January 26, 2001 Dear Pennaco Energy, Inc. Stockholder: As you are aware, on December 22, 2000, Pennaco Energy, Inc. ("Pennaco" or the "Company") entered into an Agreement and Plan of Merger (the "Merger Agreement") with Marathon Oil Company and...

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                              PENNACO ENERGY, INC.
                          0000 00XX XXXXXX, XXXXX 000
                             XXXXXX, XXXXXXXX 00000

                                                                January 26, 2001

Dear Pennaco Energy, Inc. Stockholder:

     As you are aware, on December 22, 2000, Pennaco Energy, Inc. ("Pennaco" or
the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Marathon Oil Company and Marathon Oil Acquisition 1, Ltd. (the
"Purchaser"). The Merger Agreement provides for the acquisition of all
outstanding shares of common stock, par value $.001 per share, of the Company
(the "Common Stock"), together with the associated common share purchase rights
(collectively, the "Shares"), by the Purchaser at a price of $19.00 per Share,
net to the seller in cash, without interest. Under the terms of the proposed
transaction, the Purchaser has commenced a tender offer (the "Offer") for all of
the outstanding Shares at that price. The Offer is scheduled to expire at 12:00
midnight, New York City time, on Monday, February 5, 2001, unless otherwise
extended.

     YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, INCLUDING THE OFFER AND
THE SUBSEQUENT MERGER OF THE PURCHASER WITH AND INTO THE COMPANY (THE "MERGER"),
AND UNANIMOUSLY DETERMINED THAT THE TERMS OF THE OFFER, THE MERGER AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE ADVISABLE AND FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT ITS STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.

     Accompanying this letter is a copy of Amendment No. 2 to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, filed by the Company
with the Securities and Exchange Commission. This document includes additional
information regarding the background of the Offer, which you should consider in
evaluating the Offer.

     WE URGE YOU TO READ THIS ADDITIONAL INFORMATION CAREFULLY.

     The management and directors of the Company thank you for the support you
have given the Company.

                                            Sincerely,

                                            PENNACO ENERGY, INC.

                                            [XXXX X. XXXX SIGNATURE]

                                            XXXX X. XXXX
                                            Chairman of the Board,
                                            Chief Executive Officer and
                                            President