environmental stewardship

Marathon is committed to protecting the environment. The Company places significant emphasis and resources on improving efficiency and minimizing releases, emissions and wastes throughout its operations. The Global Performance System and Responsible Care Management System® drive continual improvement in environmental performance.

Environmental Performance Metrics
Upstream and Downstream use a variety of environmental performance metrics based on their operations. Oil spills are a principal measure of environmental performance. Since Upstream handles significant volumes of produced water (water brought to the surface during crude oil and natural gas production), it also tracks total fluid spill volumes. Oil and total fluids spills are reported on a normalized basis.
    In 2007, Upstream is implementing internal metrics and programs to drive further environmental performance improvements. USPO will focus on reducing the number of permit exceedances, spills, notices of violations and other reportable regulatory events.
    Downstream uses an internal metric, Designated Environmental Incidents (DEI), to track environmental events that are reportable to U.S. federal or state government agencies. One DEI is counted for each reportable spill or release, National Pollution Discharge Elimination System (NPDES) permit exceedance, other permit exceedance or notice of violation received from an applicable agency.
    For the fifth consecutive year, Downstream (excluding SSA) reduced its DEIs, recording 83 DEIs in 2006, compared to 86 in 2005. In 2006, SSA (Retail) experienced 150 DEIs, compared to 153 recorded in 2005. Every DEI requires an incident investigation to determine root causes and prevent future occurrences.
    Downstream also reports Toxic Release Inventory (TRI) emissions in accordance with U.S. EPA requirements. Due to report timing, TRI results are reported one year in arrears. Downstream’s total TRI emissions in 2005 were 946 tonnes, compared to 962 tonnes emitted in 2004.
     Downstream is developing a new metric, the Responsible Care® Index for its internal metrics program, and will use it when setting targets for 2008. Downstream will also continue to focus on reducing DEIs in 2007, specifically reportable spills and releases.

Spills and Discharges
In 2006, Upstream’s worldwide liquid hydrocarbon spill rate was 6.3 barrels per million barrels produced (bbl/mmbbl), compared to a target of 6 bbl/mmbbl. This is 28 percent higher than in 2005. Globally, Upstream recorded a total of 50 oil spills greater than one barrel. Of these, 46 occurred in U.S. onshore operations. The largest oil spill, 119 barrels, occurred in U.S. onshore operations and was captured in secondary containment. Outside the U.S., one spill in Russia and three spills in West Africa exceeded one barrel of oil. All oil spills in Marathon’s North Sea operations were less than one barrel. Approximately 46 percent of total hydrocarbons spilled in Upstream operations were captured in secondary containment and nearly 40 percent of the total spilled was recovered.
     Marathon investigated oil spills in 2006 that were associated with the failure of the automatic shutdown system in its West Texas operating area. Corrective actions were implemented to address the causes. Marathon also communicated the incident investigation results and corrective actions to other USPO locations.
    The total fluids spill rate includes all liquids except fresh water. Upstream’s 2006 total fluids spill rate was 3.8 per bbl/mmbbl of all liquids produced (which includes a significant amount of produced water). This rate was a 60 percent decrease from 2005 and the lowest ever recorded. Approximately 90 percent of Upstream’s fluid spills occurred in U.S. onshore operations, with the five largest accounting for 25 percent of the volume spilled. Upstream will focus additional attention on ongoing programs to manage produced water and prevent fluid spills throughout its operations.
    Downstream (including SSA) recorded a total of 53 reportable spill events in 2006 and a total reportable spill rate of 1.2 bbl/mmbbl of refinery throughput. This spill rate is 25 percent lower than the low rate achieved in 2005. This metric includes spills of all regulated materials that must be reported.
    Under U.S. Coast Guard regulations, any amount of oil spilled to water must be reported. Downstream’s Marine organization experienced four reportable spills totaling less than 10 gallons spilled out of approximately 6.6 billion gallons of petroleum products transported by water during 2006. To further improve performance, Marine is voluntarily installing high-level alarms on its barges that carry light oil. At year-end 2006, alarms had been installed on 110 light oil barges. High-level alarms will be installed on the remaining 20 barges during scheduled drydocking and on all new barges in light oil service. The Marine organization received the U.S. Coast Guard’s William M. Benkert Marine Environmental Protection Award in 2006. The award recognizes outstanding achievements in marine environmental protection that go beyond compliance with industrial and regulatory standards.
    In addition, MPL moved more than 1 billion barrels of product in 2006 with a total reportable spill volume of approximately 5 barrels. MPL’s pipeline integrity, damage prevention and public awareness programs contributed to this performance. Based on this performance, MPL won API’s 2006 Distinguished Award for Outstanding Safety and Environmental Performance.

