By LOU WILIN
Marathon Petroleum Corp.’s barges on the Mississippi and Ohio rivers helped it earn higher profits on its gasoline and diesel fuel, boosting second-quarter earnings by 44 percent to $855 million, Marathon reported Thursday.
Earnings amounted to $2.95 per share.
Marathon Petroleum buys crude and refines it into gasoline, diesel and other petroleum products, which it then sells.
Its profit margins on the oil it refined and then sold as gasoline and diesel in the April-June quarter beat its peers, said Roger Reed of Wells Fargo Securities.
Profit from refining and marketing operations rose by 40 percent from a year earlier. Phillips 66’s refining profit fell 14 percent and Valero Energy Corp.’s refining profit rose 18 percent. Tesoro Corp.’s fell 29 percent.
So on a day when the Dow Jones Industrial Average lost 317 points, Marathon Petroleum’s stock rose 5.7 percent, closing at $83.48. Tesoro rose 3.6 percent; Valero, 1.5 percent; Phillips 66, 0.8 percent; and Holly Frontier Corp., 2.3 percent.
“All refiners’ stocks today went crazy … Marathon Petroleum was by far the head of the pack and took the rest of the refining stocks up with it,” said Fadel Gheit, senior energy analyst for Oppenheimer.
“Marathon Petroleum had very strong results … but given the 300-point drop in the market, I did not expect the stock to do as well as it did,” he said.
While most stocks fell Thursday over fears of default in Argentina and strife in the Middle East and Ukraine, refiners benefited from a deepening of the discounted price they pay for crude oil produced in mid-North America, Gheit said.
“It was a good day for the refiners and a bad day for everybody else,” he said.
Among refiners, Marathon did the best not only Thursday but in the entire April-June quarter. Its fleet of 16 towboats and 200 owned or leased barges made a difference. Marathon also leases ships used in the Gulf of Mexico and Atlantic Ocean.
“Our significant marine or barge system … allows us to be very flexible in moving product to markets where there is a good demand,” Chief Financial Officer Donald Templin said.
“It just illustrates the efficiency of our system … to be able to move to the markets quicker than anyone else,” said Gary Heminger, chief executive officer.
Revenue from refining, Speedway stores and pipeline operations grew by 4.5 percent to $26.84 billion from a year earlier in the April-June quarter.
Refining and marketing operating profit totaled $1.26 billion, up 40 percent from a year earlier. Profit margin per barrel of refined product grew 22 percent to $16.02 per barrel.
“The refining side of the business is what really carried the load of the earnings improvement this quarter,” Gheit said. “Earnings were 88 percent from refining. So basically refining made the day.”
Marathon Petroleum increased its refining capacity by nearly 40 percent in early 2013 when it bought a Galveston Bay, Texas, refinery and other assets from BP.
“The refinery is performing on a financial basis very well,” Heminger said. “I’m very pleased with the value generation, very pleased with how this positions us in the marketplace.”
Marathon Petroleum’s coming purchase of Hess’s retail stores in the East and Southeast complements the Galveston Bay purchase and buttresses Marathon Petroleum’s position, he said. The deal will close in September.
By turning the 1,256 Hess stores into Speedway stores, Marathon will guarantee itself more sales of its refined products. The additional stores will be an important outlet for gasoline produced at Marathon’s seven refineries as the export market for gasoline and diesel becomes increasingly competitive, Platts Commodity News reported.
But Marathon Petroleum will not be a suitor of Citgo Petroleum Corp., which reportedly is considering selling its refinery operations.
“Right now we’re pretty satisfied with our footprint,” Heminger said.
Speedway did not fare as well as the refining operations last quarter. Its profit margin on gasoline and diesel shrank 26 percent to about 13 cents per gallon. Speedway’s operating profit fell nearly 24 percent to $94 million. Sales of merchandise increased 3 percent from a year earlier to $830 million.
Operating profit for Marathon’s pipeline transportation segment, which includes subsidiary MPLX LP, grew by 40 percent to $81 million. The increase was mainly due to an increase in transportation revenue.
The segment generates profit mainly by charging for use of its pipelines in Illinois, Indiana, Ohio, Michigan, Kentucky, West Virginia, Louisiana and Texas; a barge dock on the Mississippi River near Wood River, Illinois; and storage tanks in Patoka, Wood River and Martinsville, Illinois, and Lebanon, Indiana, and Neal, West Virginia. Most of its revenue comes from Marathon Petroleum’s use of those assets.
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