UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

~~June~~September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from _____ to _____

Commission file number 1-1513

Marathon Oil Corporation

(Exact name of registrant as specified in its charter)


Delaware						25-0996816
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

5555 San Felipe Street, Houston, Texas

77056-2723

(Address of principal executive offices)

(713) 629-6600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $1.00

MRO

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

There were ~~789,439,221~~789,391,520 shares of Marathon Oil Corporation common stock outstanding as of ~~July~~October 31, 2020.

MARATHON OIL CORPORATION

Unless the context otherwise indicates, references to “Marathon Oil,” “we,” “our,” or “us” in this Form 10-Q are references to Marathon Oil Corporation, including its wholly owned and majority-owned subsidiaries, and its ownership interests in equity method investees (corporate entities, partnerships, limited liability companies and other ventures over which Marathon Oil exerts significant influence by virtue of its ownership interest).

For certain industry specific terms used in this Form 10-Q, please see “Definitions” in our 2019 Annual Report on Form 10-K.

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

MARATHON OIL CORPORATION

Consolidated Statements of Income (Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
(In millions, except per share data)	(In millions, except per share data)	2020		2019		2020		2019		(In millions, except per share data)	2020		2019		2020		2019
Revenues and other income:	Revenues and other income:									Revenues and other income:
Revenues from contracts with customers	Revenues from contracts with customers	$	490	$	1,381	$	1,514	$	2,581	Revenues from contracts with customers	$	761	$	1,249	$	2,275	$	3,830
Net gain (loss) on commodity derivatives	Net gain (loss) on commodity derivatives	(70)		16		132		(75)		Net gain (loss) on commodity derivatives	(1)		47		131		(28)
Income (loss) from equity method investments	Income (loss) from equity method investments	(152)		31		(164)		42		Income (loss) from equity method investments	(10)		21		(174)		63
Net gain (loss) on disposal of assets		(2)		(8)		7		34
Net gain on disposal of assets										Net gain on disposal of assets	1		22		8		56
Other income	Other income	6		13		13		48		Other income	3		6		16		54
Total revenues and other income	Total revenues and other income	272		1,433		1,502		2,630		Total revenues and other income	754		1,345		2,256		3,975
Costs and expenses:	Costs and expenses:									Costs and expenses:
Production	Production	129		193		289		380		Production	129		163		418		543
Shipping, handling and other operating	Shipping, handling and other operating	105		170		249		324		Shipping, handling and other operating	183		138		432		462
Exploration	Exploration	26		26		54		85		Exploration	27		22		81		107
Depreciation, depletion and amortization	Depreciation, depletion and amortization	597		605		1,241		1,159		Depreciation, depletion and amortization	554		622		1,795		1,781
Impairments	Impairments	—		18		97		24		Impairments	1		0		98		24
Taxes other than income	Taxes other than income	30		79		96		151		Taxes other than income	49		81		145		232
General and administrative	General and administrative	88		87		164		181		General and administrative	53		82		217		263
Total costs and expenses	Total costs and expenses	975		1,178		2,190		2,304		Total costs and expenses	996		1,108		3,186		3,412
Income (loss) from operations	Income (loss) from operations	(703)		255		(688)		326		Income (loss) from operations	(242)		237		(930)		563
Net interest and other	Net interest and other	(69)		(64)		(133)		(113)		Net interest and other	(62)		(64)		(195)		(177)
Other net periodic benefit credit		7		2		7		7
Other net periodic benefit (costs) credits										Other net periodic benefit (costs) credits	(6)		2		1		9
Income (loss) before income taxes	Income (loss) before income taxes	(765)		193		(814)		220		Income (loss) before income taxes	(310)		175		(1,124)		395
Provision (benefit) for income taxes	Provision (benefit) for income taxes	(15)		32		(18)		(115)		Provision (benefit) for income taxes	7		10		(11)		(105)
Net income (loss)	Net income (loss)	$	(750)	$	161	$	(796)	$	335	Net income (loss)	$	(317)	$	165	$	(1,113)	$	500
Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	(0.95)	$	0.20	$	(1.00)	$	0.41	Basic	$	(0.40)	$	0.21	$	(1.41)	$	0.62
Diluted	Diluted	$	(0.95)	$	0.20	$	(1.00)	$	0.41	Diluted	$	(0.40)	$	0.21	$	(1.41)	$	0.62
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	790		813		793		817		Basic	790		802		792		813
Diluted	Diluted	790		814		793		817		Diluted	790		803		792		813

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2020		2019		2020		2019
Net income (loss)	Net income (loss)	$	(750)	$	161	$	(796)	$	335	Net income (loss)	$	(317)	$	165	$	(1,113)	$	500
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax

Change in actuarial loss and other for postretirement and postemployment plans		(42)		(9)		(42)		(13)

Change in derivative hedges unrecognized loss		(4)		—		(26)		—

Change in actuarial gain (loss) and other for postretirement and postemployment plans										Change in actuarial gain (loss) and other for postretirement and postemployment plans	9		38		(33)		25

Change in derivative hedges unrecognized gain (loss)										Change in derivative hedges unrecognized gain (loss)	11		0		(15)		0

Other comprehensive loss		(46)		(9)		(68)		(13)
Foreign currency translation adjustment related to sale of U.K. business										Foreign currency translation adjustment related to sale of U.K. business	0		23		0		23
Other										Other	0		1		0		1
Other comprehensive income (loss)										Other comprehensive income (loss)	20		62		(48)		49
Comprehensive income (loss)	Comprehensive income (loss)	$	(796)	$	152	$	(864)	$	322	Comprehensive income (loss)	$	(297)	$	227	$	(1,161)	$	549

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Consolidated Balance Sheets (Unaudited)


		June 30,		December 31,			September 30,		December 31,
(In millions, except par value and share amounts)	(In millions, except par value and share amounts)	2020		2019		(In millions, except par value and share amounts)	2020		2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	522	$	858	Cash and cash equivalents	$	1,119	$	858
Receivables, less reserve of $23 and $11		620		1,122
Receivables, less reserve of $25 and $11						Receivables, less reserve of $25 and $11	643		1,122
Inventories	Inventories	77		72		Inventories	77		72
Derivative assets		79		9
Other current assets	Other current assets	107		74		Other current assets	83		83
Total current assets	Total current assets	1,405		2,135		Total current assets	1,922		2,135
Equity method investments	Equity method investments	476		663		Equity method investments	467		663
Property, plant and equipment, less accumulated depreciation, depletion and amortization of $19,216 and $18,003		16,424		17,000
Property, plant and equipment, less accumulated depreciation, depletion and amortization of $19,782 and $18,003						Property, plant and equipment, less accumulated depreciation, depletion and amortization of $19,782 and $18,003	16,029		17,000
Goodwill	Goodwill	—		95		Goodwill	0		95
Other noncurrent assets	Other noncurrent assets	262		352		Other noncurrent assets	245		352
Total assets	Total assets	$	18,567	$	20,245	Total assets	$	18,663	$	20,245
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	696	$	1,307	Accounts payable	$	730	$	1,307
Payroll and benefits payable	Payroll and benefits payable	76		112		Payroll and benefits payable	72		112
Accrued taxes	Accrued taxes	77		118		Accrued taxes	45		118
Other current liabilities	Other current liabilities	216		208		Other current liabilities	219		208
Long-term debt due within one year						Long-term debt due within one year	500		0
Total current liabilities	Total current liabilities	1,065		1,745		Total current liabilities	1,566		1,745
Long-term debt	Long-term debt	5,503		5,501		Long-term debt	5,405		5,501
Deferred tax liabilities	Deferred tax liabilities	171		186		Deferred tax liabilities	184		186
Defined benefit postretirement plan obligations	Defined benefit postretirement plan obligations	194		183		Defined benefit postretirement plan obligations	182		183
Asset retirement obligations	Asset retirement obligations	242		243		Asset retirement obligations	236		243
Deferred credits and other liabilities	Deferred credits and other liabilities	217		234		Deferred credits and other liabilities	198		234
Total liabilities	Total liabilities	7,392		8,092		Total liabilities	7,771		8,092
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Preferred stock – no shares issued or outstanding (no par value, 26 million shares authorized)		$	—	$	—
Preferred stock – 0 shares issued or outstanding (0 par value, 26 million shares authorized)						Preferred stock – 0 shares issued or outstanding (0 par value, 26 million shares authorized)	$	0	$	0
Common stock:	Common stock:					Common stock:
Issued – 937 million shares (par value $1 per share, 1.925 billion shares authorized at June 30, 2020 and December 31, 2019)		937		937
Issued – 937 million shares (par value $1 per share, 1.925 billion shares authorized at September 30, 2020 and December 31, 2019)						Issued – 937 million shares (par value $1 per share, 1.925 billion shares authorized at September 30, 2020 and December 31, 2019)	937		937
Held in treasury, at cost – 147 million shares and 141 million shares	Held in treasury, at cost – 147 million shares and 141 million shares	(4,087)		(4,089)		Held in treasury, at cost – 147 million shares and 141 million shares	(4,089)		(4,089)
Additional paid-in capital	Additional paid-in capital	7,143		7,207		Additional paid-in capital	7,159		7,207
Retained earnings	Retained earnings	7,145		7,993		Retained earnings	6,828		7,993
Accumulated other comprehensive income	Accumulated other comprehensive income	37		105		Accumulated other comprehensive income	57		105
Total stockholders’ equity	Total stockholders’ equity	11,175		12,153		Total stockholders’ equity	10,892		12,153
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	18,567	$	20,245	Total liabilities and stockholders’ equity	$	18,663	$	20,245

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Consolidated Statements of Cash Flows (Unaudited)


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents					Increase (decrease) in cash and cash equivalents
Operating activities:	Operating activities:					Operating activities:
Net income (loss)	Net income (loss)	$	(796)	$	335	Net income (loss)	$	(1,113)	$	500
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	Depreciation, depletion and amortization	1,241		1,159		Depreciation, depletion and amortization	1,795		1,781
Impairments	Impairments	97		24		Impairments	98		24
Exploratory dry well costs and unproved property impairments	Exploratory dry well costs and unproved property impairments	40		69		Exploratory dry well costs and unproved property impairments	63		85
Net gain on disposal of assets	Net gain on disposal of assets	(7)		(34)		Net gain on disposal of assets	(8)		(56)
Deferred income taxes	Deferred income taxes	(14)		(33)		Deferred income taxes	(2)		(34)
Net (gain) loss on derivative instruments	Net (gain) loss on derivative instruments	(132)		75		Net (gain) loss on derivative instruments	(131)		28
Net settlements of derivative instruments	Net settlements of derivative instruments	57		27		Net settlements of derivative instruments	92		41
Pension and other post retirement benefits, net	Pension and other post retirement benefits, net	(31)		(41)		Pension and other post retirement benefits, net	(35)		(51)
Stock-based compensation	Stock-based compensation	28		32		Stock-based compensation	43		45
Equity method investments, net	Equity method investments, net	180		12		Equity method investments, net	189		26
Changes in:	Changes in:					Changes in:
Current receivables	Current receivables	489		(95)		Current receivables	467		(99)
Inventories	Inventories	(5)		3		Inventories	(5)		4
Current accounts payable and accrued liabilities	Current accounts payable and accrued liabilities	(456)		(158)		Current accounts payable and accrued liabilities	(478)		(164)
Other current assets and liabilities	Other current assets and liabilities	46		119		Other current assets and liabilities	83		108
All other operating, net	All other operating, net	(27)		(182)		All other operating, net	(3)		(189)
Net cash provided by operating activities	Net cash provided by operating activities	710		1,312		Net cash provided by operating activities	1,055		2,049
Investing activities:	Investing activities:					Investing activities:
Additions to property, plant and equipment	Additions to property, plant and equipment	(946)		(1,262)		Additions to property, plant and equipment	(1,090)		(1,934)
Additions to other assets	Additions to other assets	12		42		Additions to other assets	15		41
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	3		—		Acquisitions, net of cash acquired	(1)		0
Disposal of assets, net of cash transferred to the buyer	Disposal of assets, net of cash transferred to the buyer	9		69		Disposal of assets, net of cash transferred to the buyer	9		(84)
Equity method investments - return of capital	Equity method investments - return of capital	7		49		Equity method investments - return of capital	7		51
All other investing, net	All other investing, net	—		(27)		All other investing, net	0		2
Net cash used in investing activities	Net cash used in investing activities	(915)		(1,129)		Net cash used in investing activities	(1,060)		(1,924)
Financing activities:	Financing activities:					Financing activities:
Borrowings						Borrowings	400		0
Purchases of common stock	Purchases of common stock	(92)		(266)		Purchases of common stock	(92)		(296)
Dividends paid	Dividends paid	(40)		(82)		Dividends paid	(40)		(122)
All other financing, net	All other financing, net	1		(2)		All other financing, net	(2)		(4)
Net cash used in financing activities		(131)		(350)
Effect of exchange rate on cash and cash equivalents		—		1
Net decrease in cash and cash equivalents		(336)		(166)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	266		(422)

Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	261		(297)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	858		1,462		Cash and cash equivalents at beginning of period	858		1,462
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	522	$	1,296	Cash and cash equivalents at end of period	$	1,119	$	1,165

Reconciliation of cash and cash equivalents
Cash and cash equivalents		$	522	$	961
Cash and cash equivalents included in current assets held for sale		—		335
Total cash and cash equivalents		$	522	$	1,296

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Consolidated Statements of Stockholders’ Equity (Unaudited)


		Total Equity of Marathon Oil Stockholders																											Total Equity of Marathon Oil Stockholders
(In millions)	(In millions)	Preferred Stock		Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity		(In millions)	Preferred Stock		Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Six Months Ended June 30, 2019
Nine Months Ended September 30, 2019																Nine Months Ended September 30, 2019
December 31, 2018 Balance	December 31, 2018 Balance	$	—	$	937	$	(3,816)	$	7,238	$	7,706	$	63	12,128		December 31, 2018 Balance	$	0	$	937	$	(3,816)	$	7,238	$	7,706	$	63	12,128
Cumulative-effect adjustment	Cumulative-effect adjustment	—		—		—		—		(31)		—		(31)		Cumulative-effect adjustment	—		—		—		—		(31)		—		(31)
Shares issued - stock-based compensation	Shares issued - stock-based compensation	—		—		101		(39)		—		—		62		Shares issued - stock-based compensation	—		—		101		(39)		—		—		62
Shares repurchased	Shares repurchased	—		—		(30)		—		—		—		(30)		Shares repurchased	—		—		(30)		—		—		—		(30)
Stock-based compensation	Stock-based compensation	—		—		—		(50)		—		—		(50)		Stock-based compensation	—		—		—		(50)		—		—		(50)
Net income	Net income	—		—		—		—		174		—		174		Net income	—		—		—		—		174		—		174
Other comprehensive loss	Other comprehensive loss	—		—		—		—		—		(4)		(4)		Other comprehensive loss	—		—		—		—		—		(4)		(4)
Dividends paid (per share amount of $0.05)	Dividends paid (per share amount of $0.05)	—		—		—		—		(41)		—		(41)		Dividends paid (per share amount of $0.05)	—		—		—		—		(41)		—		(41)
March 31, 2019 Balance	March 31, 2019 Balance	$	—	$	937	$	(3,745)	$	7,149	$	7,808	$	59	$	12,208	March 31, 2019 Balance	$	0	$	937	$	(3,745)	$	7,149	$	7,808	$	59	$	12,208
Shares issued - stock-based compensation	Shares issued - stock-based compensation	—		—		(3)		5		—		—		2		Shares issued - stock-based compensation	—		—		(3)		5		—		—		2
Shares repurchased	Shares repurchased	—		—		(236)		—		—		—		(236)		Shares repurchased	—		—		(236)		—		—		—		(236)
Stock-based compensation	Stock-based compensation	—		—		—		16		—		—		16		Stock-based compensation	—		—		—		16		—		—		16
Net income	Net income	—		—		—		—		161		—		161		Net income	—		—		—		—		161		—		161
Other comprehensive loss	Other comprehensive loss	—		—		—		—		—		(9)		(9)		Other comprehensive loss	—		—		—		—		—		(9)		(9)
Dividends paid (per share amount of $0.05)	Dividends paid (per share amount of $0.05)	—		—		—		—		(41)		—		(41)		Dividends paid (per share amount of $0.05)	—		—		—		—		(41)		—		(41)
June 30, 2019 Balance	June 30, 2019 Balance	$	—	$	937	$	(3,984)	$	7,170	$	7,928	$	50	$	12,101	June 30, 2019 Balance	$	0	$	937	$	(3,984)	$	7,170	$	7,928	$	50	$	12,101

Shares issued - stock-based compensation																Shares issued - stock-based compensation	—		—		(14)		9		—		—		(5)
Shares repurchased																Shares repurchased	—		—		(30)		—		—		—		(30)
Stock-based compensation																Stock-based compensation	—		—		—		18		—		—		18
Net income																Net income	—		—		—		—		165		—		165
Other comprehensive income																Other comprehensive income	—		—		—		—		—		62		62
Dividends paid (per share amount of $0.05)																Dividends paid (per share amount of $0.05)	—		—		—		—		(40)		—		(40)
September 30, 2019 Balance																September 30, 2019 Balance	$	0	$	937	$	(4,028)	$	7,197	$	8,053	$	112	$	12,271

Six Months Ended June 30, 2020
December 31, 2019 Balance $ — $ 937 $ (4,089) $ 7,207 $ 7,993 $ 105 12,153
Cumulative-effect adjustment (Note 2) — — — — (12) — (12)
Shares issued - stock based compensation — — 121 (83) — — 38
Shares repurchased — — (91) — — — (91)
Stock-based compensation — — — (22) — — (22)
Net loss — — — — (46) — (46)
Other comprehensive loss — — — — — (22) (22)
Dividends paid (per share amount of $0.05) — — — — (40) — (40)
March 31, 2020 Balance $ — $ 937 $ (4,059) $ 7,102 $ 7,895 $ 83 $ 11,958
Shares issued - stock-based compensation — — (28) 20 — — (8)
Stock-based compensation — — — 21 — — 21
Net loss — — — — (750) — (750)
Other comprehensive loss — — — — — (46) (46)
June 30, 2020 Balance $ — $ 937 $ (4,087) $ 7,143 $ 7,145 $ 37 $ 11,175
The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Consolidated Statements of Stockholders’ Equity (Unaudited)


	Total Equity of Marathon Oil Stockholders
(In millions)	Preferred Stock		Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Equity
Nine Months Ended September 30, 2020
December 31, 2019 Balance	$	0	$	937	$	(4,089)	$	7,207	$	7,993	$	105	12,153
Cumulative-effect adjustment (Note 2)	—		—		—		—		(12)		—		(12)
Shares issued - stock based compensation	—		—		121		(83)		—		—		38
Shares repurchased	—		—		(91)		—		—		—		(91)
Stock-based compensation	—		—		—		(22)		—		—		(22)
Net loss	—		—		—		—		(46)		—		(46)
Other comprehensive loss	—		—		—		—		—		(22)		(22)
Dividends paid (per share amount of $0.05)	—		—		—		—		(40)		—		(40)
March 31, 2020 Balance	$	0	$	937	$	(4,059)	$	7,102	$	7,895	$	83	$	11,958
Shares issued - stock-based compensation	—		—		(28)		20		—		—		(8)

Stock-based compensation	—		—		—		21		—		—		21
Net loss	—		—		—		—		(750)		—		(750)
Other comprehensive loss	—		—		—		—		—		(46)		(46)

June 30, 2020 Balance	$	0	$	937	$	(4,087)	$	7,143	$	7,145	$	37	$	11,175
Shares issued - stock-based compensation	—		—		(2)		2		—		—		0

Stock-based compensation	—		—		—		14		—		—		14
Net loss	—		—		—		—		(317)		—		(317)
Other comprehensive income	—		—		—		—		—		20		20

September 30, 2020 Balance	$	0	$	937	$	(4,089)	$	7,159	$	6,828	$	57	$	10,892

The accompanying notes are an integral part of these consolidated financial statements.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

These consolidated financial statements are unaudited; however, in the opinion of management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. These consolidated financial statements, including notes, have been prepared in accordance with the applicable rules of the SEC and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2019 Annual Report on Form 10-K. The results of operations for the ~~second~~third quarter and first ~~six~~nine months of 2020 are not necessarily indicative of the results to be expected for the full year.

2. Accounting Standards

Recently Adopted

Financial instruments – credit losses

In June 2016, the FASB issued a new accounting standards update that changes the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. On January 1, 2020 we adopted this standard using the modified retrospective transition method through a cumulative-effect adjustment of $12 million to retained earnings as of the beginning of the adoption period. The standard requires the use of a forward-looking “expected loss” model as opposed to the “incurred loss” model used previously. See Note 8 for more information on credit losses.

