Growth of debt
Marathon Petroleum’s (MPC) total debt almost doubled in 3Q15 compared to the same quarter in the previous year. The company’s total debt grew by 95%. However, its interest coverage ratio was at 14x, and its weighted average cost of debt was at 1.9%. Marathon’s numbers were the highest interest coverage ratio and the lowest weighted average cost of debt among refiners. The graph below shows the growth of debt and weighted average cost of debt of different refiners.
The total debt of Tesoro (TSO) and PBF Energy (PBF) grew by an approximate 50% and 70%, respectively. Refiners CVR Refining (CVRR) and Northern Tier Energy (NTI) both have a weighted average cost of debt of around 3.6% compared to MPC and TSO at 1.9% and 2.2%, respectively.
In comparison to downstream companies, the total debt of Chevron, an integrated energy company, grew by 36% on a YoY (year-over-year) basis in 3Q15. The Energy Select Sector SPDR Fund (XLE) invests 11.9% of its portfolio in Chevron.
Interest coverage ratio
The average interest coverage ratio of the ten large-capped refiners stood at 9x. The refiners that are more sensitive to the change in interest rates include Alon USA Energy (ALJ), CVR Refining (CVRR), and Tesoro (TSO). Their EBIT (earnings before interest and taxes) to interest expenses equaled 1.7x, 5x, and 6x, respectively.
In the next part, we will analyze the refining margin and capacity of different refiners.