LIVING OUR VALUES Corporate Social Responsibility Report

Transcription

1 LIVING OUR VALUES 2010 Corporate Social Responsibility Report

2 CONTENTS 6 Governance 2 A Message from Our President and CEO 3 Performance Summary 4 CSR in Context 22 Workforce 10 Environmental Stewardship 28 Five-Year Performance Data 16 Socio-Economic ibc IPIECA/API/OGP and U.N. Global Compact Index 21 Case Study: Emergency Preparedness LOCATIONS Marathon operates in major energy producing centers around the world: Angola Libya Canada Norway Equatorial Guinea Poland Gulf of Mexico United Kingdom Indonesia United States Iraqi Kurdistan Region MARATHON AT A GLANCE On January 13, 2011, Marathon Oil Corporation s Board of Directors announced that it approved moving forward with plans to spin off Marathon s Downstream business, creating two independent, highly focused energy companies. Marathon Oil Corporation, which will remain based in Houston, Texas, will be a global exploration and production company with a strong portfolio of assets delivering defined growth leveraged to crude oil production with exploration upside. Marathon Oil Corporation currently has principal operations in the United States, Canada, Equatorial Guinea, Norway and the United Kingdom. Marathon Petroleum Corporation, to be headquartered in Findlay, Ohio, is expected to be the fifth largest U.S. refiner, with a top-tier downstream portfolio of strategically aligned assets concentrated mainly in the Midwest, Gulf Coast and Southeast regions of the U.S. On the cover Since acquiring assets in Equatorial Guinea (EG) in 2002, Marathon has helped build local capacity to improve health and well-being with the Bioko Island Malaria Control Project (BIMCP). We are continuing to develop the local workforce to fill technical, professional and managerial positions in Marathon Equatorial Guinea Production Limited (MEGPL) operations and our other assets in the Punta Europa Gas Complex.

3 ABOUT THIS REPORT Addressing critical sustainability challenges Marathon Oil Corporation s 2010 Living Our Values Corporate Social Responsibility Report provides information on the Company s non-financial performance and actions to promote sustainable social, environmental and economic benefits. Last year, Marathon transitioned to reporting around a widely recognized Environmental, Social and Governance (ESG) framework. To this we added Workforce (W) to address issues related to our employees. This reporting is based on our core values health and safety, environmental stewardship, honesty and integrity, corporate citizenship and a high performance team culture and aims to give concrete examples of how Marathon is living our values through all business endeavors. Most significantly last year, Marathon conveyed 16 broad goals across the ESGW framework. This 2010 printed report continues the streamlined approach initiated last year, summarizes progress and describes selected activities intended to achieve these goals. Additional information is contained in the interactive online report. This is the last report for Marathon as an integrated oil company. Information is presented for the Upstream (exploration and production, integrated gas and oil sands mining) and Downstream (refining, marketing and transportation) operations. Downstream information includes the St. Paul Park, Minnesota, refinery and related assets, the sale of which closed in December Marathon uses the Oil & Gas Industry Guidance on Voluntary Sustainability Reporting, published jointly by IPIECA, the American Petroleum Institute (API) and the International Association of Oil & Gas Producers (OGP) to help select indicators to demonstrate non-financial ESGW performance. This Guidance provides a common framework for the petroleum industry to use in reporting nonfinancial performance. In late 2010, IPIECA, API and OGP issued an update to this Guidance, which Marathon used to report on 2010 ESGW performance. We continue to include quantitative and qualitative metrics to provide relevant and meaningful information about our operations and non-financial performance. This report has not been evaluated by any third party or external assurance agency, with the exception of the financial and operational highlights excerpted from the 2010 Annual Report on Form 10-K. Please visit to view our 2010 Annual Report on Form 10-K. Note: IPIECA/API/OGP indicators are noted in bold or italics throughout this report. PAGE 1

4 A MESSAGE FROM OUR PRESIDENT AND CEO Marathon s efforts to build a sustainable business demonstrate the importance of strong governance, environmental, socio-economic and workforce performance. Deeply rooted values, solid business practices and our corporate social responsibility (CSR) goals guided Marathon to strong non-financial performance in I am proud of the way Marathon employees addressed our business challenges with ethics and integrity, worked safely, operated assets efficiently and reliably, and managed risks. Our workforce remains committed to respecting and engaging stakeholders, improving communities where we operate, and preserving and protecting the environment. In our 2009 Living Our Values Corporate Social Responsibility Report, Clarence P. Cazalot Jr. we articulated 16 broad CSR goals. They focused our attention on critical President and Chief Executive Officer sustainability issues such as energy efficiency, greenhouse gas emissions, transparency, human rights, stakeholder engagement, safety and diversity. Our progress is highlighted in this report and detailed at By investing to create a financially sound, competitive business capable of adapting to changing market and business conditions, Marathon has built a lasting enterprise. The success of our strategic, forward-thinking approach became evident when, in early 2011, our Board of Directors announced plans to spin off our Downstream assets, creating two independent, strong and highly focused energy companies. Marathon Petroleum Corporation (MPC) is expected to be the fifth largest refiner in the United States, with geographically and strategically aligned refining, marketing and transportation operations primarily located in the Midwest, Gulf Coast and Southeast regions. Marathon Oil Corporation (MRO) will continue to comprise our exploration and production, integrated gas and oil sands mining segments, operating in key regions around the world. The spin-off, which we expect to be effective June 30, 2011, will not change the fundamental way the companies conduct business. Both companies remain committed to running safe and environmentally sound operations, developing their workforce and solving problems collaboratively. Both will seek social responsibility programs that further their business goals while meeting stakeholders needs and expectations. And we believe both companies have the assets, operational excellence, talented employees and committed board members needed to achieve sustainable financial and non-financial performance. Every day, events around the world reinforce the strategic importance of accessible, affordable supplies of energy. Our values guide our response to such events. Social responsibility programs enhance our ability to develop energy resources safely, make a difference in our communities, minimize impacts to the environment, operate profitably, and add value for Marathon and our stakeholders. Sincerely, Clarence P. Cazalot Jr. President and Chief Executive Officer June 2011 PAGE 2

