EXHIBIT 10.16

MARATHON OIL CORPORATION

2003 INCENTIVE COMPENSATION PLAN

NONQUALIFIED STOCK OPTION WITH TANDEM STOCK

APPRECIATION RIGHT AWARD AGREEMENT

Members of Marathon Executive Committee

Pursuant to this Award Agreement, MARATHON OIL CORPORATION (the “Corporation”)
hereby grants to [NAME] (the “Grantee”), an employee of the Corporation or an
Affiliate, on May 28, 2003 (the “Grant Date”), a Non-qualified Stock Option with
a tandem Stock Appreciation Right (“SAR”) for [NUMBER] shares of Common Stock
(the “Award”) at an exercise price of $[price] per share (the “Grant Price”),
pursuant to the Marathon Oil Corporation 2003 Incentive Compensation Plan (the
“Plan”), with such number of shares and such price per share being subject to
adjustment as provided in Section 17 of the Plan, and further subject to the
following terms and conditions:

1.     Relationship to the Plan; Definitions.

This Award is subject to all of the terms, conditions and provisions of the Plan
and administrative interpretations thereunder, if any, that have been adopted by
the Committee. Except as defined herein, capitalized terms shall have the same
meanings ascribed to them under the Plan. To the extent that any provision of
this Award Agreement conflicts with the express terms of the Plan, the terms of
the Plan shall control and, if necessary, the applicable provisions of this
Award Agreement shall be hereby deemed amended so as to carry out the purpose
and intent of the Plan. References to the Grantee also include the heirs or
other legal representatives of the Grantee. For purposes of this Award
Agreement:

“Award Period” means the period commencing upon the Grantee’s receipt of this
Award Agreement and ending on the date on which the Award expires pursuant to
Section 3(a).

“Award Shares” means the shares of Common Stock covered by this Award Agreement.

“Cause” means termination from Employment by the Corporation or its Affiliates
due to unacceptable performance, gross misconduct, gross negligence, material
dishonesty, material acts detrimental or destructive to the Corporation or its
Affiliates, employees or property, or any material violation of the policies of
the Corporation or its Affiliates.

“Change in Control Plan” means any plan, program, agreement, or arrangement
pursuant to which the Corporation or an Affiliate agrees to provide benefits to
the Grantee in the event he or she is terminated following a Change in Control.

“Employment” means employment with the Corporation or any of its Affiliates. For
purposes of this Award, Employment shall also include any period of time during
which the Grantee is on Disability status.

2.     Exercise and Vesting Schedule.

(a)     This Award shall become exercisable in three cumulative annual
installments, as follows:

 

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(i) [####] of the Award Shares shall become exercisable on May 28, 2004;

(ii) an additional [####] of the Award Shares shall become exercisable on
May 28, 2005; and

(iii) the remaining [####] Award Shares shall become exercisable on May 28,
2006;

provided, however, that the Grantee must be in continuous Employment from the
Grant Date through the date of exercisability of each installment in order for
the Award to become exercisable with respect to additional shares of Common
Stock on such date. If the Employment of the Grantee is terminated for any
reason other than death or Retirement, any Award Shares that are not exercisable
as of the date of such termination of Employment shall be forfeited to the
Corporation.

(b)     If the Employment of the Grantee is terminated due to Retirement, the
Award shall continue to become exercisable in accordance with the schedule set
forth in subparagraph (a) above, irrespective of the Grantee’s Retirement or
subsequent death.

(c)     This Award shall become fully exercisable, irrespective of the
limitations set forth in subparagraph (a) above, upon:

(i)     termination of the Grantee’s Employment due to death; or

(ii)     a Change in Control, provided that as of such Change in Control the
Grantee had been in continuous Employment since the Grant Date.

3.     Expiration of Award.

(a)     Expiration of Award Period. The Award Period shall expire on May 28,
2013.

(b)     Termination of Employment Due to Retirement. If Employment of the
Grantee is terminated due to Retirement, the Award shall expire upon the earlier
of (i six years following the date of termination of Employment or
(ii) expiration of the Award Period. If the Grantee dies following Retirement
but prior to the expiration of the Award, the Award shall expire upon the
earliest of (i) three years following the death of the Grantee, (ii) six years
following the Retirement of the Grantee, or (iii) expiration of the Award
Period.

(c)     Termination of Employment Due to Death. If Employment of the Grantee is
terminated due to death, the Award shall expire upon the earlier of (i) three
years following the date of termination of Employment or (ii) expiration of the
Award Period.

