UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

OR

Commission file number 1-5153

(Exact name of registrant as specified in its charter)

5555 San Felipe Street, Houston, TX  77056-2723

(Address of principal executive offices)

(713) 629-6600

(Registrant's telephone number, including area code)

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes R No £

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         

Yes o No ☑

There were 677,184,913 shares of Marathon Oil Corporation common stock outstanding as of July 31, 2015 .

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).

Part I - Financial Information

Item 1. Financial Statements

MARATHON OIL CORPORATION

Consolidated Statements of Income (Unaudited)

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

MARATHON OIL CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)

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

MARATHON OIL CORPORATION

Consolidated Balance Sheets (Unaudited)

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

MARATHON OIL CORPORATION

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

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 Securities and Exchange Commission ("SEC") and do not include all of the information and disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements.

As a result of the sale of our Angola assets and our Norway business in 2014, both are reflected as discontinued operations. The disclosures in this report related to results of operations and cash flows are presented on the basis of continuing operations, unless otherwise noted.

These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Marathon Oil Corporation 2014 Annual Report on Form 10-K.  The results of operations for the second quarter and first six months of 2015 are not necessarily indicative of the results to be expected for the full year.

2.   Accounting Standards

Not Yet Adopted

In May 2015, the FASB issued an update that removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendment also removes certain disclosure requirements regarding all investments that are eligible to be measured using the net asset value per share practical expedient and only requires certain disclosures on those investments for which an entity elects to use the net asset value per share expedient. This standard is effective for us in the first quarter of 2016 and will be applied on a retrospective basis. Early adoption is permitted. This standard only modifies disclosure requirements; as such, there will be no impact on our consolidated results of operations, financial position or cash flows.

In April 2015, the FASB issued an update that requires debt issuance costs to be presented in the balance sheet as a direct reduction from the associated debt liability. This standard is effective for us in the first quarter of 2016 and will be applied on a retrospective basis. Early adoption is permitted, including in interim periods. We do not expect the adoption of this standard to have a significant impact on our consolidated results of operations, financial position or cash flows.

In February 2015, the FASB issued an amendment to the guidance for determining whether an entity is a variable interest entity ("VIE"). The standard does not add or remove any of the five characteristics that determine if an entity is a VIE. However, it does change the manner in which a reporting entity assesses one of the characteristics. In particular, when decision-making over the entity's most significant activities has been outsourced, the standard changes how a reporting entity assesses if the equity holders at risk lack decision making rights. This standard is effective for us in the first quarter of 2016 and early adoption is permitted, including in interim periods. We do not expect the adoption of this standard to have a significant impact on our consolidated results of operations, financial position or cash flows.

In August 2014, the FASB issued an update that requires management to assess an entity's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in United States ("U.S.") auditing standards.  This standard is effective for us in the first quarter of 2017 and early adoption is permitted. We do not expect the adoption of this standard to have a significant impact on our consolidated results of operations, financial position or cash flows.

In May 2014, the FASB issued an update that supersedes the existing revenue recognition requirements. This standard includes a five-step revenue recognition model to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Among other things, the standard also eliminates industry-specific revenue guidance, requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. This standard is effective for us in the first quarter of 2018 and should be applied retrospectively to each prior reporting period presented or with the cumulative effect of initially applying the update recognized at the date of initial application. Early adoption is permitted with an effective date no earlier than first quarter of 2017. We are evaluating the provisions of this accounting standards update and assessing the impact, if any, it may have on our consolidated results of operations, financial position or cash flows.

Recently Adopted

In April 2014, the FASB issued an amendment to accounting standards that changes the criteria for reporting discontinued operations while enhancing related disclosures. Under the amendment, only disposals representing a strategic shift in operations should be presented as discontinued operations. Expanded disclosures about the assets, liabilities, income and expenses of discontinued operations are required.  In addition, disclosure of the pretax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting will be made in order to provide users with information about the ongoing trends in an organization's results from continuing operations.  The amendments were effective for us in the first quarter of 2015 and apply to dispositions or classifications as held for sale thereafter. Adoption of this standard did not impact our consolidated results of operations, financial position or cash flows.

