1. Marathon Oil Corporation
Ticker: MRO
Exchange: NYSE
Industry: Exploration and Production
SIC Code: 1311- Crude Petroleum and Natural
Gas
52 Week Range: $24.28 - $41.92
Current Price: $28.16
I. Company Description
Marathon Oil Corporation (MRO) is an independent global energy exploration and production
company. After 125 years in the oil and gas industry the company split into separate entities in
order to be in more specific industry segments in the year 2011. The new Marathon Oil is the
upstream unit of what was an integrated oil and gas company that is now both Marathon Oil and
Marathon Petroleum as separate companies. Marathon Oil is now solely pursuing upstream
growth. They are based out of Houston, Texas and their activities are in areas such as North
America, Europe, the Middle East, and Africa. Within North America they operate in locations
such as Colorado, North Dakota, Oklahoma, Texas, Wyoming, and the Gulf of Mexico.
Marathon has three separate operating segments: North America E&P, International E&P, and
Oil Sands mining. E&P activities make up a large percentage of their operations and revenues,
however they do have one other revenue generating segment of business classified as oil sands
mining. The three segments are as follows:
● North America Exploration and Production (E&P) - explores for, produces and markets
liquid hydrocarbons and natural gas in North America
● International E&P – explores for, produces and markets liquid hydrocarbons and natural gas
outside of North America and produces and markets products manufactured from natural
gas, such as liquefied natural gas (LNG) and methanol in Equatorial Guinea.
● Oil Sands Mining – mines, extracts and transports bitumen from oil sands deposits in
Alberta, Canada, and upgrades the bitumen to produce and market synthetic crude oil and
vacuum gas oil.1
Overview of E&P Firms
In order to fully understand an analysis of an E&P company, general background information is
essential. The following excerpt is from an article by Alex Howard and Alan Harp explaining
basic industry information needed in order to accurately understand E&P valuation.
1
MarathonOil.com/GlobalOperations/

2. “E&P firms represent the “upstream” aspect of the energy industry. Pipeline and marketing firms
are known as “midstream” companies, and refiners and petrochemical companies are considered
“downstream” participants. The primary assets of an E&P company are its oil and gas reserves,
that is, hydrocarbons below the surface that have not yet been produced and are economically
viable to extract. E&P firms are unique in that their primary asset base is depleting and therefore
must be continually replaced through either drilling activities or acquisition. Ownership interests
related to reserves can be held in a variety of forms including working interests, royalty (or
mineral) interests, and overriding royalty interests. Working interest owners share in the profits
after the royalty interest payment, lease operating expenses, severance and ad valorem taxes, and
capital expenditures associated with a property (lease/well) as well as the risks associated.”2
II. Comparable Firms
When finding comparable firms for MRO within the Exploration and Production business, we
focused the screening criteria on 6 main factors. These 6 factors were chosen due to the
uniqueness of the E&P industry and are numbered by level of importance regarding
comparability. The following is an explanation of our factors as well as reasons why they were
included.
1. Market Capitalization – Comparability issues arise when comparing companies with
substantial deviations in the size of their business, and for this reason market cap was the
first screening criteria when analyzing MRO.
2. Oil Mix Percentage – This number gives crude oil production as a percent of the
company’s total oil and gas production at the end of the period. Essentially it is the daily
oil production divided by the daily overall production in millions of barrels of oil
equivalent (MBOE). Although oil and gas have different measuring units, a conversion is
done in order to equate oil and gas into comparable units. 3
3. Reserve Life – This measure is essentially the number of proved reserves divided by the
current year’s production and known as the r/p ratio. It represents the life in years of the
company’s existing oil and gas reserves. This ratio provides the number of years the
company’s reserves will last, assuming it continues to pump oil and gas at the same rate
without adding any new reserves. The higher the number the more potential a company
has in regards to future oil production.4
4. Percentage of Reserves Developed – This is the percentage of the company’s oil and
gas reserves that are developed for the current year. It is an essential factor to consider
when comparing firms due to the direct correlation between this measure and a
company’s overall production rate of oil and gas.
2
Alex Howard “Oil and Gas Valuation”
3
Bloomberg Terminal
4
Bloomberg Terminal

