Does Marathon Petroleum Have Hankering for the Hess Retail Network?

CEO hints at interest, but won't telegraph intentions

Published in CSP Daily News

By
Greg Lindenberg, Online Editor

FINDLAY, Ohio -- Marathon Petroleum Corp. president and CEO Gary Heminger hinted at, but would not clearly indicate, whether the company was looking at the Hess Corp. retail network of approximately 1,350 sites that the New York City-based Hess is divesting to become a pure-play exploration and production entity.

MPC subsidiary Speedway LLC, Enon, Ohio, owns and operates the nation's fourth-largest convenience store chain, with approximately 1,460 stores in seven states: Illinois, Indiana, Kentucky, Michigan, Ohio, West Virginia and Wisconsin. Marathon-brand gasoline is sold through more than 5,000 independently owned retail outlets across 17 states.

"If you look at [Hess's] terminals, they are not only in the Northeast, they are also in the Southeast," Heminger said during MPC's first-quarter 2013 earnings conference call on Tuesday. "So they are across the entire Eastern Seaboard, the only place we don't have any direct-control retail in the Southeast markets today. We have a large branded presence. So, I wouldn't say there's any overlap. Certainly it would be a step out, and I complement Hess--I think they have very good looking assets."

MPC reported first-quarter 2013 earnings of $725 million, compared with $596 million in first-quarter 2012.

"Our strong financial results this quarter reflect the strategic expansion and optimization of our refining system, favorable market conditions and increased income from Speedway," said Heminger.

Total income from operations was $1.16 billion in first-quarter 2013, compared with $956 million in the first-quarter 2012.

Refining and marketing segment income from operations was $1.11 billion in first-quarter 2013, compared with $943 million in first-quarter 2012.

Speedwaysegment income from operations was $67 million in first-quarter 2013, compared with $50 million in first-quarter 2012. The $17 million increase was primarily the result of a higher gasoline and distillates gross margin and a higher merchandise gross margin, partially offset by higher expenses associated with the increase in the number of stores operated. Speedway gasoline and distillates gross margin per gallon averaged 13.01 cents in first-quarter 2013, compared with 10.96 cents in first-quarter 2012.

Merchandise margin was $184 million in the first quarter 2013 compared with $179 million in the same period last year. This $5 million merchandise margin increase was primarily due to an increase in the number of stores compared to the same period last year. The $8 million increase in expenses also reflects the increase in the number of stores compared to the same quarter last year.

On a same-store basis, gasoline sales volumes increased 0.7% and merchandise sales, excluding cigarettes, increased 0.8% in first-quarter 2013 compared with the 2012 first quarter. Speedway's average retail gasoline price was $3.47 per gallon during first-quarter 2013 compared with $3.48 per gallon for the comparable quarter last year.

Findlay, Ohio-based MPC is the nation's fifth-largest refiner, with a crude oil refining capacity of approximately 1.2 million barrels per calendar day in its six-refinery system. MPC also owns, leases or has ownership interests in approximately 8,300 miles of pipeline. 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.

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