Marathon Petroleum Plans Spinoff of Midstream Assets

FINDLAY, Ohio -- Marathon Petroleum Corp. (MPC) may have only been spun off from its parent, Marathon Oil Co., seven months ago. But this morning, Gary Heminger, MPC's president and CEO, said the company is already planning its own spinoff.

If approved by the U.S. Securities and Exchange Commission, MPC plans to spin off its midstream assets into a separate company called a master limited partnership (MLP). The MLP, which would be publicly traded, combines tax benefits with the liquidity of a public company. To become an MLP, a company must generate at least 90 percent of its income from what the Internal Revenue Service calls "qualifying" assets. The production, processing or transportation of oil are three things deemed as qualifying assets.

"Since we were spun off from Marathon Oil seven months ago, our goal has been to return as much as possible to our shareholders," said Heminger. "We have already done so with stock buybacks and dividends. Now is the appropriate time to take more actions. We are very confident in our future."

The company confirmed during the conference call that only its midstream assets would be considered for the spinoff into an MLP. Therefore, Speedway LLC, its convenience store division which is considered a downstream asset, would likely remain under MPC.

As for timing of the midstream assets spinoff, MPC said it will have much more information about the potential for an MLP during its next earnings call, expected to take place in late April or early May.

Also announced during today's earnings call were the results of Speedway's operations during its latest quarter. Speedway earned $73 million in its 2011 fiscal fourth quarter. That compares to $65 million during the company's 2010 Q4.

For the full year, Speedway, which now has 1,371 stores, earned a profit of $273 million, compared to $293 million for 2010. Heminger said the $22-million decrease was not due to weaker Speedway sales. Instead, it was attributed to the sale of 166 convenience stores that were part of its Dec. 1, 2010, Minnesota asset disposition.

"Speedway performed very well," said Heminger. "We had a great quarter. Our numbers were higher than 2010's [Q4] even though we sold 166 c-stores during December [2010]."

The industry can expect Speedway to pursue plenty of c-store acquisitions in 2012, according to Heminger. "We have set forth $353 million for Speedway in our capital budget for 2012," he said. "That compares to $164 million in 2011. We will continue to look for acquisitions as long as the company is balanced."

As for MPC as a whole, the company suffered a $75-million loss during its fiscal fourth quarter, compared to a net income of $230 million during the same period in 2010.

"We saw several factors that affected the fourth quarter to cause a small loss for MPC," Heminger said. "The fourth-quarter 2011 results were impacted primarily by the rapid increase in the price of West Texas Intermediate crude oil."

Investors have seemingly cheered the proposed MLP move, trading MPC's stock nearly 10 percent higher this morning on the New York Stock Exchange.