3. 5. Debt/Equity – This ratio generally measures how aggressive a firm has been when
financing the growth of operations with debt. This percentage can be seen as how risky a
company may be relative to the volatility of its future investments in new projects.5
6. Areas/Basins of operation – Where the exploration and drilling activities take place and
whether the operations are classified as onshore or offshore. The locations of drilling
activities differ in ways such as the cost associated with production and the compositional
mix of minerals. The amount of land acreage a company has in high yield, low cost shale
plays can directly affect their revenues.
MKT
CAP
Oil
Production
Mix
%
R/P
ratio
(Years)
Reserves
Developed
%
Debt/Equity
HES
19.84
B
66.87
%
11.91
53.28
%
26.96
%
APA
23.15
B
49.23
%
10.03
68.91
%
43.36
%
PXD
25.46
B
45.81
%
11.19
80.89
%
31.06
%
CLR
17.18
B
70.04
%
21.25
37.19
%
120.73
%
Range
17
–
25
B
45
–
70
%
10
-­‐
21
37
–
81
%
27
–
120
%
MRO
18.28
B
59.32
%
14.52
66.88
%
30.40
%
The firms in which were chosen to compare with Marathon Oil Corporation (MRO) include,
Hess Corp (HES), Apache Corp (APA), Continental Resources Inc (CLR), and Pioneer Natural
Resources (PXD). These firms were chosen on the given criteria mentioned above. The level of
importance was used when ranking the screening criteria, with market capitalization being the
first priority for screening and area/basins of operation being the last. Although the area/basins of
operations is considered the least important when finding comparable firms, this does not mean
this factor is not important. Area/Basins of Operations can have a large impact on a company’s
strategic and financial success, so this will be analyzed on an in depth level after explaining the
first five factors and their significance.
MRO is relatively lower in terms of market capitalization, however since the difference between
the high and low level of market caps is only 8 billion, the comparable firms should have similar
characteristics in terms of the overall industry activities and operations associated with
exploration and production. The companies also have similar production mix percentages of oil.
This is very important considering how large differentiations in the oil production percentages
could lead to inadequate valuations when comparing industry specific ratios. MRO has a mix
percentage of 60, which when compared to similar firms this mix is closely related. This should
indicate that based on this percentage alone, sales and revenues should be relatively similar
among the firms.
The R/P ratio for MRO is also toward the high end based on its range. Although CLR is
somewhat of an outlier in terms of the R/P ratio, MRO is the next largest. This is certainly
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Investopedia.com

4. important since the higher the ratio, the more potential a company has in regards to future oil
production which is a strong signal of good health. In terms of the percentage of reserves
developed MRO has a strong 67 percent, which places them right in the middle of the
comparable companies. This is a good sign as well considering too high of a percentage could
imply less future production, while too low of a percentage could imply inefficient management
regarding drilling activities. The last important factor comes when analyzing the debt to equity of
MRO. The firm only has a 30 percent debt to equity ratio, which is lower than all but one of the
comparable companies. This is an important factor to analyze considering the current drop in oil
prices causing a volatile effect on the industry and its earnings.6
This lower debt to equity ratio
could result in less volatility with regards to the earnings of MRO.
Comparable Firms Overview
● Hess Corporation (HES) – A global independent energy company engaged in the
exploration and production of crude oil and natural gas. The company has E&P
operations in the United States, United Kingdom, Norway, Denmark, Russia, and many
other international locations. Hess Corp used to be involved in other midstream and
downstream activities, however in recent years they have begun selling off certain
divisions, which are unrelated to their main exploration and production segment.
Recently the company has started to develop and increase their offshore drilling activities
with programs focused in the areas that include the Pacific, West Africa, and the Gulf of
Mexico. Onshore activities consist mainly of areas within the United States such as the
Bakken shale in North Dakota as well as Utica Shale in Ohio.7
● Apache Corporation (APA) – An American independent oil and gas exploration and
production company headquartered in Houston, Texas with operations in the United
States, Canada, Egypt, United Kingdom, and Australia. The company’s main segment
revenue also comes from the exploration and production activities of the business. The
company participates in both offshore and onshore drilling operations. Onshore in the
United States they drill and produce in the Anadarko basin of Oklahoma and Texas and
the Permian basin of West Texas. Offshore activities are in regions like the Gulf of
Mexico, Egypt, the UK, and Australia.8
● Pioneer Natural Resources Co (PXD) – An American based independent oil and gas
company in the exploration and production business focused on competitive and
sustainable activities. They are historically a Texas-based oil company and are considered
to be one of the most active drillers in areas of Texas that drill primarily in the Permian
basin and the eagle ford shale. They also engage in natural gas operations in the Raton
basin located in Colorado as well as gas fields located throughout the Texas panhandle.
They are currently looking into the expansion of their E&P operations into offshore
international locations
6
Society Of Petroleum Engineers
7
HessEnergy.com/Operations/
8
ApacheCorp.com

