Marathon to Invest $925 Million in Speedway

"Strong believers in downstream integration," execs will "capitalize on those synergies"

Greg Lindenberg, Editor, CSP

Speedway marathon

NEW YORK -- Marathon Petroleum Corp. (MPC) president and CEO Gary R. Heminger, also chairman and CEO of MPLX LP, highlighted MPC's greater emphasis on growing stable earnings from the company's midstream and retail businesses to balance earnings and cash flow from its refining and marketing segment, including its Speedway convenience stores.

"We recognize that earnings volatility is an issue for long-term investors, and we are addressing that by growing more aggressively the segments of our business that produce more stable cash flows," Heminger said at the companies' 2013 Analyst & Investor Day in New York on Dec. 4..

He added that the company's Refining & Marketing segment will capitalize on evolving market conditions and likely remain the predominant cash flow generator for the company in the near-term.

MPC senior vice president and CFO Don Templin emphasized the company's balanced approach to business investment and capital returns, and provided investors with a look at the company's 2014-2016 capital investment profile. Templin noted that over the next three years, MPC expects to invest $640 million in midstream assets that are a part of its Refining & Marketing segment; $2.4 billion in Pipeline Transportation, including MPLX; and $925 million on growing the Speedway c-store segment.

This represents a $2.4 billion increase compared with the amount spent on these segments during the previous three-year period.

Speedway LLC president Tony Kenney provided an overview of Speedway's top-tier performance in the c-store industry.

"[The] Speedway story is an excellent one, characterized by Speedway continuing to be a top performer within the convenience store industry," he said. "Speedway is currently executing an accelerated growth program, which along with our current retail assets, will be closely aligned with MPC's extensive fuel production and distribution system. We are strong believers in downstream integration value from refining all the way through retail, and we plan to continue to capitalize on those synergies into the future."

He said, "This past year, we increased same-store sales and experienced higher gasoline and distillate gross margins. Our new locations in Pennsylvania and Tennessee demonstrate investments in Speedway's business to provide for accelerated growth in contiguous markets. We are evaluating opportunities for further organic growth and acquisitions."

Kenney said the company has several stores currently under construction in those states that will open over the next 30 to 90 days. "Additionally, we are actively acquiring real estate in both markets to be in a position to accelerate the pace of growth over the next several years."

He added, "In preparation for growth beyond Pennsylvania and Tennessee, we currently are evaluating additional potential markets for Speedway. We've continued enhancements to our base business and the focus to grow Speedway; expectations are to continue to deliver a very reliable and growing cash flow stream."

Speedway is on a path to generate as much as $1 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) annually by 2020, he said.

A key component of MPC's strategy will be MPLX, the master limited partnership formed by MPC in October 2012 to be the primary vehicle for MPC to own, operate and grow its midstream business. Garry Peiffer, president of MPLX and executive vice president at MPC, provided insight into MPLX's strategy for sustained, long-term growth. The partnership will focus on fee-based businesses, pursuing organic growth opportunities and also growing through acquisitions, including drop-downs from MPC's substantial and expanding portfolio of midstream assets. Peiffer also reiterated that MPLX intends to grow distributions at an annual rate of 15% to 20% for at least the next several years.

MPLX is an MLP formed in 2012 by MPC to own, operate, develop and acquire pipelines and other midstream assets related to the transportation and storage of crude oil, refined products and other hydrocarbon-based products. Based in Findlay, Ohio, MPLX's assets consist of a majority equity interest in a network of common carrier crude oil and products pipeline assets located in the Midwest and Gulf Coast regions of the United States.

Findlay-based MPC is the nation's fourth-largest refiner, with a crude oil refining capacity of approximately 1.7 million barrels per calendar day in its seven-refinery system. Marathon-brand gasoline is sold through approximately 5,100 independently owned retail outlets across 18 states. In addition, Speedway, an MPC subsidiary, owns and operates the nation's fourth-largest c-store chain, with approximately 1,470 stores in nine states. MPC also owns, leases or has ownership interests in approximately 8,300 miles of pipeline. Through subsidiaries, MPC owns the general partner of MPLX.