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Climate Change

Addressing the Impact
Marathon Oil recognizes the impact of greenhouse gas (GHG) and other air emissions on global climate and air quality.

We understand that market changes could result from U.S. policy, global agreements, and evolving climate change laws and regulations. At the same time, we recognize the need for reliable, affordable energy and petrochemical feedstock to fuel global economic progress and increasing energy demand.

As part of Marathon Oil’s commitment to sustainability and managing climate-related risks, we work to establish business processes to reduce our emissions and to mitigate both current and future transition risks to our business. Engagement with external stakeholders to understand their perspectives is a vital component of this effort.

To drive continuous improvement across our organization, we added a metric focused on GHG emissions intensity to our corporate scorecard in 2020.

In recognition of stakeholder concerns about the financial impacts of climate-related risks, we published a climate risk report in 2019. The report covered our governance, strategy, risk management and metrics around climate risk consistent with the format advocated by the Task Force on Climate-related Financial Disclosures (TCFD) framework. This 2019 Sustainability Report integrated these key elements of the climate risk report and incorporated them into a comprehensive view of our non-financial performance.

Section 2


Climate Change Governance
Our board of directors, senior management and operations-level employees all have a role in identifying, assessing and managing climate-related risk, mitigation and opportunities.

The Enterprise Risk Management (ERM) and Responsible Operations Management System (ROMS) processes are the primary internal assessment tools we use to identify and communicate climate-related risk.

In 2019, we added climate change risk oversight to the charter of the Health, Environmental, Safety and Corporate Responsibility (HES&CR) committee of the board of directors to highlight how seriously we approach robust understanding and evaluation of climate risk. This committee identifies and monitors climate related trends, issues, legislation, policies, practices and concerns. Internal risk assessors present ERM process outcomes related to climate risk to the HES&CR, audit and finance committees to inform the board’s oversight responsibilities.

Operational leaders identify, assess and manage air emissions and other aspects of climate change risk using ROMS. The ROMS executive steering team and owners of relevant ROMS elements are then accountable for driving performance improvement, including managing climate change risk.

Our cross-functional Sustainability Forum meets periodically to discuss our sustainability risks and review available mitigations. Forum members include senior leaders from operations, HES and security, investor relations, business planning, law, communications, government affairs and sustainability. In alignment with our corporate goal to continuously improve emissions intensity from our operations, in 2019 we formed an Emissions Management Committee (EMC) to identify, prioritize and drive implementation of high impact emissions reductions strategies and technologies.

Section 3


Identifying and Managing Risks
Marathon Oil employs the ERM process to identify and manage the most significant risks facing the company, with the goals of facilitating risk oversight by the board, ensuring enterprise risks are managed effectively and ensuring accountability for risk management.

Through our ERM process, our board and management examine a wide range of strategic, reputational, operational and financial risks that could impact the company. The primary potential climate-related risks identified through the ERM process are:

  • Market forces that could affect commodity prices, including renewables uptake and pace of energy transition,
  • Access to capital markets,
  • Evolving U.S. federal and state and global climate change policies, laws and regulations,
  • Chronic physical risks (such as persistent drought, fire frequency and sea level rise),
  • Business interruption and physical risks from changing weather, and
  • Value chain disruption.

Marathon Oil continues to evaluate and enhance our risk assessment processes to ensure company leaders have the information they need to manage climate risk.

Strategy to Mitigate Our Risks

We evaluate our business model using our risk assessment tools and governance models, and monitor and mitigate risks to our business strategy related to climate change. We also assess climate-related opportunities to create long-term value for our stakeholders.

Marathon Oil has a track record of more than a century of strategic adaptation. We’ve transformed from an integrated oil and gas company to an independent exploration and production (E&P) company, and shifted our emphasis from global, conventional production to U.S. unconventional resource plays. Our proven adaptability to major shifts in the energy markets demonstrates an ability to respond to a lower carbon energy future and remain a viable provider of energy to global markets.

Section 4

Managing Our Business for Resilience to Market Forces

Resilience to Market Forces
Marathon Oil executes our business strategy to be the lowest-cost, highest-margin, U.S.-focused resource play operator, a strategy which mitigates the risks of lower market demand.

Through unwavering capital discipline and a focus on corporate returns, we’re able to live within our operating cash flows while improving our capital efficiency, all of which affords us the financial flexibility to progress our business plans across a broad range of price outcomes. By working to reduce our emissions intensity, we also continue to position ourselves as a low-cost producer as policies to reduce GHG emissions continue to evolve.

We have concentrated and simplified our asset portfolio to generate a competitive advantage and deliver value to our shareholders. This strategic focus lowers our overall enterprise risk and enhances financial performance. Over the last 10 years, we’ve divested higher-cost, higher-risk, lower-margin assets including Canadian oil sands, Libya, the U.K. and Norway North Sea, Kurdistan, Wyoming and conventional offshore exploration. We also spun off our downstream operations in 2011.

By divesting these operations, we reduced our overall environmental footprint and climate-related risk as these assets tended to have higher GHG and methane emissions intensities, as well as greater fresh water use and associated waste. Our multi-basin U.S. model with assets that span the development cycle is complemented by our long-life, low-decline integrated gas business in Equatorial Guinea. As a result, today we believe we are less exposed to geopolitical and execution risk. Our low-cost, high-margin U.S. assets also ensure a low enterprise break-even that mitigates commodity price volatility, lowering the risk of stranded assets.