5 PERFORMANCE SUMMARY Marathon tracks key non-financial indicators related to health and safety, environmental stewardship, business integrity and diversity. Our financial and operating highlights provide context regarding the Company s economic impact on shareholders and other stakeholders. Indicators are discussed in more detail in relevant sections within this report. Key Corporate Social Responsibility Performance Indicators a Change Discussion Fatalities (Employee and Contractor Workforce) % Page 25 Global Safety Performance Total Recordable Incident Rate (TRIR) b,c % Pages Global Safety Performance Days Away Rate (DAR) b,c % Page 24 Upstream Safety Performance TRIR b,c % Pages Downstream Safety Performance TRIR b,c % Pages Speedway (Retail) Employee Safety Performance TRIR % Pages Global Oil Spills Number % Page 13 Global Oil Spills Total Volume (barrels) 2, % Page 13 Global Greenhouse Gas Emissions (million tonnes CO 2e) % Pages Upstream Greenhouse Gas Emissions (million tonnes CO 2e) % Pages Downstream Greenhouse Gas Emissions (million tonnes CO 2e) % Pages Integrity Helpline Calls (allegations as a percentage of total calls) 67.0% 62.0% -7.5% Page 8 U.S. Employees Minorities as a Percentage of Workforce c 10.2% 10.6% 3.9% Page 26 U.S. Employees Women as a Percentage of Workforce c 23.4% 23.7% 1.3% Page 26 Speedway U.S. Employees Minorities as a Percentage of Workforce 19.2% 19.5% 1.6% Page 26 Speedway U.S. Employees Women as a Percentage of Workforce 60.9% 61.4% 0.8% Page 26 a See page 28 for additional footnote details b Combined employee and contractor workforce c Excluding Speedway Financial and Operating Highlights (dollars in millions, except per share data) Category Revenues $ 72,321 $ 53,287 $ 76,589 Net Income a $ 2,568 $ 1,463 $ 3,528 Net Income per Common Share Diluted $ 3.61 $ 2.06 $ 4.95 Long-term Debt $ 7,601 $ 8,436 $ 7,087 Total Assets b $ 50,014 $ 47,052 $ 42,686 Capital Expenditures c,d $ 4,571 $ 5,891 $ 7,004 Dividends Paid $ 704 $ 679 $ 681 Income Tax Expense $ 2,554 $ 2,257 $ 3,367 Average Daily Net Sales Exploration and Production Segment (MBOEPD) d Average Daily Net Sales Oil Sands Mining Segment Synthetic Crude Oil (MBPD) Average Daily Net Sales Integrated Gas Segment LNG (MTPD) e 6,859 6,642 6,285 Average Daily Net Sales Integrated Gas Segment Methanol (MTPD) e 1,049 1, Net Proved Liquid Hydrocarbon, Natural Gas and Synthetic Crude Oil Reserves (MMBOE) b,f 1,638 1,679 1,195 Net Proved Bitumen Reserves (MMBOE) b,f N/A N/A 388 Total Refinery Throughput (MBPD) 1,335 1,153 1,151 Number of Employees b 29,677 28,855 30,360 a Includes $1.4 billion goodwill impairment in 2008 b As of December 31 c Excludes acquisitions and includes accruals d Excludes discontinued operations e Includes both consolidated sales volumes and the Company s 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. f Under Securities and Exchange Commission regulations, beginning December 31, 2009, oil sands mining is included in oil and gas producing activities and the related reserves are reported as synthetic crude oil. PAGE 3

