The series so far
Previously in this series, we performed a cross-sectional analysis of the first-quarter earnings of refining firms Marathon Petroleum (MPC), Andeavor (ANDV), Valero Energy (VLO), and Phillips 66 (PSX). We also looked at the changes in their analyst ratings.
Now, we’ll switch to financial analysis, beginning with these refiners’ debt positions.
Changes in refiners’ debt levels
Downstream companies Marathon Petroleum (MPC), Andeavor (ANDV), Valero Energy (VLO), and Phillips 66 (PSX) have witnessed rising debt levels due to continuous capex and acquisitions amid a volatile refining environment.
Refiners have been increasing spending on creating alternative earnings streams, which could help minimize the refining earnings’ volatility. This trend was also visible in their first-quarter performance. In the first quarter, all four refiners reported a rise in their net debt levels sequentially.
In the first quarter, Valero observed the highest rise in its net debt. VLO’s net debt rose 42.0% sequentially to $4.3 billion. MPC and PSX saw their net debt levels rise 27.0% and 26.0% sequentially, respectively. ANDV saw the lowest sequential rise of 16.0% in its net debt.
Refiners’ total-debt-to-total-capital ratios in Q1 2018
Let’s look at the total-debt-to-total-capital ratios of these refiners. This ratio reveals the amount of debt as a percentage of its total capital, including its equity.
Marathon Petroleum, which just completed strategic restructuring and announced the acquisition of ANDV, has a total debt-to-capital ratio of 46.0%. This is the highest ratio of the peers in our survey.
Andeavor has a total-debt-to-total-capital ratio of 40.0%, which is higher than VLO’s and PSX’s ratios. ANDV has seen a recent rise in its debt levels, primarily due to acquisitions in its Refining and Midstream segments. PSX’s total-debt-to-total-capital ratio stood at 32.0% in the first quarter.
Move to the next part to learn about the cash flow positions of these companies in the first quarter.
Correction: An earlier version of this article misrepresented the sequential increases in VLO, MPC, PSX, and ANDV’s net debt as year-over-year changes.