5.
● Continental Resources (CLR) – a petroleum liquids producer located in the United
States who specializes in the exploration and production of oil and gas. The company is
based in Oklahoma City and are involved in E&P in the areas such as the Bakken
formation, the Anadarko Woodford located in Oklahoma, and the Red River Units of
North Dakota, South Dakota, Montana, and Wyoming. The company is one of the largest
leaseholders and also one of the largest producers in the Bakken formation.
Areas of Operations
Marathon Oil’s leasehold position in Colorado includes approximately 8,400 net acres. The
acreage, located in Garfield County in the Greater Grand Valley Field Complex, is flanked by,
and on trend with, adjacent production. The primary reservoir is the Williams Fork formation of
the Mesa Verde Group, which is characterized as a massive 3,000-foot-thick sequence of stacked
over pressured fluvial sands in a continuous gas accumulation. The North Dakota Bakken Shale
oil play is a centerpiece of MRO’s unconventional resource portfolio and a top investment
priority for Marathon Oil. MRO holds approximately 370,000 net acres located in North Dakota
and eastern Montana, with an average working interest of 89 percent in Company-operated
assets.9
With major acquisitions in the Eagle Ford over the last several years, Marathon Oil has
established a top-tier position in this liquids-rich resource play as well. As of year-end 2013, the
company held approximately 211,000 net acres in the Eagle Ford, with an average working
interest of approximately 75 percent in its Company-operated assets. The Eagle Ford Shale
extends over 400 miles in South Texas, stretching northeast from the Mexican border near
Laredo to beyond Houston, although the most active areas are south of San Antonio.
Marathon Oil also views the Eagle Ford as the premier U.S. resource play, and has invested
strategically to grow its presence in the formation’s highest value oil and condensate core areas.
Activity is very focused on Atascosa, DeWitt, Gonzales and Karnes counties. Marathon Oil has
more than 100 years of experience in exploration and development in Wyoming and is the state's
number one oil producer.10
The firm continues to be a leading performer in enhancing oil
recovery from fractured carbonate and sandstone reservoirs in the matured Bighorn Basin and
Wind River Basin fields. Marathon Oil has conventional gas operations in the Greater Green
River Basin of Southwest Wyoming. The Gulf of Mexico continues to be a core area for
Marathon Oil, with promising development and exploration potential.
Marathon oil has decided to increase its shale play in the United States while limiting its focus in
international E&P locations. This is a good strategy considering MRO’s impressive amount of
acreage in low cost, high yield areas. Of the proved reserves totaling 2,171 millions of barrels of
oil equivalent, 72 percent of these MMBOE’s are located within areas such as Bakken,
Oklahoma Resource Basins, and Eagle Ford shale formation. The Eagle Ford shale formation
enables E&P companies to remain profitable even with low commodity prices since the acreage
is among the highest in terms of high yield and low cost. Marathon Oil’s production in the Eagle
Ford averaged 96,000 net boe/d in the first quarter of 2014, an increase of 33% year over year
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MRO 10K Report
10
MarathonOil.com

6. and 7% over the previous quarter11
. Approximately 65% of first quarter net production was crude
oil/condensate, 17% was natural gas liquids (NGLs) and 18% was natural gas.
III. Financial Statement Analysis
Balance Sheet
Beginning with the first part of the balance sheet, assets, Marathon has current assets of $4.6
billion and total assets of $36 billion. One number that really sticks out is their cash, which is
about $2.4 billion and around $2.1 billion more than last year. This increase is a result of their
increase in disposal of assets source of cash, from $450 million in 2013 to $3.8 billion in 2014.
Their disposals of assets in 2014 primarily reflects the $2 billion aggregate proceeds from the
sale of their Angola assets in the first quarter and $2.1 billion proceeds from the sale of their
Norway business in the fourth quarter. These assets were sold as a strategic decision in order to
have sufficient cash on hand to weather the current slump in oil prices in which is affecting the
industry as a whole.
For the second part of the balance sheet, liabilities, Marathon's total liabilities decreased from
$16.3 billion in 2013 to $15 billion in 2014. This decrease resulted from a decline in amount of
accrued taxes from $1.5 billion in 2013 to $285 million in 2014, decline in deferred credits and
other liabilities by $166 million, and decline in long-term debt by approx. $1 billion, due to the
debt being due in 2015.12
The final part of the balance sheet, stockholder's equity, experienced a retained earnings increase
from $15 billion to $17.6 billion in 2014. This was caused by an increase in income from
discontinued operations of approximately $1.3 billion that resulted from the disposition of their
Norway business. As a result, total stockholder’s equity increased by about $2 billion from $19
billion to $21 billion in 2014.
Clearly, Marathon’s balance sheet is improving. However, the company still has some work to
do. For example, the company's quick ratio is 0.94, which is a vast improvement from 2013
when the company's quick ratio was a worrisome 0.55. Although its current quick ratio is above
the industry average, 0.81, it’s still below 1.0. A quick ratio below 1.0 tells us that a company
may have trouble when covering its short-term debt liabilities. What it's really telling us is that
Marathon would have a harder time covering its liabilities if energy markets crashed than a
stronger peer with a ratio above that. Fortunately, none of Marathon’s direct comparable firms
have a ratio above theirs.
Income Statement
Total revenues decreased from 2013 to 2014 by $525 million as a result of the $90 million net
loss on disposal of their non-core acreage located in the far northwest portion of the Williston
Basin and the $510 million decrease in sales and other operating revenues caused by lower
average price realizations compared to 2013.
11
Eagle Ford Formation Statistics
12
MRO 10k Report

