Strong values have never been a more essential asset for a company. In the face of a challenging business environment in 2008, Marathon's commitment to health and safety, environmental stewardship, honesty and integrity, corporate citizenship and our high performance team culture did not waver. I am proud to present this report on Living Our Values, which reflects Marathon's corporate social responsibility (CSR) progress and performance for 2008.

 

Sustainable Solutions Require Balanced Approach

In the past year, the global economy, consumer confidence and many industries have been shaken. Environmental stewardship and energy issues focused on climate change have emerged as driving forces shaping the future of global economies. Health, social and economic challenges that once were national or regional now have consequences on a global scale, requiring international cooperation and solutions. Marathon believes that addressing these challenges will require a collaborative effort between companies, governments, non-governmental organizations and others to balance society's competing needs and desires and to achieve sustainable solutions.

In this uncertain and complex environment, our values guide the decisions we make and the actions we take to remain competitive, address the expectations of diverse stakeholders, resolve critical challenges and fulfill our corporate social responsibility. Our priorities and strategies may change as we adapt to shifts in the business environment, but our values are steadfast.

To understand how Marathon will manage the challenges ahead, it is helpful for our stakeholders – employees, investors, partners, host governments and others – to look at how our commitment to CSR guides us in solving problems. To address the broader environmental and social issues that confront us, Marathon applies our values, initiative, collaborative nature and fact-based, businesslike approach to develop mutually beneficial solutions.

 

Safety, Climate Change and Energy Security
Represent Key Challenges

Maintaining a safe and healthy workplace is one priority that does not change at Marathon. In 2008, our ongoing emphasis on safety awareness, training and leadership for employees and contractors and on process safety resulted in safety performance improvements in all Marathon business units. However, in early 2009 in two separate incidents at Marathon facilities in Louisiana, we experienced two contractor fatalities, and three other contractor injuries. These are tragic reminders that we must remain vigilant concerning safety as we strive to achieve an injury-free work environment for everyone at Marathon.

Another challenge for Marathon is improving our environmental performance, particularly with respect to carbon emissions. While we are making headway, we need to do a better job of setting targets to ensure greater progress. In 2009, Marathon will set energy efficiency improvement targets and a long-term energy efficiency goal to strategically guide our carbon emissions reduction programs. We also will develop long-term targets for reducing our greenhouse gas emissions per unit of output. Our plan is to make the appropriate goals public in 2010.

Marathon believes that climate change requires global solutions. We are participating in the ongoing U.S. public policy debate about climate change and other critical environmental and energy policies. As debate intensifies, it is still unclear which route the U.S. will take to address environmental concerns, while achieving economic stability and growth and national energy security. Marathon has put forth a strategy that provides for the investment and time required to achieve U.S. energy security. The key elements of this strategy are improved energy efficiency and conservation, increased energy supplies and diversity of energy sources, and the application of innovation and new technologies.

While Marathon does not advocate any new taxes on the industry or the American public, if a cost of carbon must be imposed, then the Company would prefer a carbon tax as a more stable, transparent and equitable approach than a cap-and-trade mechanism. In addition, we believe a substantial amount of the revenue generated through a carbon tax should be directed toward technologies that will minimize the environmental impact of fossil fuel use and toward emerging alternative energy technologies.

All solutions require a balance between supplying the growing demand for energy resources, including oil and gas, and reducing greenhouse gas emissions. This is one of the defining challenges of our time – for Marathon, the energy industry, our nation and the world.

Today, Marathon is an oil and gas exploration, production, refining, transportation and marketing company. Independent research shows that oil and gas will continue to be dominant energy sources for at least the next two decades, and likely beyond. Yet we recognize the need to transform over time into a more broad-based energy company. Marathon is investigating emerging technologies that would enable us not only to adapt, but to thrive as we help meet future energy needs and society's desire for cleaner energy.

This internal transformation will put our high performance team environment to the test. Marathon employees at every level will need to demonstrate leadership, creativity, perseverance and agility to shift our business model. We continue to emphasize competency, knowledge transfer, collaboration, teamwork, and honesty and integrity to ensure that Marathon employees have the skills and know-how to move our Company forward.

 

Programs Demonstrate Marathon's CSR Commitment

Because global economic conditions have local consequences, Marathon must also manage the shifting CSR environment. In countries that rely heavily on oil revenues, lower oil prices may make it difficult for governments to meet their commitments to education and other social programs. Some of these governments will look to the oil and gas industry for additional revenues. In addition, civil society and other stakeholders have higher expectations of CSR programs because of rising concerns about globalization.

We are proud that our CSR programs are aimed at improving the quality of life in communities and continue to seek opportunities to make a positive and sustainable difference. At the same time, we recognize that CSR programs must strike a balance between supporting Marathon's business needs and competitive position, and addressing our stakeholders' needs and expectations. Our values help us find the right balance.

In Equatorial Guinea (EG), Marathon is a leader in fighting malaria, a major public health threat that profoundly affects the EG economy. Based on the lifesaving results of the Bioko Island Malaria Control Program (BIMCP) from 2003 through 2008, Marathon and our partners extended the program through 2013 to ensure there is local capacity to sustain the program and continue to save lives beyond 2013. This $28 million investment in phase 2 of the BIMCP by Marathon and our partners was a foundational gift in the United Nations Malaria Capital Campaign that seeks to raise $100 million to benefit everyone at risk of malaria in Africa.

Marathon's commitment to CSR is evident throughout our operations. For our Detroit, Michigan, refinery heavy oil upgrade project (DHOUP), Marathon engaged a wide range of stakeholders to create a project that will have a positive impact on the community. We committed to go beyond compliance to reduce air emissions, including retrofitting more than 160 Detroit public school buses with diesel emission controls and enhancing street sweeping of paved roads near the refinery. Since our DHOUP air permit was issued in June 2008, we have continued to work with the community, regulators and other stakeholders to look for potential additional enhancements.

Our CSR efforts range from developing comprehensive strategies to make local residents aware of the qualifications for Marathon job opportunities to installing best available technology in our exploration and production operations and refineries to reduce environmental impacts. In all cases, our goal is sustainability of the Company and our communities.

Marathon is well prepared to take on the CSR challenges ahead. On behalf of Marathon employees, thank you for taking the time to read the Living Our Values 2008 Corporate Social Responsibility Report and learning how values and CSR shape the Company's future.

 

 

Sincerely,

Clarence P. Cazalot Jr.
President and Chief Executive Officer

June 2009