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Fitch Affirms Marathon's IDR at 'BBB'; Revises Outlook to Positive



  Fitch Affirms Marathon's IDR at 'BBB'; Revises Outlook to Positive

Business Wire

CHICAGO -- June 18, 2013

Fitch Ratings has affirmed Marathon Oil Corporation's (MRO) Issuer Default
Rating (IDR) and associated ratings at 'BBB', as well as the company's
short-term IDR and commercial paper (CP) ratings at 'F2'. The Rating Outlook
has been revised to Positive from Stable. A full list of rating actions is
included at the end of this release.

Approximately $6.54 billion of debt is affected by today's rating action.

Positive Outlook:

The Positive Outlook is driven by MRO's robust operational and financial
performance over the last several quarters, which in turn has been driven by
unexpectedly strong growth in its liquids shale plays (primarily the Eagle
Ford), and solid performance in other portions of the portfolio, resulting in
debt/barrels of oil equivalent (boe) metrics that are strong for the rating
category and compare favorably to a number of higher-rated peers. Marathon
also has a sizable, multi-year inventory of drilling opportunities in the
shale plays which provides good visibility on future production and reserve
growth and increases Fitch's confidence that it should be able to sustain its
positive momentum.

Key Ratings Drivers:

Marathon's ratings are supported by its reasonably diverse upstream portfolio;
high and growing exposure to liquids in the upstream (71% of production and
77% of reserves in 2012); strong cash generation (full cycle 2012 netbacks as
calculated by Fitch of $30.67/boe); robust liquidity; and track record of
defending the rating through asset sales and capex cuts.

These are balanced by the company's historically lackluster output growth
(less than 2% on average from 2007-2011); and selective upstream execution
issues that the company has experienced in the past. However, Fitch believes
the strong performance in the Eagle Ford and Bakken, and the fact that these
lower risk plays are set to make up a growing percentage of MRO's overall
portfolio, compensates for the risk of misses elsewhere in the portfolio on a
forward-looking basis.

Upstream Metrics

Marathon's 2012 upstream metrics were very good. Total proven reserves rose to
approximately 2.11 billion boe from 1.8 billion boe the year prior. Proven
developed (PD) reserves rose to approximately 1.45, or 72% of totals. However,
653 million of PDs were associated with the AOSP project in Canada. The
company had a strong Reserve Replacement Ratio (RRR) of +186% on an organic
basis, and +226% on an all-in basis. This resulted in one-year F&D of just
$16.87/boe, and one year FD&A of just $17.11/boe. Three year FD&A was modestly
higher at $23.01/boe but included acquisitions that were heavy on acreage and
infrastructure.

As calculated by Fitch, Marathon's 2012 R/P ratio edged down to 11.8 years
versus 12.4 years in 2011. Full cycle netbacks rose sharply to $30.67/boe at
year-end (YE) 2012 ($36.38/boe at March 31, 2013). The company's strong
netbacks stem from its high and growing liquids production, which gives it
better cash flow relative to gassier peers, as well as increased efficiency in
shale plays, which lowered unit costs.

Eagle Ford and Shale Play Growth

Marathon has sharply exceeded previous production guidance for the Eagle
Ford--earlier given as 80,000 boepd by 2016 and now reset to approximately
140,000 boepd by 2017. Higher well productivity, and sharp drops in well
completion times have been key drivers of gains, with well completions falling
from 28 days in the first quarter of 2012 (1Q'2012) to 18 days in 1Q'2013. On
a forward looking basis, further gains are expected in the Eagle Ford as pad
drilling increases, and spacing between wells continues to fall from 160 acres
to 80 acres and in some cases to 60 or 40 acres. MRO's other shale plays have
also performed well, including the Bakken's (a 46% y-o-y increase in 1Q), and
the Anadarko Woodford (more than doubling from the year prior).

