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Speedway Summer Spinoff?

Review continues to move forward, while relationship with MPLX may hint at decision

FINDLAY, Ohio -- Marathon Petroleum Corp.’s review of Speedway LLC to determine whether to spin it off or keep it as part of the integrated corporate structure “continues to clip along at a very good pace,” Chairman, President and CEO Gary Heminger said during the company’s 2017 first-quarter earnings conference call on April 27.

The special committee of Marathon’s board and its independent adviser expect to complete the ongoing review of Speedway by mid-2017.

“Sometime summer or late summer, we will have a conclusion of the direction we're going. So, we continue to move along rapidly in this study,” Heminger said.

Beyond that deadline, the Marathon Petroleum Corp. (MPC) executives let very few new hints slip through their presentation.

“The prospects of any change to Speedway is something we'll have to assess as we go,” Tim Griffith, senior vice president and CFO, said on the call. “It's certainly been an important part of the cash profile of the business.”

If Speedway were not part the business, “we'd need to reassess and understand what that impact would be,” he said.

But when asked how Speedway’s status “in or out of MPC” would affect MPLX LP, the master limited partnership (MLP) that MPC formed in 2012 to own, operate, develop and acquire midstream energy infrastructure assets, Heminger said that “the volume that goes through Speedway is already implicit in MPLX.”

“If [we] decide to go a spin route, can [we] have a supply agreement attached to that spin in order to be able to maintain the volume that goes through? That's yet to be determined, [but] we would expect that we would have a supply agreement either way,” he said. “So, that really is not going to have an effect but, absolutely, the committee is looking at the value.”

Financials

MPC reported first-quarter 2017 earnings of $30 million, compared with $1 million in first-quarter 2016.

The refining and marketing segment reported a loss from operations of $70 million in first-quarter 2017, compared with a loss of $86 million in the same quarter of 2016.

Speedway segment income from operations was $135 million in first-quarter 2017, compared with $167 million in first-quarter 2016.

The transfer of Speedway's travel centers into the newly formed joint venture with Knoxville, Tenn.-based Pilot Flying J called PFJ Southeast LLC in fourth-quarter 2016 affected comparability of Speedway's results to prior year's first quarter, Griffith said.

Speedway's change in segment income, a decrease from light product gross margin, had a $31 million unfavorable effect as margins averaged 15.66 cents per gallon in first-quarter 2017, down from 16.82 cents in first-quarter 2016. The decrease in margin is primarily due to the lower margin per gallon and the absence of contributions from the travel centers for the quarter.

Heminger said, however, “We are encouraged by improving market conditions seen late in the quarter, with strengthening gasoline and distillate demand, and remain optimistic as we enter the summer driving season.”

Findlay, Ohio-based MPC is the nation’s third-largest refiner. It sells Marathon-brand gasoline through approximately 5,500 independently owned retail outlets across 19 states. In addition, MPC subsidiary Speedway, Enon, Ohio, owns and operates the nation’s second-largest convenience-store chain, with approximately 2,730 c-stores in 21 states.

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