Marathon Oil (MRO) 10-Q 6 Nov 09 2009 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information (USD $)
In Millions, except Share data	9 Months Ended Sep. 30, 2009	Oct. 30, 2009	Jun. 30, 2008
Document information
Document type	10-Q
Document period end date	2009-09-30
Amendment flag	false
Entity information
Entity registrant name	Marathon Oil Corporation
Entity central index key	0000101778
Entity current reporting status	Yes
Entity voluntary filers	No
Current fiscal year end date	--12-31
Entity filer category	Large Accelerated Filer
Entity well-known seasoned issuer	Yes
Entity common stock, shares outstanding		707,845,149
Entity public float			$36,559

Consolidated Statements of Inco

Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data	3 Months Ended Sep. 30, 2009	3 Months Ended Sep. 30, 2008	9 Months Ended Sep. 30, 2009	9 Months Ended Sep. 30, 2008
Revenues and other income:
Sales and other operating revenues (including consumer excise taxes)	$14,335	$22,332	$37,509	$60,641
Sales to related parties	27	637	68	1,865
Income from equity method investments	75	270	184	735
Net gain on disposal of assets	5	15	200	37
Other income	35	47	112	151
Total revenues and other income	14,477	23,301	38,073	63,429
Costs and expenses:
Cost of revenues (excludes items below)	10,963	16,978	28,080	49,342
Purchases from related parties	133	244	338	609
Consumer excise taxes	1,258	1,273	3,658	3,784
Depreciation, depletion and amortization	630	584	1,988	1,513
Selling, general and administrative expenses	323	349	935	1,008
Other taxes	98	126	296	376
Exploration expenses	55	108	181	367
Total costs and expenses	13,460	19,662	35,476	56,999
Income from operations	1,017	3,639	2,597	6,430
Net interest and other financing costs	(35)	(46)	(63)	(48)
Income from continuing operations before income taxes	982	3,593	2,534	6,382
Provision for income taxes	590	1,601	1,549	2,949
Income from continuing operations	392	1,992	985	3,433
Discontinued operations	21	72	123	136
Net income	$413	$2,064	$1,108	$3,569
Basic:
Income from continuing operations, per basic share	0.55	2.82	1.39	4.84
Discontinued operations, per basic share	0.03	0.1	0.17	0.19
Net income per share, basic	0.58	2.92	1.56	5.03
Diluted:
Income from continuing operations, per diluted share	0.55	2.8	1.39	4.81
Discontinued operations, per diluted share	0.03	0.1	0.17	0.19
Net income per share, diluted	0.58	2.9	1.56	$5
Dividends, per share	0.24	0.24	0.72	0.72

Consolidated Balance Sheets (Un

Consolidated Balance Sheets (Unaudited) (USD $)
In Millions	9 Months Ended Sep. 30, 2009	12 Months Ended Dec. 31, 2008
Current assets:
Cash and cash equivalents	$1,370	$1,285
Receivables, less allowance for doubtful accounts of $13 and $6	4,288	3,094
Receivables from United States Steel, current	24	23
Receivables from related parties	56	33
Inventories	3,680	3,507
Other current assets	208	461
Total current assets	9,626	8,403
Equity method investments	1,991	2,080
Receivables from United States Steel, noncurrent	453	469
Property, plant and equipment, less accumulated depreciation, depletion and amortization of $16,631 and $15,581	31,115	29,414
Goodwill	1,424	1,447
Other noncurrent assets	806	873
Total assets	45,415	42,686
Current liabilities:
Accounts payable	6,005	4,712
Payables to related parties	50	21
Payroll and benefits payable	367	400
Accrued taxes	593	1,133
Deferred income taxes, current	611	561
Other current liabilities	513	828
Long-term debt due within one year	105	98
Total current liabilities	8,244	7,753
Long-term debt	8,581	7,087
Deferred income taxes, noncurrent	3,725	3,330
Defined benefit postretirement plan obligations	1,395	1,609
Asset retirement obligations	965	963
Payable to United States Steel	4	4
Deferred credits and other liabilities, noncurrent	410	531
Total liabilities	23,324	21,277
Commitments and contingencies
Stockholders' Equity
Preferred stock - 5 million shares issued, 1 million and 3 million shares outstanding (no par value, 6 million shares authorized)	0	0
Common stock, Issued - 769 million and 767 million shares (par value $1 per share, 1.1 billion shares authorized)	769	767
Common stock, Securities exchangeable into common stock - 5 million shares issued, 1 million and 3 million shares outstanding (no par value, unlimited shares authorized)	0	0
Held in treasury, at cost - 61 million and 61 million shares	(2,711)	(2,720)
Additional paid-in capital	6,730	6,696
Retained earnings	17,857	17,259
Accumulated other comprehensive loss	(554)	(593)
Total stockholders' equity	22,091	21,409
Total liabilities and stockholders' equity	$45,415	$42,686