3. Income (loss) and Dividends per Common Share

Basic income (loss) per share is based on the weighted average number of common shares outstanding. Diluted income (loss) per share assumes exercise of stock options in all periods, provided the effect is not antidilutive. The per share calculations below exclude ~~7 million of stock options for each of the three and six months ended June 30, 2020 and~~ 6 million of stock options for each of the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 6 million and 5 million of stock options for the three and nine months ended September 30, 2019 that were antidilutive.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(In millions, except per share data)	(In millions, except per share data)	2020		2019		2020		2019		(In millions, except per share data)	2020		2019		2020		2019
Net income (loss)	Net income (loss)	$	(750)	$	161	$	(796)	$	335	Net income (loss)	$	(317)	$	165	$	(1,113)	$	500

Weighted average common shares outstanding	Weighted average common shares outstanding	790		813		793		817		Weighted average common shares outstanding	790		802		792		813
Effect of dilutive securities	Effect of dilutive securities	—		1		—		—		Effect of dilutive securities	0		1		0		0
Weighted average common shares, diluted	Weighted average common shares, diluted	790		814		793		817		Weighted average common shares, diluted	790		803		792		813
Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	(0.95)	$	0.20	$	(1.00)	$	0.41	Basic	$	(0.40)	$	0.21	$	(1.41)	$	0.62
Diluted	Diluted	$	(0.95)	$	0.20	$	(1.00)	$	0.41	Diluted	$	(0.40)	$	0.21	$	(1.41)	$	0.62

Dividends per share	Dividends per share	$	—	$	0.05	$	0.05	$	0.10	Dividends per share	$	0	$	0.05	$	0.05	$	0.15

4. Dispositions

International Segment

In July 2019, we closed on the sale of our U.K. business (Marathon Oil U.K. LLC and Marathon Oil West of Shetlands Limited) for proceeds of ~~approximately~~ $95 million which ~~reflects~~included the assumption by RockRose Energy PLC (the buyer) of the U.K. business’ cash equivalent balance and working capital balance as of year-end 2018. During the third quarter of 2019, we recognized a pre-tax gain of $14 million. Our income before income taxes relating to our U.K. business for the three and ~~six~~nine months ended ~~June~~September 30, 2019, was ~~$18 million~~NaN and $28 million.

In the second quarter of 2019, we closed on the sale of our 15% non-operated interest in the Atrush block in Kurdistan for proceeds of $63 million, before closing adjustments.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

5. Revenues

The majority of our revenues are derived from the sale of crude oil and condensate, NGLs and natural gas under spot and term agreements with our customers in the United States and various international locations.

As of ~~June~~September 30, 2020 and December 31, 2019, receivables from contracts with customers, included in receivables, less reserves were ~~$487~~$502 million and $837 million, respectively.

The following tables present our revenues from contracts with customers disaggregated by product type and geographic areas for the three and ~~six~~nine months ended ~~June~~September 30 as follows:

United States


		Three Months Ended June 30, 2020																							Three Months Ended September 30, 2020
(In millions)	(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total		(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total
Crude oil and condensate	Crude oil and condensate	$	142	$	147	$	32	$	33	$	7	$	361	Crude oil and condensate	$	190	$	230	$	65	$	53	$	14	$	552
Natural gas liquids	Natural gas liquids	16		3		13		4		1		37		Natural gas liquids	22		15		28		7		1		73
Natural gas	Natural gas	20		5		24		4		1		54		Natural gas	18		9		33		6		3		69
Other	Other	1��		—		—		—		9		10		Other	1		0		0		0		27		28
Revenues from contracts with customers	Revenues from contracts with customers	$	179	$	155	$	69	$	41	$	18	$	462	Revenues from contracts with customers	$	231	$	254	$	126	$	66	$	45	$	722


		Three Months Ended June 30, 2019																							Three Months Ended September 30, 2019
(In millions)	(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total		(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total
Crude oil and condensate	Crude oil and condensate	$	350	$	453	$	111	$	77	$	30	$	1,021	Crude oil and condensate	$	336	$	452	$	116	$	88	$	25	$	1,017
Natural gas liquids	Natural gas liquids	30		15		31		7		1		84		Natural gas liquids	23		6		28		5		2		64
Natural gas	Natural gas	32		6		36		1		4		79		Natural gas	28		8		37		3		5		81
Other	Other	1		—		—		—		15		16		Other	1		0		0		0		9		10
Revenues from contracts with customers	Revenues from contracts with customers	$	413	$	474	$	178	$	85	$	50	$	1,200	Revenues from contracts with customers	$	388	$	466	$	181	$	96	$	41	$	1,172


		Six Months Ended June 30, 2020																							Nine Months Ended September 30, 2020
(In millions)	(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total		(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total
Crude oil and condensate	Crude oil and condensate	$	449	$	477	$	116	$	107	$	40	$	1,189	Crude oil and condensate	$	639	$	707	$	181	$	160	$	54	$	1,741
Natural gas liquids	Natural gas liquids	31		13		34		7		3		88		Natural gas liquids	53		28		62		14		4		161
Natural gas	Natural gas	44		13		53		7		4		121		Natural gas	62		22		86		13		7		190
Other	Other	3		—		—		—		31		34		Other	4		0		0		0		58		62
Revenues from contracts with customers	Revenues from contracts with customers	$	527	$	503	$	203	$	121	$	78	$	1,432	Revenues from contracts with customers	$	758	$	757	$	329	$	187	$	123	$	2,154


		Six Months Ended June 30, 2019																							Nine Months Ended September 30, 2019
(In millions)	(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total		(In millions)	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Other U.S.		Total
Crude oil and condensate	Crude oil and condensate	$	668	$	825	$	188	$	141	$	58	$	1,880	Crude oil and condensate	$	1,004	$	1,277	$	304	$	229	$	83	$	2,897
Natural gas liquids	Natural gas liquids	65		25		53		15		3		161		Natural gas liquids	88		31		81		20		5		225
Natural gas	Natural gas	66		18		81		7		10		182		Natural gas	94		26		118		10		15		263
Other	Other	3		—		—		—		36		39		Other	4		0		0		0		45		49
Revenues from contracts with customers	Revenues from contracts with customers	$	802	$	868	$	322	$	163	$	107	$	2,262	Revenues from contracts with customers	$	1,190	$	1,334	$	503	$	259	$	148	$	3,434

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

International


	Three Months Ended ~~June~~September 30, 2020
(In millions)	E.G.
Crude oil and condensate	$	2031
Natural gas liquids	1
Natural gas	7
Other	0
Revenues from contracts with customers	$	2839

Three Months Ended June 30, 2019
(In millions) E.G. U.K. Other Int’l Total
Crude oil and condensate $ 101 $ 51 $ 9 $ 161
Natural gas liquids 1 — — 1
Natural gas 9 4 — 13
Other — 6 — 6
Revenues from contracts with customers $ 111 $ 61 $ 9 $ 181


	Three Months Ended September 30, 2019
(In millions)	E.G.
Crude oil and condensate	$	67
Natural gas liquids	1
Natural gas	8
Other	1
Revenues from contracts with customers	$	77


	~~Six~~Nine Months Ended ~~June~~September 30, 2020
(In millions)	E.G.
Crude oil and condensate	$	6596
Natural gas liquids	23
Natural gas	1522

Revenues from contracts with customers	$	82121


		Six Months Ended June 30, 2019															Nine Months Ended September 30, 2019
(In millions)	(In millions)	E.G.		U.K.		Other Int’l		Total		(In millions)	E.G.		U.K.		Other Int’l		Total
Crude oil and condensate	Crude oil and condensate	$	148	$	107	$	19	$	274	Crude oil and condensate	$	215	$	107	$	19	$	341
Natural gas liquids	Natural gas liquids	2		1		—		3		Natural gas liquids	3		1		0		4
Natural gas	Natural gas	16		12		—		28		Natural gas	24		12		0		36
Other	Other	—		14		—		14		Other	1		14		0		15
Revenues from contracts with customers	Revenues from contracts with customers	$	166	$	134	$	19	$	319	Revenues from contracts with customers	$	243	$	134	$	19	$	396

910

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

6. Segment Information

We have 2 reportable operating segments. Both of these segments are organized and managed based upon geographic location and the nature of the products and services offered.

•United States (“U.S.”) – explores for, produces and markets crude oil and condensate, NGLs and natural gas in the United States

•International (“Int’l”) – explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of the United States as well as produces and markets products manufactured from natural gas, such as LNG and methanol, in Equatorial Guinea (“E.G.”)

Segment income represents income which excludes certain items not allocated to our operating segments, net of income taxes. A portion of our corporate and operations general and administrative support costs are not allocated to the operating segments. These unallocated costs primarily consist of employment costs (including pension effects), professional services, facilities and other costs associated with corporate and operations support activities. Additionally, items which affect comparability such as: gains or losses on dispositions, impairments of proved property, goodwill, and equity method investments, unrealized gains or losses on commodity and interest rate derivative instruments, effects of pension settlements and curtailments, or other items (as determined by the chief operating decision maker (“CODM”)) are not allocated to operating segments.


		Three Months Ended June 30, 2020																	Three Months Ended September 30, 2020
(In millions)	(In millions)	U.S.		Int’l		Not Allocated to Segments			Total		(In millions)	U.S.		Int’l		Not Allocated to Segments			Total
Revenues from contracts with customers	Revenues from contracts with customers	$	462	$	28	$	—		$	490	Revenues from contracts with customers	$	722	$	39	$	0		$	761
Net gain (loss) on commodity derivatives	Net gain (loss) on commodity derivatives	26		—		(96)		^(b)	(70)		Net gain (loss) on commodity derivatives	35		0		(36)		(b)	(1)
Loss from equity method investments		—		—		(152)		^(c)	(152)
Net loss on disposal of assets		—		—		(2)			(2)
Income (loss) from equity method investments											Income (loss) from equity method investments	0		8		(18)			(10)
Net gain on disposal of assets											Net gain on disposal of assets	0		0		1			1
Other income	Other income	3		2		1			6		Other income	1		1		1			3
Less costs and expenses:	Less costs and expenses:										Less costs and expenses:
Production	Production	114		15		—			129		Production	118		11		0			129
Shipping, handling and other operating	Shipping, handling and other operating	91		1		13			105		Shipping, handling and other operating	154		1		28			183
Exploration	Exploration	26		—		—			26		Exploration	21		0		6			27
Depreciation, depletion and amortization	Depreciation, depletion and amortization	569		22		6			597		Depreciation, depletion and amortization	530		19		5			554

Impairments											Impairments	0		0		1			1
Taxes other than income	Taxes other than income	30		—		—			30		Taxes other than income	48		0		1			49
General and administrative	General and administrative	32		3		53		^(d)	88		General and administrative	25		3		25			53
Net interest and other	Net interest and other	—		—		69			69		Net interest and other	0		0		62			62
Other net periodic benefit credit		—		—		(7)		^(e)	(7)
Income tax benefit		(6)		(5)		(4)			(15)
Segment loss		$	(365)	$	(6)	$	(379)		$	(750)
Other net periodic benefit costs											Other net periodic benefit costs	0		0		6		(c)	6
Income tax provision (benefit)											Income tax provision (benefit)	(3)		6		4			7
Segment income (loss)											Segment income (loss)	$	(135)	$	8	$	(190)		$	(317)
Total assets	Total assets	$	16,791	$	1,144	$	632		$	18,567	Total assets	$	16,396	$	1,104	$	1,163		$	18,663
Capital expenditures^(a)	Capital expenditures^(a)	$	137	$	—	$	2		$	139	Capital expenditures(a)	$	176	$	0	$	1		$	177

^(a)Includes accruals.

^(b)Unrealized loss on commodity derivative instruments (See Note 15).

^(c)~~Partial impairment of investment in equity method investee (See~~ N ot ~~e 2~~3).

^(d)~~Includes severance expenses associated with workforce reductions of $13 million.~~

^(e)Includes pension settlement loss of ~~$14 million and pension curtailment gain of $17~~$9 million (See N ~~ote~~ 2 0Note 20).

1011

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)


		Three Months Ended June 30, 2019																	Three Months Ended September 30, 2019
(In millions)	(In millions)	U.S.		Int’l		Not Allocated to Segments			Total		(In millions)	U.S.		Int’l		Not Allocated to Segments			Total
Revenues from contracts with customers	Revenues from contracts with customers	$	1,200	$	181	$	—		$	1,381	Revenues from contracts with customers	$	1,172	$	77	$	0		$	1,249
Net gain on commodity derivatives	Net gain on commodity derivatives	5		—		11		^(b)	16		Net gain on commodity derivatives	14		0		33		(b)	47
Income from equity method investments	Income from equity method investments	—		31		—			31		Income from equity method investments	0		21		0			21
Net loss on disposal of assets		—		—		(8)		^(c)	(8)
Net gain on disposal of assets											Net gain on disposal of assets	0		0		22		(c)	22
Other income	Other income	4		2		7			13		Other income	3		2		1			6
Less costs and expenses:	Less costs and expenses:										Less costs and expenses:
Production	Production	147		46		—			193		Production	147		16		0			163
Shipping, handling and other operating	Shipping, handling and other operating	147		10		13			170		Shipping, handling and other operating	137		1		0			138
Exploration	Exploration	26		—		—			26		Exploration	22		0		0			22
Depreciation, depletion and amortization	Depreciation, depletion and amortization	561		38		6			605		Depreciation, depletion and amortization	589		25		8			622
Impairments		—		—		18		^(d)	18

Taxes other than income	Taxes other than income	79		—		—			79		Taxes other than income	80		0		1			81
General and administrative	General and administrative	31		8		48			87		General and administrative	34		5		43			82
Net interest and other	Net interest and other	—		—		64			64		Net interest and other	0		0		64			64
Other net periodic benefit credit	Other net periodic benefit credit	—		(1)		(1)			(2)		Other net periodic benefit credit	0		0		(2)			(2)
Income tax provision	Income tax provision	3		17		12			32		Income tax provision	0		10		0			10
Segment income (loss)	Segment income (loss)	$	215	$	96	$	(150)		$	161	Segment income (loss)	$	180	$	43	$	(58)		$	165
Total assets	Total assets	$	17,539	$	2,913	$	830		$	21,282	Total assets	$	17,722	$	2,003	$	648		$	20,373
Capital expenditures^(a)	Capital expenditures^(a)	$	686	$	10	$	5		$	701	Capital expenditures(a)	$	667	$	1	$	7		$	675

^(a)Includes accruals.

^(b)Unrealized gain on commodity derivative instruments (See Note 15).

^(c)Primarily related to the sale of ~~certain non-core proved properties in~~ our ~~International segment~~U.K. business (see No te 4).

^(d)~~Primarily as a result of the anticipated sale of non-core proved properties in our United States segment (See~~ Note 114).

1112

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)


		Six Months Ended June 30, 2020																	Nine Months Ended September 30, 2020
(In millions)	(In millions)	U.S.		Int’l		Not Allocated to Segments			Total		(In millions)	U.S.		Int’l		Not Allocated to Segments			Total
Revenues from contracts with customers	Revenues from contracts with customers	$	1,432	$	82	$	—		$	1,514	Revenues from contracts with customers	$	2,154	$	121	$	0		$	2,275
Net gain on commodity derivatives	Net gain on commodity derivatives	57		—		75		^(b)	132		Net gain on commodity derivatives	92		0		39		(b)	131
Loss from equity method investments	Loss from equity method investments	—		(12)		(152)		^(c)	(164)		Loss from equity method investments	0		(4)		(170)		(c)	(174)
Net gain on disposal of assets	Net gain on disposal of assets	—		—		7			7		Net gain on disposal of assets	0		0		8			8
Other income	Other income	7		4		2			13		Other income	8		5		3			16
Less costs and expenses:	Less costs and expenses:										Less costs and expenses:
Production	Production	257		32		—			289		Production	375		43		0			418
Shipping, handling and other operating	Shipping, handling and other operating	231		4		14			249		Shipping, handling and other operating	385		5		42			432
Exploration	Exploration	54		—		—			54		Exploration	75		0		6			81
Depreciation, depletion and amortization	Depreciation, depletion and amortization	1,186		43		12			1,241		Depreciation, depletion and amortization	1,716		62		17			1,795
Impairments	Impairments	—		—		97		^(d)	97		Impairments	0		0		98		(d)	98
Taxes other than income	Taxes other than income	96		—		—			96		Taxes other than income	144		0		1			145
General and administrative	General and administrative	64		7		93		^(e)	164		General and administrative	89		10		118		(e)	217
Net interest and other	Net interest and other	—		—		133			133		Net interest and other	0		0		195			195
Other net periodic benefit credit	Other net periodic benefit credit	—		—		(7)		^(f)	(7)		Other net periodic benefit credit	0		0		(1)		(f)	(1)
Income tax benefit		(7)		(5)		(6)			(18)
Segment loss		$	(385)	$	(7)	$	(404)		$	(796)
Income tax provision (benefit)											Income tax provision (benefit)	(10)		1		(2)			(11)
Segment income (loss)											Segment income (loss)	$	(520)	$	1	$	(594)		$	(1,113)
Total assets	Total assets	$	16,791	$	1,144	$	632		$	18,567	Total assets	$	16,396	$	1,104	$	1,163		$	18,663
Capital expenditures^(a)	Capital expenditures^(a)	$	698	$	—	$	9		$	707	Capital expenditures(a)	$	874	$	0	$	10		$	884

^(a)Includes accruals.

^(b)Unrealized gain on commodity derivative instruments (See Note 15).

^(c)Partial impairment of investment in equity method investee (See Note 23).

^(d)Includes the full impairment of the International reporting unit goodwill of $95 million (See N ~~ote~~Note 14).

^(e)Includes severance expenses associated with workforce reductions of ~~$13~~$15 million.

^(f)Includes pension settlement loss of ~~$16~~$25 million and pension curtailment gain of $17 million (See Note 20).

1213

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)


	Nine Months Ended September 30, 2019
(In millions)	U.S.		Int’l		Not Allocated to Segments			Total
Revenue from contracts with customers	$	3,434	$	396	$	0		$	3,830
Net gain (loss) on commodity derivatives	41		0		(69)		(b)	(28)
Income from equity method investments	0		63		0			63
Net gain on disposal of assets	0		0		56		(c)	56
Other income	8		7		39		(d)	54
Less costs and expenses:
Production	433		112		(2)			543
Shipping, handling and other operating	424		24		14			462
Exploration	107		0		0			107
Depreciation, depletion and amortization	1,664		97		20			1,781
Impairments	0		0		24		(e)	24
Taxes other than income	233		0		(1)			232
General and administrative	94		20		149			263
Net interest and other	0		0		177			177
Other net periodic benefit credit	0		(3)		(6)			(9)
Income tax provision (benefit)	1		16		(122)		(f)	(105)
Segment income (loss)	$	527	$	200	$	(227)		$	500
Total assets	$	17,722	$	2,003	$	648		$	20,373
Capital expenditures(a)	$	1,959	$	16	$	15		$	1,990

(a)

Six Months Ended June 30, 2019
(In millions) U.S. Int’l Not Allocated to Segments Total
Revenue from contracts with customers $ 2,262 $ 319 $ — $ 2,581
Net gain (loss) on commodity derivatives 27 — (102)
^(b)
(75)
Income from equity method investments — 42 — 42
Net gain on disposal of assets — — 34
^(c)
34
Other income 5 5 38
^(d)
48
Less costs and expenses:
Production 286 96 (2) 380
Shipping, handling and other operating 287 23 14 324
Exploration 85 — — 85
Depreciation, depletion and amortization 1,075 72 12 1,159
Impairments — — 24
^(e)
24
Taxes other than income 153 — (2) 151
General and administrative 60 15 106 181
Net interest and other — — 113 113
Other net periodic benefit credit — (3) (4) (7)
Income tax provision (benefit) 1 6 (122)
^(f)
(115)
Segment income (loss) $ 347 $ 157 $ (169) $ 335
Total assets $ 17,539 $ 2,913 $ 830 $ 21,282
Capital expenditures^(a)
$ 1,292 $ 15 $ 8 $ 1,315

^(a)Includes accruals.

^(b)Unrealized loss on commodity derivative instruments (See Note 15).

^(c)Primarily related to the sale of our working interest in the Droshky field (Gulf of Mexico) and the sale of our U.K. business (SeeNo te 4).

^(d)Primarily related to the indemnification of certain tax liabilities in connection with the 2010-2011 Federal Tax ~~Audit(SeeNote 7~~).Audit.

^(e)Primarily as a result of anticipated sales of certain non-core proved properties in our International and United States segments.

^(f)Primarily relates to the settlement of the 2010-2011 Federal Tax Audit (See Note 7).

1314

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

7. Income Taxes

Effective Tax Rate

The effective income tax rate is influenced by a variety of factors including the geographic and functional sources of income and the relative magnitude of these sources of income. The difference between the total provision and the sum of the amounts allocated to segments is reported in the “Not Allocated to Segments” column of the tables in Note 6.

For the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, our effective income tax rates were as follows:

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Effective income tax rate^(a)
2 % 17 % 2 % (52) %


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Effective income tax rate(a)	(2)	%	6	%	1	%	(27)	%

^(a)In all periods presented, we maintained our valuation allowance on our net federal deferred tax assets in the U.S.

The following items caused the effective income tax rates to be different from our U.S. statutory tax rate of 21% for 2020 and 2019:

•For the three and ~~six~~nine months ended ~~June~~September 30, 2020, the income tax rate was reduced below the statutory rate due to the valuation allowance on our net federal deferred tax assets in the U.S., which resulted in no federal tax benefit on the U.S. loss.

•For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the mix of pre-tax income in our international operations and the valuation allowance on our net federal deferred tax assets in the U.S., reduced the annual effective tax rate below the statutory tax rate. Income tax rates for the ~~six~~nine months ended ~~June~~September 30, 2019 were also impacted by the settlement of the 2010-2011 U.S. Federal Tax Audit ~~(“IRS Audit”)~~ in the first quarter of 2019, resulting in a tax benefit of $126 million. Additionally, in the first quarter of 2019, we recorded a non-cash deferred tax benefit of $18 million in the U.K. related to an internal restructuring. These two items are discrete to the first ~~six~~nine months of 2019. Excluding these discrete adjustments, the effective income tax rate for the first ~~six~~nine months of 2019 was an expense of ~~13%~~10%.

In the ~~first~~third quarter of 2020, we received an $89 million cash refund related to alternative minimum tax credits and interest. This refund was accelerated as a result of the ~~U.S. enacted~~enactment of the Coronavirus Aid, Relief, and Economic Security Act, commonly referred to as the CARES ~~Act. This legislation included certain provisions which accelerate income tax refunds, and as a result,~~Act, in the first quarter of 2020, long term receivable balances related to alternative minimum tax credits were classified as short term. Subsequent to June 30, 2020, we received an $89 million cash refund related to these alternative minimum tax credits and interest.2020.