6 CSR IN CONTEXT Of Marathon Oil Corporation s central management tenets, none defines our strategy and day-to-day operations more than the commitment to corporate responsibility. CSR standards and practices guided our business this past year and will endure after the enterprise s restructuring into Upstream and Downstream organizations. The Board s principal mission is to optimize our shareholders economic value, but it is our conviction that this is fully compatible with stewardship of Marathon s non-financial values. We take seriously our industry s and our communities environmental, safety, geopolitical, and workplace risks and opportunities. We have adopted targets and metrics to measure how we are living up to our own sense of duty to our varied constituencies. Our CSR reporting has transitioned to a well-established ESGW framework to present Marathon s achievements and aspirations for continuous improvement. We trust that you will find our measures of accomplishments appropriate and meaningful. The Board of Directors, its Public Policy Committee and Marathon management have sought to identify emerging CSR risks and opportunities and to articulate the objectives to which we should be held accountable. Our efforts are not unfettered. Even the most well-organized initiatives are invariably constrained by conditions where our Company operates, the materials, resources and technologies we employ, and the ever-increasing demand for our products, among other challenges. We invite our stakeholders to review and evaluate our record and goals, and we welcome your observations and suggestions. Philip Lader Chairman, Public Policy Committee Marathon Oil Corporation Board of Directors Marathon s business is rooted in Living Our Values, a philosophy encompassing longstanding commitments to health and safety, environmental stewardship, honesty and integrity, corporate citizenship and a high performance team culture. Living Our Values gives us opportunities to make a positive impact in communities and host nations where we operate. The Business Case for Corporate Social Responsibility Marathon has a history of operational success underpinned by high standards of honesty and integrity. We are building on this foundation through continued investments to improve our asset base, responsible financial management, environmental stewardship and development of a highly skilled and safe workforce. CSR is fundamental to our operations. We look beyond our office walls and operational facilities to consider how our decisions, actions and operations affect others, and to address our stakeholders critical needs. We believe CSR positions Marathon to be an industry partner, employer and neighbor of choice. It encourages effective relationships with communities, non-governmental organizations (NGOs), investors, employees, customers, suppliers, host governments and regulatory agencies. Ultimately, CSR enhances our ability to adapt to society s changing needs and expectations. For example, in Libya, where we have non-operated interests, we successfully evacuated our expatriate employees and their families and remain focused on the safety and well-being of our Libyan national employees. Marathon is complying with U.S. sanctions. The Public Policy Committee (PPC) of the Board of Directors has oversight responsibility for Marathon s senior-level CSR Management Committee and the Health, Environment, Safety and Security (HES&S) organization. The PPC assists the Board in identifying and monitoring social, political and environmental trends and issues that affect the Company. Additionally, this committee analyzes our global reputation and develops recommendations to strategically position Marathon to meet our business objectives. Integrating CSR Across the Company Marathon s CSR framework includes nine fundamental elements: community development, stakeholder engagement, capacity building, transparency, rule of law, education and training, environmental stewardship, human rights and performance reporting. Our formalized CSR processes, guidelines and activities are integrated with business planning and operations. PAGE 4

7 These elements and resources help align Marathon s social projects with our business goals, needs and operations. We initiate social projects as cooperative, voluntary programs with the goal of contributing to economic development and having a positive, longterm impact on communities or other stakeholders. Factors that affect the design of sustainable projects include the scale of the operation, the phase in the operation s life cycle, stakeholder concerns and interests, location, the local or regional social and political context, and humanitarian needs. Our social projects emphasize capacity building at the local level to extend benefits beyond Marathon s initial involvement. Enterprise Risk Management Enterprise risk management (ERM) is an overarching, ongoing process for identifying, managing and mitigating risks to Marathon s business. The Board s Audit and Finance Committee monitors the risk management process. The corporate ERM function oversees the process, engaging a steering committee and risk champions who facilitate risk identification, assessment and management within the business. Environmental, health, safety, reputation, business interruption, asset loss, regulatory and financial factors, among others, are considered. Executive management is polled for their view of strategic risks, and business units assess risk associated with their major goals and objectives to ensure integration with strategic planning. HES&S and social/political risk assessments, audits, financial risk models and other internal tools are considered in the ERM process. This allows Marathon to gain a broad understanding of our potential risks and how they affect our business. HES&S Standards and Practices HES&S standards drive consistency across the Company by setting expectations for organizational performance. Standards are reviewed periodically and updated to reflect changes in laws or regulations, to incorporate recommendations arising from audits and incident investigations, and to continuously improve performance. Marathon implements a tiered audit program to maintain regulatory compliance and adherence to Company standards. Business units develop plans to address audit findings, track the plans through completion of corrective actions, and share lessons learned. Key audit findings and trends are communicated to HES&S leadership and senior management. MANAGEMENT SYSTEMS Continuously improving performance Management Review Monitoring & Measurement; Accidents & Incidents Policy & Leadership; Risk Assessment; Regulatory Compliance; Goals & Action Plans Roles & Responsibilities; Training & Competency; Stakeholder Engagement/Communication; Operational Controls; Change Management; Security & Emergency Preparedness; Contractors & Suppliers; Product Stewardship; Documentation & Records Marathon employs risk-based management systems designed around the plan-do-check-adjust framework to oversee HES&S performance. Business units apply the internally developed Global Performance System (GPS) or the American Chemistry Council s Responsible Care Management System (RCMS ). Both systems are aligned with international standards. All refineries and other assets subject to Responsible Care have achieved certification of their RCMS systems. PAGE 5