Consolidated Balance Sheets Par

Consolidated Balance Sheets Parentheticals (Unaudited) (USD $)
In Millions, except Share data	Sep. 30, 2009	Dec. 31, 2008
Consolidated Balance Sheets (Parenthetical)
Allowance for doubtful accounts	$13	$6
Accumulated depreciation, depletion and amortization	$16,631	$15,581
Preferred stock, no par value	0	0
Preferred stock, shares authorized	6,000,000	6,000,000
Preferred stock, shares issued	5,000,000	5,000,000
Preferred stock, shares outstanding	1,000,000	3,000,000
Common stock, par value per share	1	1
Common stock, shares authorized	1,100,000,000	1,100,000,000
Common stock, shares issued	769,000,000	767,000,000
Common stock, shares outstanding	769,000,000	767,000,000
Common stock, securities exchangable, no par value	0	0
Common stock, securities exchangable, shares authorized	Unlimited	Unlimited
Common stock, securities exchangable, shares issued	5,000,000	5,000,000
Common stock, securities exchangable, shares outstanding	1,000,000	3,000,000
Held in treasury, shares	61,000,000	61,000,000

Consolidated Statements of Cash

Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions	9 Months Ended Sep. 30, 2009	9 Months Ended Sep. 30, 2008
Operating activities:
Net income	$1,108	$3,569
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations	(123)	(136)
Deferred income taxes	726	309
Depreciation, depletion and amortization	1,988	1,513
Pension and other postretirement benefits, net	(159)	118
Exploratory dry well costs and unproved property impairments	48	154
Net gain on disposal of assets	(200)	(37)
Equity method investments, net	42	(139)
Changes in the fair value of derivative instruments	7	218
Changes in operating capital:
Changes in current receivables	(1,241)	(396)
Changes in inventories	(184)	(1,124)
Changes in current accounts payable and accrued liabilities	742	595
All other operating, net	71	(57)
Net cash provided by continuing operations	2,825	4,587
Net cash provided by discontinued operations	81	220
Net cash provided by operating activities	2,906	4,807
Investing activities:
Capital expenditures	(4,350)	(5,062)
Disposal of assets	573	68
Trusteed funds - withdrawals	16	402
Investing activities of discontinued operations	(66)	(106)
All other investing, net	63	(102)
Net cash used in investing activities	(3,764)	(4,800)
Financing activities:
Short-term debt, net	0	1,288
Borrowings	1,491	1,248
Debt issuance costs	(11)	(7)
Debt repayments	(43)	(1,331)
Purchases of common stock	0	(402)
Dividends paid	(510)	(511)
All other financing, net	(1)	17
Net cash provided by financing activities	926	302
Effect of exchange rate changes on cash:
Continuing operations, effect of exchange rate changes on cash	19	(19)
Discontinued operations, effect of exchange rate changes on cash	(2)	(10)
Net increase in cash and cash equivalents	85	280
Cash and cash equivalents at beginning of period	1,285	1,199
Cash and cash equivalents at end of period	$1,370	$1,479

Basis of Presentation

Basis of Presentation
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
1. Basis of Presentation	1.Basis of PresentationThese consolidated financial statements are unaudited; however, in the opinion of management, reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. These consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Certain reclassifications of prior year data have been made to conform to 2009 classifications. Events and transactions subsequent to the balance sheet date have been evaluated through November 6, 2009, the date these consolidated financial statements were issued, for potential recognition or disclosure in the consolidated financial statements. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Marathon Oil Corporation (Marathon) 2008 Annual Report on Form 10-K. The results of operations for the quarter and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full year.