8. Credit Losses

The majority of our receivables are from purchasers of commodities or joint interest owners in properties we operate, both of which are recorded at estimated or invoiced amounts and do not bear interest. The majority of these receivables have payment terms of 30 days or less. At the end of each reporting period, we assess the collectability of our receivables and estimate the expected credit losses using historical data, current market conditions and reasonable and supportable forecasts of future economic conditions.

We are exposed to credit losses through the receivables generated from sales of crude oil, NGLs and natural gas to our customers. When dealing with the commodity purchasers, we conduct a credit review to assess each counterparty’s ability to pay. The credit review considers our expected billing exposure, timing for payment and the counterparty’s established credit rating with the rating agencies or our internal assessment of the counterparty’s creditworthiness based on our analysis of their financial statements. Our evaluation also considers contract terms and other factors, such as country and/or political risk. A credit limit is established for each counterparty based on the outcome of this review. We may require a bank letter of credit or a prepayment to mitigate credit risk. We monitor our ongoing credit exposure through active review of counterparty balances against contract terms and due dates. The expected credit losses related to receivables with the commodity purchasers were determined using the weighted average probability of default method. We also collect revenues from our non-operated joint properties where other oil and gas exploration and production companies operate the properties and market our share of production and remit payments to us. The current expected credit losses related to these receivables were determined using the loss rate method applied to aging pools.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

We are exposed to credit losses from joint interest billings to other joint interest owners for properties we operate. For this group of receivables, the expected credit losses are determined using the loss rate method applied to aging pools. Our counterparties in this group include numerous large, mid-size and small oil and gas exploration and production companies.

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

Although we may have the ability to withhold future revenue disbursements to recover any non-payment of joint interest billings or require a prepayment of future costs through cash calls, our credit loss exposure with this group is more significant due to inherent ownership or billing adjustments. Also, some of our counterparties may experience liquidity problems and may not be able to meet their financial obligations to us. We expect that liquidity problems will increase in the future as a result of the recent demand and pricing decline for hydrocarbons. Our current-period provision reflects the anticipated effects caused by the recent market deterioration.

Changes in the allowance for doubtful accounts balance for the ~~six~~nine months ended were as follows:


(In millions)	~~June~~September 30, 2020
Beginning balance as of January 1	$	11
Cumulative-effect adjustment	12
Current period provision^(a)	622
Current period write offs	(12)
Recoveries of amounts previously ~~written off~~reserved	~~(6)~~(8)
Ending balance as of ~~June~~September 30	$	2325

^(a)For the ~~six~~nine months ended ~~June~~September 30, 2020, the current period provision increased by $7$10 million in joint interest receivables and ~~decreased by $1~~$12 million in trade receivables.

9. Inventories

Crude oil and natural gas are recorded at weighted average cost and carried at the lower of cost or net realizable value. Supplies and other items consist principally of tubular goods and equipment which are valued at weighted average cost and reviewed periodically for obsolescence or impairment when market conditions indicate. The continued volatility and future decline in crude oil and natural gas prices could affect the value of our inventories and result in future impairments.


(In millions)	(In millions)	June 30, 2020		December 31, 2019		(In millions)	September 30, 2020		December 31, 2019
Crude oil and natural gas	Crude oil and natural gas	$	9	$	10	Crude oil and natural gas	$	11	$	10
Supplies and other items	Supplies and other items	68		62		Supplies and other items	66		62
Inventories	Inventories	$	77	$	72	Inventories	$	77	$	72

10. Property, Plant and Equipment


(In millions)	(In millions)	June 30, 2020		December 31, 2019		(In millions)	September 30, 2020		December 31, 2019
United States	United States	$	15,899	$	16,427	United States	$	15,533	$	16,427
International	International	449		493		International	424		493
Corporate	Corporate	76		80		Corporate	72		80
Net property, plant and equipment	Net property, plant and equipment	$	16,424	$	17,000	Net property, plant and equipment	$	16,029	$	17,000

We had 0 ~~exploratory~~exploratory well costs capitalized greater than one year as of ~~June~~September 30, 2020 and December 31, 2019.

11. Impairments

During the first quarter of 2020, a global pandemic caused a substantial deterioration in the worldwide demand of hydrocarbons. The decreased demand, when coupled with an oversupplied market, caused a corresponding deterioration in hydrocarbon prices. We reviewed our long-lived assets for indicators of impairment during the first quarter by conducting a sensitivity analysis of the most impactful inputs to their undiscounted cash flows, including commodity prices, capital spend and reductions in production volumes to correspond with lower capital spending.Our review concluded that the carrying amounts of our long-lived assets are recoverable; however, further deterioration or a more sustained decline of commodity prices may result in impairment charges in future periods.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

We also reviewed our equity method investments for indicators of impairment. Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred. When a loss in value occurs that is deemed other than temporary, the carrying value of the equity method investment is written down to fair

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

value. Our first quarter review concluded that any potential losses in values of our equity method investments were temporary because the underlying declines in both commodity prices and demand did not materially manifest until early March. However, during the second ~~quarter~~and third quarters of 2020, we ~~did recognize an impairment~~recognized impairments related to one of our equity method investees, as noted in the ~~table~~tables below.

The following table summarizes impairment charges of proved properties, goodwill and equity method investments and their corresponding fair values.


		Three Months Ended June 30,															Three Months Ended September 30,
		2020						2019							2020				2019
(In millions)	(In millions)	Fair Value		Impairment		Fair Value		Impairment		(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	Long-lived assets held for use	$	—	$	—	$	19	$	18	Long-lived assets held for use	$	0	$	1	$	0	$	0
Equity method investment	Equity method investment	$	142	$	152	N/A		$	—	Equity method investment	$	23	$	18	N/A		$	0


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020						2019							2020				2019
(In millions)	(In millions)	Fair Value		Impairment		Fair Value		Impairment		(In millions)	Fair Value		Impairment		Fair Value		Impairment
Long-lived assets held for use	Long-lived assets held for use	$	—	$	2	$	56	$	24	Long-lived assets held for use	$	0	$	3	$	56	$	24
Goodwill	Goodwill	$	—	$	95	N/A		$	—	Goodwill	$	0	$	95	N/A		$	0
Equity method investment	Equity method investment	$	142	$	152	N/A		$	—	Equity method investment	$	119	$	170	N/A		$	0

•2020 – Impairments for the nine months ended September 30, 2020 include charges recognized for our equity method investments of $170 million. During the second quarter of 2020, the continuation of the depressed commodity prices caused us to perform a review of our equity method investments. Our review concluded that a loss of our investment value in one of our equity method investees was other than ~~temporary. We~~temporary and we recorded an impairment of $152 million based on the difference between our carrying value and the fair value of our investment. During the third quarter of 2020, we further reduced our long term price forecast of a gas index in which one of our equity method investees transacts, which resulted in an incremental reduction of our investment value. We recorded an impairment of $18 million during the third quarter, which we deemed other than temporary. Our remaining investments in equity method investees did not experience losses in value that caused the fair values to be below their carrying values.

We estimated the fair value of our equity method investment using an income approach, specifically utilizing a discounted cash flow analysis. The estimated fair value was based on significant inputs not observable in the market, such as the amount of gas processed by the plant, future commodity prices, forecasted operating expenses, discount rate, and estimated cash returned to shareholders. Collectively, these inputs represent Level 3 measurements.

The ~~impairment was~~impairments of our equity method investments were recognized in income (loss) from equity method investments in our consolidated statements of income. The ~~impairment~~impairments caused us to incur a basis differential between the net book value of our investment and the amount of our underlying share of equity in the investee’s net assets. The amount of this basis differential is ~~$126~~$140 million and will be accreted into income over the next ~~6.5~~6.25 years, which is consistent with the remaining useful life of the investee’s primary assets.

Impairments for the ~~six~~nine months ended ~~June~~September 30, 2020 also included $95 million of goodwill impairment in the International reporting unit. See No ~~te 1~~4Note 14 for further information.

•2019 – During the ~~six~~nine months ended ~~June~~September 30, 2019, we recorded proved property impairments of $24 million, as a result of the anticipated sales proceeds for certain non-core proved properties in our United States segment and the sale of our non-operated interest in the Atrush block (Kurdistan) in our International segment. The related fair value was measured using the market approach, based upon anticipated sales proceeds less costs to sell which resulted in a Level 2 classification. See Note 4 for further information.

1617

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

12. Asset Retirement Obligations

Asset retirement obligations primarily consist of estimated costs to remove, dismantle and restore land or seabed at the end of oil and gas production operations. Changes in asset retirement obligations for the ~~six~~nine months ended ~~June~~September 30 were as follows:


		June 30,							September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Beginning balance as of January 1	Beginning balance as of January 1	$	255	$	1,145	Beginning balance as of January 1	$	255	$	1,145
Incurred liabilities, including acquisitions	Incurred liabilities, including acquisitions	2		18		Incurred liabilities, including acquisitions	3		25
Settled liabilities, including dispositions	Settled liabilities, including dispositions	(3)		(129)		Settled liabilities, including dispositions	(11)		(1,106)
Accretion expense (included in depreciation, depletion and amortization)	Accretion expense (included in depreciation, depletion and amortization)	6		26		Accretion expense (included in depreciation, depletion and amortization)	9		29
Revisions of estimates	Revisions of estimates	(8)		11		Revisions of estimates	(8)		15
Held for sale	Held for sale	—		(864)		Held for sale	0		108
Ending balance as of June 30		$	252	$	207
Ending balance as of September 30						Ending balance as of September 30	$	248	$	216

~~June~~September 30, 2020

•Ending balance includes ~~$10~~$12 million classified as short-term at ~~June~~September 30, 2020.

~~June~~September 30, 2019

•Settled liabilities primarily relate to the sale of our ~~working interest in the Droshky field (Gulf of Mexico),~~U.K. business, which closed during the ~~first~~third quarter of 2019.

•Held for sale ~~includes the asset retirement obligations of $966 million associated with the sale of our U.K. business, which was partially offset by~~reflects a transfer to settled liabilities ~~for dispositions~~during 2019. This transfer was primarily related to the Droshky field (Gulf of Mexico), which was considered held for sale at year-end 2018 and closed in the first quarter of 2019. ~~See~~ ~~Note 4~~ ~~for discussion of the divestitures in further detail.~~

•~~Ending balance~~ ~~includes $18 million classified as short-term at June 30, 2019.~~

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

13. Leases

We enter into various lease agreements to support our operations including drilling rigs, well fracturing equipment, compressors, buildings, aircraft, vessels, vehicles and miscellaneous field equipment. We primarily act as a lessee in these transactions and all of our existing leases are classified as either short-term or long-term operating leases.

Supplemental balance sheet information related to leases was as follows:


(In millions)		~~June~~September 30, 2020
Operating Leases:	Balance Sheet Location:
Right-of-use asset	Other noncurrent assets	$	~~153~~137
Current portion of long-term lease liability	Other current liabilities	$	8379
Long-term lease liability	Deferred credits and other liabilities	$	7461

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

Our wholly-owned subsidiary, Marathon E.G. Production Limited, is a lessor for residential housing in Equatorial Guinea, which is occupied by EGHoldings, a related party equity method investee – see Note 24. The lease was classified as an operating lease and expires in 2024, with a lessee option to extend through 2034. Lease payments are fixed for the entire duration of the agreement at approximately $6 million per year. Our lease income is reported in other income in our consolidated statements of income for all periods presented. The undiscounted cash flows to be received under this lease agreement are summarized below.


(In millions)	(In millions)	Operating Lease Future Cash Receipts		(In millions)	Operating Lease Future Cash Receipts
2020	2020	$	3	2020	$	2
2021	2021	6		2021	6
2022	2022	6		2022	6
2023	2023	6		2023	6
2024	2024	6		2024	6
Thereafter	Thereafter	60		Thereafter	60
Total undiscounted cash flows	Total undiscounted cash flows	$	87	Total undiscounted cash flows	$	86

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, ~~Texas. The new Houston office location is expected to be completed in 2021.~~Texas. The lessor and other participants are providing financing for up to ~~$380~~$340 million to fund the estimated project costs, which was reduced effective August 2020, from $380 million to align with our revised estimate of the project costs. As of ~~June~~September 30, 2020, project costs incurred totaled approximately ~~$87~~$117 million, including land acquisition and construction costs. The initial lease term is five years and will commence once construction is substantially complete and the new Houston office is ready for occupancy. At the end of the initial lease term, we can negotiate to extend the lease term for an additional five years, subject to the approval of the participants; purchase the property subject to certain terms and conditions; or remarket the property to an unrelated third party. The lease contains a residual value guarantee of approximately 89% of the total acquisition and construction costs.

In June 2020, we submitted a notice to the lessor, as the construction agent, to reduce the financing capacity to $340 million to align with our revised estimate of the project costs. We expect the reduction to become effective in August 2020.

14. Goodwill

As of December 31, 2019, our consolidated balance sheet included goodwill of $95 million in the International reporting unit. Goodwill is tested for impairment on an annual basis, or between annual tests when events or changes in circumstances indicate the fair value of a reporting unit with goodwill may have been reduced below its carrying value. During the first quarter of 2020, a global pandemic caused a substantial deterioration in the worldwide demand of hydrocarbons. This demand loss resulted in a significant decline in hydrocarbon prices. The commensurate decline in our market capitalization during the first quarter indicated that it was more likely than not that the fair value of the International reporting unit was less than its carrying value.

We estimated the fair value of our International reporting unit using a combination of market and income approaches. The market approach referenced observable inputs specific to us and our industry, such as the price of our common equity, our

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

enterprise value, and valuation multiples of us and peers from the investor analyst community. The income approach utilized discounted cash flows, which were based on forecasted assumptions. Key assumptions to the income approach include future liquid hydrocarbon and natural gas pricing, estimated quantities of liquid hydrocarbons and natural gas proved and probable reserves, estimated timing of production, discount rates, future capital requirements, operating expenses and tax rates. The assumptions used in the income approach are consistent with those that management uses to make business decisions. These valuation methodologies represent Level 3 fair value measurements. Based on the results, we concluded our goodwill was fully impaired, and recorded an impairment of $95 million in the consolidated statements of income for the first quarter of 2020.

June 30,
(In millions) 2020 2019
Beginning balance as of January 1, gross $ 95 $ 97
Less: accumulated impairments — —
Beginning balance, net 95 97
Dispositions — (2)
Impairment (95) —
Ending balance as of June 30, net $ — $ 95

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)


	September 30,
(In millions)	2020		2019
Beginning balance as of January 1, gross	$	95	$	97
Less: accumulated impairments	0		0
Beginning balance, net	95		97
Dispositions	0		(2)
Impairment	(95)		0
Ending balance as of September 30, net	$	0	$	95

15. Derivatives

For further information regarding the fair value measurement of derivative instruments, see Note 16. All of our commodity derivatives are subject to enforceable master netting arrangements or similar agreements under which we report net amounts. The following tables present the gross fair values of derivative instruments and the reported net amounts along with where they appear on the consolidated balance sheets.


		June 30, 2020												September 30, 2020
(In millions)	(In millions)	Asset		Liability		Net Asset (Liability)		Balance Sheet Location	(In millions)	Asset		Liability		Net Asset (Liability)		Balance Sheet Location
Not Designated as Hedges	Not Designated as Hedges								Not Designated as Hedges
Commodity	Commodity	$	100	$	21	$	79	Derivative assets	Commodity	$	59	$	14	$	45	Other current assets

Commodity									Commodity	0		2		(2)		Deferred credits and other liabilities
Interest Rate									Interest Rate	1		0		1		Other noncurrent assets
Interest Rate									Interest Rate	0		3		(3)		Deferred credits and other liabilities
Total Not Designated as Hedges	Total Not Designated as Hedges	$	100	$	21	$	79		Total Not Designated as Hedges	$	60	$	19	$	41

Cash Flow Hedges	Cash Flow Hedges										Cash Flow Hedges

Interest Rate	Interest Rate	$	—	$	26	$	(26)	Deferred credits and other liabilities	Interest Rate	$	9	$	0	$	9	Other noncurrent assets
Interest Rate	Interest Rate	2		—		2		Other noncurrent assets	Interest Rate	0		19		(19)		Deferred credits and other liabilities
Total Designated Hedges	Total Designated Hedges	$	2	$	26	$	(24)		Total Designated Hedges	$	9	$	19	$	(10)
Total	Total	$	102	$	47	$	55		Total	$	69	$	38	$	31


		December 31, 2019												December 31, 2019
(In millions)	(In millions)	Asset		Liability		Net Asset (Liability)		Balance Sheet Location	(In millions)	Asset		Liability		Net Asset (Liability)		Balance Sheet Location
Not Designated as Hedges	Not Designated as Hedges								Not Designated as Hedges
Commodity	Commodity	$	9	$	1	$	8	Derivative assets	Commodity	$	9	$	1	$	8	Other current assets
Commodity	Commodity	1		—		1		Other noncurrent assets	Commodity	1		0		1		Other noncurrent assets
Commodity	Commodity	—		5		(5)		Other current liabilities	Commodity	0		5		(5)		Other current liabilities
Total Not Designated as Hedges	Total Not Designated as Hedges	$	10	$	6	$	4		Total Not Designated as Hedges	$	10	$	6	$	4

Cash Flow Hedges	Cash Flow Hedges								Cash Flow Hedges
Interest Rate	Interest Rate	$	2	$	—	$	2	Other noncurrent assets	Interest Rate	$	2	$	0	$	2	Other noncurrent assets
Total Designated Hedges	Total Designated Hedges	$	2	$	—	$	2		Total Designated Hedges	$	2	$	0	$	2
Total	Total	$	12	$	6	$	6		Total	$	12	$	6	$	6

1920

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

Derivatives Not Designated as Hedges

Commodity Derivatives

We have entered into multiple crude oil, ~~and~~ natural gas and NGL derivatives indexed to the respective indices as noted in the table below, related to a portion of our forecasted United States sales through 2021. These derivatives consist of three-way collars, two-way collars, fixed price swaps, basis swaps, and NYMEX roll basis swaps. Three-way collars consist of a sold call (ceiling), a purchased put (floor) and a sold put. The ceiling price is the maximum we will receive for the contract volumes; the floor is the minimum price we will receive, unless the market price falls below the sold put strike price. In this case, we receive the NYMEX WTI price plus the difference between the floor and the sold put price. Two-way collars only consist of a sold call (ceiling) and a purchased put (floor). These crude oil, ~~and~~ natural gas and NGL derivatives were not designated as hedges.

The following table sets forth outstanding derivative contracts as of ~~June~~September 30, 2020, and the weighted average prices for those contracts:


		2020						2021				2020			2021		2021
		Third Quarter		Fourth Quarter		Full Year				Fourth Quarter			First Half		Second Half
Crude Oil	Crude Oil								Crude Oil
NYMEX WTI Three-Way Collars	NYMEX WTI Three-Way Collars								NYMEX WTI Three-Way Collars
Volume (Bbls/day)	Volume (Bbls/day)	80,000		80,000		—			Volume (Bbls/day)	80,000			0		0
Weighted average price per Bbl:	Weighted average price per Bbl:								Weighted average price per Bbl:
Ceiling	Ceiling	$	64.40	$	64.40	$	—		Ceiling	$	64.40		$	0	$	0
Floor	Floor	$	55.00	$	55.00	$	—		Floor	$	55.00		$	0	$	0
Sold put	Sold put	$	48.00	$	48.00	$	—		Sold put	$	48.00		$	0	$	0
NYMEX WTI Two-Way Collars	NYMEX WTI Two-Way Collars								NYMEX WTI Two-Way Collars
Volume (Bbls/day)	Volume (Bbls/day)	33,478		—		—			Volume (Bbls/day)	20,000			10,000		10,000
Weighted average price per Bbl:	Weighted average price per Bbl:								Weighted average price per Bbl:
Ceiling	Ceiling	$	40.47	$	—	$	—		Ceiling	$	46.83		$	52.37	$	52.37
Floor	Floor	$	30.98	$	—	$	—		Floor	$	37.00		$	35.00	$	35.00
Fixed Price WTI Swaps
Volume (Bbls/day)		10,000		—		—
Weighted average price per Bbl		$	32.77	$	—	$	—
Basis Swaps - Argus WTI Midland^(a)

Basis Swaps - NYMEX WTI / Argus WTI Midland (a)									Basis Swaps - NYMEX WTI / Argus WTI Midland (a)
Volume (Bbls/day)	Volume (Bbls/day)	15,000		15,000		—			Volume (Bbls/day)	15,000			0		0
Weighted average price per Bbl	Weighted average price per Bbl	$	(0.94)	$	(0.94)	$	—		Weighted average price per Bbl	$	(0.94)		$	0	$	0
Basis Swaps - NYMEX WTI / ICE Brent ^(b)	Basis Swaps - NYMEX WTI / ICE Brent ^(b)								Basis Swaps - NYMEX WTI / ICE Brent (b)
Volume (Bbls/day)	Volume (Bbls/day)	5,000		5,000		808			Volume (Bbls/day)	5,000			1,630		0
Weighted average price per Bbl	Weighted average price per Bbl	$	(7.24)	$	(7.24)	$	(7.24)		Weighted average price per Bbl	$	(7.24)		$	(7.24)	$	0

NYMEX Roll Basis Swaps	NYMEX Roll Basis Swaps								NYMEX Roll Basis Swaps
Volume (Bbls/day)	Volume (Bbls/day)	60,000		30,000		—			Volume (Bbls/day)	30,000			0		0
Weighted average price per Bbl	Weighted average price per Bbl	$	(1.58)	$	(0.81)	$	—		Weighted average price per Bbl	$	(0.81)		$	0	$	0

Natural Gas	Natural Gas								Natural Gas
Two-Way Collars
Henry Hub (“HH”) Two-Way Collars									Henry Hub (“HH”) Two-Way Collars
Volume (MMBtu/day)	Volume (MMBtu/day)	—		—		62,329			Volume (MMBtu/day)	250,000			175,000		150,000
Weighted average price per MMBtu:	Weighted average price per MMBtu:								Weighted average price per MMBtu:
Ceiling	Ceiling	$	—	$	—	$	3.07		Ceiling	$	2.82		$	3.10	$	3.03
Floor	Floor	$	—	$	—	$	2.44		Floor	$	2.25		$	2.46	$	2.43

Basis Swaps - WAHA / HH ^(c)	Basis Swaps - WAHA / HH ^(c)								Basis Swaps - WAHA / HH (c)
Volume (MMBtu/day)	Volume (MMBtu/day)	10,000		10,000		—			Volume (MMBtu/day)	10,000			0		0
Weighted average price per MMBtu	Weighted average price per MMBtu	$	(0.37)	$	(0.37)	$	—		Weighted average price per MMBtu	$	(0.37)		$	0	$	0
NGL									NGL
Fixed Price Ethane Swaps (d)									Fixed Price Ethane Swaps (d)
Volume (Bbls/day)									Volume (Bbls/day)	10,000			0		0
Weighted average price per Bbl									Weighted average price per Bbl	$	8.78		$	0	$	0

^(a)The basis differential price is indexed against Argus WTI ~~Midland.~~Midland and NYMEX WTI.