Wastes and Residual Materials
Marathon complies with all waste regulations throughout its worldwide operations and has programs to reduce the volumes of hazardous and non-hazardous materials it generates.
    Refineries and other Downstream facilities develop tailored waste minimization programs that target their specific needs. For example, the Garyville refinery eliminated approximately 423,600 barrels of hazardous waste in 2006 utilizing a centrifuge and thermal desorption unit to recover oil and hazardous constituents from waste sludges. In 2006, this process recovered more than 25,870 barrels of oil for reprocessing into usable products. Using similar technology, the Robinson refinery reduced 18,580 tons of hazardous waste to 576 tons and recovered more than 20,000 barrels of oil for reprocessing in 2006.
    Recycling, reuse and reclamation efforts are local initiatives in Marathon operations. The Brae Field operations in the North Sea have tracked recycled cardboard, wood, aluminum and steel cans and paper products since 1998. Program administrators analyze the types of waste generated and emphasize the individual’s role in reducing waste. As a result, Brae operations replaced disposable plastic products with reusable cups and washable cloth overshoes. The operations also segregate waste to reduce the volume going to landfills and will focus on this in 2007.
    The Catlettsburg, Kentucky, refinery recycles 25 tons annually of used wood pallets instead of sending them to landfills. In 2006, the Garyville refinery shipped 1,100 tons of spent catalyst for reclamation instead of disposal.
    Currently, Marathon does not have an enterprise-wide process to consistently capture consolidated information about performance indicators such as controlled discharges to water; other spills and accidental releases; other effluent discharges; hazardous waste and non-hazardous waste; and recycled, reused or reclaimed materials. The Company is investigating systems to track, capture and collect this data across the enterprise.

Emissions
Marathon is committed to reducing all types of air emissions from its operations. The Company evaluates operations periodically to identify process improvements and technology solutions to minimize air emissions. Current reduction efforts include cost-effective energy efficiency measures; prevention monitoring and prudent operations to reduce gas flaring; and use of best practices and affordable technologies in operations. Upstream business units implement specific plans focused on best practices and technology enhancements to improve energy and operational efficiencies. Individual Downstream facilities implement efficiency and emissions reduction strategies targeted to their specific operations.

Greenhouse Gas Emissions
Marathon recognizes and shares concerns about climate change and its potential impact on the environment. The use of carbon-based fuels results in the generation of GHGs, which many believe contribute to climate change. Nevertheless, the use of carbon-based fuels will be required in increasing amounts for the foreseeable future in order to meet the world’s growing demand for energy.
    Marathon reports 2002 through 2006 GHG emissions from its operated facilities. Emissions are estimated using industry guidelines (API Compendium of Greenhouse Gas Emissions Methodologies for the Oil and Gas Industry and Petroleum Industry Guidelines for Reporting Greenhouse Gas Emissions from API, IPIECA and the International Association of Oil & Gas Producers). Reported emissions, including direct and indirect sources, are shown in terms of carbon dioxide equivalent (CO2e), a combination of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and (for Downstream only) sulfur hexafluoride (SF6).
    The GHG inventory is an evolving process and Marathon’s 2006 Report reflects continued improvement in accuracy and completeness of data. The 2002 through 2005 Upstream emissions are adjusted from earlier reporting to include additional sources such as tanks (hydrocarbon and produced water), mobile sources (LNG tankers and corporate aircraft), other non-routine activity and indirect-source emissions for purchased electricity. The scope for Upstream’s emissions profile was expanded to include N2O emissions.
    For 2006, the combined Upstream and Downstream Corporate-wide GHG emissions are estimated to be 19.6 million tonnes. This represents a 1.8 percent decrease from 2005 adjusted Corporate-wide GHG estimated emissions of 19.95 million tonnes.
    Upstream reports GHG emissions from its operated production and integrated gas operations worldwide. The principal direct sources of emissions for Upstream are combustion equipment, flares, tanks (hydrocarbon and produced water), vents (process and emergency), LNG tankers and fugitives. Purchased electricity is the sole indirect source of emissions for Upstream.
    In 2006, Upstream’s estimated GHG emissions are 5.15 million tonnes CO2e with a normalized rate of 23 tonnes per thousand barrels of oil equivalent (mboe) production. Upstream’s estimated GHG emissions for 2002 through 2006 increased up to 28 percent by including the additional sources previously mentioned. The main sources for this increase were emissions from purchased electricity (16 percent), tanks (6 percent) and LNG tankers (3 percent). Expanding the Upstream scope to include N2O emissions resulted in nominal (less than 2 percent) changes. Comparing 2006 and 2005 Upstream results based on these additional sources, both emissions and the normalized rate continue to decline, reflecting efforts to increase operational and energy efficiencies. From the 2004 peak, Upstream GHG emissions and the normalized rate decreased 35 percent and 45 percent, respectively.
    Upstream continues efforts to identify additional opportunities to reduce GHG emissions through implementation of technologies and best practices to lower fuel consumption and associated emissions. Despite these efforts, some operations project an emissions increase in 2007 due to new facilities and fields coming on-line.
    Downstream’s GHG reporting includes Marathon-operated refining, marketing and transportation assets. Refining accounts for approximately 93 percent of the total direct and indirect Downstream GHG emissions. Combustion equipment in refineries is the principal direct source of emissions. Downstream estimated total direct and indirect GHG emissions in 2006 are 14.45 million tonnes CO2e, with a normalized rate of 32.6 tonnes per thousand barrels (mbbl) refinery throughput. Although total refining throughput increased by nearly 3 percent compared to 2005, total Downstream GHG emissions increased by only 1.1 percent.
     Downstream focuses on improving energy efficiency and participates in API’s Climate Action Challenge, an industry commitment to improve energy efficiency 10 percent between 2002 and 2012. Marathon estimates its refineries achieved a 4.5 percent improvement in energy efficiency from 2002 through 2006. This was accomplished by installing new energy-efficient equipment and upgrading existing equipment.

