(Updates with CEO comment, analyst comment) By Susan Daker and John Kell Of DOW JONES NEWSWIRES

HOUSTON (DOW JONES)--Marathon Oil Corp.'s (MRO) third-quarter profit slumped 80% as the integrated oil company posted a significant drop in exploration-and-production and refining earnings.

But the results topped analyst expectations and the company's interim guidance. The beat can be attributed to "solid income" and a lower reported tax rate, said Mark Gilman, an analyst with The Benchmark Co. in New York.

The Houston-based crude producer and refiner stood apart from its competitors last quarter in reporting an improvement in its refining and marketing segment, although the division's profit slid in the latest quarter. Still, Marathon said the segment bested its peers in the U.S. market.

"Our Refining, Marketing and Transportation segment once again outperformed rivals in the domestic market that saw significantly lower gross margins versus a year ago," president and chief executive Clarence Cazalot said in a news release Tuesday.

Despite the bright spots, the fundamentals of the oil market remain troubled by demand concerns even though the price of crude has rallied in recent weeks on a rebound in equities and a weak dollar.

The company reported a profit of $413 million, or 58 cents a share, down from $2.1 billion, or $2.90 a share, a year earlier. Excluding the effects of such items as asset sales and mark-to-market changes, earnings fell to 61 cents from $2.76. Sales volume from continuing operations fell 0.3%. Marathon has narrowed its full-year production projection to between 405,000 and 410,000 barrels of oil-equivalent a day from previous guidance of 390,000 to 410,000 barrels of oil-equivalent a day.

Revenue dropped 38% to $14.48 billion.

Analysts surveyed by Thomson Reuters projected earnings of 57 cents on revenue of $13.71 billion.

Marathon's U.S. exploration and production business posted an 89% decrease in profit while the international segment fell 21% due to lower liquid hydrocarbon and natural gas prices.

Earnings from the company's refining business slumped 80%.

Its shares were up 27 cents to $32.24 in trading Tuesday.

-By Susan Daker and John Kell, Dow Jones Newswires; (713) 547-9208; susan.daker@dowjones.com

(END) Dow Jones Newswires

11-03-09 1219ET