marathon oil 2nd quarter 2002

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MARATHON OIL CORPORATION REPORTS SECOND QUARTER 2002 RESULTS

HOUSTON, July 25 – Marathon Oil Corporation (NYSE: MRO) today reported second-quarter 2002 net

income, adjusted for special items primarily related to the early extinguishment of debt, of $193 million or

$.62 per diluted share, compared to net income, adjusted for special items related to the separation of United

States Steel Corporation, of $593 million or $1.92 per diluted share in the second quarter of 2001.

Earnings Highlights

(Dollars in millions except per diluted share data) 2002 2001

Net income adjusted for special items $193 $593Adjustments for special items (After-tax):

Extraordinary loss from early extinguishment of debt (26) ---Inventory market valuation reserve adjustment 1 ---Items related to disposition of United States Steel --- (41)

Net income $168 $552Net income applicable to Marathon Oil Corporation common stock $168 $582Net income adjusted for special items - per diluted share $.62 $1.92Net income - per diluted share $.54 $1.88Revenues and other income $8,127 $9,168

* Excludes loss applicable to USX-U.S. Steel common stock in the quarter ended September 30, 2001.

Quarter ended June 30

Second Quarter 2002 Highlights• 2002 second quarter performance improved over first quarter

• Strengthened core areas through:

- increased net acreage in Powder River Basin properties

- acquisition of additional Equatorial Guinea interests

- acquisition of additional Norwegian production licenses

• Appraisal drilling success on Neptune discovery in Gulf of Mexico

“Marathon’s second quarter results, while significantly improved over the last quarter, were lower than

the record earnings reported in the same period last year primarily due to lower natural gas prices, par-

tially offset by increased liquid hydrocarbon production, and continuing tight refining and marketing

margins,” said Marathon President and CEO Clarence P. Cazalot, Jr.

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In the exploration and production (upstream) sector, Marathon’s second-quarter oil and gas production

averaged 424,000 barrels of oil equivalent per day (boepd) and is on pace to meet the company’s estimated

2002 production of approximately 420,000 boepd.

During the second quarter Marathon continued to strengthen its exploration and production portfolio through

strategic acquisitions in core areas. In May, Marathon exchanged oil and gas properties in east Texas

and north Louisiana for XTO Energy, Inc. coalbed methane assets in northern Wyoming and southern

Montana. As a result, Marathon has added more than 400 billion cubic feet (bcf) of Powder River Basin

risked resource, including some 110 bcf of proven reserves, while also leveraging economies of scale in

this core area. In addition, Marathon significantly enhanced its gas transportation position in this region

by acquiring an additional 125 million cubic feet per day (mmcf/d) of firm capacity on the Trailblazer

pipeline, giving the company long-term access to mid-continent markets at competitive prices.

Marathon also strengthened its Equatorial Guinea core area through the acquisition of Globex Energy,

Inc. for $148 million in June. This acquisition added 35 million barrels of oil equivalent (boe) in proven

reserves in Equatorial Guinea, as well as 3 million boe in proven reserves offshore Australia. It is estimated

an additional 12 million boe of Equatorial Guinea proven reserves will be added upon partner and govern-

mental approvals of condensate and liquefied petroleum gas (LPG) expansion projects, expected in the

third quarter of this year. With the approval of these expansion projects, Marathon’s Equatorial Guinea

proven reserves will total approximately 300 million boe. The estimated full-cycle finding and develop-

ment cost of these reserves, including the LPG processing plant and its associated expansion, is

approximately $4.20 per boe.

In Norway, Marathon recently completed the acquisition of Norsk Hydro’s interest in Production Licenses

(PL) 150 and 203 and was granted operatorship of PL 203, which is the company’s first operatorship

on the Norwegian continental shelf. Following this transaction, Marathon has interests in nine Norwegian

production licenses, with working interests ranging from 10 to 65 percent. The acquisition enhances

Marathon’s establishment of this new core area and brings the company’s total Norwegian net risked

resources to approximately 135 million boe, which the company expects to appraise and develop over

the next few years.

