Marathon Petroleum has a long running commitment to fuel its customers. The former refining and marketing unit of Marathon Oil Corporation operates seven refineries with the capacity to process about 1.8 million barrels of crude oil a day. Marathon Petroleum sells refined products through a nationwide network of branded gas stations. It also holds stakes in pipelines and is one of the largest asphalt and light oil product terminal operators in the US. The company distributes petroleum products wholesale to private-brand marketers and to large commercial and industrial consumers, as well as to the spot market.
Marathon’s operations consist of three business segments. Its Refining & Marketing segment, which makes up 68% of the company's total revenue, refines crude oil and other feedstocks at seven refineries in the US Gulf Coast and Midwest regions, purchases ethanol and refined products for resale, and distributes refined products. It sells refined products to wholesale marketing customers, buyers on the spot market, its Speedway business segment and to independent entrepreneurs who operate Marathon retail outlets.
The Speedway segment (29%) sells transportation fuels and convenience products in the retail market in the Midwest, primarily through Speedway convenience stores. The Midstream segment (3% of revenue) transports crude oil and other feedstocks to Marathon Petroleum's refineries and other locations, delivers refined products to wholesale and retail markets and affiliated pipeline assets and investments.
Marathon holds stakes in 8,400 miles of pipeline (MPLX LP) and is one of the largest asphalt and light oil product terminal operators in the US (79 terminals in 2015). In addition, the company has a large US private inland product fleet that includes 19 inland towboats and more than 200 barges.
Marathon Petroleum sells refined products at some 5,600 Marathon-branded gas stations in 19 US states and through retail subsidiary Speedway SuperAmerica's 2,730 outlets in more than 20 states.
Sales and Marketing
Marathon Petroleum sells to wholesale suppliers of gasoline and distillates to resellers and consumers. Customers include independent retailers, wholesale customers, their Marathon brand jobbers and Speedway brand convenience stores, airlines, transportation companies and utilities. It also sells gasoline, distillates and asphalt for export, primarily out of their Garyville and Galveston Bay refineries.
The company sells 50% of its gasoline sales volumes and 87% of its distillates sales volumes on a wholesale or spot market basis. It also sells via retail outlets, primarily in Florida, Mississippi, Tennessee and Alabama and branded lessee dealer marketing contract assignments, primarily in Connecticut, Maryland, and New York.
Marathon's annual revenues had long been trending higher with rising oil prices, but have fallen along with prices for the fossil fuel more recently. The company's annual profits have fluctuated with volatile operating costs.
The company's revenue plunged 12% to $63.4 billion in 2016 as the Refining & Marketing segment suffered from lower refined product sales prices and volumes as the result of lower oil prices.
Marathon Petroleum's net income dropped by 12% to $1.2 billion in 2016 mostly as higher refinery operating costs (due to significantly higher turnaround activity in 2016) outweighed the positive impact of lower sales volumes.
The company's operating cash levels fell from $4.1 billion in 2015 to $4.0 billion in 2016 decreased operating results, partially offset by favorable changes in working capital of $1.2 billion compared to 2015. In 2016, changes in working capital were a net $200 million source of cash, primarily due to higher accounts payable and accrued liabilities, partially offset by increases in current receivables and inventories. Accounts payable increased $850 million due to higher crude oil payable prices. Current receivables grew by $690 million as the result of higher refined product and crude oil receivable prices.
Marathon Petroleum is looking to expand its refining, midstream logistics, and retail businesses through acquisitions and organic growth. It continued in 2016 to grow its portfolio of midstream assets with investments in the Sandpiper pipeline project, the recently finished SAX pipeline, and through its new marine joint venture, Crowley Ocean Partners. That year Marathon also focused on growing organically in existing markets in its legacy seven-state Midwest footprint, as well as its more recently entered markets of Pennsylvania and Tennesse.
Growing its midstream business, in the company 2017 contributed certain terminal, pipeline and storage assets to MPLX for $2 billion. The assets included 62 light-product terminals; 11 pipeline systems consisting of 604 miles of pipeline; 73 tanks; a crude oil truck unloading facility at MPC's refinery in Canton, Ohio; and eight natural gas liquids storage caverns in Woodhaven, Michigan.
One of the company's most significant achievements was the 2014 acquisition of Hess’ retail operations. This transaction was truly transformative for Speedway, increasing its store count to approximately 2,750 and expanding its retail presence from nine Midwestern states to 22 states throughout the Midwest, East Coast, and Southeast. By the end of 2014 the company had converted 60 stores to the Speedway brand, and converted of all Hess stores by the end of 2016.
Mergers and Acquisitions
In 2017 Enbridge and Marathon Petroleum bought a partial, indirect equity interest in the Dakota Access Pipeline and Energy Transfer Crude Oil Company Pipeline projects (the Bakken Pipeline system), which transports crude from North Dakota to the eastern Gulf Coast, for $2 billion. Enbridge agreed to pay $1.5 billion for its 28% share of the network while Marathon will pay $500 million for its 9% stake.
Boosting its midstream footprint, in December 2015 MXLP (the midstream master limited partnership sponsored by Marathon) purchased MarkWest Energy Partners, whereby MarkWest became a wholly owned subsidiary of MPLX. The acquisition (which had an enterprise value for MarkWest of $20 billion) transformed MPLX into a large-cap, diversified master limited partnership.
Growing its retail network, in September 2014 Marathon Petroleum bought Hess' gasoline station network for $2.8 billion. The move expanded Speedway's retail presence to 22 US states throughout the East Coast and Southeast.
That year it also purchased a facility in Cincinnati, Ohio from Felda Iffco Sdn Bhd, Malaysia. The plant currently produces several products including biodiesel and glycerin.
To expand its refining capacity, in 2013 Marathon Petroleum bought BP's 451,000 barrels-of-oil-per-day refinery in Texas City in Galveston Bay for about $2.5 billion. (The base purchase price was $598 million, plus inventories valued at $1.1 billion. The agreement also contains an earnout provision under which Marathon Petroleum might pay up to an additional $700 million over six years, subject to certain conditions).
That year the company also acquired interests in three ethanol companies from Mitsui & Co. (U.S.A.), Inc. for $75 million.
Growing its retail network, in 2012 Marathon Petroleum's Speedway America unit bought 87 gas stations in Indiana and Ohio from GasAmerica Services. It purchased 23 in Illinois and Indiana in 2011.
In early 2012 Marathon Petroleum formed a tax-exempt limited partnership (MPLX) to take over some of its midstream operations. MPLX has an indirect 51% stake in about 2,800 miles of pipeline across nine states in the Midwest and Gulf Coast, as well as a Mississippi River barge dock and tank farms. (Marathon Petroleum retains the other 49% stake.) MPLX filed a $365 million initial public offering in July 2012, and went public in October 2012. Marathon Petroleum intends for MPLX to be the primary growth vehicle for its midstream business by transferring even more assets to the tax-exempt entity.
With an improving economy, in 2011 Marathon Oil Corporation spun off Marathon Petroleum to improve shareholder returns by having two publicly traded companies -- an exploration and production entity and a refining and marketing company.
To free up cash and to help it meet expansion costs, in 2010 the company sold its Minnesota downstream assets (including a refinery and more than 230 gas stations/convenience stores) to investment firms TPG Capital and ACON Investments for about $900 million.
The company has invested $3.3 billion in a conventional refinery expansion at its Garyville, Louisiana, plant (completed in 2009) and put up $2.2 billion to upgrade its heavy oil processing unit in Detroit (completed in 2012).
Marathon Petroleum traces it roots to the formation of the Ohio Oil Company in 1887.