^(b)The basis differential price is indexed against Intercontinental Exchange (“ICE”) Brent and NYMEX WTI.

^(c)The basis differential price is indexed against Waha and NYMEX Henry Hub.

(d)The fixed price ethane swap is priced at OPIS Mont Belvieu Purity Ethane.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

The following table sets forth outstanding derivative contracts entered into between ~~July~~October 1 and ~~August 5,~~November 3, 2020, and the weighted average prices for those contracts:


		2020							2021					2021	2021
		Third Quarter		Fourth Quarter		Full Year				First Half		Second Half
Crude Oil	Crude Oil							Crude Oil
NYMEX WTI Two-Way Collars
Basis Swaps - NYMEX WTI / UHC (a)								Basis Swaps - NYMEX WTI / UHC (a)
Volume (Bbls/day)	Volume (Bbls/day)	3,261		10,000		10,000		Volume (Bbls/day)		14,000		0
Weighted average price per Bbl:
Ceiling		$	48.00	$	48.65	$	52.37
Floor		$	36.50	$	37.00	$	35.00
Weighted average price per Bbl								Weighted average price per Bbl		$	(1.80)	$	0
Natural Gas	Natural Gas							Natural Gas
Two-Way Collars
HH Two-Way Collars								HH Two-Way Collars
Volume (MMBtu/day)	Volume (MMBtu/day)	66,304		150,000		50,000		Volume (MMBtu/day)		50,000		50,000
Weighted average price per MMBtu:	Weighted average price per MMBtu:							Weighted average price per MMBtu:
Ceiling	Ceiling	$	2.49	$	2.62	$	2.93	Ceiling		$	3.13	$	3.13
Floor	Floor	$	2.00	$	2.13	$	2.40	Floor		$	2.70	$	2.70
NGL
Fixed Price Ethane Swaps
HH Fixed Price Swaps								HH Fixed Price Swaps
Volume (MMBtu/day)	Volume (MMBtu/day)	7,304		10,000		—		Volume (MMBtu/day)		50,000		50,000
Weighted average price per Bbl		$	8.78	$	8.78	$	—
Weighted average price per MMBtu								Weighted average price per MMBtu		$	2.88	$	2.88

(a)The basis differential price is indexed against U.S. Sweet Clearbrook (“UHC”) and NYMEX WTI.

The mark-to-market impact and settlement of our commodity derivative instruments appears in the table below and is reflected in net gain (loss) on commodity derivatives in the consolidated statements of income.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2020		2019		2020		2019
Mark-to-market gain (loss)	Mark-to-market gain (loss)	$	(96)	$	11	$	75	$	(102)	Mark-to-market gain (loss)	$	(36)	$	33	$	39	$	(69)
Net settlements of commodity derivative instruments	Net settlements of commodity derivative instruments	$	26	$	5	$	57	$	27	Net settlements of commodity derivative instruments	$	35	$	14	$	92	$	41

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

Interest Rate Swaps

During 2020, we entered into forward starting interest rate swaps to hedge the variations in cash flows related to fluctuations in the London Interbank Offered Rate (“LIBOR”) benchmark interest rate related to forecasted interest payments of a future debt issuance in 2022. Each respective derivative contract can be tied to an anticipated underlying dollar notional amount. During the third quarter of 2020, we de-designated these forward starting interest rate swaps previously designated as cash flow hedges. At September 30, 2020, accumulated other comprehensive income included a net deferred loss of $2 million related to the de-designated forward starting interest rate swaps previously designated as cash flow hedges. No portion of this amount has been reclassified from accumulated other comprehensive income as of September 30, 2020. We expect to reclassify this amount into earnings as an adjustment to net interest and other upon the occurrence of the forecasted transactions.

The following table presents, by maturity date, information about our de-designated forward starting interest rate swap agreements, including the rate.


	September 30, 2020				December 31, 2019
Maturity Date	Aggregate Notional Amount (in millions)		Weighted Average, LIBOR		Aggregate Notional Amount (in millions)		Weighted Average, LIBOR
November 1, 2022	$	500	0.99	%	$	0	0	%

The following table sets forth the net impact of the forward starting interest rate swap derivatives de-designated as cash flow hedges on other comprehensive income (loss).


	Three Months Ended September 30,		Nine Months Ended September 30,
(In millions)	2020		2020
Interest Rate Swaps
Beginning balance	$	(7)	$	0
Change in fair value recognized in other comprehensive income (loss)	5		(2)

Ending balance	$	(2)	$	(2)

Derivatives Designated as Cash Flow Hedges

During 2020, we entered into forward starting interest rate swaps with a notional amount of ~~$500~~$350 million to hedge variations in cash flows arising from fluctuations in the ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR benchmark interest rate related to forecasted interest payments of a future debt issuance in ~~2022; and an additional $300 million of notional for our future debt issuance in~~ 2025. We expect to refinance ~~both of the~~these debt maturities in ~~2022 and~~ 2025. The swaps will terminate on or prior to the refinancing of the debt and the final value will be reclassified from accumulated other comprehensive income into earnings with each future interest payment. Subsequent to June 30, 2020, we entered into additional forward starting interest rate swaps with a notional amount of $50 million and a weighted average rate of 0.90% to hedge variations in cash flows related to the same LIBOR interest rate for our debt due in 2025.

During 2019, we entered into forward starting interest rate swaps with a total notional amount of $320 million to hedge variations in cash flows related to the 1-month LIBOR component of future lease payments of our future Houston office. These swaps will settle monthly on the same day the lease payment is made with the first swap settlement occurring in January 2022. We expect the first lease payment to commence sometime in the period from December 2021 to May 2022. The last swap will mature on September 9, 2026. See Note 13 for further details regarding the lease of the new Houston office.

2123

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

The following table presents, by maturity date, information about our interest rate swap agreements, including the weighted average LIBOR-based, fixed rate.


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
Maturity Date	Maturity Date	Aggregate Notional Amount (in millions)		Weighted Average, LIBOR		Aggregate Notional Amount (in millions)		Weighted Average, LIBOR		Maturity Date	Aggregate Notional Amount (in millions)		Weighted Average, LIBOR		Aggregate Notional Amount (in millions)		Weighted Average, LIBOR
November 1, 2022		$	500	0.99	%	$	—	—	%

June 1, 2025	June 1, 2025	$	300	0.96	%	$	—	—	%	June 1, 2025	$	350	0.95	%	$	0	0	%
September 9, 2026	September 9, 2026	$	320	1.51	%	$	320	1.51	%	September 9, 2026	$	320	1.51	%	$	320	1.51	%

At ~~June~~September 30, 2020, accumulated other comprehensive income included deferred losses of ~~$24~~$10 million related to forward starting interest rate ~~swaps. No~~swaps designated as cash flow hedges. NaN amounts related to these swaps are expected to impact the consolidated statements of income in the next 12 months.

16. Fair Value Measurements

Fair Values – Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of ~~June~~September 30, 2020 and December 31, 2019 by hierarchy level.


		June 30, 2020															September 30, 2020
(In millions)	(In millions)	Level 1		Level 2		Level 3		Total		(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets	Derivative instruments, assets									Derivative instruments, assets
Commodity^(a)	Commodity^(a)	$	—	$	88	$	—	$	88	Commodity(a)	$	3	$	40	$	0	$	43
Interest rate		—		2		—		2
Interest rate - not designated as cash flow hedges										Interest rate - not designated as cash flow hedges	0		1		0		1
Interest rate - designated as cash flow hedges										Interest rate - designated as cash flow hedges	0		9		0		9
Derivative instruments, assets	Derivative instruments, assets	$	—	$	90	$	—	$	90	Derivative instruments, assets	$	3	$	50	$	0	$	53
Derivative instruments, liabilities	Derivative instruments, liabilities									Derivative instruments, liabilities
Commodity^(a)		$	(9)	$	—	$	—	$	(9)
Interest rate		—		(26)		—		(26)
Interest rate - not designated as cash flow hedges										Interest rate - not designated as cash flow hedges	$	0	$	(3)	$	0	$	(3)
Interest rate - designated as cash flow hedges										Interest rate - designated as cash flow hedges	0		(19)		0		(19)
Derivative instruments, liabilities	Derivative instruments, liabilities	$	(9)	$	(26)	$	—	$	(35)	Derivative instruments, liabilities	$	0	$	(22)	$	0	$	(22)
Total	Total	$	(9)	$	64	$	—	$	55	Total	$	3	$	28	$	0	$	31


		December 31, 2019															December 31, 2019
(In millions)	(In millions)	Level 1		Level 2		Level 3		Total		(In millions)	Level 1		Level 2		Level 3		Total
Derivative instruments, assets	Derivative instruments, assets									Derivative instruments, assets
Commodity^(a)	Commodity^(a)	$	—	$	7	$	—	$	7	Commodity(a)	$	0	$	7	$	0	$	7
Interest rate		—		2		—		2
Interest rate - designated as cash flow hedges										Interest rate - designated as cash flow hedges	0		2		0		2
Derivative instruments, assets	Derivative instruments, assets	$	—	$	9	$	—	$	9	Derivative instruments, assets	$	0	$	9	$	0	$	9
Derivative instruments, liabilities	Derivative instruments, liabilities									Derivative instruments, liabilities
Commodity^(a)	Commodity^(a)	$	(3)	$	—	$	—	$	(3)	Commodity(a)	$	(3)	$	0	$	0	$	(3)

Derivative instruments, liabilities	Derivative instruments, liabilities	$	(3)	$	—	$	—	$	(3)	Derivative instruments, liabilities	$	(3)	$	0	$	0	$	(3)
Total	Total	$	(3)	$	9	$	—	$	6	Total	$	(3)	$	9	$	0	$	6

^(a)~~Derivative~~Commodity derivative instruments are recorded on a net basis in our consolidated balance sheet. See Note 15.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

Commodity derivatives include three-way collars, two-way collars, fixed price swaps, basis swaps and NYMEX roll basis swaps. These instruments are measured at fair value using either a Black-Scholes or a modified Black-Scholes Model. For swaps, inputs to the models include only commodity prices and interest rates and are categorized as Level 1 because all assumptions and inputs are observable in active markets throughout the term of the instruments. For three-way collars and ~~two-~~

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~way~~two-way collars, inputs to the models include commodity prices and implied volatility and are categorized as Level 2 because predominantly all assumptions and inputs are observable in active markets throughout the term of the instruments.

The forward starting interest rate swaps are measured at fair value with a market approach using actionable broker quotes, which are Level 2 inputs. See Note 15 for detail on the forward starting interest rate swaps.

Fair Value Estimates – Goodwill

See Note 14 for detail information relating to goodwill.

Fair Values – Nonrecurring

See Note 11 for detail on our fair values related to impairments.

Fair Values – Financial Instruments

Our current assets and liabilities include financial instruments, the most significant of which are receivables, the current portion of our long-term debt and payables. We believe the carrying values of our receivables and payables approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our credit rating and (3) our historical incurrence of and expected future insignificant bad debt expense, which includes an evaluation of counterparty credit risk.

The following table summarizes financial instruments, excluding receivables, payables and derivative financial instruments, and their reported fair values by individual balance sheet line item at ~~June~~September 30, 2020 and December 31, 2019.


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
(In millions)	(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount		(In millions)	Fair Value		Carrying Amount		Fair Value		Carrying Amount
Financial assets	Financial assets									Financial assets
Current assets	Current assets	$	4	$	4	$	4	$	4	Current assets	$	4	$	4	$	4	$	4
Other noncurrent assets	Other noncurrent assets	28		44		26		38		Other noncurrent assets	35		49		26		38
Total financial assets	Total financial assets	$	32	$	48	$	30	$	42	Total financial assets	$	39	$	53	$	30	$	42
Financial liabilities	Financial liabilities									Financial liabilities
Other current liabilities	Other current liabilities	$	61	$	97	$	62	$	90	Other current liabilities	$	62	$	99	$	62	$	90
Long-term debt, including current portion^(a)	Long-term debt, including current portion^(a)	5,558		5,530		6,174		5,529		Long-term debt, including current portion(a)	6,044		5,931		6,174		5,529
Deferred credits and other liabilities	Deferred credits and other liabilities	105		84		99		86		Deferred credits and other liabilities	105		84		99		86
Total financial liabilities	Total financial liabilities	$	5,724	$	5,711	$	6,335	$	5,705	Total financial liabilities	$	6,211	$	6,114	$	6,335	$	5,705

^(a)Excludes debt issuance costs.

Fair values of our financial assets included in other noncurrent assets, and of our financial liabilities included in other current liabilities and deferred credits and other liabilities, are measured using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value.

All of our long-term debt instruments are publicly traded. A market approach, based upon quotes from major financial institutions, which are Level 2 inputs, is used to measure the fair value of our debt.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

17. Debt

Revolving Credit Facility

As of ~~June~~September 30, 2020, we had 0 borrowings against our $3.0 billion unsecured revolving credit facility (“Credit Facility”), as described below.

The Credit Facility includes a covenant requiring our total debt to total capitalization ratio not to exceed 65% as of the last day of each fiscal quarter. In the event of a default, the lenders holding more than half of the commitments may terminate the commitments under the Credit Facility and require the immediate repayment of all outstanding borrowings and the cash collateralization of all outstanding letters of credit under the Credit Facility. As of ~~June~~September 30, 2020, we were in compliance with this covenant with a ratio of ~~33%~~35%.

~~MARATHON OIL CORPORATION~~Debt Remarketing

~~Notes~~On August 18, 2020, we closed a$400 million remarketing to ~~Consolidated Financial Statements (Unaudited)~~

~~Long-term debt~~

~~At June 30, 2020, we had $5.5~~investors of sub-series B bonds which are part of the $1 billion St. John the Baptist, State of ~~total debt outstanding, with our next significant debt maturity~~Louisiana revenue refunding bonds originally issued and purchased in December 2017. The sub-series B bonds are subject to mandatory tender for purchase on the dates set forth in the table below.

The following table further summarizes this transaction.

Sub-Series B Bonds

Par Amount

Interest Rate

Mandatory Purchase Date

Maturity Date

Sub-series B-1 Bonds

$200 million

2.125%

July 1, 2024

June 1, 2037

Sub-series B-2 Bonds

$200 million

2.375%

July 1, 2026

June 1, 2037

Debt Redemption

On September 16, 2020, we commenced a cash tender offer for up to an aggregate principal amount of ~~$1.0~~$500 million (the “Aggregate Maximum Tender Amount”) of our outstanding $1 billion 2.8% Senior Notes due 2022 (“2022 Notes”). The Aggregate Maximum Tender Amount was fully subscribed and we completed the early settlement on October 1, 2020, repaying the $500 million. As such, the $500 million was moved to long-term due ~~November 2022.~~within one year on our consolidated balance sheet as of September 30, 2020. The remaining $500 million of the 2.8% 2022 Notes remains part of long-term debt on our consolidated balance sheet as of September 30, 2020.

18. Stockholders’ Equity

During the ~~six~~nine months ended ~~June~~September 30, 2020, we acquired approximately 9 million common shares at a cost of $85 million, which were held as treasury stock. Including these repurchases, the total remaining share repurchase authorization was $1.3 billion at ~~June~~September 30, 2020. Purchases under the program are made at our discretion and may be in either open market transactions, including block purchases, or in privately negotiated transactions using cash on hand, cash generated from operations or proceeds from potential asset sales. This program may be changed based upon our financial condition or changes in market conditions and is subject to termination prior to completion.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

19. Incentive Based Compensation

Stock options, restricted stock awards and restricted stock units

The following table presents a summary of activity for the first ~~six~~nine months of 2020:


		Stock Options					Restricted Stock Awards & Units							Stock Options			Restricted Stock Awards & Units
		Number of Shares		Weighted Average Exercise Price		Awards	Weighted Average Grant Date Fair Value			Number of Shares		Weighted Average Exercise Price		Awards	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	Outstanding at December 31, 2019	5,659,731		$	23.55	7,174,386	$	15.88	Outstanding at December 31, 2019	5,659,731		$	23.55	7,174,386	$	15.88
Granted	Granted	1,132,808	^(a)	$	10.47	5,337,796	$	8.55	Granted	1,132,808	(a)	$	10.47	5,337,796	$	8.55
Exercised/Vested	Exercised/Vested	(52,333)		$	7.22	(2,911,712)	$	15.93	Exercised/Vested	(52,333)		$	7.22	(3,024,561)	$	15.83
Canceled^(b)	Canceled^(b)	(565,219)		$	23.52	(1,405,754)	$	11.70	Canceled(b)	(662,482)		$	24.66	(1,529,949)	$	11.66
Outstanding at June 30, 2020		6,174,987		$	21.29	8,194,716	$	11.80
Outstanding at September 30, 2020									Outstanding at September 30, 2020	6,077,724		$	21.13	7,957,672	$	11.80

^(a)The weighted average grant date fair value of stock option awards granted was $3.82 per share.

^(b)Included in canceled are forfeitures related to workforce reductions.

Stock-based performance unit awards

During the first ~~six~~nine months of 2020, we granted 1,038,676 stock-based performance units to certain officers to be settled in shares. The grant date fair value per unit was $10.55, as calculated using a Monte Carlo valuation model. As of ~~June~~September 30, 2020 there were 1,658,088 units outstanding.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

20. Defined Benefit Postretirement Plans

The following summarizes the components of net periodic benefit ~~cost (credit)~~costs (credits):


		Three Months Ended June 30,															Three Months Ended September 30,
		Pension Benefits						Other Benefits							Pension Benefits				Other Benefits
(In millions)	(In millions)	2020		2019^(d)		2020		2019		(In millions)	2020		2019(c)		2020		2019
Service cost	Service cost	$	5	$	5	$	—	$	—	Service cost	$	4	$	5	$	0	$	0
Interest cost	Interest cost	2		7		—		1		Interest cost	2		3		1		1
Expected return on plan assets	Expected return on plan assets	(2)		(8)		—		—		Expected return on plan assets	(2)		(3)		0		0
Amortization:	Amortization:									Amortization:
– prior service cost (credit)		(2)		(2)		(5)		(4)
– prior service credit										– prior service credit	(1)		(1)		(4)		(5)
– actuarial loss	– actuarial loss	2		2		1		—		– actuarial loss	2		2		0		1
Net settlement loss^(a)	Net settlement loss^(a)	14		2		—		—		Net settlement loss(a)	9		0		0		0
Net curtailment gain^(b)		(3)		—		(14)		—
Net periodic benefit cost (credit)^(c)		$	16	$	6	$	(18)	$	(3)

Net periodic benefit costs (credits)(b)										Net periodic benefit costs (credits)(b)	$	14	$	6	$	(3)	$	(3)

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~


		Six Months Ended June 30,															Nine Months Ended September 30,
		Pension Benefits						Other Benefits							Pension Benefits				Other Benefits
(In millions)	(In millions)	2020		2019^(d)		2020		2019		(In millions)	2020		2019(c)		2020		2019
Service cost	Service cost	$	10	$	9	$	—	$	—	Service cost	$	14	$	14	$	0	$	0
Interest cost	Interest cost	5		14		1		2		Interest cost	7		17		2		3
Expected return on plan assets	Expected return on plan assets	(5)		(16)		—		—		Expected return on plan assets	(7)		(19)		0		0
Amortization:	Amortization:									Amortization:
– prior service cost (credit)		(4)		(4)		(9)		(8)
– prior service credit										– prior service credit	(5)		(5)		(13)		(14)
– actuarial loss	– actuarial loss	5		4		1		—		– actuarial loss	7		6		1		1
Net settlement loss^(a)	Net settlement loss^(a)	16		2		—		—		Net settlement loss(a)	25		2		0		0
Net curtailment gain^(b)(d)	Net curtailment gain^(b)(d)	(3)		—		(14)		—		Net curtailment gain^(b)(d)	(3)		0		(14)		0
Net periodic benefit cost (credit)^(c)		$	24	$	9	$	(21)	$	(6)
Net periodic benefit costs (credits)(b)										Net periodic benefit costs (credits)(b)	$	38	$	15	$	(24)	$	(10)

^(a)Settlements are recognized as they occur, once it is probable that lump sum payments from a plan for a given year will exceed the plan’s total service and interest cost for that year.