8 Marathon upholds high standards of business ethics and integrity, enforces strict corporate governance principles and board independence, and supports transparency in our operations. WHERE WE ARE: Twelve of 13 members of Marathon s Board of Directors are independent. Actively promoting revenue transparency with governments and countries wherever we operate through broad stakeholder engagement, including support of the Extractive Industries Transparency Initiative (EITI). Engaging in discussions with policy makers and participating in trade associations on public policy activities. Making relevant information on key business issues easily accessible to employees and other stakeholders. Promoting and supporting high standards of ethical behavior and compliance with our Code of Business Conduct, applicable laws and regulations, and our policies. WHERE WE WANT TO BE: Maintaining an independent board to ensure proper oversight of the Company. Continuing to promote openness in business dealings and revenue transparency through the EITI process. Maintaining a Company voice and participation in public policy decision-making, focusing on industryrelevant issues. Maintaining awareness on key business issues to allow employees to make informed decisions. Continuing to conduct business under high ethical standards and to promote rule of law and accountability. PAGE 6 Additional governance details and statistics at

9 GOVERNANCE Board Independence, Business Ethics and Transparency WHAT WE ARE DOING TO GET THERE: Board of Directors Independence To ensure proper oversight of the Company, our goal is to maintain a Board of Directors composed primarily of independent, non-management members. We believe independent directors will represent all shareholders and not special interest groups or constituencies. Through our board screening and selection process, Marathon seeks directors who represent diverse professional experiences, backgrounds and skills. They must be able to provide sound guidance on Marathon s strategic direction, structure, assets, corporate finance, governance, ethics and issues that affect our activities. In 2010, 12 of 13 Marathon directors qualified as independent, based on the NYSE Listed Company Manual and our Corporate Governance Principles. Directors are elected annually and require majority voting in PAGE 7

10 their election. Through June 30, 2011, the chief executive officer was the only management member of the Board, and a separate individual held the position of non-executive board chairman. Internal and external subject matter experts keep board members informed on Marathon s operations and issues such as offshore drilling safety, product quality and reliability, and HES&S matters. Board meetings are held at a Marathon field location approximately once per year, and board members periodically visit locations to get firsthand knowledge of our operations. Business Ethics and Transparency Marathon s goal is to continue to conduct business under high ethical standards and to promote rule of law and accountability. We invest in education, training and infrastructure to encourage awareness of, and compliance with, applicable laws, regulations and policies. Our challenge is to maintain high awareness of ethics and integrity among employees in order to prevent unintentional reputational issues and other risks. We also must foster an environment where employees feel comfortable raising concerns. The internal Business Integrity (BI) Advisory Committee, which includes an academic expert in ethics, influences Marathon policies and provides strategic direction to the Company s BI Office. Our chief compliance officer, the vice president of corporate compliance and ethics, leads the committee. Ethics training includes mandatory computer-based training (CBT) in the first 60 days of employment and biannual CBT thereafter. We achieved 100 percent participation in required ethics training in 2010, reaching more than 7,300 employees. To support business integrity, our Integrity Helpline is available for employees, contractors and the general public to report suspected unethical or illegal activity and to seek guidance on the Code of Business Conduct. This confidential, 24-hour global resource is accessible via telephone or a multilingual, secure website. Marathon informs employees on disciplinary actions resulting from substantiated concerns and allegations raised through the Helpline and other channels. Most employees are required to complete an annual questionnaire intended to identify potential legal or ethical issues and to certify the accuracy of their responses. Participation was mandatory for approximately 7,200 Upstream and Downstream salaried employees and voluntary for approximately 3,300 Downstream hourly employees in We received certification for all employees for whom it was mandatory and from approximately 25 percent of employees for whom it was voluntary. Approximately 445 disclosures were made and the BI Office followed up or responded as needed. Speedway had a 100 percent completion rate for employees required to fill out the questionnaire. Preventing Corruption Marathon opposes corruption in any form. Wherever we do business, Marathon and our majority-owned subsidiaries comply with all applicable laws aimed at preventing corruption, including the U.S. Foreign Corrupt Practices Act (FCPA). The FCPA, like laws of other nations, forbids bribing foreign officials or representatives of foreign governments. Our Law Organization oversees anti-corruption compliance, with guidance from the chief compliance officer. Annual FCPA and anti-corruption training is mandatory for all employees whose job responsibilities include operations in designated locations or otherwise involve anti-corruption compliance. Employees who transfer outside the U.S. receive additional training. In 2010, 1,637 employees worldwide attended FCPA training. This includes more than 98.5 percent of employees required to take the training. Employees who require training must also certify annually that they complied with Marathon s Anti-Corruption Compliance Guidelines. Marathon s comprehensive annual anti-corruption compliance audit program covers our operations and outside-operated interests in countries that are not in the Organisation for Economic Co-operation and Development (OECD). To prevent corruption involving third parties, Marathon has established compliance guidelines applicable to vendors, contractors, joint venture partners and employee recruitment. The guidelines mandate selection processes, oversight, contract language and, depending on the level of risk, due diligence. Transparency of Payments to Host Governments Transparency and accountability are values that guide our business conduct and shape the foundation for sustainable development. Our goal is to promote openness in business dealings and voluntary revenue transparency through the EITI process. We believe that PAGE 8

