Marathon Petroleum Swings to Fourth-Quarter Profit

Marathon Petroleum Corp. swung to a fourth-quarter profit, becoming the latest refiner to beat analysts' expectations and promise to return more cash to shareholders.

Marathon Petroleum follows fellow refinery Valero Energy Corp. in posting earnings much higher than forecast. Refiners are taking increasing advantage of a wave of cheap domestic crude and natural gas unlocked from shale formations to drive down operating costs.

Also like Valero, Marathon Petroleum said it has stopped importing light, sweet crude oil from abroad to its Gulf Coast refineries, a big development for energy companies touting the goal of U.S. energy self sufficiency.

"There's not a lot of foreign light, sweet crude we bring into the gulf anymore," Mike Palmer, Marathon Petroleum's senior vice president of supply, distribution and planning, said during a call with investors. "We certainly believe that in 2013 there won't be any material volume of foreign-cargo sweet crude in the Gulf."

Marathon Petroleum reported a profit of $755 million, or $2.24 a share, compared with a year-earlier loss of $75 million, or 21 cents a share. Excluding items such as pension-settlement expenses, adjusted earnings were $2.26.

The results beat the $2.10 a share consensus by analysts polled by Thomson Reuters.

Marathon Petroleum also posted $20.68 billion in sales and revenue, up 6.5% year over year. The refining and marketing segment swung to an operating profit of $1.14 billion from a year-earlier loss of $182 million.

The quarter brought Marathon Petroleum's cash in hand to $4.9 billion, a 44% increase from the previous quarter. The company's board approved an additional $2 billion stock-repurchase program, bringing Marathon Petroleum's total authorization to $2.65 billion.

Marathon Petroleum's buyback, along with Valero's recently increased dividend and hint of a future stock buyback, show that refiners are now in a position to reward investors after years of touch-and-go earnings.

"People are ready for refiners to beat earnings--returning cash to shareholders is the real big story," said Dahlman Rose & Co. analyst Sam Margolin.

Marathon Petroleum said it would close on its deal to buy BP PLC's 451,000 barrel-a-day Texas City refinery by Feb. 1, paying the $1.6 billion in cash. It would also spend $1 billion to perform maintenance at its refineries and expand its intake of domestic crude oil.

The company plans to be "a first mover" in buying oil and condensate from the Utica shale, a formation centered on Ohio, Mr. Palmer said. Marathon Petroleum plans to expand truck racks and other infrastructure at its refineries in Canton, Ohio, and Catlettsburg, Ky., that could boost its Utica oil and condensate shipments, Mr. Palmer said.

"We will continue to drive value by making carefully considered investments that position us to take advantage of evolving crude-oil and product opportunities, along with a consistent and focused return of capital to our shareholders," said Marathon Petroleum Chief Executive Gary Heminger.

Marathon Petroleum will also invest in increasing its diesel production. Despite gasoline demand projected to be flat in 2013, the company expects diesel sales to increase in the U.S. and abroad.

The stand-alone refiner, which split from Marathon Oil Corp. in June 2011, in turn spun off pipeline-system operator MPLX LP in an initial public offering in October. The master limited partnership owns and operates a crude-oil-pipeline system that stretches across the Midwest, as well as in segments of Louisiana and Texas.

Marathon Petroleum said it will take over in September operation of the 1.2-million-barrel-a-day Capline pipeline from Royal Dutch Shell PLC. Investors have called for the reversal of the flow of the pipeline, which brings crude oil from Louisiana to Illinois.

Marathon Petroleum, with most of its refining capacity in the Midwest, has opposed such a reversal.

Copyright (c) 2012 Dow Jones & Company, Inc.


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