3.   Variable Interest Entity

The owners of the Athabasca Oil Sands Project ("AOSP"), in which we hold a 20% undivided interest, contracted with a wholly owned subsidiary of a publicly traded Canadian limited partnership ("Corridor Pipeline") to provide materials transportation capabilities among the Muskeg River and Jackpine mines, the Scotford upgrader and markets in Edmonton, Alberta, Canada.  Costs under this contract are accrued and recorded on a monthly basis, with current liabilities of $2 million recorded at June 30, 2015 and $3 million at December 31, 2014.  This contract qualifies as a variable interest contractual arrangement, and the Corridor Pipeline qualifies as a VIE.  We hold a variable interest but are not the primary beneficiary because our shipments are only 20% of the total; therefore, the Corridor Pipeline is not consolidated by us.  Our maximum exposure to loss as a result of our involvement with this VIE is the amount we expect to pay over the contract term, which was $508 million as of June 30, 2015 .  The liability on our books related to this contract at any given time will reflect amounts due for the immediately previous month's activity, which is substantially less than the maximum exposure over the contract term.

2015 - North America E&P Segment

In July 2015, we entered into an agreement to sell our East Texas/North Louisiana and Wilburton, Oklahoma natural gas assets for expected proceeds of $102 million , excluding closing adjustments. We expect the transaction to close during the third quarter of 2015.

2014 - North America E&P Segment

In June 2014, we closed the sale of non-core acreage located in the far northwest portion of Williston Basin for proceeds of $90 million . A pretax loss of $91 million was recorded in the second quarter of 2014.

2014 - International E&P Segment

In the second quarter of 2014, we entered into an agreement to sell our Norway business, including the operated Alvheim floating production, storage and offloading vessel, 10 operated licenses and a number of non-operated licenses on the Norwegian Continental Shelf in the North Sea.  The transaction closed during the fourth quarter of 2014.

Our Norway business was reflected as discontinued operations in the consolidated statements of income and the consolidated statements of cash flows for 2014. Select amounts reported in discontinued operations follow:

(a) Includes a tax benefit of $26 million related to a decrease in the valuation allowance on U.S. foreign tax credits from the Norway operations.

In the first quarter of 2014, we closed the sales of our non-operated 10% working interests in the Production Sharing Contracts and Joint Operating Agreements for Angola Blocks 31 and 32 for aggregate proceeds of approximately $2 billion and recorded a $576 million after-tax gain on sale. Included in the after-tax gain is a deferred tax benefit reflecting our ability to utilize foreign tax credits that otherwise would have needed a valuation allowance.

Our Angola operations are reflected as discontinued operations in the consolidated statements of income and the consolidated statements of cash flows for the prior period. Select amounts reported in discontinued operations follow:

6.    Segment Information

  We are a global energy company with operations in North America, Europe and Africa. Each of our three reportable operating segments is organized and managed based upon both geographic location and the nature of the products and services it offers.

Information regarding assets by segment is not presented because it is not reviewed by the chief operating decision maker ("CODM").  Segment income represents income from continuing operations excluding certain items not allocated to segments, net of income taxes attributable to the operating segments. Our corporate and operations support general and administrative costs are not allocated to the operating segments. These costs primarily consist of employment costs (including pension effects), professional services, facilities and other costs associated with corporate and operations support activities. Gains or losses on dispositions, certain impairments, change in tax expense associated with a tax rate change, unrealized gains or losses on crude oil derivative instruments, or other items that affect comparability also are not allocated to operating segments.

As discussed in Note 5, as a result of the sale of our Angola assets and our Norway business in 2014, both are reflected as discontinued operations and excluded from the International E&P segment for 2014.

7.    Defined Benefit Postretirement Plans

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

During the first six months of 2015, we recorded the effects of a workforce reduction and a pension plan amendment. The pension plan amendment freezes the final average pay used to calculate the formula benefit and is effective July 6, 2015. Additionally, during the first six months of 2015 and 2014, we recorded the effects of partial settlements of our U.S. pension plans. As required, we remeasured the plans' assets and liabilities as of the applicable balance sheet dates. The cumulative effects of these events are included in the remeasurement and reflected in both the pension liability and net periodic benefit cost (credit).