^(b)~~Related to workforce reductions, which reduced the future expected years of service for employees participating in the plans.~~

^(c)Net periodic benefit ~~cost (credit)~~costs (credits) reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.

^(d)(c)Includes amounts related to the noncontributory defined benefit pension plan covering U.K. employees, prior to the plan being transferred to the buyer upon sale of the U.K. asset on July 1, 2019.

(d)Related to workforce reductions, which reduced the future expected years of service for employees participating in the plans.

During the first ~~six~~nine months of 2020, we made contributions of ~~$12~~$21 million to our funded pension plan and expect to contribute an additional ~~$16~~$7 million this year. During the first ~~six~~nine months of 2020, we made payments of ~~$14~~$17 million and $8$11 million related to unfunded pension plans and other postretirement benefit plans.

In connection with the sale of our U.K. business, the noncontributory defined benefit pension plan covering U.K. employees was transferred to the buyer. See Note 4 for further information on this disposition. During the three and nine months ended September 30, 2019, we reclassified $20 million from accumulated other comprehensive income to pension assets upon remeasurement of the plan.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

21. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

The following table presents a summary of amounts reclassified from accumulated other comprehensive income (loss):


		Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		2020		2019		Income Statement Line	(In millions)	2020		2019		2020		2019		Income Statement Line
Postretirement and postemployment plans	Postretirement and postemployment plans												Postretirement and postemployment plans
Amortization of prior service credit	Amortization of prior service credit	$	7	$	6	$	13	$	12	Other net periodic benefit credit	Amortization of prior service credit	$	5	$	6	$	18	$	19
Amortization of actuarial loss	Amortization of actuarial loss	(3)		(2)		(6)		(4)		Other net periodic benefit credit	Amortization of actuarial loss	(2)		(3)		(8)		(7)
Net settlement loss	Net settlement loss	(14)		(2)		(16)		(2)		Other net periodic benefit credit	Net settlement loss	(9)		0		(25)		(2)
Net curtailment gain	Net curtailment gain	17		—		17		—		Other net periodic benefit credit	Net curtailment gain	0		0		17		0

												(6)		3		2		10		Other net periodic benefit (costs) credits

Other											Other
U.K. pension plan transferred to buyer (a)(b)											U.K. pension plan transferred to buyer (a)(b)	0		83		0		83
Foreign currency translation adjustment related to sale of U.K. business (b)											Foreign currency translation adjustment related to sale of U.K. business (b)	0		30		0		30
Income taxes related to the sale of U.K. business (b)											Income taxes related to the sale of U.K. business (b)	0		(46)		0		(46)
												0		67		0		67		Net gain on disposal of assets

Total reclassifications to expense, net of tax ^(a)(c)	Total reclassifications to expense, net of tax ^(a)(c)	$	7	$	2	$	8	$	6	Net income	Total reclassifications to expense, net of tax ^(a)(c)	$	(6)	$	70	$	2	$	77	Net income (loss)

^(a)See Note 20 for detail on the U.K. pension plan.

(b)See Note 4 for detail on the U.K. disposition.

(c)During 2020 and 2019 we had a full valuation allowance on net federal deferred tax assets in the U.S. and as such, there is no tax impact to our postretirement and postemployment ~~plans.~~plans other than on the sale of the U.K. business.

22. Supplemental Cash Flow Information


		Six Months Ended June 30,							Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Included in operating activities:	Included in operating activities:					Included in operating activities:
Interest paid, net of amounts capitalized	Interest paid, net of amounts capitalized	$	126	$	128	Interest paid, net of amounts capitalized	$	175	$	177
Income taxes paid to taxing authorities, net of refunds received ^(a)		4		66
Income taxes paid to (received from) taxing authorities, net of refunds (a)						Income taxes paid to (received from) taxing authorities, net of refunds (a)	(50)		67
Noncash investing activities:	Noncash investing activities:					Noncash investing activities:
Increase (decrease) in asset retirement costs	Increase (decrease) in asset retirement costs	$	(6)	$	29	Increase (decrease) in asset retirement costs	$	(5)	$	40
Asset retirement obligations assumed by buyer ^(b)	Asset retirement obligations assumed by buyer ^(b)	—		109		Asset retirement obligations assumed by buyer (b)	0		1,082

^(a)The ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 includes $4$94 million and $89 million, respectively, related to tax refunds.

^(b)In 2019, we closed on the sale of our working interest in the Droshky field (Gulf of Mexico), ~~including our $98 million asset retirement obligation and~~ the

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

sale of our non-operated interest in the Atrush block in ~~Kurdistan.~~Kurdistan and the sale of our U.K. business.

Other noncash investing activities include accrued capital expenditures for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 of ~~$48~~$81 million and ~~$300 million.~~$302 million, respectively.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

23. Equity Method Investments

During the periods ended ~~June~~September 30, 2020 and December 31, 2019 our equity method investees were considered related parties and included:

•EGHoldings, in which we have a 60% noncontrolling interest. EGHoldings is engaged in LNG production activity.

•Alba Plant LLC, in which we have a 52% noncontrolling interest. Alba Plant LLC processes LPG.

•AMPCO, in which we have a 45% noncontrolling interest. AMPCO is engaged in methanol production activity.

Our equity method investments are summarized in the following table:


(In millions)	(In millions)	Ownership as of June 30, 2020	June 30, 2020		December 31, 2019		(In millions)	Ownership as of September 30, 2020	September 30, 2020		December 31, 2019
EGHoldings	EGHoldings	60%	$	139	$	310	EGHoldings	60%	$	119	$	310
Alba Plant LLC	Alba Plant LLC	52%	168		163		Alba Plant LLC	52%	179		163
AMPCO	AMPCO	45%	169		190		AMPCO	45%	169		190
Total	Total		$	476	$	663	Total		$	467	$	663

InDuring the ~~second quarter of~~nine months ended September 30, 2020, we recorded ~~an impairment of $152~~impairments of $170 million to an investment in an equity method investee, which was reflected in income (loss) from equity method investments in our consolidated statements of income. See Note 11 to the consolidated financial statements for further information on the equity method investee impairment.

Summarized financial information for equity method investees is as follows:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		2020		2019		(In millions)	2020		2019		2020		2019
Income data:	Income data:									Income data:
Revenues and other income	Revenues and other income	$	111	$	233	$	283	$	453	Revenues and other income	$	140	$	184	$	423	$	637
Income (loss) from operations	Income (loss) from operations	(10)		82		(40)		131		Income (loss) from operations	19		61		(21)		192
Net income (loss)	Net income (loss)	(13)		63		(39)		95		Net income (loss)	12		45		(27)		140

Revenues from related parties were ~~$10~~$9 million and ~~$20~~$29 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and $11 million and ~~$21~~$32 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2019 with the majority related to EGHoldings in all periods.

Current receivables from related parties at ~~June~~September 30, 2020 were ~~$25~~$28 million with the majority related to EGHoldings and $28 million at December 31, 2019 with the majority related EGHoldings and Alba Plant LLC. Payables to related parties at ~~June~~September 30, 2020 and December 31, 2019 were ~~$10~~$13 million ~~with the majority related to EGHoldings~~ and $11 million, ~~for December 31, 2019~~respectively, with the majority related to Alba Plant ~~LLC.~~LLC in both periods.

MARATHON OIL CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

24. Commitments and Contingencies

In the second quarter of 2019, Marathon E.G. Production Limited (“MEGPL”), a consolidated and wholly-owned subsidiary, signed a series of agreements to process third-party Alen Unit gas through existing infrastructure located in Punta Europa, E.G. Our equity method investee, Alba Plant LLC, is also a party to some of the agreements. These agreements contain clauses that require MEGPL to indemnify the owners of the Alen Unit against injury to Alba Plant LLC’s personnel and damage to or loss of Alba Plant LLC’s automobiles, as well as third party claims caused by Alba Plant and certain environmental liabilities ~~resulting~~arising from certain hydrocarbons in the ~~actions or inaction by~~custody of Alba Plant LLC. Pursuant to these agreements, MEGPL agreed to indemnify third party property or events, including environmental liabilities, injury to Alba Plant LLC’s personnel, and damage to or loss of Alba Plant LLC’s automobiles. At this time, we cannot reasonably estimate this obligation as we do not have any history of prior indemnification claims, ~~as completion of the plant modifications is not expected to finish until~~

~~MARATHON OIL CORPORATION~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~2021,~~ and ~~as such,~~thus, we do not have any history of environmental discharge or contamination. Therefore, we have not recorded a liability with respect to these indemnities since the amount of potential future payments under these indemnification clauses is not determinable.

The agreements to process the third-party Alen Unit gas required the execution of third-party guarantees by Marathon Oil Corporation in favor of the Alen Unit’s owners. Two separate guarantees were executed during the second quarter of 2020; one for a maximum of $91 million pertaining to the payment obligations of Equatorial Guinea LNG Operations, S.A. and another for a maximum of $25 million pertaining to the payment obligations of Alba Plant LLC. Payment by us would be required if either of those entities fails to honor its payment obligations pursuant to the relevant agreements with the owners of the Alen Unit. Certain owners of the Alen Unit, or their affiliates, are also direct or indirect shareholders in Equatorial Guinea LNG Operations, S.A. and Alba Plant LLC. Each guarantee expires no later than December 31, 2027. We measured these guarantees at fair value using the net present value of premium payments we expect to receive from our investees. ~~We recorded a~~Our liability for these guarantees ofwas $4 million as of ~~June~~September 30, 2020, with a corresponding receivable from our investees. Each of Equatorial Guinea LNG Operations, S.A. and Equatorial Guinea LNG Train 1, S.A. provided us with a pledge of its receivables as recourse against any payments we may make under the guaranty of Equatorial Guinea LNG Operations, S.A.’s performance.

Various groups, including the State of North Dakota and three Indian tribes represented by the Bureau of Indian Affairs, have been involved in a dispute regarding the ownership of certain lands underlying the Missouri River and Little Missouri River. As a result, as of ~~June~~September 30, 2020, we have a ~~$101~~$103 million current liability in suspended royalty and working interest revenue, including interest, and have a long-term receivable of ~~$25~~$23 million for capital and expenses.

In December 2019, we received a Notice of Violation from the North Dakota Department of Environmental Quality and a verbal notice of enforcement in January 2020 from the North Dakota Industrial Commission, related to a release of produced water in North Dakota. In January 2020, we received a Notice of Violation from the EPA related to the Clean Air Act. Each enforcement action will likely result in monetary sanctions in excess of $100,000; however, we do not believe these enforcement actions would have a material adverse effect on our consolidated financial position, results of operations or cash flow.

We are a defendant in a number of legal and administrative proceedings arising in the ordinary course of business including, but not limited to, royalty claims, contract claims, tax disputes and environmental claims. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe the resolution of these proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

We have incurred and will continue to incur capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not ultimately offset by the prices we receive for our products and services, our operating results will be adversely affected. We believe that substantially all of our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, marketing areas and production processes. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites. Penalties may be imposed for noncompliance.

2731

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

Results of Operations

Critical Accounting Estimates

Accounting Standards Not Yet Adopted

Cash Flows

Liquidity and Capital Resources

Environmental Matters and Other Contingencies

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the preceding consolidated financial statements and notes in Item 1.

Executive Overview

We are an independent exploration and production company based in Houston, Texas. Our strategy is to deliver competitive and improving corporate level returns by focusing our capital investment in the lower cost, higher margin U.S. resource plays (the Eagle Ford in Texas, the Bakken in North Dakota, STACK and SCOOP in Oklahoma and Northern Delaware in New Mexico).

Commodity prices experienced significant volatility and declined substantially in the first half of 2020. While commodity prices improved during the third quarter as compared to the second quarter of 2020, they are likely to remain lower and volatile wefor the foreseeable future. We believe we can manage through this lower commodity price macro environment as our portfolio affords us the flexibility to respond to changing market conditions. Our primary focus remains on protecting our balance sheet and maintaining a strong liquidity position. We believe our financial strength, quality portfolio, and ongoing focus on reducing our cost structure better position us to navigate during this unprecedented time.

The risks associated with COVID-19 impacted our workforce and the way we meet our business objectives. Due to concerns over health and safety, the vast majority of our corporate workforce works remotely as we plan a process for a phased return of employees to the office. Working remotely has not significantly impacted our ability to maintain operations, has allowed our field offices to operate without any disruption, and has not caused us to incur significant additional expenses; however, we are unable to predict the duration or ultimate impact of these measures.

Key highlights include the following:

Maintained focus on balance sheet and liquidity

•At the end of the ~~second~~third quarter 2020, we had approximately ~~$3.5~~$4.1 billion of liquidity, comprised of an undrawn $3.0 billion revolving credit facility and ~~$0.5~~$1.1 billion in ~~cash, and no significant near-term debt maturities.~~cash. We r~~emain~~remain investment grade at ~~all three primary rating agencies, with recent reviews by~~ all three primary rating agencies.

•In August, we closed on the remarketing of $400 million sub-series B bonds. On October 1, 2020, we completed a cash tender for an aggregate principal amount of $500 million of our outstanding $1 billion2.8% 2022 Notes. The tender was funded from cash on hand, resulting in a gross debt reduction of $100 million from the second quarter of 2020.

•The September 30, 2020 cash balance reflects an increase of approximately $261 million from year-end, primarily due to the remarketing of $400 million of sub-series B bonds, partially offset by repurchases of common stock and dividend payments made during the first quarter. Our cash provided from operations was commensurate with our capital expenditures for the nine months ended September 30, 2020.

•In early July 2020, we collected an $89 million cash refund related to alternative minimum tax credits and associated interest.

•On October 1, the Board of Directors approved and declared the reinstatement of the base quarterly dividend of $0.03 per share, effective in the fourth quarter of 2020. Our share repurchase program remains suspended as we continue to maximize liquidity.

•Continued our capital discipline ~~with an additional reduction of~~to be within our Capital Budget toof $1.2 billion.

•~~Restructured a portion of our commodity derivative portfolio during the quarter, which minimized the near-term crude downside and protected basis differentials.~~

•Continued to opportunistically execute additional commodity derivatives to minimize the risk of price fluctuations.

•In April 2020, we took broad-based cost saving measures, including temporary base salary reductions for CEO and other corporate officers through year-end, a reduction in Board of Directors compensation through year-end, and U.S. employee and contractor workforce reductions.

•~~Temporarily suspended the quarterly dividend and share repurchases to maximize liquidity.~~

•~~In early July 2020, collected an $89 million cash refund related to alternative minimum tax credits and associated interest.~~

Financial and operational results

•U.S. net sales volumes decreased by 7%12% to ~~308~~297 mboed, including a 4%21% reduction in U.S. crude oil net sales volumes compared to the same quarter last year as a result of overall lower wells to sales activity driven by the lower drilling and completions activity.

•Our net loss per share was ~~$0.95~~$0.40 in the ~~second~~third quarter of 2020 as compared to net income per share of ~~$0.20~~$0.21 in the same period last year. Included in our financial results for the current quarter:

◦Revenues from contracts with customers decreased ~~$891~~$488 million compared to the same quarter last year, largely due to lower price realizations and decreased production volumes. Average crude oil price realizations decreased by ~~64%~~37% during the ~~first six months~~third quarter of 2020 as compared to the ~~first six month~~third quarter of 2019.

◦Net loss on commodity derivatives of ~~$70~~$1 million for the ~~second~~third quarter of 2020, ~~an $86~~a $48 million decrease from the same period in 2019, which was a net gain of ~~$16~~$47 million.

◦A non-cash impairment of an investment in one of our equity method investees of ~~$152~~$18 million.

•Net cash provided by operating activities in the first ~~six~~nine months of 2020 decreased to ~~$710 million~~$1.1 billion or ~~46%~~49% primarily as a result of lower commodity price realizations and decreased production volumes, compared to the first ~~six~~nine months of 2019.

•~~The June 30, 2020~~ As described in the preceding section, we reduced our Capital Budget such that Capital Budget expenditures are closely aligned with cash ~~balance reflects a decrease~~generated by operations over the duration of ~~approximately $336 million from year-end, due in part to working capital changes reflecting~~ the ~~slowdown of 2020 capital activity.~~year.

Outlook

Capital Budget

Earlier this year, we announced an approved 2020 Capital Budget of $2.4 billion, including $200 million to fund resource play leasing and exploration (“REx”). In light of the substantial decline in commodity prices and oversupply in the market, our Board of Directors approved a reduction to our Capital Budget earlier in the year to a level of $1.3 billion.Due to strong execution and capital efficiency improvement, in August we further reduced our full year 2020 capital spending budget to $1.2 billion. This revised Capital Budget represents a 50% reduction of our original budget. The revised budget contemplates a full suspension of our Oklahoma activity in 2020, a decrease in Northern Delaware drilling activity, and a continued optimization of our development plans in the Bakken and Eagle Ford. This also completes our REx drilling program for 2020.Additional adjustments to capital spending plans may be necessary in the future to respond to the shifts in the macro environment.

Commensurate with our ~~revised~~ budget of ~~$1.2~~$1.2 billion for 2020, we believe our full year production volumes will be between ~~370~~375 mboed to ~~384 mboed.~~390 mboed.

Operations

The following table presents a summary of our sales volumes for each of our segments. Refer to the Results of Operations section for a price-volume analysis for each of the segments.


		Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended September 30,			Nine Months Ended September 30,
Net Sales Volumes	Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)		Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)
United States (mboed)	United States (mboed)	308	330	(7)	%	323	314	3	%	United States (mboed)	297	339	(12)	%	314	322	(2)	%
International (mboed)^(a)	International (mboed)^(a)	84	107	(21)	%	83	98	(15)	%	International (mboed)(a)	71	88	(19)	%	79	94	(16)	%
Total (mboed)	Total (mboed)	392	437	(10)	%	406	412	(1)	%	Total (mboed)	368	427	(14)	%	393	416	(6)	%

^(a)~~In the first quarter of 2019, we announced~~We closed on the sale of our U.K. business ~~which closed~~ in the third quarter of 2019. The ~~six~~nine months ended ~~June~~September 30, 2019 includes net sales volumes related to the U.K. of 117 mboed. See Note 4 to the consolidated financial statements for further information.

United States

Net sales volumes in the segment were lower in the ~~second~~third quarter of 2020 ~~but higher in~~and the first ~~six~~nine months of 2020 as compared to their respective 2019 periods. In the second quarter of 2020, we began the process of transitioning to a significantly lower level

of drilling and completion activity across our domestic portfolio. ~~This lower pace~~As a result of the decreased drilling and completion activity, ~~had the biggest effect in Oklahoma, where we did not bring any~~fewer wells were brought to sales ~~during the quarter and experienced~~resulting in a significant decline in ~~production. Overall sales volumes increased~~production in the ~~first six months~~third quarter of ~~2020 due to an increase in the absolute number of producing wells since June 30, 2019, primarily in the Bakken and Eagle Ford.~~2020.

We continue to expect that our planned pace of drilling and completions activity during the ~~second half~~remainder of the year will enable us to meet our 2020 production guidance as noted in the preceding Outlook section. The following tables provide additional details regarding net sales volumes, sales mix and operational drilling activity for our significant operations within this segment:


		Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended September 30,			Nine Months Ended September 30,
Net Sales Volumes	Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)		Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)
Equivalent Barrels (mboed)	Equivalent Barrels (mboed)									Equivalent Barrels (mboed)
Eagle Ford	Eagle Ford	108	109	(1)	%	111	107	4	%	Eagle Ford	91	107	(15)	%	104	107	(3)	%
Bakken	Bakken	103	103	—	%	106	98	8	%	Bakken	98	109	(10)	%	103	101	2	%
Oklahoma	Oklahoma	60	82	(27)	%	67	72	(7)	%	Oklahoma	73	84	(13)	%	69	77	(10)	%
Northern Delaware	Northern Delaware	30	27	11	%	30	27	11	%	Northern Delaware	27	30	(10)	%	29	28	4	%
Other United States	Other United States	7	9	(22)	%	9	10	(10)	%	Other United States	8	9	(11)	%	9	9	—	%
Total United States	Total United States	308	330	(7)	%	323	314	3	%	Total United States	297	339	(12)	%	314	322	(2)	%


		Three Months Ended June 30, 2020																			Three Months Ended September 30, 2020
Sales Mix - U.S. Resource Plays	Sales Mix - U.S. Resource Plays	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Total		Sales Mix - U.S. Resource Plays	Eagle Ford		Bakken		Oklahoma		Northern Delaware		Total
Crude oil and condensate	Crude oil and condensate	61	%	78	%	26	%	54	%	60	%	Crude oil and condensate	58	%	71	%	25	%	55	%	54	%
Natural gas liquids	Natural gas liquids	18	%	12	%	28	%	21	%	18	%	Natural gas liquids	21	%	16	%	34	%	20	%	23	%
Natural gas	Natural gas	21	%	10	%	46	%	25	%	22	%	Natural gas	21	%	13	%	41	%	25	%	23	%


	Three Months Ended September 30,		Nine Months Ended September 30,
Drilling Activity - U.S. Resource Plays	2020	2019	2020	2019
Gross Operated
Eagle Ford:
Wells drilled to total depth	17	31	58	97
Wells brought to sales	9	35	67	117
Bakken:
Wells drilled to total depth	6	20	41	52
Wells brought to sales	8	30	41	89
Oklahoma:
Wells drilled to total depth	—	15	9	53
Wells brought to sales	—	19	13	55
Northern Delaware:
Wells drilled to total depth	—	10	15	37
Wells brought to sales	1	10	13	41

Three Months Ended June 30, Six Months Ended June 30,
Drilling Activity - U.S. Resource Plays 2020 2019 2020 2019
Gross Operated
Eagle Ford:
Wells drilled to total depth 9 36 41 66
Wells brought to sales 20 41 58 82
Bakken:
Wells drilled to total depth 8 20 35 32
Wells brought to sales 8 30 33 59
Oklahoma:
Wells drilled to total depth — 18 9 38
Wells brought to sales — 18 13 36
Northern Delaware:
Wells drilled to total depth 3 14 15 27
Wells brought to sales 6 16 12 31

•Eagle Ford – Our net sales volumes were ~~108~~91 mboed in the ~~second~~third quarter of 2020, including oil sales of 6653 mbbld and we brought 209 gross company-operated wells to sales. Given the market conditions in the second quarter, we suspended frac activities. In the third quarter of 2020, we restarted our drilling program ~~and plan to average~~with 2 rigs and 1 frac crew ~~over~~which we expect to continue for the ~~second half~~remainder of ~~2020.~~the year.