11 PUBLIC ADVOCACY AND LOBBYING Maintaining our voice in public debates and policy decisions Marathon promotes public policies that encourage responsible energy development and allow us to build a sustainable business. Our goal is to maintain a Company voice in public debates and to participate in public policy decision-making focused on issues relevant to our industry. Our challenge is to meet or exceed legal and regulatory requirements while maintaining the ability to operate cost-effectively, add value for shareholders and offer competitive employment opportunities. The Company also wants to preserve our ability to have a positive impact on communities where we operate and to protect the environment. Marathon representatives meet with federal and state regulators and policy makers in the U.S. and Canada to discuss potential government actions and policies. We work with stakeholder groups and industry to propose mutually acceptable solutions that address concerns. For example, Speedway participated in a retail industry campaign to rein in credit and debit card swipe fees that hurt small business. Speedway store employees engaged approximately 1.7 million customers to sign petitions that were delivered to U.S. representatives. Marathon also ran a campaign aligned with industry efforts to stop potential U.S. capand-trade legislation. Marathon engages governments and parties as appropriate on human rights, environmental stewardship and other CSR-related issues. Prior to starting exploration work in Poland, we hosted Polish government officials on a tour of our North Dakota Bakken Shale operations. In addition, we are participating in a Polish industry association establishing energy development protocols. We also have a goal to maintain awareness on key business issues to allow stakeholders to make informed decisions. Our external issues website highlighted oil sands development and other focus areas in 2010, and we continue to tailor the site s content based on relevant issues. implementing EITI strengthens governance, fosters stakeholder cooperation, aids development of civil society and helps us manage risks. The EITI addresses challenges to establishing transparency through broad, voluntary cooperation among governments, companies, international organizations, NGOs and others. The challenges include lack of systems and processes for host governments to track and report payments and revenues. Marathon offers assistance to countries where we operate in implementing the EITI process. Currently, Iraq, Norway and Indonesia are EITI candidate countries. We continue to work with Equatorial Guinea on capacity-building efforts for transparency. Legislation passed in the U.S. in 2010 mandates disclosure to the U.S. Securities and Exchange Commission of resource extraction payments to foreign governments. Marathon is participating in the rulemaking to implement this law and will comply once it is implemented. Political Contributions The Marathon Oil Company Employees Political Action Committee (MEPAC) is a vehicle for employees to make voluntary political contributions to candidates for U.S. federal and state elected office. In 2010, MEPAC donated approximately $600,000 to 443 candidates, political party organizations and political action committees. Marathon made corporate donations totaling approximately $100,000 to 59 candidates where allowed and to political party organizations, as well as $500,000 to support the California Proposition 23 ballot initiative. The Public Policy Committee reviews, approves and monitors compliance with the Company s political contributions budget. Contributions support responsible energy development and are based solely on a candidate s position on business issues. MEPAC is registered with the U.S. Federal Election Commission (FEC) and complies with all FEC, state and local reporting requirements. PAGE 9

12 Marathon endeavors to reduce environmental impacts and address concerns about climate change and its potential effects. Our efforts include programs for using natural resources efficiently, reducing emissions and improving energy efficiency. WHERE WE ARE: Decreased greenhouse gas (GHG) emissions intensity for second consecutive year, with 2010 intensity 8 percent below Continuing participation in voluntary programs such as U.S. Environmental Protection Agency (EPA) Natural Gas STAR and ENERGY STAR programs, the Global Gas Flaring Reduction (GGFR) Initiative and public reporting programs such as Carbon Disclosure Project. Improved energy efficiency 2.9 percent and continued identifying and implementing projects and procedural changes for further improvements. Decreased volume of oil spills, primarily due to improvements in operating procedures and mechanical integrity, while the number of spills increased from Implementing asset-specific biodiversity efforts and conducting environmental impact assessments (EIAs) for new country entries. Assessing water footprint and stewardship issues under guidance from an executive steering committee. WHERE WE WANT TO BE: Reducing GHG emissions intensity 4 percent by 2013 compared to a 2008 baseline. Improving energy efficiency 5 percent by 2015 compared to a 2009 baseline. Enhancing environmental performance by reducing spills and releases, minimizing wastes, and promoting conservation and biodiversity. PAGE 10 Additional environmental details and statistics at

13 ENVIRONMENTAL STEWARDSHIP Greenhouse Gas Emissions, Energy Efficiency and Environmental Footprint WHAT WE ARE DOING TO GET THERE: Greenhouse Gas Emissions The use of carbon-based fuels generates greenhouse gas emissions, yet these fuels are required in increasing amounts to meet growing demand for energy. Marathon believes that addressing concerns about climate change and GHGs will require global solutions. These include transparent and equitable government policies, innovative and cost-effective technologies, and energy efficiency. Our goal is to reduce GHG intensity (emissions per unit of throughput or production) 4 percent by 2013 (based on a 2008 baseline), even as we continue to grow our business. While this growth may include expanded or new capacity, increased drilling and production requiring higher energy use, Marathon will strive to use energy efficiently and manage GHG emissions intensity. PAGE 11

