Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

We are a global integrated energy company with significant operations in the U.S., Canada, Africa and Europe. Our operations are organized into four reportable segments:

w Exploration and Production ("E&P") which explores for, produces and markets liquid hydrocarbons and natural gas on a worldwide basis.
w Oil Sands Mining ("OSM") which mines, extracts and transports bitumen from oil sands deposits in Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and by-products.
w Refining, Marketing & Transportation ("RM&T") which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, upper Great Plains, Gulf Coast and southeastern regions of the United States.
w Integrated Gas ("IG") which markets and transports products manufactured from natural gas, such as liquefied natural gas ("LNG") and methanol, on a worldwide basis, and is developing other projects to link stranded natural gas resources with key demand areas.

Certain sections of Management's Discussion and Analysis of Financial Condition and Results of Operations include forward-looking statements concerning trends or events potentially affecting our business. These statements typically contain words such as "anticipates," "believes," "estimates," "expects," "targets," "plans," "projects," "could," "may," "should," "would" or similar words indicating that future outcomes are uncertain. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in forward-looking statements. For additional risk factors affecting our business, see Item 1A. Risk Factors in our 2008 Annual Report on Form 10-K.

Overview and Outlook

Exploration and Production

Production

Net liquid hydrocarbon and natural gas sales averaged 404 thousand barrels of oil equivalent per day ("mboepd") during the first quarter of 2009 compared to 378 mboped in the same quarter of 2008. This 7 percent increase in sales volumes reflects the addition of the Alvheim/Vilje development offshore Norway and the Neptune development in the Gulf of Mexico, both of which began production in mid-2008. Natural gas sales in Equatorial Guinea have also increased due to improved reliability at the LNG and methanol plants which purchase this natural gas.

In February, we began drilling the first of four development wells on the Droshky discovery in the Gulf of Mexico on Green Canyon Block 244, with first production targeted for 2010.

Our net liquid hydrocarbon sales in North Dakota from the Bakken Shale resource play have increased to 8,500 barrels per day ("bpd") in first quarter 2009 compared to 3,500 bpd in the same quarter of last year. Development of the Bakken Shale play is part of our targeted expansion into key North America resource plays.

Exploration

During the first quarter of 2009, we announced the Leda discovery on Block 31 offshore Angola which was our 29th discovery on Blocks 31 and 32. We also participated in 2 wells in our Angola exploration and appraisal program that have reached total depth, the results of which will be announced upon receipt of government and partner approval. We hold a 10 percent outside-operated interest in Block 31 and a 30 percent outside-operated interest in Block 32.

We were the apparent high bidder on 16 blocks bid in the Central Gulf of Mexico Lease Sale No. 208 conducted by the Minerals Management Service in the first quarter of 2009. Ten blocks are 100 percent Marathon, and the remaining six blocks were bid with partners, for a total of $62 million.

Divestitures

On April 17, 2009, we closed the sale of our operated properties located in Ireland for proceeds of $186 million, before adjusting for cash on hand at closing of $84 million. An after-tax gain on the sale of these properties of approximately $100 million will be recorded in the second quarter of 2009. Net production from these operations averaged 5,000 boepd in the first quarter of 2009. Our net proved reserves associated with these assets as of December

31, 2008, were 6 million barrels of oil equivalent ("mmboe"). In addition, we terminated our pension plan in Ireland for which a separate pretax loss of $21 million will be recognized in the second quarter of 2009.

In April 2009, we entered into two agreements to sell all of our company-operated and a portion of our outside-operated assets in the Permian Basin of New Mexico and west Texas. The total value of these transactions is $301 million, excluding any purchase price adjustments due at closing. We expect to close these transactions in the second quarter of 2009. Net production from these operations averaged 8,150 boepd in the first quarter of 2009. Our net proved reserves associated with these assets as of December 31, 2008, were 14 mmboe.