•Bakken – Our net sales volumes were ~~103~~98 mboed, including 8169 mbbld of oil sales and we brought 8 gross company-operated wells to sales. We suspended frac activity in the second quarter. In the third quarter of 2020, we resumed completions activities. We plan to average 2 rigs and 1 frac crew ~~over~~for the ~~second half~~remainder of ~~2020.~~the year.

•Oklahoma – Our net sales volumes were 6073 mboed, including 1618 mbbld of oil sales. During the second quarter, we suspended all drilling and completions operations in Oklahoma; we do not plan to drill any additional wells in Oklahoma during 2020.

•Northern Delaware – Our net sales volumes were 3027 mboed, including 1615 mbbld of oil sales and we brought 61 gross company-operated ~~wells~~well to sales. We suspended all drilling and completions operations during the second quarter and expect to bring only a limited number of wells to sales during the remainder of the year.

International

Net sales volumes were lower in the ~~second~~third quarter of 2020 compared to the ~~second~~third quarter of 2019 primarily due to timing of ~~E.G liftings and disposition of our U.K. business.~~E.G. liftings. The following table provides details regarding net sales volumes for our operations within this segment:


		Three Months Ended June 30,						Six Months Ended June 30,								Three Months Ended September 30,			Nine Months Ended September 30,
Net Sales Volumes	Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)		Net Sales Volumes	2020	2019	Increase (Decrease)		2020	2019	Increase (Decrease)
Equivalent Barrels (mboed)	Equivalent Barrels (mboed)									Equivalent Barrels (mboed)
Equatorial Guinea	Equatorial Guinea	84	95	(12)	%	83	85	(2)	%	Equatorial Guinea	71	88	(19)	%	79	86	(8)	%
United Kingdom^(a)	United Kingdom^(a)	—	10	(100)	%	—	11	(100)	%	United Kingdom(a)	—	—	—	%	—	7	(100)	%
Other International	Other International	—	2	(100)	%	—	2	(100)	%	Other International	—	—	—	%	—	1	(100)	%
Total International	Total International	84	107	(21)	%	83	98	(15)	%	Total International	71	88	(19)	%	79	94	(16)	%
Equity Method Investees	Equity Method Investees									Equity Method Investees
LNG (mtd)	LNG (mtd)	4,635	5,321	(13)	%	4,850	4,981	(3)	%	LNG (mtd)	3,960	4,590	(14)	%	4,551	4,849	(6)	%
Methanol (mtd)	Methanol (mtd)	738	1,134	(35)	%	962	1,069	(10)	%	Methanol (mtd)	1,065	1,036	3	%	996	1,058	(6)	%
Condensate and LPG (boed)	Condensate and LPG (boed)	10,896	11,080	(2)	%	10,767	10,488	3	%	Condensate and LPG (boed)	9,340	11,586	(19)	%	10,288	10,858	(5)	%

^(a)Includes natural gas acquired for injection and subsequent resale.

•Equatorial Guinea – Net sales volumes in the ~~second~~third quarter of 2020 were lower compared to the same period in 2019 primarily due to timing of liftings. We expect our production in the third quarter of 2020 to decline sequentially due to the impact of expected higher realized prices, which would reduce our net interest under the production sharing contract, higher third quarter facility downtime, and natural field decline.

•United Kingdom – In July 2019, we closed on the sale of our U.K. business. See Note 4 to the consolidated financial statements for further information.

3135

Market Conditions

Commodity prices are the most significant factor impacting our revenues, profitability, operating cash flows, the amount of capital we invest in our business, payment of dividends and funding of share repurchases. Commodity prices declined substantially in the first half of 2020 resulting from demand contraction related to the global pandemic and increased supply following the OPEC decision to increase production. A revised OPEC deal to reduce production was agreed early in the second quarter of 2020 and oil prices partially recovered in the latter part of the second quarter. ~~However,~~Prices continued to increase in the third quarter; however, pricing remains lower relative to 2019 and given the scale of worldwide demand contraction, we expect commodity prices to remain volatile. Refer to ~~Item~~Item 1A. Risk Factors in our 2019 Annual Report on Form 10-K for further discussion on how further declines in commodity prices could impact us.

United States

The following table presents our average price realizations and the related benchmarks for crude oil and condensate, NGLs and natural gas for the ~~second~~third quarter and first ~~six~~nine months of 2020 and 2019.


		Three Months Ended June 30,										Six Months Ended June 30,											Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)			2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
Average Price Realizations^(a)	Average Price Realizations^(a)													Average Price Realizations(a)
Crude oil and condensate (per bbl)^(b)	Crude oil and condensate (per bbl)^(b)	$	21.65	$	59.18	(63)	%	$	33.60	$	56.72	(41)	%	Crude oil and condensate (per bbl)(b)	$	37.78	$	55.09	(31)	%	$	34.82	$	56.14	(38)	%
Natural gas liquids (per bbl)	Natural gas liquids (per bbl)	7.09		14.60		(51)	%	8.54		15.09		(43)	%	Natural gas liquids (per bbl)	11.80		11.37		4	%	9.77		13.81		(29)	%
Natural gas (per mcf)^(c)	Natural gas (per mcf)^(c)	1.44		1.89		(24)	%	1.52		2.36		(36)	%	Natural gas (per mcf)(c)	1.78		1.92		(7)	%	1.61		2.20		(27)	%
Benchmarks	Benchmarks													Benchmarks
WTI crude oil average of daily prices (per bbl)	WTI crude oil average of daily prices (per bbl)	$	28.00	$	59.91	(53)	%	$	36.82	$	57.45	(36)	%	WTI crude oil average of daily prices (per bbl)	$	40.92	$	56.44	(27)	%	$	38.21	$	57.10	(33)	%
Magellan East Houston (“MEH”) crude oil average of daily prices (per bbl)	Magellan East Houston (“MEH”) crude oil average of daily prices (per bbl)	25.66		66.32		(61)	%	37.60		63.37		(41)	%	Magellan East Houston (“MEH”) crude oil average of daily prices (per bbl)	41.59		61.06		(32)	%	38.93		62.60		(38)	%
Mont Belvieu NGLs (per bbl)^(d)	Mont Belvieu NGLs (per bbl)^(d)	12.25		19.20		(36)	%	12.70		21.19		(40)	%	Mont Belvieu NGLs (per bbl)(d)	15.87		15.16		5	%	13.77		18.14		(24)	%
Henry Hub natural gas settlement date average (per mmbtu)	Henry Hub natural gas settlement date average (per mmbtu)	1.72		2.64		(35)	%	1.83		2.89		(37)	%	Henry Hub natural gas settlement date average (per mmbtu)	1.98		2.23		(11)	%	1.88		2.67		(30)	%

^(a)Excludes gains or losses on commodity derivative instruments.

^(b)Inclusion of realized gains (losses) on crude oil derivative instruments would have increased average price realizations by ~~$1.59~~$2.24 per bbl and ~~$0.32~~$0.72 per bbl for the ~~second~~third quarter 2020 and 2019, respectively, and ~~$1.53~~$1.74 per bbl and $0.70 per bbl for the first ~~six~~nine months of 2020 and ~~2019.~~2019, respectively.

^(c)Inclusion of realized gains (losses) on natural gas derivative instruments would have a minimal impact on average price realizations for the periods presented.

^(d)Bloomberg Finance LLP: Y-grade Mix NGL of 55% ethane, 25% propane, 5% butane, 8% isobutane and 7% natural gasoline.

Crude oil and condensate – Price realizations may differ from benchmarks due to the quality and location of the product.

Natural gas liquids – The majority of our sales volumes are sold at reference to Mont Belvieu prices.

Natural gas – A significant portion of our volumes are sold at bid-week prices, or first-of-month indices relative to our producing areas.

International

The following table presents our average price realizations and the related benchmark for crude oil for the ~~second~~third quarter and first ~~six~~nine months of 2020 and 2019.


		Three Months Ended June 30,										Six Months Ended June 30,											Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)			2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
Average Price Realizations	Average Price Realizations													Average Price Realizations
Crude oil and condensate (per bbl)	Crude oil and condensate (per bbl)	$	13.79	$	58.21	(76)	%	$	24.40	$	56.36	(57)	%	Crude oil and condensate (per bbl)	$	30.28	$	46.04	(34)	%	$	26.05	$	53.98	(52)	%
Natural gas liquids (per bbl)	Natural gas liquids (per bbl)	1.00		1.67		(40)	%	1.00		1.81		(45)	%	Natural gas liquids (per bbl)	1.00		1.00		—	%	1.00		1.53		(35)	%
Natural gas (per mcf)	Natural gas (per mcf)	0.24		0.35		(31)	%	0.24		0.41		(41)	%	Natural gas (per mcf)	0.24		0.24		—	%	0.24		0.35		(31)	%
Benchmark	Benchmark													Benchmark
Brent (Europe) crude oil (per bbl)^(a)	Brent (Europe) crude oil (per bbl)^(a)	$	29.34	$	68.92	(57)	%	$	39.89	$	66.05	(40)	%	Brent (Europe) crude oil (per bbl)(a)	$	42.96	$	61.93	(31)	%	$	40.92	$	64.67	(37)	%

^(a)Average of monthly prices obtained from the United States Energy Information Agency website.

3236

United Kingdom

Crude oil and condensate – Generally sold in relation to the Brent crude benchmark. We closed on the sale of our U.K. business on July 1, 2019.

Equatorial Guinea

Crude oil and condensate – Alba field liquids production is primarily condensate and generally sold in relation to the Brent crude benchmark. Alba Plant LLC processes the rich hydrocarbon gas which is supplied by the Alba field under a fixed price long term contract. Alba Plant LLC extracts NGLs and secondary condensate which is then sold by Alba Plant LLC at market prices, with our share of the revenue reflected in income from equity method investments on the consolidated statements of income. Alba Plant LLC delivers the processed dry natural gas to the Alba field for distribution and sale to AMPCO and EG LNG.

Natural gas liquids – Wet gas is sold to Alba Plant LLC at a fixed-price term contract resulting in realized prices not tracking market price. Alba Plant LLC extracts and keeps NGLs, which are sold at market price, with our share of income from Alba Plant LLC being reflected in the income from equity method investments on the consolidated statements of income.

Natural gas – Dry natural gas, processed by Alba Plant LLC on behalf of the Alba field is sold by the Alba field to EG LNG and AMPCO at fixed-price long term contracts resulting in realized prices not tracking market price. We derive additional value from the equity investment in our downstream gas processing units EG LNG and AMPCO. EG LNG sells LNG on a market-based long-term contract and AMPCO markets methanol at market prices.

Results of Operations

Three Months Ended ~~June~~September 30, 2020 vs. Three Months Ended ~~June~~September 30, 2019

Revenues from contracts with customers are presented by segment in the table below:


		Three Months Ended June 30,							Three Months Ended September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Revenues from contracts with customers	Revenues from contracts with customers					Revenues from contracts with customers
United States	United States	$	462	$	1,200	United States	$	722	$	1,172
International	International	28		181		International	39		77
Segment revenues from contracts with customers	Segment revenues from contracts with customers	$	490	$	1,381	Segment revenues from contracts with customers	$	761	$	1,249

Below is a price/volume analysis for each segment. Refer to the preceding Operations and Market Conditions sections for additional detail related to our net sales volumes and average price realizations.


				Increase (Decrease) Related to											Increase (Decrease) Related to
(In millions)	(In millions)	Three Months Ended June 30, 2019		Price Realizations		Net Sales Volumes		Three Months Ended June 30, 2020		(In millions)	Three Months Ended September 30, 2019		Price Realizations		Net Sales Volumes		Three Months Ended September 30, 2020
United States Price/Volume Analysis	United States Price/Volume Analysis																	United States Price/Volume Analysis
Crude oil and condensate	Crude oil and condensate	$	1,021	$	(625)	$	(35)	$	361	Crude oil and condensate	$	1,017	$	(253)	$	(212)	$	552
Natural gas liquids	Natural gas liquids	84		(38)		(9)		37		Natural gas liquids	64		2		7		73
Natural gas	Natural gas	79		(17)		(8)		54		Natural gas	81		(5)		(7)		69
Other sales	Other sales	16						10		Other sales	10						28
Total	Total	$	1,200					$	462	Total	$	1,172					$	722
International Price/Volume Analysis	International Price/Volume Analysis																	International Price/Volume Analysis
Crude oil and condensate	Crude oil and condensate	$	161	$	(63)	$	(78)	$	20	Crude oil and condensate	$	67	$	(16)	$	(20)	$	31
Natural gas liquids	Natural gas liquids	1		—		—		1		Natural gas liquids	1		—		—		1
Natural gas	Natural gas	13		(4)		(2)		7		Natural gas	8		—		(1)		7
Other sales	Other sales	6						—		Other sales	1						—
Total	Total	$	181					$	28	Total	$	77					$	39

3337

Net gain (loss) on commodity derivatives Inin the ~~second~~third quarter of 2020, ~~the net~~was a loss ~~on commodity derivatives was $70~~of $1 million, compared to a net gain of $47 million for the same period in ~~2019, which was a net gain of $16 million.~~2019. We have multiple crude oil, ~~and~~ natural gas and NGL derivative contracts that settle against various indices. We record commodity derivative gains/losses as the index pricing and forward curves change each period. See Note 15 to the consolidated financial statements for further information.

Income from equity method investments decreased ~~$183~~$31 million for the ~~second~~third quarter of 2020 from the comparable 2019 period primarily due to an impairment of ~~$152~~$18 million to an investment in an equity method ~~investee,~~investee. Lower Alba plant condensate sales volumes and lower ~~volumes and price realizations associated with our investees.~~methanol prices at AMPCO methanol facility also contributed to the decline. See Note 11 to the consolidated financial statements for further information on the equity method investee impairment.

~~Production expenses~~Net gain on disposal of assets decreased ~~$64~~$21 million in the ~~second~~third quarter of 2020 versus the same period in 2019, primarily as a result of ~~lower well workover and maintenance activities, lower U.S. contract labor, and~~ the sale of our U.K. business ~~which closed~~ during third quarter of 2019. See Note 4 to the consolidated financial statements for more detail.

Production expenses decreased $34 million in the third quarter of ~~2019.~~

~~The second quarter of~~ 2020 ~~production expense rate (expense per boe) was lower for International~~versus the same period in 2019, primarily as a result of the ~~sale of our U.K. business which closed during the third quarter of 2019. Our~~ U.S. segment’s lower operational costs and continued cost management, specifically staffing and contract labor. International segment production expense ~~rate was lower as a result~~slightly decreased due to timing of the same reasons identified in the preceding paragraph in the second quarter of 2020. While the production expense rates for each of our U.S. and International segments were significantly lower than the prior period, we still expect our full year production expense rates to be consistent with previously provided guidance of $4.25 - $5.25 per boe and $2.15 - $2.65 per boe, respectively.E.G. liftings.

The following table provides production expense and production expense rates (expense per boe) for each segment:


		Three Months Ended June 30,																								Three Months Ended September 30,
($ per boe)		2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
($ in millions; rate in $ per boe)														($ in millions; rate in $ per boe)	2020		2019		Increase (Decrease)			2020		2019		Increase (Decrease)
Production Expense and Rate	Production Expense and Rate	Expense										Rate									Production Expense and Rate	Expense						Rate
United States	United States	$	114	$	147	(22)	%	$	4.09	$	4.89	(16)	%	United States	$	118	$	147	(20)	%		$	4.32	$	4.75	(9)	%
International	International	$	15	$	46	(67)	%	$	1.88	$	4.72	(60)	%	International	$	11	$	16	(31)	%		$	1.76	$	1.98	(11)	%

Shipping, handling and other operating expenses ~~decreased $65~~increased $45 million in the ~~second~~third quarter of 2020 primarily due to ~~lower NGL shipping~~increased purchased volumes from third parties of commodities for resale in order to satisfy transportation commitments and handling rates realized in Bakken along with lower net sales volumes in Oklahoma. To the extent that our future Bakken realized NGL prices exceed those as compared to the second quarter, we expect our shipping and handling costs to increase as well.other expenses.

Exploration expenses include unproved property impairments, dry well costs, geological and geophysical, and other costs, which remained relatively flat in comparison to the ~~second~~third quarter of 2019.

The following table summarizes the components of exploration expenses:


		Three Months Ended June 30,											Three Months Ended September 30,
(In millions)	(In millions)	2020		2019		Increase (Decrease)		(In millions)	2020		2019		Increase (Decrease)
Exploration Expenses	Exploration Expenses							Exploration Expenses
Unproved property impairments	Unproved property impairments	$	17	$	20	(15)	%	Unproved property impairments	$	23	$	15	53	%
Dry well costs	Dry well costs	1		—		—	%	Dry well costs	—		1		(100)	%
Geological and geophysical	Geological and geophysical	3		3		—	%	Geological and geophysical	2		1		100	%
Other	Other	5		3		67	%	Other	2		5		(60)	%
Total exploration expenses	Total exploration expenses	$	26	$	26	—	%	Total exploration expenses	$	27	$	22	23	%

Depreciation, depletion and amortization decreased $8$68 million in ~~the second quarter of 2020 primarily due to the sale of our U.K. business which closed during~~ the third quarter of ~~2019.~~2020 as a result of lower sales volumes in our U.S. and International segments. Our segments apply the units-of-production method to the majority of their assets, including capitalized asset retirement costs; therefore volumes have an impact on DD&A expense.

The DD&A rate (expense per boe)~~, which~~ is impacted by field-level changes in reserves, capitalized costs and sales ~~volumes, can also impact our DD&A expense. Our International DD&A rate decreased primarily due to the sale of our U.K. business which closed during the third quarter of 2019.~~

volume mix between fields. The following table provides DD&A expense and DD&A expense rates for each segment:

Three Months Ended June 30,
($ per boe) 2020 2019 Increase (Decrease) 2020 2019 Increase (Decrease)
DD&A Expense and Rate Expense Rate
United States $ 569 $ 561 1 % $ 20.28 $ 18.72 8 %
International $ 22 $ 38 (42) % $ 2.86 $ 3.92 (27) %

~~Impairments~~ ~~decreased $18 million primarily as a result of impairments to certain non-core proved properties in our United States segment in the second quarter of 2019. See~~ ~~Note 11~~ ~~to the consolidated financial statements for more detail.~~


	Three Months Ended September 30,
($ in millions; rate in $ per boe)	2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
DD&A Expense and Rate	Expense						Rate
United States	$	530	$	589	(10)	%	$	19.39	$	18.90	3	%
International	$	19	$	25	(24)	%	$	2.89	$	3.15	(8)	%

Taxes other than income include production, severance and ad valorem taxes, primarily in the U.S., which tend to increase or decrease in relation to revenue and sales volumes. Taxes other than income decreased ~~$49~~$32 million primarily due to lower price realizations and lower sales volumes in the U.S. segment in the ~~second~~third quarter of 2020.

~~Provision (benefit) for income taxes~~General and administrative expenses ~~reflects an effective income tax rate of 2%~~decreased $29 million in the ~~second~~third quarter of 2020 primarily as ~~compared to an effective income tax rate~~a result of ~~17% in the second quarter of 2019. See~~ ~~Note 7to the consolidated financial statements for a more detailed discussion concerning the rate changes.~~cost savings realized from workforce reductions.

Segment Income

Segment income represents income which excludes certain items not allocated to our operating segments, net of income taxes. A portion of our corporate and operations general and administrative support costs are not allocated to the operating segments. These unallocated costs primarily consist of employment costs (including pension effects), professional services, facilities and other costs associated with corporate and operations support activities. Additionally, items which affect comparability such as: gains or losses on dispositions, impairments of proved property, goodwill and equity method investments, unrealized gains or losses on commodity and interest rate derivative instruments, effects of pension settlements and curtailments, or other items (as determined by the CODM) are not allocated to operating segments.

The following table reconciles segment income (loss) to net income (loss):


		Three Months Ended June 30,											Three Months Ended September 30,
(In millions)	(In millions)	2020		2019		Increase (Decrease)		(In millions)	2020		2019		Increase (Decrease)
United States	United States	$	(365)	$	215	(270)	%	United States	$	(135)	$	180	(175)	%
International	International	(6)		96		(106)	%	International	8		43		(81)	%
Segment income (loss)	Segment income (loss)	(371)		311		(219)	%	Segment income (loss)	(127)		223		(157)	%
Items not allocated to segments, net of income taxes	Items not allocated to segments, net of income taxes	(379)		(150)		(153)	%	Items not allocated to segments, net of income taxes	(190)		(58)		(228)	%
Net income (loss)	Net income (loss)	$	(750)	$	161	(566)	%	Net income (loss)	$	(317)	$	165	(292)	%

United States segment ~~loss~~income (loss) Inin the ~~second~~third quarter of 2020, ~~U.S. segment loss~~ was $~~365~~135 million loss after-tax versus ~~$215~~$180 million income after-tax for the same period in 2019, primarily due to lower price realizations and sales volumes in the current quarter, which was partially offset by lower DD&A and production taxes ~~shipping~~(due to the lower sales volumes), coupled with cost management efforts to lower production and ~~handling expense, and production expense.~~G&A expenses.

