.

                                    The acquisition was accounted for under the purchase method of accounting.  The total consideration, including debt assumed, is as follows:

(a)                                 Includes $509 million of cash and receivables representing Ashland’s 38 percent of MPC’s estimated distributable cash as of June 30, 2005

(b)                                 Ashland shareholders received 17.539 million shares valued at $54.45 per share

(c)                                  Assumed debt was repaid on July 1, 2005

(d)                                 Includes $9 million paid during the quarter ended September 30, 2005, for tax obligations of Ashland under Internal Revenue Service Code Section 355(e)

1.                                       On June 30, 2005, Marathon acquired the 38 percent ownership interest in Marathon Ashland Petroleum LLC (MAP) previously held by Ashland Inc.  In addition, Marathon acquired a portion of Ashland’s Valvoline Instant Oil Change business and its maleic anhydride business.  As a result, MAP is now wholly owned by Marathon.

The acquisition was accounted for under the purchase method of accounting.  The total consideration, including debt assumed, is as follows:

(a)          Includes $509 million of cash and receivables representing 38 percent of MAP’s estimated distributable cash as of June 30, 2005

(b)         Ashland shareholders received 17.539 million shares valued at $53.37 per share

(c)          Assumed debt was repaid on July 1, 2005

(d)         Includes an estimated $96 million for potential tax obligations of Ashland under Internal Revenue Service Code Section 355(e)

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1.               Marathon Oil Corporation (Marathon) is engaged in worldwide exploration and production of crude oil and natural gas; domestic refining, marketing and transportation of crude oil and petroleum products primarily through its 62 percent owned subsidiary, Marathon Ashland Petroleum LLC; and integrated gas.

2.               Effective January 1, 2004, Marathon realigned its segment reporting to reflect a new business segment, Integrated Gas. This segment includes Marathon’s LNG operations in Alaska and Equatorial Guinea, the AMPCO methanol plant operations in Equatorial Guinea, the Elba Island, Georgia, LNG regasification business and certain other natural gas marketing and transportation activities, along with expenses related to the continued development of an integrated gas business.  These activities were previously reported in the Other Energy Related Businesses (“OERB”) segment, which has been eliminated.  Crude oil marketing and transportation activities and costs associated with a GTL demonstration plant, previously reported in OERB, are now reported in the E&P segment.  Refined product transportation activities not included in MAP, also previously reported in OERB, are now reported in the RM&T segment.  All 2003 information has been restated to reflect the new segment structure. 

3.               Marathon has two long-term contracts for the sale of natural gas in the United Kingdom.  These contracts expire in September 2009. These contracts were entered into in the early 1990s in support of Marathon’s investments in the East Brae field and the SAGE pipeline.  Contract prices are linked to a basket of energy and other indices.  The contract price is reset annually based on the previous twelve-month changes in the basket of indices. Consequently the prices under these contracts do not track forward gas prices.   

These contracts are accounted for as derivative instruments.  Derivatives are required to be recorded in the balance sheet at fair value, as determined in accordance with generally accepted accounting principles, and changes in fair value are recognized in income.  The fair value of these contracts is determined by applying the difference between the contract price and the U.K. forward gas strip price to the expected sales volumes for the next eighteen months under these contracts.  Adjustments to the fair value of these contracts result in non-cash charges or credits to income from operations.  The difference between the contract price and the U.K. forward gas strip price may fluctuate widely from time to time and may result in significant effects to income from operations. 

During the fourth quarter of 2004, Marathon recorded a non-cash credit of $111 million to earnings.  The decrease is primarily due to the U.K. 18-month forward gas price curve weakening more than 21 percent during the quarter. 

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