Accounting Standards

Accounting Standards
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
2. Accounting Standards	2.Accounting StandardsRecently AdoptedSubsequent events accounting standards were issued in May 2009 by the Financial Accounting Standards Board (FASB), which established the standards of accounting for and disclosing events that occur after the balance sheet date but before financial statements are issued or available to be issued. This codifies into the accounting standards guidance that existed in the auditing standards and should not significantly change the subsequent events that we report. We began applying these standards prospectively in the second quarter of 2009. The disclosures required appear in Note 1.Interim disclosures about fair value of financial instruments were expanded by the FASB in April 2009. Disclosures about fair value of financial instruments are now required in interim reporting periods for publicly traded companies. This change was effective for the second quarter of 2009 and did not require disclosures for earlier periods presented for comparative purposes. Adoption did not have an impact on our consolidated results of operations, financial position or cash flows. The required disclosures are presented in Note 11.Guidance for determining fair value when the volume and level of activity for the asset or liability have significantly decreased and guidance on identifying circumstances that indicate a transaction is not orderly was also issued in April 2009 by the FASB. It was effective for the second quarter of 2009 and did not require disclosures for earlier periods presented for comparative purposes. Adoption did not have a significant impact on our consolidated results of operations, financial position or cash flows. Accounting considerations for equity method investments were ratified by the FASB in November 2008, which address the initial measurement, decreases in value and changes in the level of ownership of the equity method investment. These were effective on a prospective basis on January 1, 2009 and for interim periods. Early application by an entity that has previously adopted an alternative accounting policy is not permitted. Since these were applied prospectively, adoption did not have a significant impact on our consolidated results of operations, financial position or cash flows. Guidance for determining whether instruments granted in share-based payment transactions are participating securities was issued by the FASB in June 2008. It provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, need to be included in the earnings allocation in computing earnings per share (EPS) under the two-class method.It was effective January 1, 2009 and all prior-period EPS data (including any amounts related to interim periods, summaries of earnings and selected financial data) were adjusted retrospectively to conform to its provisions. While our restricted stock awards meet this definition of participating securities, this application did not have a significant impact on our reported EPS.Guidance for determining the useful life of intangible assets was issued in April 2008 by theF

Income per Common Share

Income per Common Share
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
3. Income Per Common Share	3.Income per Common ShareBasic income per share is based on the weighted average number of common shares outstanding, including securities exchangeable into common shares. Diluted income per share includes exercise of stock options, provided the effect is not antidilutive. Three Months Ended September 30, 2009 2008 (In millions, except per share data) Basic Diluted Basic Diluted Income from continuing operations $ 392 $ 392 $ 1,992 $ 1,992 Discontinued operations 21 21 72 72 Net income $ 413 $ 413 $ 2,064 $ 2,064 Weighted average common shares outstanding 709 709 707 707 Effect of dilutive securities - 2 - 4 Weighted average common shares, including dilutive effect 709 711 707 711 Per share: Income from continuing operations $ 0.55 $ 0.55 $ 2.82 $ 2.80 Discontinued operations $ 0.03 $ 0.03 $ 0.10 $ 0.10 Net income $ 0.58 $ 0.58 $ 2.92 $ 2.90 Nine Months Ended September 30, 2009 2008 (In millions, except per share data) Basic Diluted Basic Diluted Income from continuing operations $ 985 $ 985 $ 3,433 $ 3,433 Discontinued operations 123 123 136 136 Net income $ 1,108 $ 1,108 $ 3,569 $ 3,569 Weighted average common shares outstanding 709 709 710 710 Effect of dilutive securities - 2 - 4 Weighted average common shares, including dilutive effect 709 711 710 714 Per share: Income from continuing operations $ 1.39 $ 1.39 $ 4.84 $ 4.81 Discontinued operations $ 0.17 $ 0.17 $ 0.19 $ 0.19 Net income $ 1.56 $ 1.56 $ 5.03 $ 5.00 The per share calculations above exclude 11 million stock options for the third quarter and 10 million stock options for the first nine months of 2009, as they were antidilutive. Excluded in the third quarter and the first nine months of 2008 were 6 million and 5 million stock options.