International segment ~~loss~~income Inin the ~~second~~third quarter of 2020, ~~International segment loss~~ was $68 million after-tax versus ~~$96~~$43 million ~~income~~ after-tax for the same period in 2019, primarily due to timing of E.G. liftings and lower price realizations ~~in E.G.~~ resulting in lower income from equity method ~~investments and the sale of our U.K. business in the third quarter of 2019.~~investments.

Results of Operations

~~Six~~Nine Months Ended ~~June~~September 30, 2020 vs. ~~Six~~Nine Months Ended ~~June~~September 30, 2019

Revenues from contracts with customers are presented by segment in the table below:


		Six Months Ended June 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Revenues from contracts with customers	Revenues from contracts with customers					Revenues from contracts with customers
United States	United States	$	1,432	$	2,262	United States	$	2,154	$	3,434
International	International	82		319		International	121		396
Segment revenues from contracts with customers	Segment revenues from contracts with customers	$	1,514	$	2,581	Segment revenues from contracts with customers	$	2,275	$	3,830


				Increase (Decrease) Related to											Increase (Decrease) Related to
(In millions)	(In millions)	Six Months Ended June 30, 2019		Price Realizations		Net Sales Volumes		Six Months Ended June 30, 2020		(In millions)	Nine Months Ended September 30, 2019		Price Realizations		Net Sales Volumes		Nine Months Ended September 30, 2020
United States Price/Volume Analysis	United States Price/Volume Analysis																	United States Price/Volume Analysis
Crude oil and condensate	Crude oil and condensate	$	1,880	$	(818)	$	127	$	1,189	Crude oil and condensate	$	2,897	$	(1,066)	$	(90)	$	1,741
Natural gas liquids	Natural gas liquids	161		(68)		(5)		88		Natural gas liquids	225		(67)		3		161
Natural gas	Natural gas	182		(66)		5		121		Natural gas	263		(70)		(3)		190
Other sales	Other sales	39						34		Other sales	49						62
Total	Total	$	2,262					$	1,432	Total	$	3,434					$	2,154
International Price/Volume Analysis	International Price/Volume Analysis																	International Price/Volume Analysis
Crude oil and condensate	Crude oil and condensate	$	274	$	(84)	$	(125)	$	65	Crude oil and condensate	$	341	$	(102)	$	(143)	$	96
Natural gas liquids	Natural gas liquids	3		(1)		—		2		Natural gas liquids	4		(1)		—		3
Natural gas	Natural gas	28		(11)		(2)		15		Natural gas	36		(10)		(4)		22
Other sales	Other sales	14						—		Other sales	15						—
Total	Total	$	319					$	82	Total	$	396					$	121

Net gain (loss) on commodity derivatives Inin the first ~~six~~nine months of 2020, ~~the net~~was a gain ~~on commodity derivatives was $132~~of $131 million, compared to a net loss of $28 million for the same period in ~~2019 which was a net loss of $75 million.~~2019. We have multiple crude oil, ~~and~~ natural gas and NGL derivative contracts that settle against various indices. We record commodity derivative gains/losses as the index pricing and forward curves change each period. See Note 15 to the consolidated financial statements for further information.

Income (loss) from equity method investments decreased ~~$206~~$237 million for the first ~~six~~nine months of 2020 primarily due to ~~an impairment~~impairments of ~~$152~~$170 million to an investment in an equity method investee in the ~~second quarter~~first nine months of 2020 as well as lower price realizations and lower net sales volumes from equity method investments in E.G. primarily due to the planned triennial turnaround in the first quarter of 2020.

Net gain on disposal of assets decreased ~~$27~~$48 million for the first ~~six~~nine months of 2020 primarily as a result of the sale of our working interest in the Droshky field (Gulf of Mexico)~~, which closed~~ and U.K. business during the first ~~quarter~~nine months of 2019.

Other income decreased ~~$35~~$38 million in the first ~~six~~nine months of 2020 primarily due to income recognized in 2019 arising from indemnification payments received from Marathon Petroleum Corporation (“MPC”). Pursuant to the Tax Sharing Agreement we entered into with MPC, in connection with the 2011 spin-off transaction, MPC agreed to indemnify us for certain liabilities. The indemnity relates to tax and interest allocable to MPC as a result of the closure of the ~~IRS~~2010-2011 U.S. Federal Tax Audit in the first quarter of 2019.

Production expenses for the first ~~six~~nine months of 2020 decreased by ~~$91~~$125 million compared to the same period in 2019. Production expense in our International segment decreased ~~$64~~$69 million primarily as a result of the sale of our U.K. business, which closed during the third quarter of 2019. Production expense in our ~~United States~~U.S. segment decreased ~~$29~~$58 million primarily due to lower ~~well workover~~operational activity and ~~maintenance activities,~~continued cost management, specifically staffing and ~~lower~~ contract labor.

The first ~~six~~nine months of 2020 production expense rate (expense per boe) was lower for our United States segment due to the aforementioned reasons. Expense per boe for our International segment decreased due to the sale of the U.K. business, which closed during the third quarter of ~~2019.~~

2019
. We expect our full year production expense rates for the United States and International segments to be

$4.25 - $4.75 per boe and $2.05 - $2.35 per boe, respectively.

The following table provides production expense and production expense rates for each segment:


		Six Months Ended June 30,																								Nine Months Ended September 30,
($ per boe)		2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
($ in millions; rate in $ per boe)														($ in millions; rate in $ per boe)	2020		2019		Increase (Decrease)			2020		2019		Increase (Decrease)
Production Expense and Rate	Production Expense and Rate	Expense										Rate									Production Expense and Rate	Expense						Rate
United States	United States	$	257	$	286	(10)	%	$	4.37	$	5.04	(13)	%	United States	$	375	$	433	(13)	%		$	4.36	$	4.94	(12)	%
International	International	$	32	$	96	(67)	%	$	2.11	$	5.40	(61)	%	International	$	43	$	112	(62)	%		$	2.00	$	4.33	(54)	%

Shipping, handling and other operating expenses decreased $7530 million in the first ~~six~~nine months of 2020 from the comparable 2019 period, primarily as a result of lower net sales volumes in the U.S during the first nine months of 2020 and

lower NGL shipping and handling rates realized in Bakken ~~as well as lower net sales~~in the second quarter of 2020. This was partially offset by higher marketing costs due to higher volumes ~~in Oklahoma.~~purchased for resale during the third quarter of 2020.

Exploration expenses include unproved property impairments, dry well costs, geological and geophysical, and other, which decreased ~~$31~~$26 million in the first ~~six~~nine months of 2020. Decreases in unproved property impairments were primarily driven by our decision not to drill certain leases related to resource exploration in the first quarter of 2019.

The following table summarizes the components of exploration expenses:


		Six Months Ended June 30,											Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		Increase (Decrease)		(In millions)	2020		2019		Increase (Decrease)
Exploration Expenses	Exploration Expenses							Exploration Expenses
Unproved property impairments	Unproved property impairments	$	39	$	64	(39)	%	Unproved property impairments	$	62	$	79	(22)	%
Dry well costs	Dry well costs	1		5		(80)	%	Dry well costs	1		6		(83)	%
Geological and geophysical	Geological and geophysical	4		9		(56)	%	Geological and geophysical	6		10		(40)	%
Other	Other	10		7		43	%	Other	12		12		—	%
Total exploration expenses	Total exploration expenses	$	54	$	85	(36)	%	Total exploration expenses	$	81	$	107	(24)	%

Depreciation, depletion and amortization increased ~~$82~~$14 million in the first ~~six~~nine months of 2020 from the comparable 2019 period, primarily due to additional wells coming online in 2020 related to our resource exploration development coupled with field-level reserve adjustments increasing the ~~higher net sales volumes in our U.S. segment driven by first quarter 2020 activity,~~United States DD&A expense. This was partially offset by the sale of our U.K. business, which closed during the third quarter of 2019. Our segments apply the units-of-production method to the majority of their assets, including capitalized asset retirement costs; therefore volumes have an impact on DD&A expense.

The DD&A rate (expense per boe)~~, which~~ is impacted by field-level changes in reserves, capitalized costs and sales ~~volumes, can also impact our DD&A expense.~~volume mix between fields. The DD&A rate for International decreased primarily as a result of dispositions.

The following table provides DD&A expense and DD&A expense rates for each segment:


		Six Months Ended June 30,																								Nine Months Ended September 30,
($ per boe)		2020		2019		Increase (Decrease)		2020		2019		Increase (Decrease)
($ in millions; rate in $ per boe)														($ in millions; rate in $ per boe)	2020		2019		Increase (Decrease)			2020		2019		Increase (Decrease)
DD&A Expense and Rate	DD&A Expense and Rate	Expense										Rate									DD&A Expense and Rate	Expense						Rate
United States	United States	$	1,186	$	1,075	10	%	$	20.15	$	18.98	6	%	United States	$	1,716	$	1,664	3	%		$	19.91	$	18.95	5	%
International	International	$	43	$	72	(40)	%	$	2.86	$	4.06	(30)	%	International	$	62	$	97	(36)	%		$	2.87	$	3.77	(24)	%

Impairments increased ~~$73~~$74 million in the first ~~six~~nine months of 2020, primarily as a result of the impairment to goodwill for $95 million related to our International reporting unit in the first quarter of 2020. See No ~~te 1~~1Note 11 for discussion of the impairments in further detail.

Taxes other than income include production, severance and ad valorem taxes, primarily in the U.S., which tend to increase or decrease in relation to revenue and sales volumes. Taxes other than income decreased ~~$55~~$87 million in the first nine months of 2020 from the comparable 2019 period primarily due to lower price realizations and lower sales volumes in the U.S. ~~segment in the first six months of 2020.~~segment.

General and administrative expenses decreased $1746 million in the first ~~six~~nine months of 2020 ~~primarily as a result of~~from the ~~change in value of stock-based performance units tied to our total shareholder return (“TSR”) as compared to our peer group and a decrease in other compensation costs.~~comparable 2019 period, which reflects costs savings realized from workforce reductions.

Provision (benefit) for income taxes reflects an effective income tax rate of 2%1% in the first ~~six~~nine months of 2020, as compared to an effective income tax rate of ~~(52)~~(27)% for the comparable 2019 period. See Note 7 to the consolidated financial statements for a more detailed discussion concerning the components impacting the rate change.

Segment Income

Segment income represents income which excludes certain items not allocated to our operating segments, net of income taxes. A portion of our corporate and operations general and administrative support costs are not allocated to the operating segments. These unallocated costs primarily consist of employment costs (including pension effects), professional services, facilities and other costs associated with corporate and operations support activities. Additionally, items which affect comparability such as: gains or losses on dispositions, impairments of proved property, goodwill and equity method investments, unrealized gains or losses on commodity and interest rate derivative instruments, effects of pension settlements and curtailments, or other items (as determined by the CODM) are not allocated to operating segments.

The following table reconciles segment income (loss) to net income (loss):


		Six Months Ended June 30,											Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		Increase (Decrease)		(In millions)	2020		2019		Increase (Decrease)
United States	United States	$	(385)	$	347	(211)	%	United States	$	(520)	$	527	(199)	%
International	International	(7)		157		(104)	%	International	1		200		(100)	%
Segment income (loss)	Segment income (loss)	(392)		504		(178)	%	Segment income (loss)	(519)		727		(171)	%
Items not allocated to segments, net of income taxes	Items not allocated to segments, net of income taxes	(404)		(169)		(139)	%	Items not allocated to segments, net of income taxes	(594)		(227)		(162)	%
Net income (loss)	Net income (loss)	$	(796)	$	335	(338)	%	Net income (loss)	$	(1,113)	$	500	(323)	%

United States segment ~~loss~~income (loss) ~~For~~for the first ~~six~~nine months of 2020, ~~U.S. segment~~was a $520 million loss ~~was $385 million~~ after-tax versus ~~$347~~$527 million income after-tax for the same period in 2019, primarily as a result of lower crude price realizations and ~~higher DD&A due to higher~~lower net sales volumes, which was partially offset by lower production taxes ~~shipping and handling expense,~~ and production ~~expense.~~expenses.

International segment ~~loss~~income ~~For~~for the first ~~six~~nine months of 2020, ~~International segment loss~~ was $7$1 million after-tax versus ~~$157~~$200 million ~~income~~ after-tax for the same period in 2019, primarily due to lower price realizations and sales volumes partially offset by lower costs due to the sale of our U.K. business in third quarter of 2019.

Critical Accounting Estimates

There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Estimates disclosed in our Form 10-K for the year ended December 31, 2019, except as discussed below.

Impairment of Equity Method Investments

InDuring the ~~second quarter of~~nine months ended September 30, 2020, we recorded an impairment of ~~$152~~$170 million to an investment in an equity method investee, which was reflected in income (loss) from equity method investments in our consolidated statements of income. Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value may have occurred. When a loss is deemed to have occurred that is other than temporary, the carrying value of the equity method investment is written down to fair value.

Fair value calculated for the purpose of testing our equity method investees for impairment is estimated using the present value of expected future cash flows method. Significant judgment is involved in performing these fair value estimates since the results are based on forecasted assumptions and the performance of entities that we do not control. Significant assumptions include:

•Future condensate, NGL, LNG, natural gas & methanol prices. Our estimates of future prices are based on our analysis of market supply and demand and consideration of market price indicators. Although these commodity prices may experience extreme volatility in any given year, we believe long-term industry prices are driven by global market supply and demand. To estimate supply, we consider numerous factors, including the worldwide resource base, depletion rates and OPEC production policies. We believe demand is largely driven by global economic factors, such as population and income growth, and governmental policies. The prices we use in our fair value estimates are consistent with those used in our planning and capital investment reviews. There has been significant volatility in

commodity prices and estimates of such future prices are inherently imprecise. See Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2019 for further discussion on commodity prices.

•Estimated quantities of feedstock condensate, NGLs and natural gas processed by our investees. There are two primary sets of inputs used to estimate feedstock volumes processed by our investees. The first input involves hydrocarbons produced from our Alba Field. Our equity method investees currently process hydrocarbons from our Alba Field, which consists of condensate, NGLs and natural gas reserves. Estimated quantities of hydrocarbons processed from our Alba Field are based on a combination of proved reserves and risk-weighted probable reserves and resources such that the combined volumes represent the most likely expectation of recovery. See Item 1A. Risk Factors in our Form 10-K for the year ended December 31, 2019 for further discussion on reserves.

The second input involves our estimate of future third-party gas to be processed by our investees. Our investees have capacity to process hydrocarbons from sources other than our Alba field. During 2019, we executed agreements for processing natural gas produced from the third party-owned Alen ~~field~~Unit through the existing Alba Plant LLC LPG processing plant and the EGHoldings LNG production facility beginning in 2021. Estimated natural gas volumes processed from the Alen ~~field~~Unit were based on forecasts received from the operator of the Alen ~~field.~~Unit.

•Expected timing of production. Production forecasts are the outcome of engineering studies which estimate reserves, as well as expected capital programs. The actual timing of the production could be different than the projection. Cash flows realized later in the projection period are less valuable than those realized earlier due to the time value of money. The expected timing of production from the Alba Field that we use in our fair value estimates is consistent with that used in our planning and capital investment reviews. The expected timing of production from the Alen ~~Field~~Unit is consistent with forecasts received from the operator of that field.

•Discount rate commensurate with the risks involved. We apply a discount rate to our expected cash flows based on a variety of factors, including market and economic conditions, operational risk, regulatory risk and political risk. A higher discount rate decreases the net present value of cash flows

We base our fair value estimates on projected financial information which we believe to be reasonably likely to occur. This includes the estimated dividends and/or return of capital we expect to be paid by our equity method investees, which are directly affected by the significant assumptions described in the preceding paragraphs. An estimate of the sensitivity to changes in assumptions in our cash flow calculations is not practicable, given the numerous other assumptions (e.g. reserves, commodity prices, operating costs, inflation and discount rates) that can materially affect our estimates. Unfavorable adjustments to some of the above listed assumptions would likely be offset by favorable adjustments in other assumptions.

See Note 1 111 to the consolidated financial statements for further information regarding the impairment recognized during the second and third quarter of 2020.

Fair Value Estimates – Goodwill

In the first quarter of 2020, a triggering event (significant decline in market capitalization caused by worldwide declines in hydrocarbon demand and corresponding prices) required us to assess our goodwill in the International reporting unit for impairment as of March 31, 2020. We estimated the fair value of our International reporting unit using a combination of market and income approaches and concluded that a full impairment of $95 million was required. See Note 14 to the consolidated financial statements for further information.

Estimated Quantity of Net Reserves

Continued lower commodity prices could have a material effect on the quantity and present value of our proved reserves. ~~To the extent that commodity prices decline further throughout 2020,~~When we apply actual SEC pricing as of year-end, a portion of our proved reserves could be deemed uneconomic and no longer classified as proved. This could impact both proved developed producing reserves as well as proved undeveloped reserves. Future reserve revisions could also result from changes to our Capital Budget and drilling plans among other things. However, any impact of lower SEC pricing will likely be partially offset by continued cost reduction efforts. Also, any volumes reclassified to unproved reserves could return to proved reserves as commodity prices improve. Any reduction in proved reserves, especially as a result of continued lower commodity prices, could result in an acceleration of future DD&A expense and impairments to long-lived assets.

Accounting Standards Not Yet Adopted

See Note 2 to the consolidated financial statements.

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Cash Flows

Commodity prices are the most significant factor impacting our revenues, profitability, operating cash flows, the amount of capital we invest in our business, payment of dividends, and funding of share repurchases. While we generated cash flows from operations during the first ~~six~~nine months of 2020, the lower price environment reduced our cash flow generation compared to the prior year. Should lower prices continue, our ability to generate cash from operations could be negatively affected. The following table presents sources and uses of cash and cash equivalents:


		Six Months Ended June 30,							Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
Sources of cash and cash equivalents	Sources of cash and cash equivalents					Sources of cash and cash equivalents
Operating activities	Operating activities	$	710	$	1,312	Operating activities	$	1,055	$	2,049
Borrowings						Borrowings	400		—
Disposal of assets, net of cash transferred to the buyer	Disposal of assets, net of cash transferred to the buyer	9		69		Disposal of assets, net of cash transferred to the buyer	9		(84)
Other	Other	11		50		Other	7		53
Total sources of cash and cash equivalents	Total sources of cash and cash equivalents	$	730	$	1,431	Total sources of cash and cash equivalents	$	1,471	$	2,018
Uses of cash and cash equivalents	Uses of cash and cash equivalents					Uses of cash and cash equivalents
Additions to property, plant and equipment	Additions to property, plant and equipment	$	(946)	$	(1,262)	Additions to property, plant and equipment	$	(1,090)	$	(1,934)
Additions to other assets	Additions to other assets	12		42		Additions to other assets	15		41

Purchases of common stock	Purchases of common stock	(92)		(266)		Purchases of common stock	(92)		(296)
Dividends paid	Dividends paid	(40)		(82)		Dividends paid	(40)		(122)
Other	Other	—		(29)		Other	(3)		(4)
Total uses of cash and cash equivalents	Total uses of cash and cash equivalents	$	(1,066)	$	(1,597)	Total uses of cash and cash equivalents	$	(1,210)	$	(2,315)

Cash flows generated from operating activities in the first ~~six~~nine months of 2020 were ~~46%~~49% lower compared to the same period in 2019, primarily as a result of lower commodity price realizations.

The following table shows capital expenditures by segment and reconciles to additions to property, plant and equipment as presented in the consolidated statements of cash flows:


		Six Months Ended June 30,							Nine Months Ended September 30,
(In millions)	(In millions)	2020		2019		(In millions)	2020		2019
United States	United States	$	698	$	1,292	United States	$	874	$	1,959
International	International	—		15		International	—		16
Corporate	Corporate	9		8		Corporate	10		15
Total capital expenditures	Total capital expenditures	707		1,315		Total capital expenditures	884		1,990
Change in capital expenditure accrual	Change in capital expenditure accrual	239		(53)		Change in capital expenditure accrual	206		(56)
Total use of cash and cash equivalents for property, plant and equipment	Total use of cash and cash equivalents for property, plant and equipment	$	946	$	1,262	Total use of cash and cash equivalents for property, plant and equipment	$	1,090	$	1,934

The decline in our capital expenditures for the U.S. segment in the first nine months of 2020 compared to the same period in 2019, was caused by lower drilling and completions activities across all four of our shale basins.

In the first quarter of 2020, we acquired approximately 9 million common shares at a cost of $85 million, which were held as treasury stock. See Note 18 to the consolidated financial statements for further information.

Liquidity and Capital Resources

Available Liquidity

Our main sources of liquidity are cash and cash equivalents, internally generated cash flow from operations, sales of non-core assets, capital market transactions, and our revolving Credit Facility. At ~~June~~September 30, 2020, we had approximately ~~$3.5~~$4.1 billion of liquidity consisting of ~~$0.5~~$1.1 billion in cash and cash equivalents and $3.0 billion available under our revolving Credit Facility. ~~Additionally, in early July,~~On October 1, 2020, we ~~collected~~completed a cash tender offer for an ~~$89~~aggregate principal amount of $500 million of our $1 billion 2.8% 2022 Notes funded by cash refund related to alternative minimum tax credits and associated interest. We expect cash flow from operations to improve during each of the third and fourth quarters of 2020, relative to the second quarter 2020, commensurate with an expected increase in commodity prices relative to the second quarter.on hand. See Item 1A. Risk Factors for a more detailed discussion of recent developments affecting the energy industry.