14 GLOBAL GREENHOUSE GAS EMISSIONS a,b MM Tonnes CO 2 e In 2010, we continued implementing our strategy to reduce GHG intensity, resulting in a one-year decrease of approximately 6 percent. Our total GHG intensity has decreased approximately 8 percent since 2008, while GHG emissions increased less than 1 percent in that same period. The increase in emissions was due to larger crude volumes resulting from the Garyville, Louisiana, refinery expansion, offset by asset divestitures Environmental Footprint Oil and gas operations can impact land, water and wildlife as well as air. Protecting these resources, minimizing impacts and reducing our overall environmental footprint is our responsibility and benefits our business. Upstream Downstream *See page 28 for footnote details ENERGY EFFICIENCY Efficiency has improved 2.9 percent since 2009 We focus on improving operational and energy efficiency to reduce energy use, conserve resources, reduce costs, and extend asset life and value. Marathon s five-year goal is to improve energy efficiency 5 percent by At year-end 2010, Marathon had improved efficiency 2.9 percent. Our energy efficiency team identifies, implements and maintains a database of sustainable, repeatable improvement projects, and shares information across the enterprise. Approximately 100 projects implemented in 2010 will result in annualized reductions of 8 trillion British thermal units (Btus). The largest improvement is attributable to our Garyville Major Expansion project, where we invested to improve one of the most efficient refineries in the U.S. Upstream production operations implement procedural changes and projects that extend asset life and reduce energy use, such as optimizing compressors and installing advanced controls for pumping units to reduce electricity consumption. On platforms in our U.K. Brae asset, we modified export compressors to recycle seal gas, reducing flared gas; improved test separator efficiency when offloading wells; and installed new power generation sets using the latest technology. The Brae projects saved a total of 857 billion Btus of energy in 2010 and will contribute approximately 805 billion Btus in energy savings in Speedway saved energy by converting from fluorescent to LED lighting in more than 2,000 walk-in cooler doors and replacing more than 27,000 store fluorescent tubes with more efficient tubes during scheduled preventive maintenance. Speedway also added LED exterior lights and walk-in cooler door lights to all eight rebuilt stores. The lighting changes resulted in a 474 percent year-over-year increase in energy savings in Marathon s energy efficiency improvements are achieved through projects that reduce energy consumption, flaring, venting and process losses. Although energy efficiency improvements were made in 2010, total energy consumption increased 6.3 percent during the year, largely due to increased refinery throughput volumes. Our refineries account for 80 percent of our energy use, even though they are among the most efficient in the U.S. Potential obstacles to improving efficiency in our Downstream operations include lower refinery utilization and new regulations that require installing additional process equipment without increasing refinery throughput. Finding and implementing projects to further improve refinery efficiency will continue to be a barrier. Upstream s primary challenge to improving efficiency and reducing GHGs is the additional energy required to sustain production in declining oil and gas fields. PAGE 12

15 Environmental stewardship helps maintain stakeholder trust; reduce costs and future liabilities; and facilitate permit acquisition. It also can improve our ability to access oil and gas resources and new venture opportunities. Marathon s goal is to improve our environmental performance by reducing spills and releases of hydrocarbons and other materials (including produced water), minimizing wastes, and promoting conservation and biodiversity. Causes of spills to the environment include equipment failures, infrastructure integrity, human error and weather. To prevent spills, Marathon provides training, procedures, preventive maintenance, equipment inspections and mechanical safeguards. We investigate spills to identify their causes and take incident-specific corrective actions to prevent recurrence. Broad corrective actions also are taken where appropriate. All business units internally report oil spills that are equal to or greater than the agency reportable quantity or equal to or greater than 1 barrel. The overall number of spills increased approximately 14 percent, while the total volume decreased 58 percent compared to There were four spills greater than 10 barrels to water or greater than 100 barrels to land in The largest spill occurred in Louisiana where 218 barrels of condensate and 20 barrels of produced water were released when freezing weather caused a valve on a steel tank to split. The material escaped containment and flowed offsite. To prevent a recurrence, 750 tank valves were replaced in North Louisiana with valves designed for freezing weather. Additional winterization and maintenance activities were included in the maintenance/reliability system. Marathon also evaluated all dikes throughout the asset area and upgraded them as needed. We are cognizant of our obligations to maintain water quality, and use best management practices for discharges to water during construction and operational activities. We monitor compliance related to established discharge standards and maintain significant investments in our process wastewater treatment plants. Marathon facilities develop programs for waste minimization, recycling, reuse and reclamation based on their specific needs, with business units monitoring their own waste disposal activities. Due to these practices, it has been a challenge for Marathon to develop a Companywide approach to minimizing wastes. We plan to improve data collection and analysis to assist in waste reduction and recycling strategies. Downstream hazardous waste disposal has declined in recent years, and we expect this trend to continue as additional recycling options become available. In 2010, refining continued a multi-year project to further manage the largest hazardous waste streams at each plant by reclamation, energy recovery or recycling. The Detroit, Michigan, refinery reclaimed 1,754 tons of hazardous waste out of 1,990 tons, and the Catlettsburg, Kentucky, refinery reclaimed 5,200 tons out of a total of 6,050 tons generated. GLOBAL OIL SPILLS b,e Number and volume of spills GLOBAL CRITERIA POLLUTANT EMISSIONS c 1,000 Tons DOWNSTREAM TOXIC RELEASE INVENTORY (TRI) d Tonnes 10, , , , Volume (barrels) 6,000 5,000 4, Number , , , Volume Number NOx SOx VOC Upstream Downstream c 2008 VOC data adjusted to include emissions not previously reported from Upstream International Production Operations (IPO) data include Downstream and Upstream IPO only; North America Production Operations 2009 data not available because of an ongoing switch to a new database that will increase the accuracy and completeness of emissions calculations. *See page 28 for other footnote details PAGE 13