“The high quality assets we have acquired in the Powder River Basin, Equatorial Guinea and Norway

enhance the value of our operations in these core areas by providing expanded opportunities to commer-

cialize significant natural gas and oil resources,” said Cazalot. “Through the projects we have undertaken

during the past 18 months, we are positioned to increase our proven reserves by approximately 40 percent

from 2001 to 2004, which equates to an average 190-percent reserve replacement per year. We also anticipate

increasing production from the estimated 420,000 boepd during 2002, to an approximate range of 430,000

to 435,000 boepd by 2004. This increase is through defined projects and excludes any future exploration

success or business development activities.”

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In the Gulf of Mexico, Marathon holds a 30-percent interest in the recently announced successful appraisal

well on the Neptune deepwater discovery. The Neptune-3 well is located in Atwater Valley Block 617

in 6,140 feet of water. The well encountered 150 net feet of oil pay in two zones, and Marathon is

encouraged by the improved reservoir and crude oil quality of the Neptune-3 well compared to that found

in the discovery and first appraisal wells. Further appraisal drilling is planned for later this year. In the

fourth quarter of this year, Marathon expects to drill the Kansas Prospect, which is the next structure

on-trend with Neptune along the Atwater Foldbelt. Marathon will hold a 33.3-percent interest in the

Kansas Prospect and serve as operator.

Marathon also recently completed appraisal drilling on the Ozona deepwater Gulf of Mexico prospect.

Two appraisal sidetracks were drilled to delineate the original discovery made in October 2001 in which

Marathon operates and has a 68-percent working interest. These two sidetracks, one of which was dry,

indicate the reservoir is more complex and contains smaller reserve potential than originally anticipated.

The appraisal well has been temporarily abandoned pending further analysis and the review of potential

development options.

In the North Sea, the Symphony natural gas pipeline project, another key component of the company’s

integrated gas strategy, currently is conducting an open season for prospective shippers on this pipeline

that is designed to transport gas from the UK and Norwegian North Sea to southern England. Based upon

input from prospective shippers, Marathon is considering increasing the design capacity of the pipeline

beyond the 1 billion cubic feet per day originally announced. Marathon estimates the pipeline could begin

operations in 2005, assuming timely regulatory approval by applicable UK, Norwegian and European

regulatory officials, satisfactory supply commitments and financing arrangements.

In the refining, marketing and transportation (downstream) segment, Marathon Ashland Petroleum LLC’s

(MAP) second quarter results improved substantially over last quarter. However, second quarter results

were significantly lower when compared to the record results in the second quarter 2001, as refining crack

spreads were less than half of what they were during the same quarter in 2001. Also, refining profitability

continued to be adversely affected as a result of the continued narrow differential between sweet and sour

crude oil prices. These narrow differentials make sour crude relatively more expensive than sweet crudes

and decreases profitability for a complex refiner such as MAP.

MAP’s profitability also increased from first quarter 2002 with higher merchandise sales and margins,

as well as higher motor fuel margins at its Speedway SuperAmerica LLC retail outlets.

Since the formation of Pilot Travel Centers LLC in September 2001, the former Speedway Fuel Centers

included in the joint venture have been undergoing re-branding to Pilot Travel Centers. During the quarter

these conversions were essentially completed. Pilot Travel Centers is the largest travel center network

in the U.S. with more than 230 locations. Operational efficiencies already have been realized at the newly

re-branded travel centers with the adoption of Pilot’s innovative management model.

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Segment ResultsIncome for Marathon’s reportable segments was $493 million in second quarter 2002, compared with

$1,311 million in second quarter 2001.

Exploration and ProductionUpstream segment income totaled $262 million in second quarter 2002, compared to $443 million in

second quarter 2001.

United States upstream income was $189 million in second quarter 2002, compared to $358 million in

second quarter 2001. The decrease was primarily due to lower natural gas prices and derivative activi-

ty. This decrease was partially offset by increased liquid hydrocarbon prices and lower depreciation

expense due to lower production. Additionally, second quarter 2002 results included a $24 million net

gain from derivative activities compared to a $78 million net derivative gain in second quarter 2001

primarily related to Powder River Basin coalbed methane production.