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Our working capital requirements are supported by our cash and cash equivalents and our Credit Facility. We may draw on our revolving Credit Facility to meet short-term cash requirements, or issue debt or equity securities through the shelf registration statement discussed below as part of our longer-term liquidity and capital management program. Because of the alternatives available to us as discussed above, we believe that our short-term and long-term liquidity are adequate to fund not only our current operations, but also our near-term and long-term funding requirements including our capital spending programs, defined benefit plan contributions, repayment of debt maturities, and other amounts that may ultimately be paid in connection with contingencies. General economic conditions, commodity prices, and financial, business and other factors, including the global pandemic, could affect our operations and our ability to access the capital markets.

During the first half of 2020, commodity prices significantly declined due to the combined impacts of global crude oil oversupply and lower demand for hydrocarbons due to the global pandemic. As a result, credit rating agencies reviewed many companies in the industry, including us. We continue to be rated investment grade at all three primary credit rating agencies. A downgrade in our credit ratings could increase our future cost of financing or limit our ability to access capital, and could result in additional credit support requirements. See Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of how a downgrade in our credit ratings could affect us.

~~On May 6, 2020,~~During the second quarter of this year, our Board of Directors temporarily suspended our quarterly dividend payment as we prioritize our liquidity and balance sheet. On October 1, 2020, our Board of Directors approved the reinstatement of and declared a base quarterly dividend of $0.03 per share payable December 10, 2020 to stockholders of record at the close of business on November 18, 2020.

Capital Resources

Credit Arrangements and Borrowings

At ~~June~~September 30, 2020, we had no borrowings against our Credit Facility. At ~~June~~September 30, 2020, we had ~~$5.5~~$5.9 billion of total debt ~~outstanding, with~~outstanding. On October 1, 2020, we completed a cash tender offer for an aggregate principal amount of $500 million of our $1 billion2.8% 2022 Notes funded by cash on hand. After giving consideration to the cash tender, our next significant debt maturity ~~of $1.0 billion~~is $500 million due in November 2022. We do not have any triggers on any of our corporate debt that would cause an event of default in the case of a downgrade of our credit ratings.

~~We continue~~On August 18, 2020, we closed a $400 million remarketing to ~~own $400 million~~investors of sub-series B bonds which are part of the $1.0 billion St. John the Baptist, State of Louisiana revenue refunding bonds ~~that were~~ originally issued and purchased in December 2017. ~~In July, we announced that we had delivered to the trustee and remarketing agent a conditional notice of conversion of up to $400 million of the bonds to remarket them in August.~~ Information about these bonds are available on the website of the Municipal Securities Rulemaking Board via its Electronic Municipal Market Access system at www.msrb.org. Information on that website is not incorporated by reference into this filing.

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, ~~Texas. The new Houston office location is expected to be completed in 2021.~~Texas. The lessor and other participants are providing financing for up to ~~$380~~$340 million to fund the estimated project ~~costs. As of June 30,~~costs, which was reduced effective August 2020 project costs incurred totaled approximately $87 million, including land acquisition and construction costs. In June 2020, we submitted a notice to the lessor, as the construction agent, to reduce the financing capacity to $340from $380 million to ~~align~~align with our revised estimate of the project costs. ~~We expect the reduction to become effective in August 2020.~~As of September 30, 2020, project costs incurred totaled approximately $117 million, including land acquisition and construction costs.

Shelf Registration

We have a universal shelf registration statement filed with the SEC under which we, as a “well-known seasoned issuer” for purposes of SEC rules, have the ability to issue and sell an indeterminate amount of various types of debt and equity securities.

Debt-To-Capital Ratio

The Credit Facility includes a covenant requiring that our total debt to total capitalization ratio not exceed 65% as of the last day of the fiscal quarter. Our ratio was ~~33%~~35% and 31% at ~~June~~September 30, 2020 and at December 31, 2019, respectively.

Capital Requirements

Share Repurchase Program

In the first quarter of 2020, we acquired approximately 9 million common shares at a cost of $85 million under our share repurchase program. While the share repurchase program has $1.3 billion of remaining authorization, we elected to suspend additional share repurchases to preserve liquidity.

~~Contractual Cash Obligations~~

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Contractual Cash Obligations

As of ~~June~~September 30, 2020, our contractual obligations as it relates to our short and long-term debt increased by $400 million($200 million in 2024 and $200 million thereafter) due to the remarketing of the St. John the Baptist, State of Louisiana revenue refunding bonds. On October 1, 2020, we completed a cash tender for an aggregate principal amount of $500 million of our outstanding $1 billion 2.8% 2022 Notes. The tender was funded from cash on hand, resulting in a gross debt reduction of $100 million from the second quarter of 2020.

As of September 30, 2020, our contractual cash obligations as it relates to our transportation and processing commitments decreased approximately $79 million ($8 million in 2021, $11 million in 2022, $11 million in 2023, $11 million in 2024 and $38 million thereafter) related to the cancellation of a transportation service agreement in the Bakken resource play.

Environmental Matters and Other Contingencies

~~There~~Other than the items set forth in Item 1. Legal Proceedings, there have been no significant changes to the environmental, health and safety matters under Item 1. Business or Item 3. Legal Proceedings in our 2019 Annual Report on Form 10-K. See Note 24 to the consolidated financial statements for a description of other contingencies.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). All statements, other than statements of historical fact, including without limitation statements regarding our operational and financial strategies, including drilling plans and projects, planned wells, rig count, inventory, seismic, exploration plans, maintenance activities, drilling and completion improvements, cost reductions, and financial flexibility; our ability to successfully effect those strategies and the expected timing and results thereof; our 2020 Capital Budget and the planned allocation thereof; planned capital expenditures and the impact thereof; expectations regarding future economic and market conditions and their effects on us; our financial and operational outlook, and ability to fulfill that outlook; our financial position, balance sheet, liquidity and capital resources, and the benefits thereof; resource and asset potential; reserve estimates; growth expectations; and future production and sales expectations, and the drivers thereof, are forward-looking statements. Words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “outlook,” “plan,” “positioned,” “project,” “seek,” “should,” “target,” “will,” “would” or similar words may be used to identify forward-looking statements; however, the absence of these words does not mean that the statements are not forward-looking. While we believe our assumptions concerning future events are reasonable, a number of factors could cause results to differ materially from those projected, including, but not limited to:

•conditions in the oil and gas industry, including supply and demand levels for crude oil and condensate, NGLs and natural gas and the resulting impact on price;

•changes in expected reserve or production levels;

•changes in political and economic conditions in the U.S. and E.G., including changes in foreign currency exchange rates, interest rates, and inflation rates;

•actions taken by the members of OPEC and Russia affecting the production and pricing of crude oil; and other global and domestic political, economic or diplomatic developments;

•risks related to our hedging activities;

•voluntary and involuntary volume curtailments;

•delays or cancellations of certain drilling activities;

•liability resulting from litigation;

•capital available for exploration and development;

•the inability of any party to satisfy closing conditions or delays in execution with respect to our asset acquisitions and dispositions;

•drilling and operating risks;

•lack of, or disruption in, access to storage capacity, pipelines or other transportation methods;

•well production timing;

•availability of drilling rigs, materials and labor, including the costs associated therewith;

•difficulty in obtaining necessary approvals and permits;

•non-performance by third parties of their contractual obligations, including due to bankruptcy;

•hazards such as weather conditions, a health pandemic (including COVID-19), acts of war or terrorist acts and the governmental or military response thereto;

•shortages of key personnel, including employees, contractors and subcontractors;

•cyber-attacks;

•changes in safety, health, environmental, tax and other regulations or requirements or initiatives including those addressing the impact of global climate change, air emissions or water management;

•other geological, operating and economic considerations; and

•the risk factors, forward-looking statements and challenges and uncertainties described in our 2019 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the SEC.

All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the normal course of business including commodity price risk and interest rate risk. We employ various strategies, including the use of financial derivatives to manage the risks related to commodity price fluctuations. See Note 15 and Note 16 to the consolidated financial statements for detail relating to our open commodity derivative positions, including underlying notional quantities, how they are reported in our consolidated financial statements and how their fair values are measured.

Commodity Price Risk

As of ~~June~~September 30, 2020, we had various open commodity derivatives. Based on the ~~June~~September 30, 2020 published NYMEX WTI and natural gas futures prices, a hypothetical 10% change (per bbl for crude oil and per MMbtu for gas) would change the fair values of our ~~$79~~$43 million net asset position to the following:


(In millions)	(In millions)	Hypothetical Price Increase of 10%		Hypothetical Price Decrease of 10%		(In millions)	Hypothetical Price Increase of 10%		Hypothetical Price Decrease of 10%
Derivative asset - Crude Oil	Derivative asset - Crude Oil	$	57	$	93	Derivative asset - Crude Oil	$	42	$	68
Derivative asset (liability) - Natural Gas	Derivative asset (liability) - Natural Gas	(4)		5		Derivative asset (liability) - Natural Gas	(30)		2

Total	Total	$	53	$	98	Total	$	12	$	70

Interest Rate Risk

At ~~June~~September 30, 2020 our portfolio of current and long-term debt is comprised of fixed-rate instruments with an outstanding balance of ~~$5.5~~$5.9 billion. Our sensitivity to interest rate movements and corresponding changes in the fair value of our fixed-rate debt portfolio affects our results of operations and cash flows only when we elect to repurchase or otherwise retire fixed-rate debt at prices different than carrying value.

At ~~June~~September 30, 2020, we had forward starting interest rate swap agreements with a total notional amount of ~~$1.1 billion~~$670 million designated as cash flow hedges and $500 million not designated as hedges. We utilize cash flow hedges to manage our exposure to interest rate movements by utilizing interest rate swap agreements to hedge variations in cash flows related to (1) the 1-month LIBOR component of future lease payments on our future Houston office and (2) the benchmark LIBOR index for our debt due in 2025. We de-designated the cash flow hedges related to our debt due in 2022 ~~and 2025.~~during the third quarter of 2020. A hypothetical 10% change in interest rates would change the fair values of our ~~$24~~$10 million net liability position of our cash flow hedge and our $2 million net liability position of our de-designated cash flow hedge to the following as of ~~June~~September 30, 2020:


(In millions)	(In millions)	Hypothetical Interest Rate Increase of 10%		Hypothetical Interest Rate Decrease of 10%		(In millions)	Hypothetical Interest Rate Increase of 10%		Hypothetical Interest Rate Decrease of 10%
Interest rate cash flow hedges		$	16	$	32
Interest rate liability - designated as cash flow hedges						Interest rate liability - designated as cash flow hedges	$	(5)	$	(14)
Interest rate asset (liability)- not designated as cash flow hedges						Interest rate asset (liability)- not designated as cash flow hedges	3		(7)
Total						Total	$	(2)	$	(21)

Item 4. Controls and Procedures

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. As of the end of the period covered by this Report based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of ~~June~~September 30, 2020.

During the first ~~six~~nine months of 2020, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings

There have been no significant changes to Item 3. Legal Proceedings in our 2019 Annual Report on Form 10-K. See Note 24 to the consolidated financial statements included in Part I, Item I for a description of such legal and administrative ~~proceedings.~~proceedings and Item 3. Legal Proceedings in our 2019 Annual Report on Form 10-K.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Item 1A. Risk Factors in our 2019 Annual Report on Form 10-K. There have been no material changes to the risk factors from those listed in Item 1A. Risk Factors in our 2019 Annual Report on Form 10-K, except as noted below.

Our business, financial conditions and results of operations have been adversely affected and may continue to be adversely affected by the recent COVID-19 global pandemic and the recent energy industry developments.

Any widespread outbreaks of contagious diseases have the potential to impact our business and operations. The recent novel coronavirus global pandemic, known as COVID-19, has had an adverse impact on our business, financial condition and results of operations and such impacts could be material. The current effects of COVID-19 include a substantial decline in demand for crude oil, condensate, NGLs, natural gas and other petroleum hydrocarbons, along with a corresponding deterioration in prices. In addition, COVID-19, combined with the resulting economic downturn could have a negative impact on our operations; impact the ability of our counterparties to perform their obligations; result in voluntary and involuntary curtailments, delays or cancellations of certain drilling activities; impair the quantity or value of our reserves; result in transportation and storage capacity restraints; cause shortages of key personnel, including employees, contractors and subcontractors; interrupt global supply chains; increase impairments and associated charges to our earnings; impact our cash on hand, uses of cash and cause a decrease to our financial flexibility and liquidity. In addition, the risks associated with COVID-19 impacted our workforce and the way we meet our business objectives. Due to concerns over health and safety, the vast majority of our corporate workforce works remotely as we plan a process to phase employees to return to the office. Working remotely has not significantly impacted our ability to maintain operations, or caused us to incur significant additional expenses; however, we are unable to predict the duration or ultimate impact of these measures.

The impacts of COVID-19 could be further exacerbated by the Organization of the Petroleum Exporting Countries (OPEC) and Russia regarding crude oil production cuts. Negotiations in April 2020 with OPEC and Russia resulted in an agreement to reduce production volumes; however, a failure to abide by these agreed upon crude oil production cuts may further destabilize the global oil market. The extent to which COVID-19 or the recent energy industry developments will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. As a result, at the time of this filing, it is not possible to predict the overall impact of COVID-19 or the recent energy industry developments on our business, liquidity, capital resources and financial results.

We may incur substantial capital expenditures and operating costs as a result of compliance with and changes in law, regulations or requirements or initiatives, including those addressing environmental, health, safety, or security or the impact of global climate change, air emissions or water management, and, as a result, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Our businesses are currently subject to numerous laws, regulations and other requirements relating to the protection of the environment, including those relating to the discharge of materials into the environment such as the flaring of natural gas, waste management, pollution prevention, greenhouse gas emissions, including carbon dioxide and methane, and the protection of endangered species as well as laws, regulations, and other requirements relating to public and employee safety and health and to facility security. Additionally, states in which we operate may: impose additional regulations legislation, or requirements, such as the proposed methane emission rules in New Mexico; begin initiatives addressing the impact of global climate change, air emissions or water management; or we may become subject to additional regulations based on questions of sovereignty between the states and Native American tribes. We have incurred and may continue to incur capital, operating and maintenance, and remediation expenditures as a result of these laws, regulations, and other requirements or initiatives that are being considered or otherwise implemented. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products, our operating results could be adversely affected. The specific impact of these laws, regulations, and other requirements may vary depending on a number of factors, including the age and location of operating facilities and production processes. We may also be required to make material expenditures to modify operations, install pollution control equipment, perform site clean-ups or curtail operations that could materially and adversely affect our business, financial condition, results of operations and cash flows. We may become subject to liabilities that we currently do not anticipate in

4649

connection with new, amended or more stringent requirements, stricter interpretations of existing requirements or the future discovery of contamination. In addition, any failure by us to comply with existing or future laws, regulations, and other requirements could result in civil penalties or criminal fines and other enforcement actions against us.

We believe it is likely that the scientific and political attention to issues concerning the extent, causes of and responsibility for climate change will continue, with the potential for further regulations that could affect our operations. Our operations result in greenhouse gas emissions. Currently, various legislative or regulatory measures to address greenhouse gas emissions (including carbon dioxide, methane and nitrous oxides) are in various phases of review, discussion or implementation in the U.S. Internationally, the United Nations Framework Convention on Climate Change finalized an agreement among 195 nations at the 21st Conference of the Parties in Paris with an overarching goal of preventing global temperatures from rising more than 2 degrees Celsius. The agreement includes provisions that every country take some action to lower emissions, but there is no legal requirement for how or by what amount emissions should be lowered. Finalization of new legislation, regulations or international agreements in the future could result in increased costs to operate and maintain our facilities, capital expenditures to install new emission controls at our facilities, and costs to administer and manage any potential greenhouse gas emissions or carbon trading or tax programs. These costs and capital expenditures could be material. Although uncertain, these developments could increase our costs, reduce the demand for crude oil and condensate, NGLs and natural gas, and create delays in our obtaining air pollution permits for new or modified facilities.

Our operations may be adversely affected by pipeline, rail and other transportation capacity constraints.

The marketability of our production depends in part on the availability, proximity, and capacity of gathering and transportation pipeline facilities, rail cars, trucks and vessels. If any pipelines, rail cars, trucks or vessels become unavailable, we would, to the extent possible, be required to find a suitable alternative to transport our crude oil and condensate, NGLs and natural gas, which could increase the costs and/or reduce the revenues we might obtain from the sale of our production. For example, in early July, a U.S. district court ordered the Dakota Access Pipeline to halt oil flow and empty the pipeline within 30 days because the United States Army Corps of Engineers did not conduct a full Environmental Impact Statement. Though a federal appellate court has administratively stayed the shutdown, if a shutdown occurs, we will need to use alternative means to transport approximately 10,000 bpd (on a net basis) of our Bakken oil. A shutdown could also have an impact on safety (because it would require the use of additional trucks, rail cars and personnel) and our Bakken price differentials, all of which could adversely affect the results of our operations. In addition, both the cost and availability of pipelines, rail cars, trucks, or vessels to transport our production could be adversely impacted by new and expected state or federal regulations relating to transportation of crude oil.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about purchases by Marathon Oil and its affiliated purchaser, during the quarter ended ~~June~~September 30, 2020 of equity securities that are registered by Marathon Oil pursuant to Section 12 of the Securities Exchange Act of 1934:

Period
Total Number of Shares Purchased^(a)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(b)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs^(b)
04/01/2020 - 04/30/2020 21,168 $ 3.65 — $ 1,320,335,751
05/01/2020 - 05/31/2020 1,718 $ 5.50 — $ 1,320,335,751
06/01/2020 - 06/30/2020 1,050 $ 5.69 — $ 1,320,335,751
Total 23,936 $ 3.88 —


Period	Total Number of Shares Purchased(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(b)
07/01/2020 - 07/31/2020	27,584	$	5.89	—	$	1,320,335,751
08/01/2020 - 08/31/2020	—	$	—	—	$	1,320,335,751
09/01/2020 - 09/30/2020	—	$	—	—	$	1,320,335,751
Total	27,584	$	5.89	—

^(a)~~23,936~~ 27,584 shares of restricted stock were delivered by employees to Marathon Oil, upon vesting, to satisfy tax withholding requirements.

^(b)In January 2006, we announced a $2.0 billion share repurchase program. Our Board of Directors subsequently increased the authorization for repurchases under the program by $500 million in January 2007, by $500 million in May 2007, by $2.0 billion in July 2007, by $1.2 billion in December 2013, and by $950 million in July 2019.

As of ~~June~~September 30, 2020, we have repurchased 191 million common shares at a cost of approximately $5.9 billion, excluding transaction fees and commissions. Purchases under the program are made at our discretion and may be in either open market transactions, including block purchases, or in privately negotiated transactions using cash on hand, cash generated from operations, proceeds from potential asset sales or cash from available borrowings to acquire shares. This program may be changed based upon our financial condition or changes in market conditions and is subject to termination prior to completion. In connection with the economic downturn, during the second quarter of 2020, the Company temporarily suspended the share repurchase program. Shares repurchased as of ~~June~~September 30, 2020 were held as treasury stock.

Item 6. Exhibits

The information required by this Item 6 is set forth in the Exhibit Index accompanying this Form 10-Q.

4750

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


~~August 6,~~November 5, 2020		MARATHON OIL CORPORATION

	By:	/s/ Gary E. Wilson
		Gary E. Wilson
		Vice President, Controller and Chief Accounting Officer
		(Duly Authorized Officer)

4851

Exhibit Index

Incorporated by Reference
(File No. 001-05153, unless otherwise indicated)

Exhibit Number

Exhibit Description

Form

Exhibit

Filing Date

3.1

Restated Certificate of Incorporation of Marathon Oil Corporation

8-K

3.1

6/1/2018

3.2

Marathon Oil Corporation By-laws (amended and restated as of February 24, 2016)

10-Q

3.2

8/4/2016

3.3

Specimen of Common Stock Certificate

10-K

3.3

2/28/2014

4.1

Indenture, dated as of February 26, 2002, between Marathon Oil Corporation and The Bank of New York Trust Company, N.A., successor in interest to JPMorgan Chase Bank as Trustee, relating to senior debt securities of Marathon Oil Corporation. Pursuant to CFR 229.601(b)(4)(iii), instruments with respect to long-term debt issues have been omitted where the amount of securities authorized under such instruments does not exceed 10% of the total consolidated assets of Marathon Oil. Marathon Oil hereby agrees to furnish a copy of any such instrument to the SEC upon its request

10-K

4.2

2/28/2014

31.1*

Certification of President and Chief Executive Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

31.2*

Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

32.1*

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350

32.2*

Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS*

XBRL Instance Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*

XBRL Taxonomy Extension Schema

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase

101.DEF*

XBRL Taxonomy Extension Definition Linkbase

101.LAB*

XBRL Taxonomy Extension Label Linkbase

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase

104*

Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101

Filed herewith.

†

Management contract or compensatory plan or arrangement.


	Table of Contents
		Page
Part I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Statements of Income (Unaudited)	2
	Consolidated Statements of Comprehensive Income (Unaudited)	3
	Consolidated Balance Sheets (Unaudited)	4
	Consolidated Statements of Cash Flows (Unaudited)	5
	Consolidated Statements of Stockholders' Equity (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	78
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2832
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4548
Item 4.	Controls and Procedures	4548

Part II - OTHER INFORMATION
Item 1.	Legal Proceedings	4649
Item 1A.	Risk Factors	4649
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4750

Item 6.	Exhibits	4750
	Signatures	4851


Period	Total Number of Shares Purchased^(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(b)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs^(b)
04/01/2020 - 04/30/2020	21,168	$	3.65	—	$	1,320,335,751
05/01/2020 - 05/31/2020	1,718	$	5.50	—	$	1,320,335,751
06/01/2020 - 06/30/2020	1,050	$	5.69	—	$	1,320,335,751
Total	23,936	$	3.88	—