FINDLAY, Ohio -- Marathon Petroleum Corp. (MPC) is growing its Speedway convenience store brand--and it intends to keep it, rather than spinning it off. It is also expanding its Marathon retail brand through its acquisition of BP Plc's Texas City, Texas, refinery and related assets--now called Galveston Bay--Gary R. Heminger, president and CEO said during MPC's fourth-quarter 2013 earnings call on Wednesday.
"We are moving aggressively toward expanding our retail footprint through investments in Speedway and continued efforts to convert the branded contract assignments we acquired as part of the Galveston Bay acquisition to the Marathon brand. As we highlighted in December, we have almost tripled the amount of capital invested per year and rebuilt in new locations in our Speedway business over the previous five-year period," he said.
"This includes expansion into attractive contiguous markets in Western Pennsylvania and Tennessee, where we opened our first Speedway locations in 2013 and are planning to expand further," said Heminger.
In Feb. 2013, MPC purchased BP's Texas City refinery, related pipelines, four terminals and retail marketing contract assignments for approximately 1,200 branded sites for a base price of $598 million, plus inventories estimated at $1.2 billion.
The refinery provides products throughout the U.S. Gulf Coast, Midwest and Southeast, as well as into export markets. The light product terminals are in Jacksonville, Fla., Charlotte and Selma, N.C., and Nashville, Tenn.
The integrated acquisition also included the assignment of branded-jobber contracts supplying the 1,200 BP locations, representing approximately 64,000 barrels per day of gasoline sales, in the southeastern United States. The retail locations are primarily in Florida, Mississippi, Tennessee and Alabama. The stations have been branded BP during the transition process.
During the call, when asked whether MPC would consider spinning off Speedway as other companies have done with their retail networks, Donald C. Templin, CFO and senior vice president of MPC, said, "Speedway is an integral part of our business. We measure something that's called controlled volume, where we know every day because it improves our efficiency and the way we move products through pipelines, through terminals, through trucks, finally, to the consumer. We think that's the most efficient way to move your product. And it gives us the opportunity to capture margin across that entire supply chain. And that's what Speedway does for us. We think Speedway is one of the best operators in the business, and that's seen in their new record this year in income and cash flow."
He added, "When you … look at a spin versus continuing to have this as … a key part of our business--and I've looked at others who have spun off their retail--it has varying degrees of how many years you may have a supply agreement. And 10 years, 15 years is a very short time. And then you don't have that supply, you don't have that synergy that we have today. So I'm not going to say we would never do that. We continue to look at this and study this. But I think Speedway has a long way to run as far as growing and continuing to be efficient. And I think they have one of the best backroom platforms in the business."
MPC reported 2013 fourth-quarter earnings of $626 million, compared with $755 million in fourth-quarter 2012. Earnings were $2.11 billion for the full-year 2013, compared with $3.39 billion in 2012.
Speedway segment income from operations was $83 million in fourth-quarter 2013 and $375 million for full-year 2013, compared with $77 million in fourth-quarter 2012 and $310 million for full-year 2012, representing record annual earnings for the business. The increase in segment income for fourth-quarter 2013 compared to fourth-quarter 2012 is primarily the result of a higher merchandise gross margin, partially offset by a decrease in the gasoline and distillate gross margin. The increase for full-year 2013 compared to full-year 2012 is primarily due to higher gasoline and distillate gross margins and a higher merchandise gross margin, partially offset by higher operating expenses related to an increase in the number of c-stores.
On a same-store basis, gasoline sales volumes increased 0.2% and merchandise sales, excluding cigarettes, increased 5.6% in fourth-quarter 2013 compared with the 2012 fourth quarter. Speedway's average retail gasoline price was $3.14 per gallon during fourth-quarter 2013 compared with $3.32 per gallon for the comparable quarter last year. In Jan. 2014, it saw a slight decrease in demand with an approximately 1.5% decrease in same-store gasoline sales volumes versus the prior year. This is primarily due to the extreme weather conditions in most of the Midwest during the month.
Speedway's income from operations for all of 2013 was $375 million compared with $310 million for 2012. Light product margins increased by $54 million as margins averaged $0.144 per gallon in 2013, about $0.01 higher than the 2012 average of $0.132. On a same-store basis, gasoline sales volumes increased 0.5% in 2013 compared to 2012. Merchandise margins were $825 million in 2013 compared to $795 million in 2012 or an increase of $30 million. The increase in light product and merchandise margins were partially offset by increased expenses of $19 million, primarily due to an increase in the number of stores operated in 2013 as compared to 2012.
Findlay, Ohio-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 5,200 independently owned retail outlets across 18 states. In addition, Enon, Ohio-based Speedway LLC, an MPC subsidiary, owns and operates the nation's fourth-largest convenience store chain, with approximately 1,480 convenience 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 LP, a midstream master limited partnership (MLP). MPC's fully integrated system provides operational flexibility to move crude oil, feedstocks and petroleum-related products efficiently through the company's distribution network in the Midwest, Southeast and Gulf Coast regions.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.