NYSE: MRO MARATHON OIL CORP Report created Mar 27, 2017 Page 1 OF 5 Marathon Oil is an international energy company engaged in exploration and production, oil sands mining Argus Recommendations and integrated gas. The company is headquartered in Houston, and has operations in the U.S., Europe, the Middle East and Africa. The company was formerly known as USX Corporation and changed its name to Marathon Oil Corp. in July 2001. Marathon Oil separated from Marathon Petroleum in 2011 and there is no Twelve Month Rating SELL HOLD BUY connection between the two companies. Five Year Rating SELL HOLD BUY Analyst's Notes Under Market Over Sector Rating Weight Weight Weight Analysis by Bill Selesky, March 27, 2017 ARGUS RATING: BUY Argus assigns a 12-month BUY, HOLD, or SELL rating to each stock under coverage. • Marathon Oil adds 21,000 Permian acres for $700 million • BUY-rated stocks are expected to outperform the market (the benchmark S&P 500 Index) on a risk-adjusted basis over the • On March 21, Marathon Oil agreed to buy 21,000 acres in the oil-rich Permian's Northern Delaware next year. basin for $700 million in cash, adding to shale holdings in the area it acquired earlier in the month. • HOLD-rated stocks are expected to perform in line with the • The Permian acreage, largely in New Mexico, was purchased from closely held Black Mountain Oil & market. Gas LLC and other sellers. The company will now hold about 91,000 acres in the Permian basin after • SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. selling oil-sands assets in Alberta for $2.5 billion. The distribution of ratings across Argus' entire company • Marathon Oil continues to shed high-cost noncore assets in favor of higher-return North American universe is: 47% Buy, 47% Hold, 6% Sell. unconventional oil, gas and NGL assets. We have a positive view of this strategy and believe that a rebound in oil and gas drilling will begin in the U.S. onshore market, where MRO has a dominant position. Key Statistics Key Statistics pricing data reflects previous trading day's closing • On February 15, Marathon reported an adjusted 4Q16 net loss of $83 million or $0.10 per share, price. Other applicable data are trailing 12-months unless compared to an adjusted loss of $323 million or $0.48 per share a year earlier. The 4Q net loss was otherwise specified narrower than our loss estimate of $0.13 and the consensus loss estimate of $0.14. Market Overview Price $14.61 INVESTMENT THESIS Target Price $52.00 We are reaffirming our BUY rating on Marathon Oil Corp. (NYSE: MRO) with a price 52 Week Price Range $9.77 to $19.28 target of $52. Our aggressive price target includes a sum-of-the parts methodology as well Shares Outstanding 847.21 Million as potential M&A activity. Since becoming an independent E&P company in 2011, Dividend $0.20 Marathon Oil has made significant progress concentrating and simplifying its portfolio to Sector Overview focus on oil-rich U.S. resource plays. Marathon has divested non-core conventional assets, Sector Energy and in mid-2016, it added STACK acreage, in Oklahoma, which together with its other Sector Rating MARKET WEIGHT U.S. resource plays, offers materially better-than-average growth opportunities. We have a Total % of S&P 500 Market Cap. 6.00% positive view of this strategy and believe that a rebound in oil and gas drilling will begin in Financial Strength the U.S. onshore market, where MRO has a dominant position. Financial Strength Rating MEDIUM In addition, Marathon continues to realize sustainable cost savings through technology Debt/Capital Ratio 29.3% and efficiency gains. Since 1Q15, it has been able to lower total E&P expense by 40%, Return on Equity -- North American E&P costs by 30%, and International E&P unit production costs by Net Margin -52.4% Payout Ratio -3.33 Market Data Pricing reflects previous trading week's closing price. Current Ratio 1.64 200-Day Moving Average Target Price: $52.00 52 Week High: $16.65 52 Week Low: $14.30 Closed at $14.61 on 3/24 Revenue $4.09 Billion Price After-Tax Income -$2.14 Billion ($) Valuation 40 Current FY P/E -- Prior FY P/E -- Price/Sales 3.03 20 Price/Book 0.71 Book Value/Share $20.71 Market Capitalization $12.38 Billion Rating BUY HOLD SELL Forecasted Growth EPS 1 Year EPS Growth Forecast 0.07 0.09 ($) -0.11 -0.10 -0.04 0.00 -0.01 0.00 0.04 0.05 N/A -0.37 -0.23 -0.20 -0.48 -0.43 -0.23 5 Year EPS Growth Forecast 8.00% Quarterly 1 Year Dividend Growth