Dispositions

Dispositions
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
4. Dispositions	4.Dispositions During 2009, we have disposed of our exploration and production businesses in Ireland and certain producing assets in the Permian Basin of New Mexico and Texas. At September 30, 2009, agreements are pending to dispose of our exploration and production business in Gabon and certain assets under development in Angola. These dispositions all relate to our Exploration and Production (EP) segment. Our Irish and Gabonese exploration and production businesses have been reported as discontinued operations in the consolidated statements of income and the consolidated statements of cash flows for all periods presented. Assets and liabilities related to the Gabonese business are classified as held for sale in the consolidated balance sheet as of September 30, 2009. Discontinued operations - Revenues and pretax income associated with our discontinued Irish and Gabonese operations are shown in the following table: Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2009 2008 2009 2008 Revenues applicable to discontinued operations $ 65 $ 144 $ 188 $ 342 Pretax income from discontinued operations $ 48 $ 109 $ 98 $ 202 Net assets held for sale - As of September 30, 2009, assets and liabilities held for sale, which primarily represented our operated interests in Gabon, are shown in the following table: (In millions) Other current assets $ 10 Other noncurrent assets 46 Total assets 56 Other current liabilities 12 Deferred credits and other liabilities 17 Total liabilities 29 Net assets held for sale $ 27 Pending Gabon disposition - In August 2009, we entered into an agreement to sell our operated fields offshore Gabon for $282 million, excluding any purchase price adjustments at closing, with an effective date of January 1, 2009. We expect to close this transaction in the fourth quarter of 2009. Pending Angola disposition - In July 2009, we entered into an agreement to sell an undivided 20 percent outside-operated interest in the Production Sharing Contract and Joint Operating Agreement in Block 32 offshore Angola for $1.3 billion, excluding any purchase price adjustments at closing, with an effective date of January 1, 2009. We will retain a 10 percent outside-operated interest in Block 32. As of September 30, 2009, the book value being sold was $481 million. We expect to close the transaction by year end 2009, subject to government and regulatory approvals. Permian Basin disposition - In June 2009, we closed sales of a portion of our operated and all of our outside-operated Permian Basin producing assets in New Mexico and west Texas for net proceeds after closing adjustments of $293 million. A $196 million pretax gain on the sale was recorded. Ireland dispositions - In April 2009, we closed the sale of our operated properties in Ireland for net proceeds of $84 million, after adjusting for cash held by the sold subsidiary. A $158 million pretax gain on the sale was recorded. As a result of this sale, we terminated our pension plan in Ireland, incurring a charge of $18 million. In June 2009 we entered into an agreement to sell the subsidiary holding our 19 percent o

Segment Information

Segment Information
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
5. Segment Information	5.Segment Information We have four reportable operating segments. Each of these segments is organized and managed based upon the nature of the products and services they offer. 1)Exploration and Production (EP) explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis; 2)Oil Sands Mining (OSM) mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and by-products;3)Refining, Marketing and Transportation (RMT) refines, markets and transports crude oil and petroleum products, primarily in the Midwest, upper Great Plains, Gulf Coast and southeastern regions of the United States; and4)Integrated Gas (IG) markets and transports products manufactured from natural gas, such as liquefied natural gas (LNG) and methanol, on a worldwide basis, and is developing other projects to link stranded natural gas resources with key demand areas.As discussed in Note 4, our Irish and Gabonese businesses have been reported as discontinued operations. Segment information for all presented periods excludes amounts for these operations. Three Months Ended September 30, 2009 (In millions) EP OSM RMT IG Total Revenues: Customer $ 1,816 $ 130 $ 12,387 $ 15 $ 14,348 Intersegment {a} 148 37 8 - 193 Related parties 15 - 12 - 27 Segment revenues 1,979 167 12,407 15 14,568 Elimination of intersegment revenues (148) (37) (8) - (193) Loss on U.K. natural gas contracts{b} (13) - - - (13) Total revenues $ 1,818 $ 130 $ 12,399 $ 15 $ 14,362 Segment income $ 491 $ 25 $ 158 $ 13 $ 687 Income from equity method investments{c} 40 - 14 21 75 Depreciation, depletion and amortization {d} 427 26 167 1 621 Income tax provision {d} 297 7 119 12 435 Capital expenditures {e} 516 267 634 0 1,417 (a)Management believes intersegment transactions were conducted under terms comparable to those with unrelated parties.(b)The U.K. natural gas contracts expired in September 2009.(c)Our investment in Pilot Travel Centers LLC, which was reported in our RMT segment, was sold in the fourth quarter of 2008.(d) Differences between segment totals and our financial statement totals represent amounts related to corporate administrative activities and other unallocated items and are included in Items not allocated to segments, net of income taxes in reconciliation below.(e) Differences between segment totals and our financial statement totals represent amounts related to corporate administrative activities. Three Months Ended September 30, 2008 (In millions) EP OSM RMT IG Total Revenues: Customer $ 3,439 $ 532 $ 18,139 $ 24 $ 22,134 Intersegment {a} 278 68 1 - 347 Related parties 11 - 626 - 637 Segment revenues 3,728 600 18,766 24 23,118 Elimination of intersegment revenues (278) (68) (1) - (347) Gain on U.K. natural gas contracts{b} 198 - - - 198 Total revenues $ 3,648 $ 532 $ 18,765 $ 24 $ 22,969 Segment income $ 869 $ 288 $ 771 $ 65 $ 1,9