The above discussions include forward-looking statements with respect to the timing and levels of future production, anticipated future exploratory drilling activity and pending divestitures. Some factors that could potentially affect these forward-looking statements include pricing, supply and demand for petroleum products, the amount of capital available for exploration and development, regulatory constraints, timing of commencing production from new wells, drilling rig availability, unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response, and other geological, operating and economic considerations. The foregoing forward-looking statements may be further affected by the inability to obtain or delay in obtaining necessary government and third-party approvals and permits. The divestitures could also be adversely affected by customary closing conditions. The foregoing factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

Oil Sands Mining

Our net bitumen production was 25 thousand barrels per day ("mbpd") in the first quarter of 2009 compared to 24 mbpd in the same quarter of 2008.

The Athabasca Oil Sands Project ("AOSP") Expansion 1, which includes construction of mining and extraction facilities at the Jackpine mine, expansion of treatment facilities at the existing Muskeg River mine, expansion of the Scotford upgrader and development of related infrastructure, is approximately 60 percent complete and is anticipated to begin operations in late 2010 or early 2011.

The above discussion includes forward-looking statements with respect to the start of operations of AOSP Expansion 1. Factors that could affect the project are transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, delays in obtaining or conditions imposed by necessary government and third-party approvals and other risks customarily associated with construction projects.

Refining, Marketing and Transportation

Our total refinery throughputs were 1 percent lower in the first quarter of 2009 than in the first quarter of 2008. Crude oil refined increased 1 percent for the same periods while other charge and blendstocks decreased 6 percent.

Planned major maintenance activities were completed at our Catlettsburg, Kentucky, refinery and initiated at our Robinson, Illinois, refinery in the first quarter of 2009. The maintenance at Robinson was completed in the second half of April 2009. In the first quarter of 2008, major maintenance activities occurred at the Detroit, Michigan; Garyville, Louisiana and Robinson refineries.

Volumes under our ethanol blending program in the first quarter of 2009 increased to 67 mbpd compared to 45 mbpd in the same period of 2008. The future expansion or contraction of our ethanol blending program will be driven by the economics of ethanol supply and government regulations.

First quarter 2009 Speedway SuperAmerica LLC same store gasoline sales volume increased 1 percent when compared to the first quarter of 2008 while same store merchandise sales increased 11 percent for the same period.

The expansion of our Garyville, Louisiana, refinery is 85 percent complete with an on-schedule startup expected in the fourth quarter 2009. Construction activities continue on the heavy oil upgrading and expansion project at our Detroit refinery with completion expected in mid-2012.

The labor agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Union covering certain employees in our Texas City, Texas, refinery was extended. It now expires March 31, 2012.

The above discussion includes forward-looking statements with respect to the Garyville and Detroit refinery expansion projects. Factors that could affect those projects include transportation logistics, availability of materials and labor, unforeseen hazards such as weather conditions, delays in obtaining or conditions imposed by necessary government and third-party approvals, and other risks customarily associated with construction projects. These factors (among others) could cause actual results to differ materially from those set forth in the forward-looking statements.

Integrated Gas

Our share of LNG sales worldwide totaled 6,769 metric tonnes per day ("mtpd") for the first quarter of 2009 compared to 6,912 mtpd in the first quarter of 2008. These LNG sales volumes include both consolidated sales volumes and our share of the sales volumes of equity method investees. LNG sales from Alaska are conducted through a consolidated subsidiary. LNG and methanol sales from Equatorial Guinea are conducted through equity method investees. The LNG production facility in Equatorial Guinea had operational availability of 96 percent.

We continue to invest in the development of new technologies to create value and supply new energy sources. In the first quarter of 2009, we recorded costs of approximately $18 million related to natural gas technology research, including our GTF™ technology. Such costs were $16 million in the same period of 2008.

Management's Discussion and Analysis of Results of Operations

Consolidated Results of Operations

Consolidated net income in the first quarter of 2009 was 61 percent lower than in the same quarter of 2008. The substantial decrease in global crude oil prices, and to a lesser extent natural gas prices, caused the decline. Our RM&T segment benefited from improved margins, partially due to decreased costs of crude oil, reporting positive first quarter 2009 earnings compared to a loss in the same quarter of 2008. Benchmark crude oil and natural gas price averages for the first three months of 2009 and 2008 are listed below to illustrate the price decline.