16 Upstream U.S. and Downstream select and periodically re-evaluate waste management vendors to reduce liability exposure and costs, and to improve management of waste and recyclable materials. Through this program, vendors with the highest identified risk undergo an onsite audit, usually conducted by a third party. Upstream non-u.s. locations manage waste according to local regulations and/or Company requirements. Other Air Emissions Marathon tracks U.S. criteria pollutants including oxides of nitrogen (NOX) and sulfur (SOX), volatile organic compounds (VOCs), carbon monoxide (CO) and particulate matter (PM). Global NOX, SOX and VOCs are reported here; full emissions data are reported online. Criteria pollutant emissions are reported one year in arrears due to regulatory reporting deadlines. Downstream emissions decreased 18 percent from due to the installation of control devices at seven refineries in compliance with an EPA Consent Decree, and we do not expect further significant reductions. Upstream criteria pollutant emissions exclude North America Production Operations. Upstream VOC emissions increased 114 percent in 2009 due to adding U.K. venting operations to the inventories and a full year of operation in Norway. Biodiversity and Ecosystem Services Biodiversity and ecosystem services are key opportunities for improvement for Marathon. We recognize the importance of water stewardship and that fresh water is a valuable natural resource. In 2010, we established a steering committee to address water issues, held a workshop to review our water stewardship efforts and developed a plan to strengthen water management systems. In addition, Marathon took steps to estimate our corporate footprint for water withdrawal, consumption and discharge. We are identifying key business risks and opportunities related to water use. To minimize our impact on the environment, Marathon is conducting environmental impact assessments as part of our entry into Poland and the Iraqi Kurdistan Region. This process includes investigations of plant and animal populations, ecosystem structures, preservation and continuity of habitat, and water resources. Our findings will guide risk management and mitigation, protection measures and other initiatives. OIL SANDS Developing technology to reduce impacts As a partner in the Athabasca Oil Sands Project (AOSP) in Canada, Marathon is working to develop technologies to reduce the impacts of oil sands mining operations. We are working with the operator to address current resource recovery, water use, carbon dioxide (CO 2 ) emissions and tailings deposition issues. Additionally, Marathon is working on an alternative to the hot water process for extracting bitumen from oil sands. Once proven, the alternative extraction process would lower the oil sands mining energy requirement, increase bitumen recoveries and lower capital expenses. We are entering the evaluation phase of our technology development for this process, which has the potential to change the way oil sands energy is developed worldwide. Marathon is developing a heavy oil upgrading technology with applications in our Company-operated in-situ oil sands leases where bitumen deposits are too deep for mining and extraction. A demonstration plant is being constructed in our Catlettsburg refinery to progress the technology development. After this testing verifies the positive results attained in the pilot plants, the upgrading technology could be used to benefit Steam Assisted Gravity Drainage (SAGD) and other projects. PAGE 14

17 MANAGING OUR FOOTPRINT Reducing risks of hydraulic fracturing Conductor Casing Aquifer Surface Casing Intermediate Casing Cement and casing to protect fresh water aquifers Perforations provide controlled initiation points for the hydraulic fracture Marathon is addressing water use, fluids management and well design integrity in our shale operations in the U.S. and Poland. Hydraulic fracturing, or fracking, has been safely used to stimulate production in more than one million oil and gas wells over the past 60 years. Recent advances in the method have helped free oil and gas locked in tight shale rock formations across the U.S. These include the Bakken (North Dakota), Eagle Ford (Texas) and Anadarko Woodford (Oklahoma) shale formations where Marathon has operations. Now, hydraulic fracturing is poised to turn shale gas into a global resource. The process will be vital to Marathon in Poland and elsewhere in our worldwide operations. Marathon is addressing environmental concerns related to hydraulic fracturing. This will enable us to unlock the full resource potential of shale formations. Fracking increases the rate at which oil and gas are released from reservoir rock. The process involves pumping frack fluid through perforations in production casing into the wellbore at high pressures. Frack fluid is generally a mixture containing approximately 90 percent water, 9.5 percent sand, and 0.5 percent gels, foams and/or other chemicals. The high pressure creates fractures in the rock formation. Sand wedged into these cracks keeps them open so hydrocarbons can be released into the wellbore and produced to the surface. The primary environmental concerns include: the large quantities of water needed in the process, especially in water-stressed areas; management of fracture fluids returned back to the surface (flowback) to prevent spills and water contamination; and the chemicals used in frack fluids and their potential impacts on groundwater if the casing or cementing fails. Marathon is working closely with our partners, suppliers and contractors to address these concerns. Hydraulic fracture treatments are designed for specific well site and reservoir conditions, and are conducted using rigid engineering controls. They are typically performed on wells with true vertical depths greater than 5,000 feet, well below most fresh water sources. Steel casing and cement used in the wellbore create physical barriers, protecting drinking water resources. To reduce water use, Marathon is testing methods of recycling flowback fluids and reusing produced water. We participate in a website ( that publicly discloses frack fluid constituents in specific wells. In addition, Marathon is working with government officials and others to ensure that proper regulatory frameworks are in place to protect the environment during fracking. Marathon will continue to take significant precautions with hydraulic fracturing operations to protect groundwater, prevent surface leaks and preserve the environment wherever we use this technology. PAGE 15