Defined Benefit Postretirement

Defined Benefit Postretirement Plans
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
6. Defined Benefit Postretirement Plans	6.Defined Benefit Postretirement PlansThe following summarizes the components of net periodic benefit cost: Three Months Ended September 30, Pension Benefits Other Benefits (In millions) 2009 2008 2009 2008 Service cost $ 36 $ 37 $ 4 $ 5 Interest cost 42 40 11 11 Expected return on plan assets (41) (42) 0 - Amortization: prior service cost (credit) 4 3 (1) (2) actuarial loss (gain) 8 8 (2) 0 Net periodic benefit cost $ 49 $ 46 $ 12 $ 14 Nine Months Ended September 30, Pension Benefits Other Benefits (In millions) 2009 2008 2009 2008 Service cost $ 108 $ 110 $ 13 $ 14 Interest cost 126 120 31 33 Expected return on plan assets (121) (126) 0 - Amortization: prior service cost (credit) 11 10 (4) (6) actuarial loss (gain) 24 23 (4) 1 net settlement/curtailment loss{a} 18 0 0 0 Net periodic benefit cost $ 166 $ 137 $ 36 $ 42 (a) The curtailment and settlement is related to our discontinued operations in Ireland, as discussed in Note 4. Pension expense related to Ireland was not material in any period presented. During the first nine months of 2009, we made contributions of $326 million to our funded pension plans. We expect to make additional contributions up to an estimated $7 million to our funded pension plans over the remainder of 2009. Current benefit payments related to unfunded pension and other postretirement benefit plans were $11 million and $25 million during the first nine months of 2009.

Income Taxes

Income Taxes
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
7. Income Taxes	7.Income TaxesThe following is an analysis of the effective income tax rates for the periods presented: Nine Months Ended September 30, 2009 2008 Statutory U.S. income tax rate 35 % 35 % Foreign taxes in excess of federal statutory rate 25 11 State and local income taxes, net of federal income tax effects 1 1 Other tax effects 0 (1) Effective income tax rate 61 % 46 % The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income, the relative magnitude of these sources of income, and foreign currency remeasurement effects. The change in mix of liquid hydrocarbon and natural gas sales in 2009 from 2008 resulted in more income in jurisdictions with high tax rates. Beginning in the third quarter of 2009, we are crediting certain foreign taxes that were previously treated as deductible for U.S. tax purposes. We continue to assess the realizability of our deferred tax assets. Our assessments include estimates of our expected future taxable income and assumptions about matters that are dependent on future events. These future events include, but are not limited to, future operating and financial conditions. The 2009 effective tax rate increased due to a change in judgment about the realizability of a portion our deferred tax asset related to U.S. foreign tax credits generated during the year. These changes, as well as unfavorable foreign currency remeasurement effects, contributed to the increase in the effective income tax rate in the first nine months of 2009 as compared to the same period in 2008.We are continuously undergoing examination of our U.S. federal income tax returns by the Internal Revenue Service. Such audits have been completed through the 2005 tax year. We believe adequate provision has been made for federal income taxes and interest which may become payable for years not yet settled. Further, we are routinely involved in U.S. state income tax audits and foreign jurisdiction tax audits. We believe all other audits will be resolved within the amounts paid and/or provided for these liabilities. As of September 30, 2009, our income tax returns remain subject to examination in the following major tax jurisdictions for the tax years indicated. United States {a} 2001 - 2008 Canada 2000 - 2008 Equatorial Guinea 2006 - 2008 Libya 2006 - 2008 Norway 2007 - 2008 United Kingdom 2007 - 2008 (a)Includes federal and state jurisdictions.