Other Operational Air Emissions
Marathon reports other operational air emissions for its Downstream operations in accordance with U.S. EPA requirements for criteria pollutants. Reported criteria pollutants include nitrogen oxide (NOx), sulfur dioxide (SO2), carbon monoxide (CO), volatile organic compounds (VOC) and particulate matter (PM). In 2005, total criteria pollutant emissions were 25,675 tons, down 6 percent from the total criteria pollutants emitted in 2004 (criteria pollutant emissions are reported one year in arrears due to report timing).
    Marathon’s refineries are implementing environmental projects to reduce criteria pollutants emissions. In 2006, the Detroit refinery completed its first full year of operations following pollution control improvements, including installing new equipment that uses a low NOx catalyst, shutting down inefficient equipment and reducing flaring. The refinery reduced its annual criteria pollutants emissions by approximately 30 tons, while increasing crude refining capacity. It also improved its energy efficiency by approximately 10 percent. The Texas City refinery installed new equipment and technology in late 2006 that is expected to reduce NOx emissions by more than 280 tons per year.
    The Robinson refinery identified flared gas from its coker unit as a significant source of SO2 emissions. In late 2006, it installed a system in the coker to recover this gas and return it to process units. The system reduces SO2 emissions by an estimated 150 tons per year.
    In 2006, Downstream’s Terminals group installed geodomes on six storage tanks, substantially completing a multi-year project to reduce emissions of VOCs from its gasoline storage tanks. The domes installed in 2006 reduced VOC emissions by an estimated 9 tons annually. All external floating roof storage tanks now have geodomes, except for three tanks located at recently acquired terminals.

Resource Use
Marathon strives to use less energy, and use it efficiently, in producing and refining its petroleum products in order to conserve resources, reduce emissions and lower costs. Ongoing efforts to consume less fuel and improve efficiency range from upgrading energy-efficient equipment in Upstream production operations to developing comprehensive energy strategies at Downstream facilities. As part of such a strategy, the Catlettsburg refinery conducted a heater survey to identify improvement opportunities. More than 1,400 steam traps were replaced to increase energy recovery, and insulation was upgraded on approximately 2 miles of steam line in 2006.

Renewable Energy Resources
Marathon has been a leading blender of ethanol in gasoline in the U.S. for more than 15 years. Demand for ethanol, a renewable fuel made from corn, is growing. In 2006, the Company formed a 50/50 joint venture to construct and operate ethanol plants in the U.S. The joint venture started construction of a plant in Greenville, Ohio, in late 2006 and anticipates it will be operational in the first quarter of 2008.
    In 2006, the Company added storage and distribution facilities for biodiesel, another renewable fuel, at its Louisville, Kentucky, terminal. The Kentucky Clean Fuels Coalition, Kentucky Soybean Board and National Clean Cities, Inc., collaborated with Marathon to enable this installation. Marathon has similar biodiesel blending infrastructure at its St. Paul Park terminal.
     These activities are part of Marathon’s biofuels investment program designed to increase its ability to manufacture, blend and distribute this growing component of the U.S. transportation fuel mix. By mid-2008, Marathon will have the capability to blend approximately 1.2 billion gallons of ethanol per year across its entire gasoline distribution network.

