Exploration and Production:

 

Marathon's exploration and production business focuses on growth that is well-defined, profitable and sustainable. This portfolio is backed by an expanding production resource base, selective acquisitions and competitive exploration activities.

The Company has invested more than $6.7 billion over the past three years in the Upstream segment to sustain a dependable base and allow for new development projects. This includes Marathon's re-entry into Libya, increasing production in Equatorial Guinea, the Alvheim/Vilje development in Norway, as well as significant investments in the Bakken and Piceance resource plays in the U.S.

In 2007, Marathon added more than 88 million barrels of oil equivalent (mmboe) of proved liquid hydrocarbon and natural gas reserves to our resource base. Net sales volumes in 2007, excluding bitumen production from our Oil Sands Mining segment, averaged 351 thousand barrels of oil equivalent per day (mboepd).

 

United States. New resource plays in the U.S. give Marathon exposure to net risked resources of approximately 275 mmboe. The Company draws upon our core technical competencies, project execution, reservoir characterization and completion expertise to seize emerging opportunities in the Bakken and Piceance plays.

Marathon's position in the Bakken oil play in North Dakota and eastern Montana provides access to significant resources. State-of-the-art automated rigs reduce well costs and cycle times, while providing safer, more energy-efficient performance. Efforts are currently directed at increasing the effective well length, ensuring optimum well placement and utilizing stimulation techniques to maximize production. The Company plans to drill as many as 350 wells in the next four to five years. Potential resources stand at approximately 130 mmboe. Marathon added 70,000 acres to our holdings in 2007, bringing the Company's total leasehold to approximately 320,000 acres.

In Colorado's Piceance Basin natural gas play, production is centered on non-conventional resources. Marathon's future plans include drilling 700 new wells within the next 10 years. Peak production is anticipated to be approximately 160 to 180 million cubic feet per day of natural gas between 2012 and 2014.

Marathon also holds a 65,000-acre undeveloped leasehold in Oklahoma's Anadarko Basin. The Company has consistently leveraged evolutionary exploration, drilling and production technologies to find deep, tight natural gas reserves and enable production to be brought on quickly.

In the Gulf of Mexico, Marathon holds a 100 percent working interest in the Droshky discovery offshore Louisiana. Droshky will make a substantial contribution to Marathon's worldwide production, with first production slated for the 2010/2011 time frame.

The Neptune development, in which Marathon holds a 30 percent ownership, progressed during the year as well. At peak production, Neptune will produce a gross 50 mboepd. First production is slated for 2008.

Marathon further strengthened our deepwater exploration strategy in 2007, with high bids on 27 blocks in the Gulf of Mexico Outer Continental Shelf lease sale.

 

Europe. Marathon's offshore holdings in the United Kingdom include interests in the Brae, Braemar and Foinaven fields. In 2007, Marathon and our partners conducted a 3D seismic survey on the entire Brae area. Modern seismic acquisition and advances in processing technologies will be used to help locate remaining reserves. Low-pressure operations projects have been completed to maximize natural gas recovery and maintain high natural gas deliverability rates into the U.K. market. Onshore U.K., Marathon also has interests in several coal bed methane licenses with exploration drilling and production testing on a number of wells planned for 2008.

Norway is a strategic and growing core area for Marathon that complements our operations in the U.K. sector of the North Sea. The Boa, Kneler and Kameleon accumulations are being developed using a floating production, storage and offloading vessel (FPSO). This combined development, in which Marathon holds a 65 percent interest, is known as the Alvheim development and will commence production in 2008. Marathon also holds a 46.9 percent interest in the Vilje Field and a 65 percent interest in the Volund development, both of which will be tied back to the Alvheim FPSO. Vilje is scheduled for first production in 2008, with Volund targeted for 2009. These developments are examples of Marathon's ability to identify innovative ways to discover and commercialize smaller fields.

Consistent with efforts to access new resources, Marathon signed a cooperation agreement for a technical study that could lead to the joint exploration for and production of hydrocarbons in North Central Ukraine. The Dnieper-Donets Basin is believed to contain significant remaining resources of crude oil and natural gas.

In Ireland, two additional development wells were drilled on the Corrib natural gas field in 2007. Six development wells have now been drilled in the field. Two of the wells have been completed and three more are planned for completion in 2008. Marathon holds an 18.5 percent working interest in the field and associated gas processing facilities. First production is expected in 2009 and could supply up to 60 percent of Ireland's natural gas needs during the plateau production period.

 

Africa. Angola is emerging as a future core area for Marathon based on successful exploration efforts that have led to numerous discoveries. The Company has interests in two blocks offshore Angola: Blocks 31 and 32. Eight discoveries announced during 2007 marked a continuation of Marathon's successful exploratory campaign and further reinforces the potential for multiple development areas.

In Libya, Marathon continues to grow our production base as the owner of a 16.33 percent interest in the Waha Concessions. The concessions encompass almost 13 million acres in the Sirte Basin, one of the most prolific oil and gas producing areas of Libya. Defined major project developments over the next 10 years will increase current gross production from 350 mboepd to 600 mboepd. The large undeveloped acreage position has significant exploration potential that could further grow production.

Equatorial Guinea is a core production area for Marathon and plays a key role in the integrated gas strategy by supplying the feedstock for the liquefied natural gas (LNG) production facility on Bioko Island.

 

Asia. In Indonesia, Marathon holds a 70 percent interest in the 1.2 million-acre Pasangkayu Block, where 3D seismic data acquisition and exploratory drilling are scheduled for 2008 and 2009, respectively. The Company has been 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.