Comprehensive Income

Comprehensive Income
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
8. Comprehensive Income	8.Comprehensive IncomeThe following sets forth comprehensive income for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, (In millions) 2009 2008 2009 2008 Net income $ 413 $ 2,064 $ 1,108 $ 3,569 Other comprehensive income, net of taxes: Defined benefit postretirement plans 9 22 27 2 Derivatives 15 (12) 11 (8) Other 0 (14) 1 (19) Comprehensive income $ 437 $ 2,060 $ 1,147 $ 3,544

Inventories

Inventories
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
9. Inventories	9.InventoriesInventories are carried at the lower of cost or market value. The cost of inventories of crude oil, refined products and merchandise is determined primarily under the last-in, first-out (LIFO) method. September 30, December 31, (In millions) 2009 2008 Liquid hydrocarbons, natural gas and bitumen $ 1,462 $ 1,376 Refined products and merchandise 1,841 1,797 Supplies and sundry items 377 334 Inventories, at cost $ 3,680 $ 3,507

Property, Plant and Equipment

Property, Plant and Equipment
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
10. Property, Plant and Equipment	10.Property, Plant and EquipmentExploratory well costs capitalized greater than one year after completion of drilling were $371 million as of September 30, 2009, an increase of $317 million from December 31, 2008. Our Angola Block 32 exploration project is now in this category because exploratory drilling ceased in the third quarter of 2008. The $327 million of suspended costs for this project relate to 16 successful wells that have been drilled since 2002 in this license area. We plan to drill an additional exploration well in the fourth quarter of 2009. As discussed in Note 4, we have agreed to sell an undivided 20 percent outside-operated interest in this Angola Block 32.In addition, an exploration well drilled for $20 million in early 2008 on the Southwest Foinaven prospect in the U.K. Atlantic Margin was added in the first quarter of 2009. It is being evaluated for combined development in conjunction with nearby prospects. For the North Sea Gudrun field, $24 million was removed since engineering and design efforts commenced on its development during the second quarter of 2009.

Fair Value Measurements

Fair Value Measurements
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
11. Fair Value Measurements	11.Fair Value MeasurementsFair Values - RecurringThe following table presents the assets (liabilities) accounted for at fair value on a recurring basis as of September 30, 2009 and December 31, 2008: September 30, 2009 (In millions) Level 1 Level 2 Level 3 Total Derivative Instruments: Commodity $ 27 $ 2 $ (5) $ 24 Interest rate 0 0 3 3 Foreign currency 0 3 1 4 Total derivative instruments 27 5 (1) 31 Other assets 2 0 0 2 Total at fair value $ 29 $ 5 $ (1) $ 33 December 31, 2008 (In millions) Level 1 Level 2 Level 3 Total Derivative Instruments: Commodity $ 107 $ 6 $ (55) $ 58 Interest rate 0 0 29 29 Foreign currency 0 (75) 0 (75) Total derivative instruments 107 (69) (26) 12 Other assets 2 0 0 2 Total at fair value $ 109 $ (69) $ (26) $ 14 Deposits of $25 million and $121 million in broker accounts covered by master netting agreements are netted against the values to arrive at the fair values of commodity derivatives as of September 30, 2009 and December 31, 2008. Derivatives in Level 1 are exchange-traded contracts for crude oil, natural gas, refined products and ethanol measured at fair value with a market approach using the close-of-day settlement prices for the market. Derivatives in Level 2 are measured at fair value with a market approach using broker quotes or third-party pricing services, which have been corroborated with data from active markets. Level 3 derivatives are measured at fair value using either a market or income approach. Generally at least one input is unobservable, such as the use of an internally generated model or an external data source. Commodity derivatives in Level 3 at September 30, 2009 include crude oil options related to sales of Canadian synthetic crude oil. The crude oil options, which expire December 2009, are measured at fair value using a Black-Scholes option pricing model, an income approach that utilizes prices from an active market and market volatility calculated by a third-party service. The two U.K. natural gas sales contracts accounted for as derivative instruments which were previously included in Level 3 expired in September 2009.Also in Level 3 are commodity derivatives intended to manage price risk related to acquisition of ethanol for blending and light products fixed priced sales contracts. The fair value of these derivatives is measured using quoted market prices adjusted for broker market assessments.The fair value of interest rate swaps is measured using broker quotes or quotes from a reporting service which are not corroborated with data from an active market; therefore these inputs are classified as Level 3. The fair value of the foreign currency options are measured using an option pricing model and Level 3 inputs.The following is a reconciliation of the net beginning and ending balances recorded for derivative instruments classified as Level 3 in the fair value hierarchy for the three and nine months ended September 30, 2009: Three Months Ended September 30, 2009 (In millions) Beginning balance $ (29) Total realized and unrealized losses: Inclu