International upstream income was $73 million in second quarter 2002, compared to $85 million in

second quarter 2001. The decrease was primarily due to lower natural gas and liquid hydrocarbon

prices and higher depreciation expense, partially offset by higher liquid hydrocarbon volumes.

In the third quarter 2002, production is expected to average between 400,000 and 405,000 boepd. The

anticipated decrease from reported production levels in the second quarter 2002 is primarily a result of

the timing of liftings in the UK.

Refining, Marketing and TransportationDownstream segment income was $211 million in second quarter 2002, versus segment income of

$842 million in second quarter 2001. The decrease primarily reflects a significantly lower refining and

wholesale marketing margin, partially offset by higher refined product sales volumes, and increased

merchandise margins.

Other Energy Related Businesses Other energy related businesses segment income was $20 million in second quarter 2002, compared

with $26 million in second quarter 2001. The decrease in 2002 was primarily due to an unplanned 62-

day shutdown of the AMPCO Methanol Plant in Equatorial Guinea, in which Marathon holds a 45-per-

cent interest, and lower earnings from Marathon’s equity investments in various pipelines.

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Other Corporate and AdministrativeAs part of an ongoing effort to strengthen its balance sheet, Marathon issued $850 million of 5 and 10

year notes at a weighted average yield of 5.78 percent, and retired $193 million face amount of public

debt with weighted average coupons of 9.04 percent during the second quarter. This resulted in an

extraordinary loss from the early extinguishment of debt of $26 million, net of tax. Prepayment notice

also was given on $144 million of 9.05 percent private debt which will result in a third quarter extraor-

dinary loss of approximately $7 million, net of tax. As a result of these transactions, Marathon's

weighted average cost of fixed-rate debt has been reduced approximately 1 percentage point.

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This release contains forward-looking statements with respect to the timing and levels of the Company’s worldwide liquidhydrocarbon and natural gas production, the planned construction of pipeline facilities, future drilling activity, future interestsin drilling prospects and additional reserves. Some factors that could potentially affect worldwide liquid hydrocarbon andnatural gas production and the exploration drilling program include acts of war or terrorist acts and the governmental ormilitary response thereto, pricing, supply and demand for petroleum products, amount of capital available for explorationand development, occurrence of acquisitions/dispositions of oil and gas properties, regulatory constraints, timing of com-mencing production from new wells, drilling rig availability and other geological, operating and economic considerations.Some factors which could impact the North Sea pipeline and related facilities, include, but are not limited to, unforeseendifficulty in the negotiation of definitive agreements among project participants, identification of additional participants toreach optimum levels of participation, inability or delay in obtaining necessary government and third-party approvals,arranging sufficient project financing, unanticipated changes in market demand or supply, competition with similar projectsand environmental and permitting issues. The forward-looking information related to the future interests in drilling prospectsand reserve additions is based on certain assumptions, including, among others, presently known physical data concerningsize and character of reservoirs, economic recoverability, technology development, future drilling success, production experience,industry economic conditions, levels of cash flow from operations and operating conditions. The foregoing factors (amongothers) could cause actual results to differ materially from those set forth in the forward-looking statements. In accordancewith the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation, hasincluded in its Annual Report on Form 10-K for the year ended December 31, 2001 and subsequent forms 10-Q and 8-K,cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomesto differ materially from those set forth in the forward- looking statements.

The company will conduct a conference call on second quarter earnings on July 25, at 11 a.m. EDT.

To listen to the webcast of the conference call, visit the Marathon website at www.marathon.com and

click on the conference call button. Replays of the webcast will be available through August 9.