Gas Reinjection Project Achieves Goals
of Voluntary Initiative

Marathon participates in the Global Gas Flaring Reduction (GGFR) initiative aimed at progressively reducing gas flaring and venting by sharing global best practices and implementing country-specific programs. GGFR, a private-public partnership, was launched at the World Summit for Sustainable Development in 2002 and is coordinated by the World Bank.
    GGFR’s Global Voluntary Standard for Global Gas Flaring and Venting Reduction supports flare reduction initiatives, going beyond prevailing flaring and venting practices in many countries. The goals of the Voluntary Standard are to reduce direct emissions of methane and to reduce poverty through collaborative efforts with governments. Marathon’s gas reinjection project in Equatorial Guinea achieves both of these goals. In addition to significantly reducing flared gas volumes and emissions, the project supplies associated gas to a 28 megawatt electrical generating plant. Electricity from the plant supplies all of the electricity to Malabo, the capital of Equatorial Guinea. Marathon and the government of Equatorial Guinea collaborated on operation of this power plant to deliver a reliable source of affordable energy.
     While Marathon has not developed a specific implementation standard or guideline pertaining solely to GGFR, many of its efforts to improve operational efficiency meet the intent of GGFR’s Voluntary Standard. Marathon’s practices include measures to minimize flaring and venting as a method to mitigate GHGs. Controls implemented by its operating units have led to decreases in flared and vented volumes. Marathon expects these flare reductions, when implemented, to achieve GHG mitigation and flare minimization consistent with GGFR goals.

Other Environmental Indicators
Biodiversity
Marathon complies with all applicable laws that protect wildlife. This frequently requires the Company to change or delay operations.
     In Wyoming, where 72 percent of Marathon’s operations are on federal lands, the Company adjusts operations as needed when threatened or endangered species or their critical habitats are present. Marathon has moved well locations because of specific habitats for endangered species such as the black-footed ferret. Marathon has also rerouted roads and pipelines, and seasonally delayed operations to accommodate threatened or endangered animals.
     In Alaska, the majority of Marathon’s operations are in wetlands that are subject to coastal zone management. The Company complies with regulations that limit the timing, location and duration of various operations to minimize intrusion on habitats for migratory birds, beluga whales, migrating salmon, caribou and other wildlife. For the East Swanson River Satellite exploration project in the Kenai National Wildlife Refuge (KNWR), Marathon elected to build a bridge over a creek instead of a culvert that could hinder fish migration. As part of this project, the Company donated funds to support a graduate student’s study of spiders in the KNWR. The researcher found a new species of spider that had not been documented before.
    For operations outside the U.S., Marathon conducts thorough environmental impact assessment studies (EIAs), especially for new operations in developing countries or to augment existing conservation regulations. These EIAs frequently identify high biodiversity resources. Marathon has implemented recommended mitigation measures contained in these EIAs to address potential impacts from new facilities.

   Marathon Participates in EPA STAR Programs

The EPA Natural Gas STAR Program is a voluntary partnership between the U.S. EPA and oil and natural gas companies. The program aims to reduce methane emissions by implementation of cost-effective technologies and practices.
    Marathon became a charter member of Natural Gas STAR in 1993. By implementing best practices, Marathon has achieved a cumulative emissions reduction of more than 46 billion cubic feet (bcf) of methane since 1994. These best practices include installation of vapor recovery units, replacement of high-bleed pneumatic devices, installation of plunger lifts and green completions. In 2005, Marathon was the “Best Performer” in the STAR Production Sector, achieving 3.5 bcf of reductions.
    In 2006, EPA launched Natural Gas STAR International. This program utilizes the progress made within the U.S. and expands sharing of its activities to operations outside of the U.S. Marathon also is a charter member of this international effort.
    For its dedication to the program and achievements in methane emissions reductions, Marathon has twice received STAR’s Production Partner of the Year Award, most recently in 2006.
    EPA also sponsors ENERGY STAR, a voluntary program targeting both homes and businesses across the U.S. The ENERGY STAR partnership for businesses emphasizes strong corporate energy management strategies and provides resources for the companies interested in improving the energy efficiency of their facilities and operations. EPA awards the ENERGY STAR to manufacturing plants that are in the top 25 percent of energy efficiency in their industry. To date, four of Marathon’s refineries have received this recognition (Canton, Ohio; Garyville, Louisiana; St. Paul Park, Minnesota; and Texas City, Texas).