Forecast Annual -1.28 -0.87 -0.06 0.25 ( Estimate) 0% Revenue ($ in Bil.) Risk Beta 1.81 Quarterly 1.5 1.5 1.4 1.2 0.8 1.0 1.1 1.2 1.4 1.4 1.5 1.6 1.7 1.7 1.8 1.8 Institutional Ownership 83.13% Annual 5.6 4.1 5.9 ( Estimate) 7.0 ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Dec 31 2015 2016 2017 2018 Please see important information about this report on page 5 ©2017 Argus Research Company Argus Analyst Report NYSE: MRO MARATHON OIL CORP Report created Mar 27, 2017 Page 2 OF 5 Analyst's Notes...Continued 40%. We believe that in the current energy environment, with The transaction is expected to close in 2Q17, with an effective crude now at $48-$49 per barrel, Marathon should be able to date of March 1. The company plans to triple drilling in the region, generate compound annual earnings growth of 10%-15% over the adding two rigs mid-year to the one rig operating now. next few years, which is significantly higher than its average Finally, MRO announced the sale of its stake in the Athabasca peer-group competitor. Oil Sands Project in Alberta to Royal Dutch Shell and Canadian RECENT DEVELOPMENTS Natural Resources Ltd. on March 9. At the same time, it agreed to spend $1.1 billion to enter the Permian. The company has now MRO shares have underperformed since the beginning of 2017, established stakes in four of the most active shale plays in the U.S., dropping 15.6% while the S&P 500 Energy index has fallen 9.3%. including the Eagle Ford of Texas, the Bakken in North Dakota, However, they have outperformed over the past year, rising 43.8% and the Scoop and Stack in Oklahoma. We view the recent while the Energy index has climbed 8.9%. acquisition, along with the prior transaction, as significant and On March 21, Marathon Oil agreed to buy 21,000 acres in the strategic positives for the company. oil-rich Permian's Northern Delaware basin for $700 million in In their most recent quarterly results, on February 15, cash, adding to shale holdings in the area it acquired earlier in the Marathon reported an adjusted 4Q16 net loss of $83 million or month. $0.10 per share, compared to an adjusted net loss of $323 million The Permian acreage, largely in New Mexico, was purchased or $0.48 per share in the prior-year quarter. The net loss was from Black Mountain Oil & Gas LLC and other sellers. The narrower than our loss estimate of $0.13 and the consensus loss company will now hold about 91,000 acres in the Permian basin estimate of $0.14. after selling oil-sands assets in Alberta for $2.5 billion. The narrower-than-expected loss was attributable to improved Drilling in the Delaware basin has surged after a recovery in oil financial results in all operating segments, especially in North and natural gas prices, with rig counts rising 24% since the end of America. December 2016, according to a report from Bloomberg Fourth-quarter revenue fell 6% to $1.389 billion, but rose 13% Intelligence. A land rush has driven values to more than $50,000 sequentially. Marathon ended 2016 with 12 rigs in U.S. resource an acre in some places. Marathon confirmed that it paid $23,400 plays, up from 7 at the end of 2015. per acre in this most recent deal after adjusting for current Fourth-quarter net production available for sale from production. continuing operations (excluding Libya) averaged 396,000 barrels Growth & Valuation Analysis Financial & Risk Analysis GROWTH ANALYSIS ($ in Millions, except per share data) 2012 2013 2014 2015 2016 FINANCIAL STRENGTH 2014 2015 2016 Revenue 15,513 16,287 14,468 9,941 5,059 Cash ($ in Millions) — — — COGS 7,041 5,137 5,005 4,382 2,440 Working Capital ($ in Millions) — — — Gross Profit 8,472 11,150 9,463 5,559 2,619 Current Ratio 1.05 1.50 — SG&A 527 570 707 638 570 LT Debt/Equity Ratio (%) 25.2 39.2 — R&D ————— Total Debt/Equity Ratio (%) 30.3 39.2 — Operating Income 4,918 6,418 4,947 579 -2,916 Interest Expense 138 241 251 256 350 RATIOS (%) Pretax Income 4,780 6,177 4,693 343 -3,221 Gross Profit Margin 57.2 53.9 — Income Taxes 3,111 4,629 2,940 48 -886 Operating Margin 14.2 -45.9 — Tax Rate (%) 72 61 29 — — Net Margin 27.1 -37.6 — Net Income 2,367 1,548 2,519 1,621 -2,335 Return On Assets 8.5 -6.5 — Diluted Shares Outstanding 713 711 705 678 691 Return On Equity 15.1 -11.1 — EPS 3.33 2.18 3.58 2.40 -3.41 RISK ANALYSIS Dividend 0.72 0.68 0.74 0.82 0.31 Cash Cycle (days) -90.1 -133.0 — GROWTH RATES (%) Cash Flow/Cap Ex 1.1 0.7 — Revenue -17.7 -6.2 -4.6 -47.2 — Oper.