Media Contacts: Paul Weeditz 713-296-3910

Susan Richardson 713-296-3915

Investor Relations: Ken Matheny 713-296-4114

Howard Thill 713-296-4140

Marathon Oil CorporationConsolidated Statement of Income (Unaudited)

Second Quarter Ended Six Months EndedJune 30 June 30

(Dollars in millions except per share amounts) 2002 2001 2002 2001

Revenues and Other Income:Revenues $8,083 $9,113 $14,492 $17,720Dividend and investee income 36 39 65 72Net gains on disposal of assets - 7 - 22Other income 8 9 24 76

Total revenues and other income 8,127 9,168 14,581 17,890

Costs and Expenses:Cost of revenues (excludes items shown below) 5,985 6,194 10,744 12,415Selling, general and administrative expenses 183 186 370 331Depreciation, depletion and amortization 308 306 602 609Taxes other than income taxes 1,151 1,203 2,211 2,325Exploration expenses 44 26 101 49Inventory market valuation credit (1) - (72) -

Total costs and expenses 7,670 7,915 13,956 15,729

Income From Operations 457 1,253 625 2,161Net interest and other financial costs 76 42 140 84Minority interest in income of Marathon Ashland Petroleum LLC 82 320 93 427

Income From Continuing Operations Before Income Taxes 299 891 392 1,650Provision for income taxes 105 311 144 569

Income From Continuing Operations 194 580 248 1,081

Discontinued Operations:Loss from discontinued operations - (18) - -Costs associated with disposition of United States Steel - (10) - (12)

Income Before Extraordinary Loss and Cumulative Effect of Changes in Accounting Principles 194 552 248 1,069Extraordinary loss on early extinguishment of debt (26) - (26) -Cumulative effect of changes in accounting principles - - 13 (8)

Net Income 168 552 235 1,061Dividends on preferred stock - 2 - 4

NET INCOME APPLICABLE TO COMMON STOCK(S) $168 $550 $235 $1,057

The following notes are an integral part of this Consolidated Statement of Income.

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Marathon Oil CorporationConsolidated Statement of Income (Continued) (Unaudited)


(Dollars in millions except per share amounts) 2002 2001 2002 2001

Applicable to Marathon Oil Corporation Common Stock:Income from continuing operations $194 $580 $248 $1,081- Per share – basic and diluted .63 1.88 .80 3.50

Net income 168 582 235 1,082 - Per share – basic and diluted .54 1.88 .76 3.50

Dividends paid per share .23 .23 .46 .46

Weighted average shares, in thousands- Basic 309,807 309,101 309,689 308,928- Diluted 310,071 309,627 309,939 309,338

Applicable to Steel Stock:Net loss $- $(32) $- $(25)

- Per share – basic - (0.36) - (0.28)- Per share – diluted - (0.36) - (0.28)

Dividends paid per share - .10 - .35

Weighted average shares, in thousands- Basic and diluted - 89,005 - 88,906

The following notes are an integral part of this Consolidated Statement of Income.

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Marathon Oil CorporationSelected Notes to Financial Statement

1. Marathon Oil Corporation (Marathon), formerly USX Corporation, is engaged in worldwide exploration andproduction of crude oil and natural gas; domestic refining, marketing and transportation of crude oil andpetroleum products primarily through its 62 percent owned subsidiary, Marathon Ashland Petroleum LLC;and other energy related businesses.

Prior to December 31, 2001, Marathon had two outstanding classes of common stock: USX–Marathon Groupcommon stock (Marathon Stock), which was intended to reflect the performance of Marathon’s energy business,and USX–U. S. Steel Group common stock (Steel Stock), which was intended to reflect the performance ofMarathon’s steel business. As described further in Note 2, on December 31, 2001, Marathon disposed of its steelbusiness by distributing the common stock of its wholly owned subsidiary United States Steel Corporation(United States Steel) to holders of Steel Stock in exchange for all outstanding shares of Steel Stock on a one-for-one basis (the Separation).

2. On December 31, 2001, in a tax-free distribution to holders of Steel Stock, Marathon exchanged the commonstock of United States Steel for all outstanding shares of Steel Stock on a one-for-one basis. The net assets ofUnited States Steel were approximately the same as the net assets attributable to Steel Stock at the time of theSeparation, except for a value transfer of $900 million in the form of additional net debt and other financingsretained by Marathon.

The income from discontinued operations for the periods ended June 30, 2001, represents the net incomeattributable to the Steel Stock for the periods presented, except for certain limitations on the amounts of corporateadministrative expenses and interest expense (net of income tax effects) allocated to discontinued operations asrequired by generally accepted accounting principles in the United States.

