Analytical Instrumentation

What is Happening to Marathon Petroleum?

Jan 11 2017 Comments 0

With oil prices yo-yoing and the green energy revolution on the horizon, the current landscape is indisputably volatile for petroleum producers. Refining, marketing and transportation company Marathon Petroleum is one of the latest corporations to feel the pinch, and has just announced plans to separate its Speedway subsidiary in an effort to lift stock prices.

A special board of directors committee has been pooled together to review the Speedway retail subsidiary, with an independent financial adviser on-hand to offer guidance. Ultimately, the move would see the Speedway subsidiary operate as a detached operation, and ideally increase shareholder value. Marathon CEO Gary Heminger has confirmed that the review will be well underway over the next few months, with an update expected by the summer.

The ‘belt tightening’ trend

Marathon Petroleum isn’t the only refiner tightening its belt, with other producers suffering from falling stock prices and deteriorating profit margins over the past year. It’s been an ongoing concern, with Heminger recently unveiling a handful of strategic proft-boosting moves that the company plans to execute in 2017.  

“Driving long-term value for our shareholders has always been and remains a top priority,” Heminger reassures shareholders. “We believe (Marathon Petroleum) is undervalued in the public markets.”

Asset contributions pegged as keynote strategy

So what does Marathon have up its collective sleeve? As well as studying price-boosting measures, Marathon will fast-track asset contributions to MPLX, its energy and logistics subsidiary. In exchange for the assets, Marathon will be issued with units of MPLX. Just two months ago, Marathon released plans to contribute around $1.4 billion by year-end 2019. Now, it’s accelerated this goal to year-end 2017.

It’s a smart move, given that MPLX is Marathon’s fastest growing business. While the company currently generates the majority of profits from refining, MPLX has enormous potential. Profits are also steadier, which makes it’s a safer bet given current market conditions.

Strategic moves for shareholders

Of course, not everyone is on board. In the past Speedway has been considered critical to stabilising Marathon’s refining margins, which raised questions as to whether separation is a smart decision, and if the company will be able to deliver on $1.4 billion annual cheques to MPLX without its support.

While there’s been scepticism over the decision to segregate the Speedway retail arm, Marathon is adamant that at the end of the day, alliances are with shareholders. Heminger is confident that the company is acting in the best interests of its investors, with a recent 5.12% stock price rise sanctioning the move.

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