MPC-ANDV Merger Could Create Massive Refining Capabilities



Vast refining operations

In the previous part of this series, we examined the synergies that could come from the merger of Marathon Petroleum (MPC) and Andeavor (ANDV). In this part, we’ll look at how the refining segment of pro forma MPC (the merged entity) could shape up.

Pro forma MPC (the merged entity) would have 16 refineries with around 3 million barrels per day (or MMbpd) of capacity spread across the US, benefitting MPC as well as ANDV. Marathon Petroleum has assets in the Gulf Coast and Midwest regions in the US, mainly in PADD 2 (Petroleum Administration for Defense Districts) and PADD 3. In comparison, ANDV has refineries located in California, the Pacific Northwest, and the Mid-Continent, mainly in PADD 4 and PADD 5. Thus, the merger would create an entity that spans across the US.

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Also, pro forma MPC’s refining capacity would be the highest among other refiners like Valero Energy (VLO) and Phillips 66 (PSX). VLO and PSX’s capacities stand at 2.6 MMbpd and 1.9 MMbpd, respectively, in the US. Furthermore, integrated energy companies like ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell’s (RDS.A) refining capacities in the US also would stand lower compared to pro forma MPC. XOM, CVX, and RDS.A’s capacities stand at 1.7 MMbpd, 0.9 MMbpd, and 0.9 MMbpd, respectively, in the US.

Optimization and diversity of operations

Besides scales, pro forma MPC’s refineries would benefit from access to more beneficial feedstock supply. Plus, the sharing of innovative technology could lead to process optimizations in the refineries. In addition, the refining margins vary across the US. The margins on the West Coast have trended higher compared to the Midwest and Gulf Coast since 2014. Thus, pro forma MPC’s refining earnings would benefit from diversity of operations.

Furthermore, pro forma MPC would be favorably positioned to handle the low sulfur fuels requirements of the IMO (International Maritime Organization), which are expected to come into effect by 2020. Pro forma MPC already has coking and hydrocarbon capacities to take advantage of market changes. Plus, MPC has ongoing projects to enhance these capacities.

In the next part, we’ll look at how midstream segments could benefit from the merger.


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