7. Marathon's total costs and expenses increased from $9.1 billion in 2013 to $9.7 billion in 2014.
Although their exploration expenses decreased by $200 million from 2013 to 2014, their
production costs increased by a small margin from $2.9 billion to $3 billion over the same
duration. Additionally, depreciation, depletion, and amortization increased by $361 million,
primarily due to higher North America E&P sales volumes as a result of ongoing development
programs over the three U.S. resource plays.
The decrease in revenues and other income, along with the increase in costs and expenses,
resulted in a $1.1 billion decrease in income from operations.13
However, the significant decrease
in their provision of income taxes of $1 billion and increase in income from discontinued
operations of $1.3 billion put their 2014 net income at $1.3 billion greater than 2013.
Statement of Cash Flows
During 2014, Marathon repurchased approximately 29 million shares for $1 billion. Their cash
additions to property, plant and equipment related to continuing operations were $5.2 billion,
primarily funded with cash flow from operations, with more than 70 percent of that related to
their Eagle Ford, Bakken, and Oklahoma Resource Basins where net sales volumes increased 35
percent year-to-year.
Net cash provided by operating activities increased by $217 million from $5.3 billion in 2013 to
$5.5 billion in 2014, even though the company only reported a net income of $3 billion in 2014.
This discrepancy is regularly found with oil and gas companies because of the massive expenses
these companies take each quarter. A smaller than usual portion of that cash was reinvested in
the company's business. That is found in the next part of the company's cash flow statement,
which details cash flow from investing activities.
Marathon experienced a decrease in net cash used in investing activities of as a result of the
increase in their cash & equivalents caused by their disposals of assets such as their Norway
business. Marathon had an increase in net cash used in financing activities because their
purchases of common stock doubling.
Overall, Marathon had almost $3.8 billion in free cash flow this year after adjusting for its
investing activities. The company used that excess cash flow to pay down some debt, pay
dividends to investors, and bolster its cash position for the embracement of volatility in the oil
market.
IV. Financial Statements Tests
Five Tests for Value
1. Earnings yield is at least twice the yield on long-term AAA bonds.
Earnings Yield = 5.68% < 6.60% (2 X 3.30%)
[FAIL]
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8.
2. The P/E ratio falls among the lowest 10 percent of P/Es in the universe.
MRO’s P/E Ratio = 17.60
[FAIL]
3. Dividend yield is at least two-thirds the yield on long-term AAA bonds.
Dividend Yield = 2.83%.
20yr AAA corporate bond = 3.3%, must be at least 2.2% (2⁄3 X 3.3%).
[PASS]
4. Stock price is less than two-thirds of tangible book value (total book value minus
goodwill) per share.
TBV per share = 30.46.
Stock Price = $28.29
2/3 of TBV per share =20.31
Therefore…Stock Price must be less than 20.31 to pass.
[FAIL]
5. Stock price is less than two-thirds of net current assets (current assets minus current
liabilities).
Current Assets = $4,593,000,000
Current Liabilities = $4,379,000,000
Net Current Assets = $214,000,000
[PASS]
Five Tests for Safety
1. Debt-to-equity ratio is less than 100%.
FY 2014 D/E ratio =30.40%
[PASS]
2. Current assets are at least twice current liabilities.
Current Assets = $4,593,000,000
Current Liabilities = $4,379,000,000 * 2 = $8,758,000,000
Current Assets must be at least $8,758,000,000, but they aren’t.
[FAIL]
3. Total debt is less than twice net current assets.
Net Current Assets = $214,000,000
Total Debt = $6,391,000,000
[FAIL]
4. Annual earnings growth is at least 7 percent over the previous decade.
GAAP Annual Earnings Growth = 5.16% over the last decade. Therefore… their earnings
growth doesn’t meet the minimum requirement of 7%.
[FAIL]