We make capital investments after examining a variety of data, including external commodity price forecasts that incorporate estimates of climate-change related factors. These projections, along with company-specific insights and guidance, inform our internal Marathon Oil forecasts. Potential investments are stress tested on non-escalated price forecasts that are typically at or below the lower range of available forecasts to ensure they are resilient at lower price levels. Profitability and capital allocation are based on expected prices, and projects must meet specific financial targets and/or strategic objectives to be sanctioned.

Marathon Oil allocated over 95% of our capital expenditures to short-cycle, unconventional resource plays in 2019, and our tactical planning horizon is typically five years, consistent with SEC rules governing proved reserve booking. While our portfolio models are longer-term and include life of field evaluation, with our focus on short-cycle resource plays, we believe that multi-decade scenario analysis would not provide decision-useful information to our stakeholders.

IPIECA’s 2019 awareness briefing (The role of scenario analysis in climate reporting) points out the risks of scenario analysis for independent E&P companies. The briefing states that “companies are valued on proven reserves, which are usually monetized over a shorter horizon than, for example, the extent of the International Energy Agency (IEA) Sustainable Development Scenario (SDS), thus indicating that the risk of ‘stranded assets’ is small and unlikely to be indicated by such scenario comparison.”

In response to continuing interest from our stakeholders, Marathon Oil has conducted a scenario analysis to test the robustness of our portfolio model1 against the SDS referenced in the International Energy Agency’s (IEA) 2019 World Energy Outlook report (the IEA Report). The use of the IEA scenarios doesn’t indicate that Marathon Oil believes that these scenarios are accurate predictions of the price of oil. The IEA Report indicates that its SDS represents an integrated approach to reach the key energy-related goals of the United Nations Sustainable Development Agenda.

We compared our portfolio model for the next decade to the IEA sustainable development pricing model. We assumed a carbon price that was applied to projected emissions over this decade using the IEA 2019 World Energy Outlook report forecasts. We also assumed for conservatism in this scenario analysis that we would add no additional inventory to our portfolio model during this time period.

Even under the IEA’s most stringent pricing forecasts as described in the Sustainable Development scenario, our models show resiliency of our portfolio out to a minimum of 2030 (assuming no change to current resource base).²

Finally, Marathon Oil has internal financial metrics in place to incentivize achievement of our low-cost, high-margin strategy. Over 70% of our 2019 short-term incentive scorecard was financially oriented and long-term incentives are driven by share performance and total shareholder return.

In short, Marathon Oil believes that our low-cost, high-margin approach is the right strategy to allow our company to adapt to a variety of commodity price scenarios. Metrics and targets that incentivize this result are set forth in our corporate scorecard and linked to executive and employee pay. In 2020, we added a specific climate-related metric to the strategic objectives within our corporate scorecard.

¹For the purpose of this analysis, we used our most recent long-term portfolio model, established at the end of 2019.
²This model contains forward–looking statements, and actual results could differ materially.
Section 5

Managing Regulatory Risks

Managing Regulatory Risks
We are subject to numerous legal, regulatory and other requirements intended to protect the environment, including those relating to natural gas flaring, and greenhouse gas and methane emissions.

We remain committed to complying with or exceeding legal and regulatory requirements, and have incurred and may continue to incur capital, operating, maintenance and remediation expenditures as a result of these laws, regulations and other requirements.

We believe that the scientific and political attention on issues concerning the extent, causes of and responsibility for climate change will continue, with the potential for further regulations that could affect our operations. Finalization of new legislation, regulations, initiatives or international agreements in the future could result in increased costs to operate and maintain our facilities, capital expenditures to install new emissions controls at our facilities, and costs to administer and manage any potential greenhouse gas emissions or carbon trading or tax programs.

The United Nations Framework Convention on Climate Change finalized an agreement among 195 nations at the 21st Conference of the Parties in Paris (the Paris Agreement) with an overarching goal of preventing global temperatures from rising more than 2 degrees Celsius. While the U.S. hasn’t adopted the recommendations of the Paris Agreement, it previously set an economy-wide target to reduce GHG emissions by 26-28% below its 2005 levels by 2025. This goal and other associated implementing regulations or legislation could be reinstated in the future. As of April 2020, U.S. GHG emissions were estimated to have fallen by approximately 10% between 2005 and 2018.³

Our primary strategies for managing regulatory risk are applying technologies to reduce emissions; participating in voluntary industry initiatives to reduce emissions; monitoring proposed regulatory or legislative changes; and engaging in the regulatory and legislative process at all levels of government. These are discussed elsewhere in this Report.

³2018 represents the latest available data from EPA.

Section 6

Managing Weather and Value Chain Risks

Managing Weather and Value Chain Risks
Many scientists have concluded that the increase in greenhouse gases in the earth’s atmosphere may produce climate changes that have significant chronic physical effects.

This includes more frequent and severe droughts and higher sea levels, in addition to acute physical risks like increased frequency and severity of storms, and floods. If any of these do occur in our operating areas, we could experience safety or environmental concerns, downtime or damaged equipment, or other incidents at our sites. These risks are managed locally by asset to ensure the most effective mitigation strategies are implemented for the area of concern. Water Stewardship and Emergency Response are discussed elsewhere in this Report.

Managing Value Chain Risk

Our value chain is subject to some of the same climate-related physical risks as Marathon Oil, and we manage these largely through contractual risk allocation and other terms and conditions. We maintain a diverse set of critical suppliers and service providers to ensure that we maintain competitiveness and flexibility. We constantly evaluate ways to be more efficient and nimble in managing our value chain, including through business interruption planning and vertical integration such as self-sourcing specific goods and services.

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