During the first six months of 2015 , we made contributions of $46 million to our funded pension plans.  We expect to make additional contributions up to an estimated $42 million to our funded pension plans over the remainder of 2015 .  During the first six months of 2015 , we made payments of $42 million and $8 million related to unfunded pension plans and other postretirement benefit plans, respectively.

8.    Income Taxes

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 (benefits) and the sum of the amounts allocated to segments is reported in the "Not Allocated to Segments" column of the tables in Note 6 .

Our effective income tax rates on continuing operations for the first six months of 2015 and 2014 were 18% and 32% .  The tax provision (benefit) applicable to Libyan ordinary income (loss) was recorded as a discrete item in the first six months of 2015 and 2014 .  Excluding Libya, the effective tax rates on continuing operations, would be 15% and 34% for the first six months of 2015 and 2014. In Libya, uncertainty remains around the timing of future production and sales levels. Reliable estimates of 2015 and 2014 Libyan annual ordinary income from our operations could not be made and the range of possible scenarios in the worldwide annual effective tax rate calculation demonstrates significant variability.  Thus, for the first six months of 2015 and 2014 , estimated annual effective tax rates were calculated excluding Libya and applied to consolidated ordinary income (loss).

On June 29, 2015, the Alberta government enacted legislation to increase the provincial corporate tax rate from 10% to 12% . As a result of this legislation, we recorded additional non-cash deferred tax expense of $135 million in the second quarter of 2015.

In the second quarter of 2015, we reviewed our operations and concluded that we do not have the same level of capital needs outside the U.S. as previously expected. Therefore, we no longer intend for previously unremitted foreign earnings of approximately $1 billion associated with our Canadian operations to be permanently reinvested outside the U.S. As such, none of Marathon Oil's foreign earnings remain permanently reinvested abroad. We anticipate foreign tax credits associated with these Canadian earnings would be sufficient to offset any incremental U.S. tax liabilities, and therefore, no additional net deferred taxes have been recorded in the second quarter of 2015.

9.    Short-term Investments

As of June 30, 2015, our short-term investments are comprised of bank time deposits with original maturities of greater than three months and remaining maturities of less than twelve months. The maturity dates range from September 2015 to October 2015. These short-term investments are classified as held-to-maturity investments, which are recorded at amortized cost. The carrying values of our short-term investments approximate fair value.

10.   Inventories

 Inventories of liquid hydrocarbons, natural gas and bitumen are carried at the lower of cost or market value. Materials and supplies are valued at weighted average cost and reviewed for obsolescence or impairment when market conditions indicate.

11.  Property, Plant and Equipment, net of Accumulated Depreciation, Depletion and Amortization

Our Libya operations continue to be impacted by civil unrest and, in December 2014, Libya's National Oil Corporation once again declared force majeure at the Es Sider oil terminal, as disruptions from civil unrest continue. Considerable uncertainty remains around the timing of future production and sales levels.

As of June 30, 2015 , our net property, plant and equipment investment in Libya is $775 million , and total proved reserves (unaudited) in Libya as of December 31, 2014 are 243 million barrels of oil equivalent ("mmboe"). We and our partners in the Waha concessions continue to assess the situation and the condition of our assets in Libya. Our periodic assessment of the carrying value of our net property, plant and equipment in Libya specifically considers the net investment in the assets, the duration of our concessions and the reserves anticipated to be recoverable in future periods. The undiscounted cash flows related to our Libya assets continues to exceed the carrying value of $775 million by a material amount.

Exploratory well costs capitalized greater than one year after completion of drilling were $88 million and $126 million as of June 30, 2015 and December 31, 2014 . This $38 million net decrease was associated with our Canadian in-situ assets at Birchwood. After further evaluation of the estimated recoverable resources and our development plans, we withdrew our regulatory application for the proposed steam assisted gravity drainage ("SAGD") demonstration project.

12.  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 30, 2015 and December 31, 2014 by fair value hierarchy level.