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Rating Action:

Moody's upgrades Marathon Oil's debt rating to Baa1

31 Jul 2013

Approximately $6.5 billion of debt affected

New York, July 31, 2013 -- Moody's Investors Service (Moody's) upgraded Marathon Oil Corporation's (Marathon) senior unsecured debt rating to Baa1 from Baa2 based on expected consistent production and reserves growth with conservative financial policies. Moody's affirmed Marathon's Prime-2 commercial paper rating and the outlook is stable.

Upgrades:

....Senior Unsecured debt, Upgraded to Baa1 from Baa2

....Senior Unsecured IRB, Upgraded to Baa1 from Baa2

....Senior Unsecured Medium-Term Note Program, Upgraded to (P)Baa1 from (P)Baa2

Affirmations:

....Senior Unsecured Commercial Paper, Affirmed P-2

"Marathon is well-positioned to experience production and reserves growth in US resource plays, and we expect the development of these plays to moderate finding and development costs and improve capital efficiency, which is already near the top of its peer group," according to Stuart Miller, Moody's Vice President -- Senior Credit Officer. "The rating upgrade also reflects our view that the company will continue to follow conservative financial policies including the practice of spending within internally generated cash flow while keeping payouts to shareholders measured."

RATINGS RATIONALE

Marathon's Baa1 long-term and Prime-2 commercial paper ratings reflect its position as a large independent exploration and production company with a diversified reserve and production base. The company's ratings are supported by a high realized pre-tax cash margin of over $50 per Boe that results from roughly 70% of its production stream being oil-based. Given the modest production decline rate in its core assets and the large inventory of low-risk drilling locations in its growth assets, we expect Marathon to report increasing production and reserve levels by the end of 2015 with better capital efficiency and lower finding and development costs.

As of March 31, 2013, the company's ratio of debt to proved developed reserves stood at $5.20 per Boe and retained cash flow to debt was 58% at March 31 - both metrics are consistent with its Baa1 peers. And while comparable in scale to its rated peers, Marathon's debt to average daily production of $15,400 is stronger than EOG Resources (A3 stable), Canadian Natural Resources (Baa1 stable), Suncor Energy (Baa1 stable), and Devon Energy Corporation (Baa1 negative). Moody's believes Marathon is committed to disciplined financial management and to strong financial metrics including a ratio of debt to proved developed reserves of less than $7.50 per Boe and retained cash flow to debt in excess of 40%.

Marathon's Prime-2 commercial paper rating reflects its good liquidity profile, including $768 million in cash as of March 31, 2013 and no borrowings under its $2.5 billion commercial paper program. The commercial paper program is back-stopped by a $2.5 billion unused committed revolving credit facility that matures in April 2017. The credit facility contains a general material adverse change (MAC) representation and warranty for each new borrowing and a 65% debt to capitalization covenant, a level significantly above its current level of about 24%. Debt maturities are manageable, with less than $184 million due in the next twelve months.

The rating outlook is stable. With the recent upgrade, any additional ratings improvement will be dependent on Marathon developing a longer track record of conservative financial policies post spin-off of the downstream business. Should Marathon keep the ratio of debt to average daily production and debt to proved developed reserves below $15,000 per Boe and $5 per Boe, respectively through the end of 2015, while meeting its growth targets, a rating upgrade could be considered. Marathon's ratings could be downgraded if debt to average daily production exceeds $20,000 per Boe or if the ratio of debt to proved developed reserves exceeds $10 per Boe for an extended period. These metrics represent a meaningful deterioration from current leverage levels and are more comparable to weaker Baa2 E&P companies that lack the scale of Marathon.

The principal methodology used in this rating was the Global Independent Exploration and Production Industry Methodology published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Marathon Oil Corporation is headquartered in Houston, Texas.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stuart Miller
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's upgrades Marathon Oil's debt rating to Baa1
No Related Data.
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