Analyzing Marathon Petroleum’s Integrated Value Chain



Marathon Petroleum’s integrated value chain

Marathon Petroleum is looking forward to high earnings growth in the coming years. The growth will likely be led by the company’s integrated value chain, higher capacities, and synergies due to its acquisition and capex activities.

Marathon Petroleum closed the acquisition of Andeavor in the fourth quarter. Marathon Petroleum is the largest downstream company in the United States with huge refining capacities, an extensive midstream network, and a vast chain of retail and marketing stations.

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Marathon Petroleum can use its integrated network to take advantage of business conditions. The company can utilize its pipeline network to refine discounted Canadian crude oil, Permian oil, and Bakken oil in its refining system. With Andeavor’s refineries, Marathon Petroleum has more flexibility to refine sweet or sour crudes in its system. The retail network, which includes Andeavor’s retail assets, provides deeper penetration across the US. The dynamics across the value chain are expected to create huge synergies and earnings for the company.

Capex in 2018

Marathon Petroleum is continuing its organic growth activities through its capex. In 2018, Marathon Petroleum incurred $4.3 billion in capex, which was 39% YoY (year-over-year) growth. The Refining and Marketing and Retail segments accounted for 25% and 11% of the total capex, respectively, in 2018.

Valero Energy (VLO), Phillips 66 (PSX), and HollyFrontier (HFC) incurred a capex of $2.7 billion, $2.6 billion, and $0.3 billion, respectively, in 2018.

Most of Marathon Petroleum’s capex was towards the Midstream segment, which accounted for 61% of the total capex. Marathon Petroleum plans to increase its midstream earnings to create a diversified downstream earnings model. The capex in the Midstream segment rose 50% YoY to $2.6 billion in 2018.

Next, we’ll discuss the growth activities in the Refining and Midstream segments.


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