The financial results of United States Steel have been reclassified as discontinued operations for the secondquarter and six months ended June 30, 2001, in the Statement of Income and are summarized as follows:


(In Millions) 2001 2001

Revenues and other income $1,737 $3,301Costs and expenses 1,756 3,415

Loss from operations (19) (114)Net interest and other financial costs 43 24

Loss before income taxes (62) (138)Provision (credit) for estimated income taxes (44) (138)

Net loss $(18) $ -

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Marathon Oil CorporationSelected Notes to Financial Statement (Continued)

2. (Continued)

The following is a reconciliation of income from continuing operations to net income applicable to MarathonOil Corporation Common Stock:

Third Quarter Ended Nine Months EndedSeptember 30 September 30

(In Millions) 2001 2001

Income from continuing operations applicable to Marathon Oil CorporationCommon Stock $580 $1,081

Costs associated with disposition of United States Steel (10) (12)

Cumulative effect of accounting principle -- (8)

Amounts included above attributable to Steel Stock:- Selling, general and administrative expenses 8 14- Net interest and other financial costs 4 11- Provision for income taxes (5) (9)- Costs related to separation included in loss on

disposition of United States Steel net of tax 5 5

Net income applicable to Marathon Oil Corporation Common Stock $582 $1,082

3. On January 3, 2002, Marathon acquired certain interests in Equatorial Guinea, Africa from CMS EnergyCorporation for $1,005 million net of cash acquired. The acquisition includes oil and gas producing assets,exploration interests and certain processing facilities. Marathon utilized unused lines of credit to fund thisacquisition until permanent financing was obtained. Results of operations for the six months of 2002 includethe results of Equatorial Guinea from January 3, 2002.

On June 26, 2002, Marathon acquired Globex Energy, Inc. (Globex), a natural gas producer with major inter-est in Equatorial Guinea, West Africa. Marathon acquired 100% of the outstanding stock of Globex for $148million net of cash acquired.

4. Marathon has established an inventory market valuation (IMV) reserve to reduce the cost basis of its invento-ries to current market value. Quarterly adjustments to the IMV reserve result in noncash charges or credits toincome from operations. Decreases in market prices below the cost basis result in charges to income fromoperations. Once a reserve has been established, subsequent inventory turnover and increases in prices (up tothe cost basis) result in credits to income from operations. Six months ended June 30, 2002, results of opera-tions includes credits to income from operations of $72 million.

5. During the second quarter of 2002 Marathon retired $193 million of long-term debt resulting in a pretaxextraordinary loss of $41 million ($26 million net of taxes or $.08 per share.)

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Marathon Oil CorporationPreliminary Supplemental Statistics (Unaudited)


(Dollars in millions) 2002 2001 2002 2001

Income (Loss) From OperationsExploration & Production

United States $189 $358 $271 $800International 73 85 156 243

Income For E&P Reportable Segment 262 443 427 1,043Refining, Marketing & Transportation (a) 211 842 160 1,118Other Energy Related Businesses (b) 20 26 45 34

Income For Reportable Segments $493 $1,311 $632 $2,195

Items Not Allocated To Segments:Administrative Expenses (39) (51) (83) (87) Inventory Market Valuation Credit 1 - 72 -Gain on lease resolution with U.S. Government - - - 59Gain (Loss) on Ownership Change - MAP 2 (7) 4 (6)

Income From Operations $457 $1,253 $625 $2,161

Capital ExpendituresExploration & Production $220 $217 $438 $374Refining, Marketing & Transportation 113 115 182 212Other (c) 15 20 20 42

Total $348 $352 $640 $628

Exploration ExpenseUnited States $32 $12 $81 $25International 12 14 20 24

Total $44 $26 $101 $49

Operating StatisticsNet Liquid Hydrocarbon Production(d)

United States 119.0 126.3 120.5 125.4U.S. Equity Investee (MKM) 8.3 9.4 8.6 9.8

Total United States 127.3 135.7 129.1 135.2

Europe 68.3 34.7 56.9 44.2Other International 4.5 13.1 4.3 13.9West Africa 22.7 19.1 24.1 19.3International Equity Investee (CLAM) - .1 - .1