9.
5. No more than two year-to-year earnings declines of more than 5 percent during the
previous decade.
MRO experienced more than 2 of these.
[FAIL]
V. Management and Corporate Governance
Lee M. Tillman – The President and Chief Executive Officer of Marathon Oil Corporation since
August 1, 2013. Clarence P. Cazalot, Jr, the previous president and CEO, elected to retire on
Dec. 31, 2013, after almost 14 years leading Marathon Oil and 41 years in the oil and gas
industry. Before Tillman joined Marathon Oil, he served for ExxonMobil Development
Company as vice president of engineering. He began his oil and gas career since 1989 as a
research engineer at Exxon Corporation. From 2006 to 2007, he was acting vice president of
ExxonMobil Upstream Research Company. From 2007 to 2010, he served as North Sea
Production manager and lead country manager for subsidiaries of ExxonMobil in Stavanger,
Norway. TILLMAN has extensive operations management and leadership experience that has
included assignments in Jakarta, Indonesia; Aberdeen, Scotland; Stavanger, Norway; Malabo,
Equatorial Guinea; Dallas and New Orleans. As the President and Chief Executive Officer,
Tillman sets the Company's strategic direction under the Board's guidance. His knowledge and
hands-on experience with the day-to-day issues affecting the business provide the Board with
invaluable information necessary to direct the business and affairs of Marathon Oil Corporation.
Mr. Tillman holds a Bachelor of Science degree in chemical engineering with honors from Texas
A&M University and a Ph.D. in chemical engineering from Auburn University. He is a board
member of the American Petroleum Institute, American Exploration & Production Council and
the Greater Houston Partnership, a member of the University of Houston Energy Advisory Board
and the Chemical and Engineering Advisory Councils of Texas A&M University. He is also a
member of the National Petroleum Council and the Society of Petroleum Engineers.14
John R. (J.R.) Sult – The Executive Vice President and Chief Financial Officer since September
2013. Prior to joining Marathon Oil, he served as a member of El Paso Corporation’s executive
management team from 2005 until the company was acquired by Kinder Morgan, Inc. in 2012.
Mr. Sult also served as senior vice president, CFO and controller of El Paso’s Pipeline Group
from 2005 to 2009 and as CFO of the general partner of El Paso Pipeline Partners L.P. from
2007 to 2012. Prior to joining El Paso, he served as vice president and controller of Halliburton
Energy Services from 2004 until 2005, where he was responsible for all aspects of finance and
accounting for the company's energy services business unit. Before joining Halliburton, Mr. Sult
was an audit and business advisory partner with Arthur Andersen LLP where he gained more
than 20 years of experience working with public and private companies in the energy industry.
14
MarathonOil.com/About_Us/Management

10. He currently serves on the board of directors of Dynegy Inc. He is a member of Financial
Executives International (FEI) and previously served on FEI's committee on corporate reporting.
Mr. Sult earned a Bachelor of Science degree with special attainments in commerce from
Washington & Lee University.
T.M. (Mitch) Little – The Vice President of the International and Offshore Exploration and
Production Operations. He is responsible for Marathon Oil's businesses in Angola, Equatorial
Guinea, Libya, the Kurdistan Region of Iraq, the U.K. and the Gulf of Mexico. Mr. Little joined
Marathon in 1986, and has held a number of engineering and management positions of
increasing scope and responsibility related to the Company’s U.S. production operations in
Wyoming, Louisiana, Oklahoma, and Alaska, as well as international production operations in
Equatorial Guinea, Gabon and Libya. In 2008, Mr. Little was appointed to the position of general
manager, Worldwide Drilling and Completions, and most recently served as managing director
of Marathon Oil Norge AS, where he held responsibility for the Company’s activities in Norway.
Mr. Little earned a Bachelor of Science degree in petroleum engineering from the University of
Wyoming in 1986 and is a 25-year member of the Society of Petroleum Engineers.15
The management team of Marathon Oil consists of 12 people. There are others 9 manager
excluding above 3. They are Sylvia J. Kerrigan - the Executive Vice President, General Counsel
and Secretary; Morris R. Clark – the Vice President and Treasurer; Deana L. Jones – the Vice
President of human Resources and Administrative Services; Cathy Krajicek – the Vice President
of Health, Environment, Safety and Security; Lance W. Robertson – the Vice President of North
America Production Operations; Michael J. Stover – the Vice President of Operations Services;
Bruce A. McCullough – the Vice President and Chief Information Officer; Patrick J. Wagner –
the Vice President of Corporate Development; Gary E. Wilson – the Vice President of Controller
and Chief Accounting Offer.
Board of Directors
The Board of Directors consist of 9 members currently, and only Lee M. Tillman is a current
executive of Marathon Oil. The Board of Directors has four principal committees, all members
of which are independent, non-employee directors. The four principal committees are: Audit and
Finance, Compensation, Corporate Governance & Nominating, and Health, Environmental,
Safety and Corporate Responsibility.
Compensation
The Compensation Committee determines the compensation of the CEO including salary, annual
bonus and long-term incentives, and the Committee adjusts the compensation of the CEO each
year. In determining CEO compensation, the Committee considers the results of the shareholder
advisory vote on executive compensation (“Say on Pay Vote”). In evaluating and determining
the other executive officers’ compensation, the Committee considers the CEO’s
15
MarathonOil.com/About_Us/Management

