Marathon Petroleum, Andeavor Blend To Form Largest U.S. Refinery

Automakers may be steering toward a self-driving hybrid and all-electric future but Marathon Petroleum’s deal to buy Andeavor yesterday for $23 billion will not only overtake Valero Energy to forge the largest refinery operation in the U.S. but also seems to indicate there’s still plenty of gas left in the tanks of the internal combustion business. The new behemoth will be called Marathon Petroleum and remain based in Findlay, Ohio. 

In the short term, “crude oil prices are hovering at the levels not seen in three years and are expected to climb higher, pushing up gasoline prices along the way. The U.S. daily national average for regular gasoline is now $2.81 per gallon, up 15% from this time last year,” according to an AP story published by the Pittsburgh Post-Gazette. “Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 20 states and the District of Columbia.” 



“Marathon is the third-largest U.S. refiner by market capitalization, valued at about $38.6 billion, according to data compiled by Bloomberg. Last year the company sold 5.8 billion gallons of fuel through its Speedway convenience store chain. The combined company would pass Phillips 66, valued at $51.9 billion, as the largest U.S. independent refinery by market capitalization,” Laura Blewitt writes for Bloomberg Markets.

“San Antonio, Texas-based Andeavor, formerly known as Tesoro Corp., is the fourth-largest, worth $18.7 billion. The company’s assets also include 5,300 miles of pipelines and 40 marine, rail and storage terminals. Last week, Andeavor announced two joint ventures to move crude oil from West Texas to the Gulf Coast,” she continues.

“Tudor Pickering Holt & Co, the energy analyst, said that a challenge from competition officials was unlikely, given that the companies’ operations were on opposite side of the U.S.,” James Dean reports for The Times of London. 

“The U.S. refining business, once seen as cash-gobbling assets that weighed down lucrative drilling units, has been one of the most profitable sectors in the U.S. economy in the past five years,” report Dana Cimilluca, Dana Mattioli and Bradley Olson for the Wall Street Journal, which broke news of the impending announcement Sunday night.

“Marathon’s shares have nearly tripled since the company was spun out of parent Marathon Oil Corp. in 2011. Andeavor also has had a meteoric rise in that time, quintupling as it moved to buy refineries from giants such as BP PLC and consolidate plants from New Mexico to Minnesota,” they continue.

“The time is right now because for this industry, the wind is behind our backs,” said Andeavor chairman and CEO Greg Goff, who will join Marathon as executive vice chairman.

Andeavor has only been known by that name since last August. Before that it was Tesoro. Its refinery in Mandan, N.D., “was in the national spotlight in September when it hosted President Donald Trump for a speech on tax reform. The name change to Andeavor was still fresh at the time, with workers updating a Tesoro billboard with the new company name and logo the day before Trump’s visit,” Amy Dalrymple reports for the Bismarck Tribune.

Paul Foster, the founder of Western Refining, an El Paso, Texas, company that he bought out of bankruptcy in the 1990s, now holds nearly 6.5 million shares in Andeavor. Western Refining was acquired by Tesoro for $6.4 billion in 2017. Foster’s Andeavor shares are valued at more than $988 million, Fortune’s Kirsten Korosec reports.

“Not bad for a guy who got his start in the oil fields as a teenager welding pipes, digging ditches and cleaning tanks. The Baylor graduate and CPA handled the books for a number of small refineries across the Southwest before he and partners took over bankrupt El Paso Refining in 1992, which led to the creation of Western,” writes Forbes’ Christopher Helman.

“This transaction combines two strong, complementary companies to create a leading U.S. refining, marketing, and midstream company, building a platform that is well-positioned for long-term growth and shareholder value creation,” Gary R. Heminger, the Marathon chairman and CEO who will remain at the helm of the combined entity, said in a statement announcing the deal.

“The resurgence in U.S. production in onshore basins, combined with the tilt in demand toward emerging markets overseas, has made ‘location, location, location’ as pertinent for refiners as it is for real estate. Proximity to lower-cost crude oil, the ability to shift between different sources, and control of or access to critical pipeline and export capacity are defining competitive advantages now,” observes Liam Denning for Bloomberg Gadfly.

But so, too — as always — is “size, size, size.”

1 comment about "Marathon Petroleum, Andeavor Blend To Form Largest U.S. Refinery".
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  1. Ginger Cookie from Consultant, May 2, 2018 at 11:30 a.m.

    1. Agree, quite concerning though they ultimately, will be quite successfull in "fueling" further consumer gas prices upward, moreover, there's a reverberative effect to jet fuel/airline tickets which already pay an added 40% cost to refine gas into jet fuel. 

    2. Their export lead strategy of Marathon leading this combined company seems that it will "care" more about its export capacity then domestic consumption needs, which again, would seem to infer a continued increase of U.S. gas/consumer costs, increase in commerical utility costs, hospitals, etc. likely 1- 2 years out. 

    3. Now, considering gas is a very "small" percentage of overall income, compared to the 70's when it was a higher percentage of "core" expenditures, not discretionary, the next move is that the export lead sales will hamper middle class/lower demo spending to allocate more of the essentials, e..g rent/mortgage, food, gas, and less on Walmart type spending, especially with higher credit card rates' continued growth

    4. Lastly, given that refineries are the "cash gobblers" that take away from lucrative drilling payoffs, this industry point will likely "tighten" the drilling necks, thereby less drilling, less gas, divert more to export gas/sales...seems quite plausible. 

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