Total International 95.5 67.0 85.3 77.5Worldwide 222.8 202.7 214.4 212.7

Net Natural Gas Production (e)(f)United States 734.4 773.7 760.3 781.3

Europe 321.0 319.6 328.3 332.5Other International 107.5 127.2 106.5 128.7West Africa 23.1 - 36.1 -International Equity Investee (CLAM) 22.4 33.8 27.0 34.2

Total International 474.0 480.6 497.9 495.4Worldwide 1,208.4 1,254.3 1,258.2 1,276.7

Total production (MBOEPD) 424.2 411.7 424.1 425.5

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(Dollars in millions) 2002 2001 2002 2001

Operating StatisticsAverage Sales Prices (excluding derivative gains and losses)

Liquids Hydrocarbons United States $22.31 $21.70 $20.13 $22.82U.S. Equity Investee (MKM) 25.00 24.59 22.47 25.10


Europe 23.60 27.37 22.31 26.16Other International 22.56 19.83 20.58 20.97West Africa 23.72 28.18 22.21 26.57International Equity Investees (CLAM) - 10.45 - 23.49

Total International 23.59 26.10 22.18 25.33Worldwide $22.96 $23.29 $21.04 $23.84

Natural Gas (g)United States $2.99 $4.14 $2.66 $4.94

Europe 2.33 2.69 2.63 2.83Other International 2.57 3.76 2.23 4.92West Africa .25 - .25 -International Equity Investees (CLAM) 3.01 3.71 3.03 3.52


Average Sales Prices (including derivative gains and losses)Liquids Hydrocarbons

United States $22.25 $21.70 $19.35 $22.82U.S. Equity Investee (MKM) 25.00 24.59 22.47 25.10


Europe 23.60 27.37 22.31 26.16Other International 22.56 19.83 20.58 20.97West Africa 23.72 28.18 22.21 26.57International Equity Investees (CLAM) - 10.45 - 23.49


Natural Gas (g)United States $3.35 $5.05 $2.89 $5.26

Europe 2.18 2.69 2.84 2.83Other International 2.57 3.77 2.23 4.92West Africa .25 - .25 -International Equity Investees (CLAM) 3.01 3.71 3.03 3.52


Map:Crude Oil Refined(d) 972.9 958.2 932.2 914.3Consolidated Refined Products Sold (d) 1,351.2 1,303.1 1,289.9 1,278.2

Matching buy/sell volumes included in refinedproducts sold(d) 80.3 35.3 67.3 44.3Refining and Wholesale Marketing Margin (h)(i) $.0518 $.1839 $.0350 $.1364Number of SSA retail outlets (k) 2,081 2,177 - -SSA Gasoline and Distillate Sales (j)(k) 911 893 1,763 1,741SSA Gasoline and Distillate Gross Margin (h)(k) $.1116 $.1280 $.0977 $.1177SSA Merchandise Sales (k) $612 $574 $1,152 $1,062SSA Merchandise Gross Margin (k) $156 $136 $286 $250

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(a) Includes MAP at 100%. RM&T income for reportable segments includes Ashland’s 38% interest in MAP of$82 million, $ 320 million, $66 million and $428 million in the second quarter and six month year-to-date2002 and 2001, respectively.

(b) Includes domestic natural gas and crude oil marketing and transportation, and power generation.

(c) Includes other energy related businesses and corporate capital expenditures.

(d) Thousands of barrels per day

(e) Millions of cubic feet per day

(f) Includes gas acquired for injection and subsequent resale of 5.4, 9.0, 4.6, and 9.1 mmcfd in the second quarterand six month year-to-date 2002 and 2001, respectively.

(g) Prices exclude gas acquired for injection and subsequent resale.

(h) Per gallon

(i) Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation.

(j) Millions of gallons

(k) Excludes travel centers contributed to Pilot Travel Centers LLC. Periods prior to September 1, 2001 havebeen restated.

marathon oil 2nd quarter 2002

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