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Speedway Expansion a Highlight of Marathon's Q1

Refiner, marketer achieved 'significant milestones' ahead of Andeavor deal

FINDLAY, Ohio -- Following the announcement that it will acquire fellow refiner-marketer Andeavor in a deal worth $23.3 billion, Marathon Petroleum Corp. (MPC) reported first-quarter 2018 earnings of $37 million, compared with $30 million in first-quarter 2017.

Consistent with its growth strategy, Speedway’s agreement to purchase 78 Express Mart convenience stores in Syracuse, Rochester and Buffalo, N.Y., from Petr-All Petroleum Corp., Syracuse, was a highlight of the quarter, the company said.

“So far in 2018, we have accomplished a number of significant milestones, today’s transaction notwithstanding,” MPC Senior Vice President and CFO Tim Griffith said on a conference call to announce the merger with Andeavor and review earnings results.

“We successfully completed a major turnaround at our Galveston Bay refinery, organically grew our midstream footprint in the Northeast and Permian and announced a definitive agreement to acquire 78 store locations that will expand Speedway into key growth markets,” he said.

MPC's first-quarter 2018 income from operations was $440 million, an increase of $149 million over first-quarter 2017. The increase was partially offset by higher net interest and other financial costs, as well as the increased amount of net income allocated to noncontrolling interests in MPLX resulting from the Feb. 1 dropdown and general partner/incentive distribution rights (IDR) exchange transactions. In addition, the effective tax rate for the quarter reflects deferred tax benefits of about $20 million, primarily resulting from effects of these strategic transactions.

The refining and marketing (R&M) segment reported a loss from operations of $133 million, compared with a loss from operations of $70 million in first-quarter 2017, mostly as a result of the February dropdown. This quarter, activities associated with these businesses reduced R&M segment income from operations by about $181 million and increased midstream segment income from operations by a similar amount. Excluding these effects, R&M results improved, driven by higher throughputs and lower direct operating costs from decreased turnaround activity, partially offset by lower product-price realizations.

“Looking forward, we are very optimistic about the opportunities for our business," Chairman and CEO Gary Heminger said. "The solid demand backdrop, favorable crude differentials, and changing dynamics of the low-sulfur fuel market all set the stage to create meaningful benefits across MPC's integrated and diversified business model.”

Speedway’s Contribution

Speedway contributed $95 million in segment income from operations in first-quarter 2018, compared with $135 million in the same quarter last year. Increased operating expenses, accelerated depreciation arising from technology investments and adverse weather affected results.

Speedway's light product margin was 15.61 cents per gallon in the quarter, compared with 15.66 cents per gallon in first-quarter 2017. The decrease in segment results was due primarily to higher operating expenses, largely related to labor costs and accelerated depreciation. The accelerated depreciation resulted from Speedway's upgrade of dispenser technology to provide marketing earnings enhancements and strengthen customer bank-card security in advance of the required time frame. In addition, during the quarter, multiple storms in northeastern and Midwestern markets resulted in reduced traffic at Speedway stores.

Findlay, Ohio-based MPC owns six refineries and owns, leases or has ownership interests in about 10,800 miles of crude oil and light product pipelines. The company sells Marathon-brand gasoline through about 5,600 independently owned retail outlets across 20 states and the District of Columbia. Enon, Ohio-based subsidiary Speedway LLC owns and operates about 2,740 convenience stores in 21 states. Speedway ranked No. 3 in CSP's2017 Top 202 list of the largest c-store chains in the United States.

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