11. recommendations, the Say on Pay Vote, and other factors the Committee deems relevant. Over
half of all executive compensation is in long term incentives, allowing the company to conserve
more cash, and encourage the executives to keep the company profitable in the years to come.
Ownerships
The institutional holdings are 80.85%, and the non-institutional takes the remaining 19.15%. The
top 5 holders and their percentage of ownership are shown below:
● VAGUARD GROUP INC. 6.64%
● STATE STREET CORP 6.12%
● WELLINSTON MANAGEMENT GROUP LLP 4.74%
● BARCLAYS GLOBAL INVESTORS UK HOLDINGS LTD 4.26%
● BANK OF NEW YORK MELLON CORP 3.82%
The chart below shows the total ownership summary, as well as the active positions the
shareholders of Marathon Corporation possess. 16
16
Bloomberg Terminal

12. CODE OF ETHICS
The Code is based on the general philosophy of honesty, integrity and sound judgment. All
directors, officers and employees are required to adhere to Marathon’s Code of Business
Conduct, the professional and ethical conduct of the Senior Financial Officers is essential to the
proper functioning and success of Marathon.
VI. Risk Factors
The Commodity Market Volatility
Estimates of crude oil and condensate, NGLs, natural gas and synthetic crude oil reserves depend
on many factors and assumptions, including various assumptions that are based on conditions in
existence as of the dates of the estimates. Any material changes in those conditions or other
factors affecting those assumptions could impair the quantity and value of our reserves.17
Currently in 2015, the benchmark closing prices for the first day of the year were WTI crude oil
of $52.69 per bbl, Henry Hub natural gas of $2.99 per mmbtu and Brent crude oil of $55.55 per
bbl. Sustained periods of reduced commodity prices will affect revenues, operating results and
future rate of growth. Historically, the markets for crude oil and condensate, NGLs, natural gas
and synthetic crude oil have been volatile and will continue to be volatile in the future.
Crude Production
E&P companies are risky considering their value is extremely susceptible to fluctuations in the
price of oil, a commodity people are consistently gambling on. Furthermore, the United States
has only recently (in the past decade) become a major producer of oil and natural gas. This was
a result of the shale boom, allowing us to produce over eleven million barrels of oil equivalent
per day for the first quarter of 2014. High oil prices, combined with the surge of North
American shale, boosted E&P companies, as well as boosting the economy after the financial
crisis of 2008.18
This surge has finally caught up to the market, and there are now more barrels
being produced each day than are demanded. The total global production of oil for 2015 is at
94.1 million barrels per day, but world consumption is only 93.1 million barrels per day.19
This
excess production of oil is primarily due to the United States and OPEC, each of which has been
reluctant to reduce oil production. This surplus of oil has led to a huge decline in the price of oil,
as well as reducing certainty of the future value of E&P companies.
Export Ban
A potential solution for the United States would be to sell our oil to other countries; however we
have a ban on the export of crude oil. This ban came into effect 40 years ago in an effort to
enforce price controls in the 70’s. This ban was not much of a problem, because the United
17
MRO 10k Report
18
Bloomberg.com/new/articles/bigoil
19
EIA.gov/forecasts