Recent Financial Performance

Marathon's latest 12-month (LTM) credit metrics for the period ending March
31, 2013 were strong. As calculated by Fitch, EBITDA rose to a record $9.75
billion, while debt declined to $6.54 billion from $6.9 billion, resulting in
LTM debt/EBITDA of just 0.67x, while EBITDA/gross interest expense rose to
31.7x. The combination of strong reserve additions, strong production growth,
and moderate debt reductions combined to produce debt/boe metrics that are
strong for the rating category. As calculated by Fitch, Marathon had debt/boe
proven reserves of $3.24/boe, debt/boe PD reserves of $4.52/boe, and
debt/flowing barrel of $12,504. LTM free cash flow (FCF) was -$1.21 billion
but was impacted by unfavorable changes in working capital (-$467 million).
Under Fitch's base case assumptions, the company will be moderately FCF
negative in 2013 and FCF positive in 2014.

Liquidity: Marathon's liquidity at the end of the first quarter was good, and
included cash of $768 million, and full availability on the company's $2.5
billion unsecured revolver (due 2017), which is also used to backstop the
company's commercial paper program. The main covenant on the revolver is a 65%
debt to cap ratio, versus a 24% debt to-cap ratio at March 31, 2013. Near-term
debt maturities include $68 million due in 2013, $68 million due in 2014, and
$1.068 billion due 2015. Future asset sales are expected to provide additional
liquidity to the firm. As of March 31, 2013, the company had sold or had under
contract $1.3 billion in asset sales out of a target of $1.5 billion - $3
billion in sales for 2013.

Other Liabilities: Marathon's other liabilities are manageable. The company's
Asset Retirement Obligation (ARO) rose to $1.78 billion from $1.51 billion at
YE 2011, and was primarily linked to environmental remediation of existing
upstream platforms. The pension deficit at YE 2012 rose to $516 million for
the U.S. and $581 million across all plans, up modestly from previous year
levels. 2013 expected pension contributions are $64 million, of which $9
million had been made in 1Q.

Rating Sensitivities

Positive: Future developments that could lead to positive rating actions
include:

Continued trend of solid upstream performance and maintenance of low debt/boe
metrics; including some combination of the following on a sustained basis:

--Balance sheet debt/boe 1p<$3.50

--Balance sheet debt/boe PD<$5.00

--Balance sheet debt/flowing barrel< $14,000

Negative: Future developments that could lead to negative rating action
include:

-Inability to execute on stated growth targets in key plays or major negative
reserve revision;

--A large leveraging transaction or asset sale which result in sustained
debt/boe metrics above targets identified above;

--A sustained period of low oil prices without offsetting adjustments in
spending;

--Significant shareholder-friendly actions that are debt funded.

Fitch has affirmed the following ratings with a Stable Outlook:

--IDR at 'BBB';

--Senior unsecured credit facility and notes at 'BBB';

--Industrial revenue bonds at 'BBB';

--Commercial paper at 'F2';

--Short-term IDR at 'F2'

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria & Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Full Cycle Cost Survey for E&P Producers-2012 Numbers Up, but Adjustments
Tell a Different Story' (May 28, 2013);

--'2013 Outlook: North American Oil & Gas' (Dec. 13, 2012);

--'Dividend Policy in the Energy Sector: Low Oil Prices Could Create Cash Flow
Stress' (Feb. 29, 2012);

--'Rating Oil and Gas Production Companies?Sector Credit Factors', (Aug. 9,
2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Full Cycle Cost Survey for E&P Companies (2012 Numbers Up, but Adjustments
Tell a Different Story)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708783

2013 Outlook: North American Oil & Gas

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=697097

Dividend Policy in the Energy Sector -- Low Oil Prices Could Create Cash Flow
Stress

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=672197

Rating Oil and Gas Production Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682334

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793906

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.

Contact:

Fitch Ratings
Primary Analyst
Mark C. Sadeghian, CFA
Senior Director
+1-312-368-2090
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Dan Harris
Associate Director
+1-312-368-3217
or
Committee Chairperson
Sean T. Sexton, CFA
Managing Director
+1-312-368-3130
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
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