Fitch Upgr L-T Debt Rtg Of USX; Assigns Rtgs To Marathon Oil.

Business Editors

CHICAGO--(BUSINESS WIRE)--Dec. 27, 2001

Fitch has upgraded the senior unsecured rating on USX Corporation's (USX) long-term debt to `BBB+' from `BBB' pending the separation of its steel and energy units into independent, publicly traded companies targeted for Dec. 31, 2001.

USX's commercial paper rating of `F2' is affirmed. In addition, the ratings have been removed from Rating Watch Positive and assigned a Stable Rating Outlook. With the separation, Fitch has also assigned a senior unsecured debt rating to Marathon Oil Company of `BBB+' and a short-term rating of `F2'.

Fitch currently rates USX's preferred securities `BBB-'. As part of the separation, the monthly income preferred shares (MIPS) and convertible quarterly income preferred securities (QUIPS) are being called and the company's preferred stock is being redeemed. Fitch will withdraw the ratings on these securities at the time of the closing.

The rating action is the result of USX's decision to divide its two units, USX-Steel (Steel) and USX-Marathon Group (Marathon), into separate businesses. The reorganization plans call for the steel business of USX Corp. to be spun-off in a tax-free manner. Current USX-Steel stockholders will become shareholders of United States Steel Corporation which will be the name of the newly spun-off company. Effective at the time of the spin-off, USX Corporation will be renamed Marathon Oil Corporation and holders of the USX-Marathon Group common stock will become holders of Marathon Oil Corporation common stock. The reorganization does not call for a cash distribution to shareholders.

The Marathon Group includes Marathon Oil Company and certain other subsidiaries of USX, which are engaged in worldwide exploration and production of crude oil and natural gas; domestic refining, marketing and transportation of petroleum products primarily through Marathon Ashland Petroleum LLC (MAP), owned 62% by Marathon. Marathon Group revenues as a percentage of total USX consolidated revenues were 85% in 2000, 81% in 1999, and 77% in 1998.

Marathon maintains liquidity through access to capital markets, cash flow from operations and its revolving credit facilities. The company has two revolving credit agreements totaling $1.805 billion broken down into a $1.354 billion five-year facility and a $451 million 364-day facility. The MAP subsidiary also has two revolvers totaling $450 million. Total debt for the Marathon Group at the end of Sept. 30, 2001, was approximately $2 billion, which included $1,518 million as allocated by USX, $91 million of debt due within one year and $184 million of preferred stock.

Total debt for USX historically has been pooled and allocated to Marathon and Steel. Under the plan, all public debt that remains outstanding after the spin-off will remain with Marathon which includes a value transfer of $900 million of debt to Marathon from Steel. An additional $554 million of debt, which will be serviced by US Steel, will also remain with Marathon. Following closing of the separation, total debt for Marathon will increase to approximately $3.5 billion (based on June 30, 2001, pro forma estimates).

Like other companies competing in the oil industry, the Marathon Group benefited from strong industry fundamentals from mid-1999 through September 2001. Although last 12 months results for the Marathon Group were exceptionally strong, softening commodity prices and the significant increase in debt will have a negative impact on the company's credit metrics going forward. In recent weeks, crude oil and gas prices have deteriorated from the peaks experienced during the previous 18 months. Prices, however, remain well above the downturn experienced in 1998 and early 1999. Fitch forecasts 2002 and 2003 prices to be in-line with a mid-cycle price environment. Credit protection, as measured by EBITDA-to- interest, is expected to exceed 7.0 times (x) with debt-to- EBITDA below 2.0x.

The Marathon Group benefits from its full integration across the industry with solid upstream and downstream operations. In spite of the weakened economy and the added debt, the expectations for Marathon remain very positive. In addition to the recent strong credit statistics, two key factors support this view - the removal of Steel from the company's operations and the continued benefits from full integration. The separation from Steel will give Marathon significantly greater flexibility to grow and improve the operations of the oil company. Marathon has an aggressive capital plan for 2002, including a nearly $1 billion acquisition of CMS Energy's Equatorial Guinea upstream assets.

Upstream, Marathon's operations are spread across 11 countries worldwide. Over 60% of gas and oil production and reserves, however, are located in the US. Total production for the company has averaged over 400,000-boe/day for the last few years and has been very balanced with a split of roughly 50/50 between oil and gas. The company has over 3 trillion cubic feet of proven gas reserves and 717 million barrels of oil reserves.

The company's upstream operations are large and diverse, ranking as both the 10th largest US oil producer and 10th largest US gas producer at the end of 2000. The company, however, must overcome a few key issues going forward. Based on current production, the company's reserve life is under nine years, below the average for its peers. The company has also struggled in recent years with its finding and development efforts, as costs have averaged nearly $11.00 per barrel for the last three years and production exceeded reserve replacement in 2000. Management is well aware of the upstream performance in recent years and is already seeking opportunities, such as the CMS acquisition, to turn the trend around.

Downstream, the MAP joint venture owns and operates seven refineries in the US with a total capacity of 935,000 barrels per day (bpd) of crude. Five of the refineries, representing 631,000-bpd of the capacity, are located in the Midwest. The remaining two facilities are located along the highly competitive Gulf Coast. The Speedway SuperAmerica subsidiary of MAP owns approximately 2,300 of the company's 5,400 sites, making MAP the second largest owner-operator of retail sites in the US. Overall, revenues for the downstream operations represented 80% of Marathon's total consolidated revenues and 62% of income from operations before, and 50% after, minority interest in income of MAP during the first nine months of 2001. Over the last five years, income from reportable segments has been split roughly 60%/40% between the upstream and downstream operations.

The MAP joint venture is a strong performer in the refining industry in the Midwest region. Although margins for the region often mirror those along the Gulf Coast, serious supply concerns have caused margins to spike during the last two years. The region suffers from a tight supply/demand balance. Retail prices and subsequently refined product margins tend to be very volatile, rising dramatically on the suggestion of supply shortfalls. The tight balance was most evident in the spring of both 2000 and 2001 when concerns over the supply of reformulated gasoline caused retail prices to peak at over $2.00 per gallon.