13. States was not producing enough oil that we had any need to export it. Even during the shale
boom we had no desire to export the ban, because demand did not outweigh production. Now
that production has increased to such an extreme level, the majority of oil companies want to be
able to export their products to the rest of the world. This will allow them to reduce their oil
inventories, and ideally we would be able to sell to our allies in Europe who are currently
dependent upon Russia.
The president has been under extensive pressure to remove the ban, but has not made the
decision to repeal the law.20
Lobbyists in support of the ban of the export argue that if we
removed the ban we would end up selling more to China than to our allies. Oil refinery
companies would prefer the ban on exports be upheld, because it allows them to be the only
companies the E&P companies can sell to; Phillips 66, for example, has greatly profited from the
decline in the price of crude oil. However, a repeal of this ban seems likely; the United States is
the world leader in oil production, and the United States has historically been opposed to other
countries attempting to limit the free flow of energy. The price for a barrel of crude oil in the
United States is 5-10 dollars cheaper than the global price, because we have too much of it being
produced that we cannot export to sell at an equilibrium price.21
Drilling Methods
Conventional wells operate on long cycles. The amount of oil they produce declines up to a
maximum of 5% per year. The output falls slowly, so wells often pump out oil for twenty years
or so. The longevity of these conventional wells helps to account for the volatility of oil prices.
The amount it costs for companies to find oil and install a well are their fixed costs. Once the
well is in the ground, it’s going to stay there for quite a while. The variable costs of each well is
the labor and electricity it costs to keep them pumping. This gives the companies incentive to
continue pumping oil even when prices are down, because it would be more expensive for them
to remove the well, because the only cost they can save are their variable costs, which are
cheaper than the cost of installing a new well. A ten year old well has an average variable cost of
$20 to $30 per barrel, so they may as well keep drilling it as long as oil prices are above that
level.
With conventional wells operating on such long cycles, it shows another reason for why OPEC
has refused to curb oil production. The volatility of oil prices hurts them, because they have
already committed to drilling a location for around the next 20 years. For them to shut down that
rig, they would be hurting their profits by more than drilling at a less profitable rate. This is
where companies in the United States have an advantage; we can drill more selectively, because
by extracting oil via fracking, we are not committing to an investment of the same maturity of a
conventional well. As prices fall, companies can simply invest less in capital expenditures, and
hold onto that cash until prices rebound, or to be invested in a different manner.
20
Barrons.com
21
SeekingAlpha.com

14. The above paragraph shows why the United States will be hurt less in the long term; our primary
method of drilling is not a conventional well, it is fracking. Shale wells do not have a very long
life; in the second year of drilling, the barrels of oil produced per day drops by around 72%.
This requires the need to constantly drill new wells to increase revenues; it also gives us the
ability to pick and choose when we increase or decrease production. The average break-even
cost for hydraulic shale drilling is $65 per barrel.
Additional risk factors affecting Marathon are potential political instabilities (primarily in
foreign countries), changes in weather patterns and climate, natural disasters, potential
alternative and competing forms of energy, conservation efforts, domestic and foreign
government regulations and taxes, and worldwide economic conditions.
VII. Valuation Techniques
Since E&P’s have many different industry specific multiples that can signal under or over
valuation, we decided to intrinsically value MRO using the relative multiples valuation approach.
Enterprise Value was used in the numerator during the calculations of our multiples since this
value is a comprehensive alternative to equity market capitalization. EV measures a company’s
total value, and therefore is theoretically a much more meaningful representation of a company's
actual worth. 22
The Enterprise Value to developed reserves was the first ratio analyzed. This multiple requires
no estimates or assumptions and explains how effectively the company’s owned resources will
be able to support MRO’s daily operations. A low value for this measure suggests the firm is
undervalued relative to its comparable firms, indicating the possibility of a value investment
opportunity.23
MRO had a multiple of 15.17 while the median was 34.17.
E/V as a multiple of the companies average daily production of oil and gas for the year was an
important industry specific ratio as well. This measure gives the daily production of oil and gas
in thousands of barrels of oil equivalents (MBOE). A low ratio relative to its peers indicates that
MRO is trading at a discount. MRO had a multiple of 49.76, while the median was 86.52.
The enterprise multiple (EV/EBITDAX) was used as our last calculation because this multiple is
unaffected by a company’s capital structure. As previously mentioned, CLR was extremely
higher than the other firms in terms of the debt to equity ratio. Using this multiple lowered the
possibility of inaccurately valuing Marathon Oil due to CLR’s outlier D/E ratio. The enterprise
multiple represents the company’s developed oil and gas reserves at the current year-end.
Combined oil and gas reserves are in barrel of oil equivalents (BOE). This low ratio relative to
the comparable firms indicates undervaluation. MRO had a low multiple of 4.78 while the
median comparable multiple was 5.18, indicating MRO could potentially be undervalued.
22
Investopedia.com/O&Gvaluations/
23
Bloomberg Terminal