Derivatives

Derivatives
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
12. Derivatives	12.DerivativesWe may use derivatives to manage our exposure to commodity price risk, interest rate risk and foreign currency risk. Derivative instruments are recorded at fair value. Derivative instruments on our consolidated balance sheet are reported on a net basis by brokerage firm for commodities, as permitted by master netting agreements. For further information regarding the fair value measurement of derivative instruments see Note 11. The following table presents the gross fair values of derivative instruments, excluding cash collateral, and where they appear on the consolidated balance sheet as of September 30, 2009: (In millions) Asset Liability Net Asset Balance Sheet Location Cash Flow Hedges Foreign currency $ 2 $ 0 $ 2 Other current assets Fair Value Hedges Interest rate 5 (2) 3 Other noncurrent assets Total Designated Hedges 7 (2) 5 Not Designated as Hedges Foreign currency 3 0 3 Other current assets Commodity 202 (3) 199 Other current assets Total Not Designated as Hedges 205 (3) 202 Total $ 212 $ (5) $ 207 (In millions) Asset Liability Net Liability Balance Sheet Location Cash Flow Hedges Foreign currency $ 0 $ (1) $ (1) Other current liabilities Fair Value Hedges Commodity 0 (3) (3) Other current liabilities Total Designated Hedges 0 (4) (4) Not Designated as Hedges Commodity 1 (198) (197) Other current liabilities Total Not Designated as Hedges 1 (198) (197) Total $ 1 $ (202) $ (201) Derivatives Designated as Cash Flow HedgesWe also use foreign currency forwards and options to hedge anticipated transactions, primarily expenditures for capital projects, in certain foreign currencies and designate them cash flow hedges. In the third quarter of 2009, hedge accounting was discontinued prospectively for Kroner and Euro foreign currency forwards when it was determined that they were no longer highly effective hedges. The contracts remain in place for reporting as derivatives not designated as hedges and prospective changes in the fair value of the derivative will be recognized in net interest and financing costs. Ineffectiveness on these hedges of $3 million was recorded as a gain to net interest and other financing costs in the third quarter of 2009. As of September 30, 2009, the following foreign currency forwards and options designated as cash flow hedges were outstanding: (In millions) Period Notional Amount Weighted Average Forward Rate Foreign Currency Forwards: Dollar (Canada) October 2009 - February 2010 $ 159 1.075 (a)U.S. dollar to foreign currency. (In millions) Period Notional Amount Weighted Average Exercise Price Foreign Currency Options: Dollar (Canada) October 2009 - March 2010 $ 84 1.053 (a)U.S. dollar to foreign currency. We may use interest rate derivative instruments to manage the market risk of interest rate movements on anticipated borrowings. No such derivatives were outstanding at September 30, 2009. In recent past transactions, such derivatives have been outstanding for a period of less than one month. For deri

Debt

Debt
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
13. Debt	13.DebtAt September 30, 2009, we had no borrowings against our revolving credit facility and no commercial paper outstanding under our U.S. commercial paper program that is backed by the revolving credit facility. On February 17, 2009, we issued $700 million aggregate principal amount of senior notes bearing interest at 6.5 percent with a maturity date of February 15, 2014 and $800 million aggregate principal amount of senior notes bearing interest at 7.5 percent with a maturity date of February 15, 2019. Interest on both issues is payable semi-annually beginning August 15, 2009.