18 Marathon will continue to be a positive influence in communities fostering constructive working relationships, building alliances to address sustainable development issues and contributing to the viability of communities where we operate. WHERE WE ARE: Engaging stakeholders in Poland and the Iraqi Kurdistan Region to support exploration activities. Implementing the Voluntary Principles on Security and Human Rights by providing training in appropriate operations and conducting human rights risk assessments for new country entries. Leading strategic social responsibility projects, including the Bioko Island Malaria Control Project (BIMCP) in EG. Aligning philanthropic contributions with business goals, focusing on education, health and the environment. Striving to employ a workforce that reflects the makeup of our communities, including supporting educational and vocational programs to build workforce capabilities. Managing supplier compliance with laws, regulations and Company policies. WHERE WE WANT TO BE: Continuing to engage key stakeholders regularly to gain cooperation and alignment on critical business risks, issues and concerns. In consultation with critical stakeholders, adapting community investment strategies that address issues, risks and impacts, and promoting sustainable CSR projects which optimize philanthropic spend enterprise-wide to complement social responsibility initiatives. Respecting the human rights of all stakeholders and raising awareness of human rights issues across the business enterprise. Adopting standards regarding labor practices and human rights, and making efforts to monitor supplier and vendor standards regarding labor practices, human rights, anti-corruption and environmental performance. Strengthening the local pipeline of talent in support of business objectives. Continuing to build capacity and measure progress globally. PAGE 16 Additional socio-economic details and statistics at

19 SOCIO-ECONOMIC Local Community Impacts and Engagement, Local Content and Human Rights WHAT WE ARE DOING TO GET THERE: Community and Society Local Community Impacts and Engagement We believe proactive, ongoing dialogue and effective relationships with individuals and groups that may have a stake in Marathon projects or operations must be a core business activity. Stakeholder engagement helps Marathon understand community concerns and mitigate potential risks such as project delays, reputation damage and operational disruption. Our goal is to engage stakeholders regularly to foster cooperation and alignment on critical business issues and concerns. Through our engagement process, we learn about stakeholder needs and share our values and operational standards. Our challenge is to engage an increasing number of stakeholders with different needs and expectations in new and existing asset areas. PAGE 17

20 We continue to strengthen internal capabilities for stakeholder engagement with guidelines and supporting software tools. These improve data capture and consistency, knowledge management, decision-making and alignment on community projects across the enterprise. To promote two-way communications with local stakeholders, each Marathon refinery maintains a Community Advisory Panel (CAP). Neighbors, educators, public health workers, law enforcement and fire officials, local leaders and other volunteer CAP members meet regularly with refinery representatives. The CAPs discuss refinery operations, safety and environmental performance, employment practices, community activities and other topics. Our Catlettsburg refinery celebrated the 20th anniversary of its multi-company CAP in The group formed because of community concerns about environmental issues and now covers a wide range of subjects. In consultation with communities, NGOs and private industry, we are addressing strategic local and regional issues, risks and impacts. We also are promoting sustainable social responsibility projects and optimizing philanthropic contributions. Our goal is to ensure local capabilities are in place to sustain social programs beyond our initial investment and involvement. Marathon employs participatory consultation to enable local communities to organize, assess and address their needs. We offer training, materials and support so they ultimately can manage social projects on their own. WORKFORCE INTEGRATION IN EG Focus shifts to professional and leadership development Marathon has made significant progress in the recruitment, training and development of our workforce in Equatorial Guinea. Today national employees make up approximately 70 percent of the workforce. In 2010 alone, 19 professionals were hired, including some who attended college on Company-sponsored scholarships. In contrast, the labor pool was largely unskilled when we acquired production interests on Bioko Island in Building a highly skilled workforce to meet our business needs started with English language and other pre-vocational education, followed by the addition of technical training. By 2010, Marathon had established comprehensive recruiting, training and development programs to prepare Equatoguineans for careers in all aspects of our operations in EG. From , Equatoguineans in manager, supervisor and professional roles increased from 24 to 65, and we shifted our focus to accelerating their development. One activity that helps national employees pick up the pace of skills acquisition and career advancement is our Leadership Skills Development Program (LSDP) launched in The course blends training, projects, assigned readings, career planning and mentorship. Participants receive one-on-one coaching and take 90 hours of core and specialized skills training courses ranging from goalsetting to conflict resolution. Based on the progress of the first 24 participants, we are planning the second LSDP class. PAGE 18