Fitch Rates Marathon Oil $1B Senior Unsecured Notes 'BBB+'

Business Wire, March 13, 2008

CHICAGO -- Fitch Ratings has assigned a rating of 'BBB ' to Marathon Oil Corporation's issuance of $1 billion in unsecured 5.90% senior notes due 2018. Proceeds will be used for general corporate purposes, including the replenishment of working capital which had been reduced as the result of paying off $400 million in 6.85% notes in March, and the repayment of revolver borrowings associated with Marathon's recent acquisition of Western Oil Sands (WTO).

Marathon's debt ratings are as follows:

--Issuer Default Rating (IDR) 'BBB ';

--Senior unsecured credit facility 'BBB ';

--Senior unsecured notes 'BBB ';

--Commercial paper 'F2';

The Rating Outlook is Negative.

In October, Marathon completed its acquisition of WTO for cash and securities of $5.833 billion, plus $1.063 billion in WTO's debt at closing. Western's primary asset is a 20% non-operating interest in the Athabasca Oil Sands Project (AOSP) an oil sands mining joint venture in Alberta, Canada. Other AOSP partners include Shell (60%) and Chevron (20%).

As of Dec. 31, 2007, Marathon's total debt stood at $7.22 billion, approximately double the $3.53 billion seen at year-end 2006. Marathon's total debt at year-end 2007 was primarily composed of senior long-term unsecured notes and included $507 million of obligations from U.S. Steel's (USX, Fitch IDR of 'BBB-', Stable Outlook) which are serviced by U.S. Steel but are consolidated on Marathon's balance sheet following Marathon's separation from USX at the end of 2001.

At year-end 2007, Marathon's total reserves stood at 1.225 billion barrels of oil equivalent (boe) of which approximately 72% were proven developed reserves. Note that these figures exclude net proved bitumen reserves of 421 million barrels associated with AOSP. As calculated by Fitch, Marathon's free cash flow for 2007 was $1.42 billion, comprising cash flow from operations of $6.52 billion, capex of $4.47 billion, and dividends of $637 million. For 2008, planned capex is approximately $8 billion, 67% higher than 2007 levels. Major drivers of the increased capex include accelerated development of the $3.2 billion Garyville, LA, refinery expansion, $910 million for the development of the next phase of the AOSP Heavy Oil Sands project in Canada, associated upgrades at Marathon's Detroit refinery, and an increased E&P budget. The company is also reviewing the possibility of selective asset sales for 2008.

Fitch's Negative Outlook reflects concerns about the higher cost structure of oil sands mining operations, the high levels of capital expenditures contemplated in the near term, the possibility of additional debt financing to fund share buybacks and capex, and long-run uncertainty around commodity prices. Credit positives for the company include Marathon's strong downstream operations in PADD II (the Midwest), its diverse portfolio of energy assets, and the lower cash flow volatility of the integrated model.

Marathon is a large integrated oil company with exploration and production operations in several regions, including the North Sea, Africa, and North America, with conventional proven reserves of 1.225 billion boe at year-end 2007. Marathon also owns and operates seven U.S. refineries with 1,016,000 barrels per day (bpd) of crude capacity. The company distributes fuels through approximately 6,000 retail sites marketed under the Marathon and Speedway SuperAmerica brands. Marathon also has a 50% interest in PTC, a joint venture with Pilot Corporation that owns and operates 286 travel centers in North America.

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