Marathon Petroleum to Go Public on $14.7 Billion Valuation

June 30, 2011, 5:11 PM EDT


June 30 (Bloomberg) -- Marathon Petroleum Corp. is set to debut on the New York Stock Exchange tomorrow as the second- largest U.S. independent oil refiner after surging gasoline prices drove a year long rise in refining stocks.

Marathon Petroleum is being spun off from parent Marathon Oil Corp. amid growing investor demand for companies that can capitalize on gasoline prices that rose at twice the rate of crude oil in the past 12 months, said Sam Margolin, an analyst at Dahlman Rose & Co.

The refiner is valued at $14.7 billion in unofficial trading permitted by exchanges to help investors gauge demand, on par with the largest independent refiner, Valero Energy Corp., which has twice the fuel-making capacity. Marathon Petroleum is poised to capture higher margins thanks to upgrades at plants that account for half the company’s oil processing, said Jacques Rousseau, an analyst at RBC Capital Markets LLC.

“It’s seen as a new name in a group of companies that have run up aggressively in the past year, and people think it’s an opportunity to buy a stock that doesn’t have a chart showing a year’s worth of massive gains behind it,” said Margolin in a telephone interview from New York.

Marathon Oil Chief Executive Officer Clarence Cazalot in January revived a plan to split off the refining division after years of frustration that the fuel-producing unit was a drag on the value of the company’s more profitable crude and natural-gas business. Cazalot, a former exploration chief at Texaco Inc., canceled the original spinoff in February 2009 after the global financial collapse deflated equity markets.

Asset Sales

Since then, Marathon Oil has sold off $1.9 billion in refining, storage, pipeline and retail assets, including a plant in Minnesota, and hundreds of convenience stores. The margins earned in the U.S. from processing crude into fuels during that time almost tripled as the recession ended and energy demand rebounded.

Since assuming the top job at Marathon Oil when it was spun off by U.S. Steel Corp. in 2002, Cazalot, 60, has quadrupled net income and expanded the company’s search for oil and gas to Iraq, Indonesia and Poland. On June 1, the company agreed to pay $3.5 billion to Hilcorp Resources Holdings LP for Texas leases that may add the equivalent of 100 million barrels of crude to its reserves by the end of this year.

As a result of the transaction, Cazalot raised his production-growth estimate through 2016 to 5 percent to 7 percent a year from a previous forecast of 3 percent to 5 percent.

Shares Lag

Marathon Oil posted share price gains averaging 7 percent for the past five years, lagging Los Angeles-based Occidental Petroleum Corp. and Anadarko Petroleum Corp. of The Woodlands, Texas, which rose 17 percent and 10 percent a year, respectively. Neither Occidental nor Anadarko engage in refining.

Marathon Petroleum’s margins probably will widen starting in late 2012 after the completion of a $2.2 billion upgrade to the company’s Detroit refinery that will boost its ability to process cheaper crude, RBC’s Rousseau said in a telephone interview.

The Detroit project will increase the refinery’s capacity to handle heavy crude from Canada’s oil sands to 100,000 barrels a day from 20,000 barrels, Rousseau said. Heavy Canadian crude sells for 20 percent to 30 percent less than the lighter types of oil from the Gulf Coast that the Detroit refinery currently primarily runs, he said.

Rousseau, who has an outperform rating on Marathon Petroleum, estimates the Detroit upgrade will add $1 to Marathon Petroleum’s annual per-share earnings. He expects the shares to reach $50 within a year.

“There’s a lot to like with this story,” Rousseau said.

Refining Consolidation

As a stand-alone refiner, Marathon Petroleum will have more volatile earnings than its parent because retail fuel markets tend to fluctuate seasonally, said Ted Harper, an asset manager at Frost Investment Advisors in Houston, who helps manage about $6.8 billion. Frost Investment is a subsidiary of Cullen/Frost Bankers Inc. which held 23,797 Marathon shares as of a March 31 filing.

“They may need to smooth out their earnings stream,” Harper said. Marathon should expand its refining base through acquisitions, or add to its logistics business, which includes the largest U.S. barge fleet, he said.

The U.S. refining industry has consolidated in the past six years as fuel makers, faced with soaring crude costs, cut operating expenses and shed their least-efficient plants. The transactions have included Valero’s 2005 acquisition of Premcor Inc., Western Refining Inc.’s purchase of Giant Industries Inc. in 2007, and Holly Corp.’s planned merger with Frontier Oil Corp., which is expected to close tomorrow.

Texas City

Marathon Petroleum may seek to buy BP Plc’s Texas City refinery near Houston, the biggest U.S. plant ever to be sold as a single asset, said Neil Earnest, practice leader of merger’s and acquisitions at Muse, Stancil & Co., a consulting firm in Dallas.

