Refinery work hurts Marathon profits


Scheduled maintenance idled Marathon Petroleum Corp.’s two largest refineries, causing profit to plunge 73 percent last quarter to $199 million, the company reported Thursday.

Earnings in the January-March quarter amounted to 67 cents per share, down from $2.17 a year earlier.
Revenue was the same as a year earlier, $23.35 billion. Costs increased 3.6 percent to $22.98 billion.

It was largely about the maintenance at the refineries, said Fadel Gheit, a senior energy analyst for Oppenheimer.

“They had the biggest refinery turnaround in their history,” he said. “They had less product to sell and more cost to incur.”

Maintenance was done at Marathon’s refineries in Galveston Bay, Texas, and Garyville, Louisiana, and some others. The maintenance expense and revenue lost by idling the refineries cost $470 million, representing the vast majority of the decline in profit.

The harsh winter hurt, too.

“Low temperatures and heavy snow accumulations in most of our markets brought challenges to the entire supply chain from crude deliveries to the gas pump,” said Gary Heminger, Marathon Petroleum chief executive officer.

The weather reduced the discounts Marathon Petroleum received on oil purchased in middle North America, Dow Jones & Co. reported. Marathon earned $14.46 per barrel of refined petroleum products, or 83 cents less per barrel than a year earlier.

Profit from refining operations fell 67 percent to $362 million last quarter.

Valero Energy Corp. reported a 5.5 percent rise in refining profit. Phillips 66 had a 27 percent drop in profits. Tesoro Corp.’s refining profit fell 29 percent.

With maintenance concluded at Marathon Petroleum’s refineries, Heminger is upbeat.

“While we had much larger than normal (maintenance) expenses in the first quarter, we are well-positioned to continue our top-tier operational performance,” Heminger said. “We are encouraged by the signs of improving market conditions and returning (refinery production) to full run rates, which support our positive outlook for the business.”

Gheit said Marathon is looking strong.

“They have a strong balance sheet, a sound strategy,” he said. “Everything they are doing is top of the class.”

Midcontinent refiners like Marathon Petroleum are using cheaper crude oil to produce the same gasoline and diesel as overseas refiners, giving them a huge competitive advantage, Gheit said.

To further grow its export business, Marathon Petroleum recently completed a gasoline export tank project at its Garyville refinery. The tank improves flexibility to blend gasoline for export to Europe and Latin America, Marathon Petroleum has said.

It also is designing dock expansions at both Garyville and Galveston Bay. The dock expansions are to be completed in 2015.

Marathon also is considering a $2.2 billion to $2.5 billion expansion of the Garyville refinery. The expansion would enable the company to convert a byproduct of the refining process into diesel.

Marathon leaders expect to make a decision on whether to proceed by early 2015. If they do proceed, it would be completed in 2018, said Rich Bedell, senior vice president for refining.

Profit fell at Marathon’s retailing subsidiary, Speedway, by 13 percent from a year earlier to $58 million. That was partly due to higher expenses to keep the stores safe for customers during the harsh winter, said Don Templin, chief financial officer.

Profit margin on gasoline and diesel decreased to 11.6 cents per gallon from 13 cents per gallon a year earlier.

Profit margin on merchandise grew 4.3 percent to $192 million. Merchandise sales increased 1.5 percent to $722 million.

Profit from Marathon Petroleum’s pipeline transportation operations rose 41 percent to $72 million.

The increase was mainly due to an increase in pipeline transportation revenue and income from pipelines Marathon owns with other companies.

Wilin: 419-427-8413
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