15. Overall, when compared to very similar firms MRO’s industry specific multiples are consistently
lower. This consistency signals that the market and investors are currently undervaluing the firm.
However, in the long run MRO’s true value will hopefully be realized by investors and reflected
in the future stock price. After averaging the three implied enterprise values, MRO has a total
implied EV of 37.21 billion. With 675 million shares outstanding, this intrinsically values the
firm at 55.12 per share. This value indicates a margin of safety of exactly 40.13 percent.
Ticker
EV to
Developed
Reserves
EV to Daily
Production
EV / EBITDAX
Enterprise
Value
MKT Cap
APA
21.97
53.87
3.84
35.83B
23.15b
PXD
36.93
118.57
9.98
27.11B
25.46B
HES
32.48
68.39
3.57
23.55B
19.89B
CLR
40.29
104.64
6.51
23.15B
17.18B
Median
34.71
86.52
5.18
MRO
15.71
49.76
4.78
22.27B
18.28B
Relative Valuation by Multiples
Marathon Oil
Corporation
Median Multiple
Implied Enterprise value
EBITDAX
(MM)
4,834 M
5.18
25.04B
Developed
Reserves
(MMboe)
1,470 M
34.71
51.01B
Daily
Production
(Boe/d)
414.7
86.52
35.88B
Intrinsic Value
Implied
Enterprise
Value
Shares Outstanding
Intrinsic Share
Price
Margin of
Safety
37.21 B
675 M
55.12
40.13%

16. EPV Valuation
The second valuation technique used was
Greenswald’s earnings power value calculation in
order to intrinsically value MRO. We began with an
average EBIT of 3.5 Billion. We averaged this over the
past 5 years because EBIT needed to be normalized to
eliminate the effects on profitability of valuing the firm
at different points in the business cycle.24
Then we
subtracted out our tax rate, which was 35 percent. We
used the general statutory corporate tax rate to avoid
the distortive effect of different tax schemes. After
this, we added back depreciation and amortization as
well as the exploration expenses. We also subtracted
out the maintenance cap ex which was steady over the
past years and therefore didn’t need to be averaged.
This left us with an adjusted EBITDAX after tax of 2.9
Billion. We then discounted this number by dividing it
by our weighted average cost of capital. We arrived at
an earnings power value number of 31,601 prior to
cash-debt adjustments. According to Bloomberg,
9.18% was MRO’s WACC, which seemed very
reasonable considering the industry. In order to make sure our calculations will not be
completely distorted given a different WACC calculation, we performed an EPV sensitivity test.
We started by changing our WACC by 1 percentage and recalculating the final intrinsic value.
This left us with a range of values from 36.30 a share to 46.62 depending on the WACC used.
The margin of safety range was between 25 to 41 percent. This provides a reasonable level of
safety that supports MRO and its undervaluation. So even if Bloomberg’s WACC is off by an
entire percentage, MRO still has a decent margin of safety.
WACC
EPV
Net
Cash/Debt
Adjustment
EPV/Share
Margin
Of
Safety
8.18%
35.464
B
31.471
B
46.62
41
%
9.18%
31.601
B
27.608
B
40.90
33
%
10.18%
28.497
B
24.504
B
36.30
25
%
24
Stockpedia.com/EPVcalculations
5 Year Average EBIT
3,530 M
(Tax Rate) 35%
(1,235)
Depreciation and
Amortization and
Exploration
expenses
3,657
(Maintenance Cap
Ex)
(3,051)
Adjusted EBITDAX
After Tax
2,901
/ WACC (9.18%)
/(.0918)
EPV
31,601
Net Cash/Debt
Adjustment
(3,993)

17. VIII. Recommendation
After further analysis, Marathon Oil Corporation was undervalued with regards to EPV and
relative multiples valuation. They are undervalued in terms of industry specific multiples when
compared to very similar firms. The company has strong amounts of acreage in high yield, low
cost shale formations, allowing them to produce as high rates. They have strong financials along
with plenty of cash to survive the oil crash. The company has been involved in the industry for
over 125 years and has a strong group of experienced management executives. For all of these
reasons, Energy group recommends buying 710 shares of Marathon Oil Corporation at $28.16
per share and setting a limit sell at $40.21.