BP’s Texas City refinery is the third-largest in the U.S. by virtue of 475,000 barrels of daily crude-processing capacity, according to Bloomberg data. The plant is larger than anything in Marathon’s refining portfolio and would provide the ability to export diesel to South America, Earnest said.

BP will have to lower its $2.9 billion asking price for the Texas City refinery before Marathon Petroleum could afford it, said Mark Sadeghian, senior director of energy at Fitch Ratings in Chicago.

Marathon Petroleum will trade under the symbol MPC on the New York Stock Exchange.

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http://www.reuters.com/article/2011/07/01/idUS122855+01-Jul-2011+HUG20110701

Marathon Oil Corporation Becomes Independent Upstream Company
* Reuters is not responsible for the content in this press release.
Fri Jul 1, 2011 8:29am EDT

Spin-Off of Downstream Business Completed
Cazalot Becomes Chairman of the Board; Roberts Named Chief Operating Officer

HOUSTON, July 1, 2011 - Marathon Oil Corporation (NYSE: MRO) announced today that it has completed the spin-off of Marathon Petroleum Corporation (NYSE: MPC), making Marathon Oil an independent upstream company.

Marathon Oil has a strong and geographically diverse portfolio of assets leveraged to crude oil production. The Company will continue to be based in Houston.

"This is an exciting day and a major milestone in the nearly 125-year history of Marathon Oil Corporation," said Clarence P. Cazalot Jr., Marathon Oil's chairman, president and CEO. "As an independent upstream company, we have the capacity to perform at a higher level by focusing on strategic priorities while providing greater transparency for investors. Operationally, we're poised to capitalize on a broad base of opportunities by exhibiting the speed, agility and flexibility of an independent and retaining our proven ability to accomplish large and technologically challenging projects. What isn't going to change is our focus on long-held core values of health and safety, environmental stewardship, honesty and integrity, corporate citizenship and a high performance team culture. Together, these attributes create the foundation for a strong, competitive Company with a goal of continuing to deliver long-term value growth for our shareholders."

With this change and effective July 1, Cazalot becomes chairman of the board of Marathon Oil Corporation in addition to his responsibilities as president and CEO. Additionally, David E. Roberts Jr. takes on the newly established role of executive vice president and chief operating officer. Janet F. Clark will continue in her role as executive vice president and chief financial officer.

For a complete listing of the Company's other officers, please visit Marathon Oil's new corporate website athttp://www.marathonoil.com. Among them are five newly elected vice presidents: James L. Bowzer, North America Production Operations; Steven P. Guidry, Business Development; Bryan J. Roy, Drilling and Completions; Gregory S. Sills, Upstream Developments; and Gretchen H. Watkins, International Production Operations.

To effect the spin-off, Marathon Oil shareholders received one share of MPC common stock for every two shares of Marathon Oil common stock held on the record date of June 27, 2011. MPC is now an independent, publicly traded company, in which Marathon Oil retains no ownership interest.

BRAND IDENTITY

Effective today, Marathon Oil has adopted a new corporate logo - an abstracted tri-color wave - that symbolizes the momentum resulting from its exploration and production activity as well as the drive and innovation of the Company's employees. The new branding is reflected on the new corporate website, on Twitter @MarathonOil and on Flickr, Linkedin and StockTwits.


ABOUT MARATHON OIL

Marathon Oil Corporation (NYSE:MRO) is an independent international energy company engaged in exploration and production, oil sands mining and integrated gas. Based in Houston, Texas, the Company has a strong portfolio of assets delivering defined growth leveraged to crude oil production with exploration upside. At the end of 2010, Marathon Oil had net proved reserves of more than 1.6 billion barrels. The Company's operations are located in the United States, Angola, Canada, Equatorial Guinea, Indonesia, Iraqi Kurdistan Region, Libya, Norway, Poland and the United Kingdom. For more information, visit the Company's website at http://www.marathonoil.com.


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This release contains forward-looking statements with respect to expectations of capitalizing on a broad base of opportunities and additional growth leveraged to crude oil production. Although we believe the expectations set forth in the forward-looking statements are reasonable, we can give no assurance those expectations will prove to have been correct. Those statements are made by using various underlying assumptions and are subject to numerous uncertainties and risks. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may differ materially from those set forth in the forward-looking statements. In accordance with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Marathon Oil Corporation has included in its Annual Report on Form 10-K for the year ended December 31, 2010, and subsequent Forms 10-Q and 8-K, cautionary language identifying other important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements.


Media Relations Contacts
Lee Warren: 713-296-4103
John Porretto: 713-296-4102

Investor Relations Contacts
Howard Thill: 713-296-4140
Chris Phillips: 713-296-3213

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STATOIL LEADING RACE FOR ANADARKO ASSETS

Norway's state-controlled energy group Statoil is in pole position to buy the Brazilian business of U.S.-listed explorer Anadarko for about $3 billion, which would mark the latest big foray by a global oil group into the South American country. http://link.reuters.com/gac96s