Marathon profits up 22% in first quarter | Business
By Lou Wilin – Findlay Courier staff writer
FINDLAY, OH (The Courier) - Cashing in on crude oil discounts and its new refinery in Texas, Marathon Petroleum Corp. increased profit 22 percent in the first quarter to $725 million, or $2.17 per share.
Marathon's first-quarter earnings a year earlier were $596 million, or $1.70 per share.
Revenue climbed 15 percent to $23.35 billion in the January-March quarter.
Findlay-based Marathon Petroleum buys crude and refines it into gasoline, diesel and other petroleum products. Its ability to buy crude at a discount boosted profit last quarter, as it has in other recent quarters. It sold the finished fuel at prices close to fuel made from more expensive oil.
Yet Marathon Petroleum's stock price sank nearly 5 percent Tuesday. Some other refiners' stock prices fell as well: Valero, down 2.1 percent; Phillips 66, down 1.4 percent; Tesoro, down 0.9 percent; Holly Frontier, down 1.6 percent.
That's because the discounts enjoyed by Marathon and peers that buy mid-continent crude oil declined last quarter and have been shrinking further this quarter, said Oppenheimer senior energy analyst Fadel Gheit.
"The trend is a narrowing of the differential (price difference between discounted crude and others) and that is not good for refiners," Gheit said.
The difference between mid-continent and international crude benchmarks, once $22 per barrel last year, is now $9.
The discount between even lower-priced Canadian and mid-continent crudes, $45 in early February, has shrunk to $17, Gheit said.
"Things can change very quickly in this business," he said.
Most of Marathon Petroleum's refineries and pipelines are in the middle of the country, where oil production has been booming and pipeline capacity has been too small. So last year, mid-continent crude supplies were at record levels and prices cheaper than those in other regions.
All buyers like a good price, so refiners demanded increasing amounts of cheap crude. More pipelines and rail lines have been built to transport the mid-continent crude to refiners, Gheit said. Expanded and improved transportation reduces crude supply and discounts, he said.
"As more refiners seek more (discounted crude), that increases demand and creates a seller's market," he said.
Predictably, producers have been producing less, Gheit said.
The trend sharpened this quarter. It was getting started late last quarter, but did not significantly undermine the advantage Marathon has been pressing.
The $2.2 billion upgrade of its Detroit refinery, completed last fall, enables Marathon to refine even more Canadian crude.
"Our performance this quarter reflects in large part the strategic expansion and optimization of our refining system along with favorable market conditions," said Marathon Petroleum Chief Executive Officer Gary Heminger.
Part of the strategy in that expansion is flexibility, he said. If refining of heavy Canadian crude loses its advantage, the expanded capacity in Detroit now used for Canadian crude could be used for other crudes.
The Galveston Bay refinery, bought in February from BP, also boosted Marathon's income last quarter. It contributed $150 million to income before deducting for interest, taxes, depreciation and amortization, company leaders reported. Galveston Bay was a big factor in the 22 percent increase in fuel sold last quarter, to 1.88 million barrels per day, Marathon Petroleum said.
Marathon's refining and marketing segment generated the vast majority of operating profit, $1.11 billion. Speedway produced $67 million operating profit and the pipeline transportation segment, $51 million.
Speedway's operating income was up 34 percent, generated by higher margins on fuels and merchandise. Income also was boosted by having 93 more stores than a year ago. It has 1,463 stores.
The pipeline transportation segment's operating income represented a 21 percent increase.
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