(d)     Termination of Employment by the Corporation for Cause or Due to
Resignation. If Employment of the Grantee is terminated by the Corporation or
any of its Affiliates for Cause or due to voluntary resignation by the Grantee,
the Award shall expire upon the termination of Employment.

(e)     Termination of Employment by the Corporation Other Than For Cause. If
Employment of the Grantee is terminated by the Corporation or any of its
Affiliates for any reason other than Cause, the Award shall expire upon the
earlier of (i) 90 days following the date of termination of Employment or
(ii) expiration of the Award Period.

(f)     Change in Control. Notwithstanding anything herein to the contrary, in
the event of a Change in Control,

 

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the Award shall remain exercisable throughout the Award Period, provided that as
of such Change in Control the Grantee had been in continuous Employment since
the Grant Date.

4.     Employment with a Competitor. Notwithstanding anything herein to the
contrary, in the event the Committee, the Chief Executive Officer, or an
authorized officer determines that the Grantee has accepted or intends to accept
employment with a competitor of any business unit of the Corporation, the
Committee, the Chief Executive Officer, or the authorized officer may cancel the
Award by written notice to the Grantee.

5.     Exercise of Award. Subject to the limitations set forth herein and in the
Plan, this Award may be exercised in whole or in part by providing notice to the
Committee or its designated representative of (i) whether the Grantee intends to
exercise the Non-qualified Stock Option or the SAR and (ii) the number of Award
Shares to be exercised.

(a)     Exercise of Non-qualified Stock Option. If the Award is exercised as a
Non-qualified Stock Option, payment of the Grant Price for the exercised Award
Shares shall, at the election of the Grantee, be made in cash, shares of Common
Stock, or any combination thereof. For purposes of determining the amount of the
purchase price satisfied by payment in Common Stock, such Common Stock shall be
valued at its Fair Market Value on the date of exercise. Upon receipt of the
purchase price, the Corporation or its designated representative shall issue or
cause to be issued to the Grantee a number of shares of Common Stock equal to
the number of Award Shares then exercised.

(b)     Exercise of SAR. Upon receipt of notice to exercise a SAR, the Committee
or its designated representative shall deliver or cause to be delivered to the
Grantee a payment (“Payment Amount”) equal to the excess of (i) the Fair Market
Value of the number of exercised Award Shares as of the date of exercise over
(ii) the product of the number of exercised Award Shares and the Grant Price.
Such payment shall be made in cash or shares of Common Stock at the election of
the Grantee. If payment is made in shares of Common Stock, such Common Stock
shall be valued at its Fair Market Value on the date of exercise, and the
Corporation or its designated representative shall issue or cause to be issued
to the Grantee a number of shares of Common Stock equal to the Payment Amount
divided by such Fair Market Value.

(c)     Tandem Nature of Award. To the extent the Award is exercised as a
Non-qualified Stock Option, the related SAR shall be deemed to have been
exercised. To the extent the Award is exercised as a SAR, the related
Non-qualified Stock Option shall be deemed to have been exercised.

6.     Taxes. The Corporation or its designated representative shall have the
right to withhold applicable taxes from the cash or shares of Common Stock
otherwise payable to the Grantee upon exercise of the Award or from compensation
otherwise payable to the Grantee at the time of exercise pursuant to Section 14
of the Plan.

7.     Shareholder Rights. The Grantee shall have no rights of a shareholder
with respect to the Award Shares unless and until such time as the Award has
been exercised and, if applicable, shares of Common Stock have been issued to
the Grantee in conjunction with the exercise of the Award.

8.     Nonassignability. During the Grantee’s lifetime, the Award may be
exercised only by the Grantee or by the Grantee’s guardian or legal
representative. Upon the Grantee’s death, the Award may be transferred by will
or by the laws governing the descent and distribution of the Grantee’s estate.
Otherwise, the Grantee may not sell, transfer, assign, pledge or otherwise
encumber any portion of the Award, and any attempt to sell, transfer, assign,
pledge, or encumber any portion of the Award shall have no effect.

 

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9.     No Employment Guaranteed. Nothing in this Award Agreement shall give the
Grantee any rights to (or impose any obligations for) continued Employment by
the Corporation or any Affiliate thereof or successor thereto, nor shall it give
such entities any rights (or impose any obligations) with respect to continued
performance of duties by the Grantee.

10.     Modification of Agreement. Any modification of this Award Agreement
shall be binding only if evidenced in writing and signed by an authorized
representative of the Corporation, provided that no modification may, without
the consent of the Grantee, adversely affect the rights of the Grantee
hereunder.

 

Marathon Oil Corporation By:       /s/ Eileen M. Campbell  

Authorized Officer

 

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