Synergies of Marathon Petroleum & Andeavor Merger on Target

FINDLAY, Ohio — With one quarter under its belt, the combined powerhouse of Marathon Petroleum Corp. and Andeavor has already reached approximately $160 million of realized synergies.

Moving forward, Marathon Petroleum continues to expect total annual gross run-rate synergies of up to $600 million by year-end 2019 and up to $1.4 billion by the end of 2021, according to Chairman and CEO Gary Heminger.

The Marathon-Andeavor transaction closed Oct. 1. Heminger and other company executives discussed the acquisition's synergies during Marathon Petroleum's fourth-quarter 2018 earnings call, held Feb. 7.

"It was an impressive year with many milestones for Marathon, and our integrated business model allowed us to return $4.2 billion of capital to our shareholders, which included $675 million of share repurchases in the fourth quarter," Heminger reported.

Additionally, Marathon recently announced a 15-percent increase in its quarterly dividend — underscoring the company's confidence in its cash-generation potential, the chief executive added.

"As we look into 2019, we remain optimistic about the prospects for our business and our ability to deliver compelling financial results," Heminger said.

Delivering Synergies

Of the $160 million of synergies realized in the fourth quarter of 2018, $138 million were in Marathon's refining and marketing segment.

"Although not all of these synergies are recurring, it has underscored our confidence in delivering on the significant opportunities that are available to us," said Don Templin, president of refining, marketing and supply.

Marathon's synergy targets, and realizations, are incremental to the synergies that Andeavor realized as part of its Western Refining Inc. acquisition. As of the Oct. 1 closing date, Andeavor had separately achieved run-rate synergies of $365 million on that transaction.

According to Templin, Marathon "is not constraining" itself to the synergies originally identified.

"Our teams are very focused on generating incremental synergy ideas and opportunities," he explained. "For example, during the fourth quarter, we converted 170 company-owned and -operated sites in Minnesota to the Speedway brand. This will support synergy capture in the retail segment going forward."

The Marathon-Andeavor "synergy walk" will be different from other transactions, Heminger detailed. 

"A lot of times, you will see synergies up front and then a very long and slow tail of synergies," he said. "These synergies are going to be more of a stair-step going forward. We have already [converted] 170 stores in Minnesota. We are now in southwest Texas. We are going to start in Arizona soon and New Mexico, and start re-IDing and developing those stores into Speedway."

However, it will take a little longer when the conversion process moves into California and other western states as Marathon waits for permitting.

"We are very bullish on the synergies that are there. I believe there can be some upside in the retail synergies," Heminger added.

Headquartered in Findlay, Marathon Petroleum is an integrated, downstream energy company. It operates the nation's largest refining system with more than 3 million barrels per day of crude oil capacity across 16 refineries. Marathon's marketing system includes branded locations across the United States, including Marathon-branded retail outlets.

Enon, Ohio-based Speedway LLC, a Marathon subsidiary, owns and operates retail convenience stores across the U.S.

Marathon also owns the general partner and majority limited partner interests in two midstream companies, MPLX LP and Andeavor Logistics LP, which own and operate gathering, processing and fractionation assets, as well as crude oil and light product transportation and logistics infrastructure.