Marathon Oil Corp. has a refinery in Texas City.
Under a proposal approved Thursday, the
downstream business would be spun off into
Marathon Petroleum Corp., which would be set
up in Findlay, Ohio.
After studying and then dropping the idea two
years ago, Marathon Oil Corp. said Thursday
the timing is finally right to split the company in
two.
The company's board has approved a plan to
spin off its downstream business, which includes
six U.S. oil refineries, and operate what's left as a
stand-alone oil and gas exploration and
production firm in Houston.
Under the plan, a new company called Marathon
Petroleum Corp. will be set up in Findlay, Ohio,
where Marathon's downstream business already
has offices.
It is expected to launch in July as the nation's fifth-
largest oil refiner, with its own stock trading
symbol. Marathon, meanwhile, will narrow its
focus as a global upstream oil and gas company,
with particular emphasis on emerging oil plays in
the U.S., officials said.
Major oil companies have been shedding U.S.
refining operations in recent years as gasoline
demand stagnates, biofuels take a bigger share of
the fuel market and a glut of plant capacity
weakens profits. Huge swings in oil prices in
recent years have also wreaked havoc on the
business.
But Marathon CEO Clarence P. Cazalot Jr., in an
interview Thursday with the Chronicle, said it
would be wrong to interpret the proposed
separation as an attempt to jettison its refining
unit and related businesses.
"We would not do this if we didn't think our
downstream business could be a top-tier
company on its own," he said.
Marathon said in July 2008 it was considering a
downstream spinoff in a bid to enhance
shareholder value. But in early 2009, with the
financial meltdown in full swing, management
took it off the table.
Now that economic conditions have improved
significantly and the company has completed
several major capital projects, including a $4
billion expansion of its refinery in Garyville, La.,
a split once again makes sense, Cazalot said.
Officials said the separation will give each
company more flexibility to pursue unique
business strategies and investors more
information about individual business segments
that may have gotten lost in the combined
corporation.
Analysts said the move also is clearly designed to
boost the value of Marathon Oil, which trades at a
discount to some of its peers.
Shares rise 6 percent
Investors appeared to like the news Thursday,
pushing Marathon shares up 6 percent to $42.98
in New York Stock Exchange trading.
As for the new downstream company, its shares
should trade at a premium to rivals , given the
cost advantages it enjoys at Midwest refineries,
the sophistication of its new Garyville complex
and low-volatility earnings from fuel stations and
pipelines, said Jeff Dietert, managing director at
Simmons & Company International, an
energy investment bank in Houston.
Texas City site
The new company will control half a dozen
refineries, including one in Texas City, with a
total 1.1 million barrels per day of crude
processing capacity. It also will own or operate
more than 9,000 miles of pipelines, as well as
control 1,300 Speedway brand fuel stations and
dozens of storage terminals.
In recent years, Marathon's refining and
marketing segment accounted for at least one-
third of annual earnings.
UBS analyst William Featherston, in a report
Thursday, valued Marathon's downstream
business at $11 billion based on earnings and
assets, while pegging the remaining upstream oil
and natural gas business at $21.5 billion to $23.4
billion.
Under the spinoff, which is expected to be tax-
free and completed by June 30, Marathon intends
to distribute one share of the new company's
stock for every two shares of the parent held at a
date to be determined.
Gary Heminger, Marathon's current downstream
chief, will become CEO of the new entity, while
Marathon's board of directors will be divided
between the two companies with no director
serving on both boards.
As for employees, Marathon officials said they
should expect minimal changes in the day-to-day
operations of both companies and the majority of
workers will see little, if any, effect on their
positions. Marathon employs roughly 29,000
globally, with about 1,500 in Houston.
Source: Http://www.chron.com/disp/story.mpl/business/energy/7380843.html
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