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HOUSTON -- Marathon Oil Corp. is moving ahead with plans to spin off its downstream business, effectively splitting into two independent companies. The move, which Marathon has been evaluating for some time, will become effective June 30.
Marathon Oil Corp. (MRO) will continue on as a global upstream company, while Marathon Petroleum Corp. (MPC) will become the fifth largest U.S. refiner with a top-tier downstream portfolio of holdings primarily located in the Midwest, Gulf Coast and Southeast regions of the country. MPC will be headquartered in Findlay, Ohio.
In a conference call/webcast on Jan. 13, Marathon president and chief executive officer Clarence P. Cazalot Jr. said that the company has said from early 2009 it would go forward as one integrated company; however, Marathon was not ruling out exploring the option of splitting into two companies. And now is the right time to exercise that option, with Cazalot explaining that improving market conditions over the past two years make the move possible.
Marathon sees several benefits from the transaction. Cazalot said that each company would have the ability to make business and operational decisions in its own best interest, and have the ability to allocate funds and resources toward its own strategic priorities. In addition, functioning as two separate companies will allow MRO and MPC to be more transparent and have an improved investor focus. Furthermore, MRO and MPC will have the capability to attract and retain individual talent with more focused business models, he said.
As Marathon works to define itself as two independent companies, MRO and MPC will move forward with their own directors and managers, Cazalot added. At MPC, Thomas J. Usher will serve as non-executive chairman and Gary R. Heminger will serve as president and chief executive officer. At MRO, Cazalot will continue to lead as president and chief executive office and will also take the reins as chairman.
"We are creating two very strong, focused energy corporations," he added. Among other things, MRO will be characterized by a substantial, geographically diverse oil and gas portfolio, a stable base with low risk defined growth, and safe and reliable operations. And MPC is very strong across the full downstream value chain, is well positioned geographically and is consistently a top performer on an operating income per barrel basis, Cazalot said.
Janet Clark, executive vice president and chief financial officer, explained that MRO and MPC will be strong investment grade companies, with each having "sufficient liquidity and financial flexibility to pursue their strategic objectives." On the financial front, she said that Marathon has "taken the financing risk off the table" with committed bridge financing from Morgan Stanley and JP Morgan, and committed revolver from Morgan Stanley and JP Morgan which will be syndicated as soon as possible.