Marathon Petroleum Has 'Appetite for Acquisitions'

FINDLAY, Ohio -- Marathon Petroleum Corp. is working to strengthen its position with gasoline site acquisitions, according to CEO Gary Heminger.

In comments to reporters, Heminger said the Findlay, Ohio-based oil refining company has an "appetite for acquisitions."

"They've been very clear [that] they would like to increase their exposure on the retail side," Ann Kohler, an analyst with CRT Capital LLC in Stamford, Conn., told the Toledo Blade.

Marathon Petroleum separated from its former parent company, Marathon Oil Corp. of Houston, on June 30. The spinoff made Marathon Petroleum the largest company in northwest Ohio and the nation's fifth-largest oil refiner. The company reported revenues of about $62.5 billion last year.

Heminger told Reuters last month that his company is looking to make deals that could add to the bottom line. "We have an appetite for acquisitions -- probably not across the Atlantic, but an appetite for acquisitions, and definitely an appetite to continue to grow our Speedway business," he said.

Marathon Petroleum owns six refineries. It also owns nearly 1,400 Speedway stores in seven states, which employ about 18,000 of Marathon Petroleum's 25,000 employees nationwide. Additionally, the company supplies fuel to 5,100 Marathon gas stations owned by independent operators in 18 states.

In a conference call this month with analysts to discuss the company's second-quarter earnings, Heminger said he is looking for opportunities to expand Speedway in the Southeast. In the Midwest, which is Speedway's largest market, the CEO said he wants to expand the convenience brand near new housing developments or highways, the newspaper reported.

"We want to continue to invest in our retail operations, both at Speedway and the Marathon brand, to continue our strong presence in the markets which we serve," Heminger told analysts.

The company recently spent about $70 million to acquire 23 stores in Chicago and northwestern Indiana.

Marathon Petroleum also spent $3.9 billion to expand its oil refining capacity at its Louisiana facility to 436,000 barrels of crude oil a day, up from 180,000 barrels a day. It recently received approval from Louisiana state officials to further ramp up the production to 545,000 barrels a day.

Kohler said a larger retail network would position Marathon Petroleum to capture fuel sales that might otherwise go to competitors such as Chevron, BP, ExxonMobil and others.

"It allows you to run your refinery harder than somebody who's not as highly integrated because you have a natural home for that product," she said.

This would be Marathon's second time entering the gas retail market in the Southeast. Under Marathon Oil, the company decided in 2003 to sell about 200 stores in Tennessee, Florida, Georgia and South Carolina.

"We didn't have very strong market share, nor did we have the density to be able to really justify any big marketing campaigns," Heminger explained during the recent conference call.

Company spokesman Angelia Graves said success is possible this time because "we can leverage our existing logistical system" and "build upon customer loyalty" in the Southeast. "Previously, we were not able to accomplish this with a small number of stores spread across several different states," she said.

Heminger also told Reuters the company could have interest in buying "some transportation assets." Graves said those sorts of deals could include "pipelines, petroleum terminals, marine operations, railcars [and] trucks."

Company CFO Don Templin said during the conference call that Marathon Petroleum had $1.6 billion in cash at the end of the second quarter and a $2 billion revolving credit line that will help drive the company's expansion plans.

"This should provide us with significant flexibility to manage our operations and to pursue value-enhancing organic growth opportunities and selective acquisitions," Templin said.

Stacey Hudson, an analyst with Raymond James & Associates in Houston, told the Toledo Blade the oil company may turn over more of its cash to a Speedway expansion once a $2.2 billion expansion of its Detroit refinery is completed in the second half of next year. That upgrade will allow Marathon Petroleum to boost refining of heavy Canadian crude.

"That should free up some capital to play with," Hudson said of the project's scheduled completion.

Hudson noted that Marathon Petroleum could decide to make acquisitions sooner rather than later considering the volatility of its business and the company's current earnings strength. Marathon Petroleum nearly doubled its second-quarter profits to $802 million this year, partly because of favorable oil crude pricing.

"Given the current environment where times are good, now would probably be a good time to pursue an acquisition if you're going to do one," Hudson told the newspaper.