We continue to have great confidence in Marathon's strategic plans, and our track record demonstrates an ability to deliver long-term sustainable value growth for our shareholders, despite a challenging global business climate that places tremendous pressure on the industry. Whether near-term volatility in the market due to high crude oil prices and lower product margins, escalation in costs to run our business, or recruiting and retaining a skilled workforce in a tight labor market, Marathon has built an organization that continues to meet these challenges.

Dear Fellow Shareholders:

Reflecting on 2007, Marathon had significant accomplishments in each of our business segments — a direct result of our focus on operational strength and sound financial discipline, innovative thinking and an unwavering commitment to living our values. While we continue to face a very challenging global business climate, the Company has created a platform for defined, profitable growth that will deliver value in both the near and long term.

 

Maximizing the value of our asset base across the globe. Marathon continued to improve the operating performance of our international portfolio. The upstream segment benefited from high commodity prices, while the downstream business was further strengthened through strategic investments. The Company also maintained financial flexibility to invest in, and leverage, new opportunities.

 

On Equatorial Guinea's Bioko Island, construction of the $1.5 billion (excluding capitalized interest) liquefied natural gas (LNG) production facility was completed on budget and six months ahead of schedule. With production capacity of 3.7 million metric tonnes per annum, this project is now producing clean, abundant energy for world markets.

 

In October, Marathon acquired Alberta-based Western Oil Sands Inc., positioning the Company to realize its fully integrated strategy to align oil sands production with heavy oil upgrading projects at our refineries. A projected $1.9 billion investment (excluding capitalized interest) in our Detroit, Michigan, refinery will increase its heavy oil processing capacity by approximately 80,000 barrels per day (bpd) and its crude oil refining capacity by 15 percent, or 15,000 bpd. When completed in late 2010, the project will add more than 400,000 gallons per day of clean transportation fuels to the marketplace.

 

The construction phase of the projected $3.2 billion expansion (excluding capitalized interest) of our Garyville, Louisiana, refinery commenced in March and leverages the Company's most efficient and profitable downstream asset. Startup is planned for the fourth quarter of 2009, when the refinery will rank as the fifth-largest in the United States.

 

In the Gulf of Mexico, the Company was high bidder on 27 blocks in the Outer Continental Shelf lease sale. Also in the Gulf, a deepwater oil discovery on the Droshky prospect encountered high-quality reservoirs, and production could begin as early as 2010. The potential of offshore Angola was also confirmed with the announcement of eight discoveries in 2007.

 

Marathon received approval to develop and operate the Volund Field on the Norwegian Continental Shelf. The Company plans to bring the field into production during 2009 through a tie-back to the Alvheim development.

 

Marathon was awarded two study agreements in Indonesia and farmed into additional study agreements that could lead to the acquisition of new leaseholds at a future lease sale. This would complement Marathon's existing acreage position in the Pasangkayu block offshore the Indonesian island of Sulawesi. In addition, mid year, Marathon signed a cooperation agreement to carry out technical studies of an area of mutual interest in North Central Ukraine, where the Dnieper-Donets Basin is believed to contain significant remaining undiscovered resources of crude oil and natural gas.

 

Executing our strategy to deliver total shareholder return. Marathon's focus on maintaining a fully integrated structure across the value chain and delivering innovative energy solutions through unique partnerships remains our driving force. The Company has a consistent history of delivering top-tier results in a number of key performance measures. Importantly, Marathon placed first in total shareholder return among the 13 companies in the Amex Oil Index (XOI) for the three-year period ended December 2007.

 

Positioning the Company for future success. As our focus turns to 2008, we will continue to stay the course by drawing upon Marathon's ability to profitably capture resources and deliver energy to our customers. We expect 2008 will show significant growth, as Marathon is uniquely positioned with a broad portfolio of projects. Our strategy remains focused on delivering top-quartile results in our XOI peer group by:

• Retaining a substantial asset position in member countries of the Organisation for Economic Co-operation and Development (OECD), expecting to maintain an asset base of approximately 85 percent OECD in 2008.
• Continuing to focus on financial discipline.
• Developing our integrated business with world-class assets.
• Offering a top-tier U.S. refining, marketing and transportation business.
• Expanding the exploration and production business segment, with well-defined production growth through 2010.
• Maximizing the value of business segments by investing in existing operations and, when appropriate, entering into complementary ventures designed to enhance overall business results and increase shareholder value.
• Investing in differentiating technologies.
• Adhering to our core values, which include maintaining high standards of business ethics and integrity, and responsible operations wherever we conduct business.

 

In closing, we offer our sincere appreciation for your confidence as a Marathon shareholder in our ability to enhance the value of your investment. We also recognize the dedication of our employees and thank them for sharing our vision for the Company.

 

Respectfully,

 

 

 

March 2008