Stock-Based Compensation Plans

Stock-Based Compensation Plans
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
14. Stock-Based Compensation Plans	14.Stock-Based Compensation PlansThe following table presents a summary of stock option award and restricted stock award activity for the nine months ended September 30, 2009: Stock Options Restricted Stock Number of Shares Weighted Average Exercise Price Awards Weighted Average Grant Date Fair Value Outstanding at December 31, 2008 13,841,748 $37.59 2,049,255 $47.72 Granted {a} 4,970,500 27.62 249,721 24.70 Options Exercised/Stock Vested (108,414) 19.90 (628,020) 46.02 Canceled (203,892) 48.53 (82,147) 43.95 Outstanding at September 30, 2009 18,499,942 $34.89 1,588,809 $44.97 (a) The weighted average grant date fair value of stock option awards granted was $7.67 per share.

Commitments and Contingencies

Commitments and Contingencies
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
15. Commitments and Contingencies	15.Commitments and ContingenciesWe are the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to our consolidated financial statements. However, management believes that we will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably. Certain of our commitments are discussed below. Litigation We settled a number of lawsuits pertaining to methyl tertiary-butyl ether (MTBE) in 2008. Presently, we are a defendant, along with other refining companies, in 27 cases arising in four states alleging damages for MTBE contamination. Like the cases that were settled in 2008, 12 of the remaining cases are consolidated in a multi-district litigation (MDL) in the Southern District of New York for pretrial proceedings. Fourteen of the remaining cases have been filed in state courts (Nassau and Suffolk Counties, New York), some being re-filed after being dismissed from the MDL. These 12 MDL cases and 14 New York state court cases allege damages to water supply wells, similar to the damages claimed in the cases settled in 2008. In the other remaining case, the New Jersey Department of Environmental Protection is seeking natural resources damages allegedly resulting from contamination of groundwater by MTBE. This is the only MTBE contamination case in which we are a defendant and natural resources damages are sought. We are vigorously defending these cases. We, along with a number of other defendants, have engaged in settlement discussions related to the majority of the cases in which we are a defendant. We do not expect our share of liability, if any, for the remaining cases to significantly impact our consolidated results of operations, financial position or cash flows. We voluntarily discontinued producing MTBE in 2002.We are currently a party to one qui tam case, which alleges that Marathon and other defendants violated the False Claims Act with respect to the reporting and payment of royalties on natural gas and natural gas liquids for federal and Indian leases. A qui tam action is an action in which the relator files suit on behalf of himself as well as the federal government. The case currently pending is U.S. ex rel Harrold E. Wright v. Agip Petroleum Co. et al. It is primarily a gas valuation case. Marathon has reached a settlement with the Relator and the U.S. Department of Justice (DOJ) which will be finalized after the Indian Tribes review and approve the settlement terms. Such settlement is not expected to significantly impact our consolidated results of operations, financial position or cash flows.A lawsuit filed in the U.S. District Court for the Southern District of West Virginia alleged that our Catlettsburg, Kentucky, refinery distributed contaminated gasoline to wholesalers and retailers for a period prior to August 2003, causing permanent damage to storage tanks, dispensers and related equipment, resulting in lost profits, busine

Supplemental Cash Flow Informat

Supplemental Cash Flow Information
	9 Months Ended Sep. 30, 2009 USD / shares
Note to Consolidated Financial Statements
16. Supplemental Cash Flow Information	16.Supplemental Cash Flow Information Nine Months Ended September 30, (In millions) 2009 2008 Net cash provided from operating activities included: Interest paid (net of amounts capitalized) $ 26 $ 85 Income taxes paid to taxing authorities 1,398 2,458 Short term debt, net: Commercial paper - issuances $ 897 $ 46,693 - repayments (897) (45,405) Noncash investing and financing activities: Capital lease and sale-leaseback financing obligations $ 73 $ 49