SUPPLY CHAIN MANAGEMENT

IMPROVING LOCAL ECONOMIC DEVELOPMENTMarathon Oil is committed to safety, environmental stewardship, ethical business conduct, sound labor practices and human rights, and we expect our contractors and suppliers to share our commitment.

The standards, policies and procedures for contractors and suppliers primarily serving field operations are found in the Third-party Services and health, environment and safety (HES)-related elements of our Responsible Operations Management System (ROMS). In addition, Marathon Oil’s commercial agreements reinforce our expectations that contractors and suppliers align with our values, adhere to our policies, and comply with all applicable export, anti-corruption and anti-bribery laws and regulations.

We assess and approve contractors and suppliers before they can begin work at a Marathon Oil location. The company develops customized plans for contractors and suppliers based on the spend level and/or their potential to impact the safety of other workers, the public, environment or our facilities. The plans reflect industry recognized practices such as those published by API and IOGP. Contractors who supply personnel for safety-sensitive work in the U.S. must register with ISNetworld, a global online source to manage, evaluate and qualify contractors based on Marathon Oil’s criteria. They’re also required to complete our HES orientation and training, and aren’t allowed on our work sites if they fail to do so.

We seek out suppliers that represent our diverse communities, and offer competitively priced products and services. In areas like the New Mexico Permian Basin where demand for quality resources is high, Marathon Oil aligns with strategic suppliers to provide training, coaching, mentoring and additional frontline or HES oversight to raise the performance level of contractor personnel. To develop local capacity in the Bakken, Marathon Oil strives to award business to companies that comply with the Tribal Employment Rights Office (TERO) on the Fort Berthold Indian Reservation. We contract with TERO Tier One suppliers, which means that they’re 100% owned by a certified member of the Three Affiliated Tribes, when they’re available. We expect them to offer competitive pricing for goods and services, and meet our requirements for HES performance, insurance coverage and financial viability. At year-end 2018, we had contracts in place with 33 TERO Tier One suppliers.

To ensure that contractors are prepared to meet our HES expectations, our HES team conducts formal, structured safety leadership engagements with critical and new contractors and suppliers, and those with HES performance concerns. Safety leadership engagements may include a review of internal policies and procedures, interviews with contractor leaders and staff, and interviews with the contractor’s field workforce to gauge their understanding of their employer’s policies and programs. These engagements can result in corrective actions with deadlines and could lead to contract termination if performance doesn’t improve.

We take these extra steps because we believe that building relationships, helping contractors improve their performance and maintaining a stable workforce is more sustainable than operating with high contractor turnover.

Marathon Oil performs three types of audits of supplier invoices to ensure compliance with our contracts and pricing agreements. In 2018, approximately 57% of our commercial spend was systematically verified through our detailed price book program. In addition, internal resources spot check random samples of invoices and conduct more targeted compliance audits if warranted. The final layer of compliance enforcement involves a third party to identify discrepancies and provide insight into areas where we can improve our contract language and incorporate best practices with supply chain staff.

Our Global Supply Chain organization is responsible for sourcing cost-competitive products and services. In 2018, it reduced costs by self-sourcing sand used in hydraulic fracturing and diesel fuel, and arranged for a new, cost-neutral sand delivery method. Global Supply Chain continually works with operations teams to identify similar areas of opportunity to reduce costs and gain efficiencies.

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