Detroit Heavy oil upgrade project on course for completion for 3Q12.

Marathon Petroleum Corporation (MPC), the recently created mid- and downstream spin-off from Marathon Oil and the US’s fifth largest refiner, with a capacity of ~1.2mbpd, today reported a 4Q11 net loss of US$75 million, compared with the net income of US$230 million seen in 4Q10. On a full-year basis, MPC generated net income of US$2.39 billion in 2011, up from the US$623 million seen in 2010.

The MPC board has authorised a share repurchase plan of up to US$2 billion of the company’s shares of common stock over a two-year period and declared a 4Q11 dividend of US¢25/share on MPC common stock.

The company has also announced it is “valuating strategic alternatives to enhance shareholder value with respect to certain of its midstream assets, including, but not limited to, the possible formation and initial public offering of a master limited partnership (MLP)”.

“If MPC determines to further pursue an initial public offering of an MLP, the company would not expect to file a registration statement before the end of the second quarter 2012,” MPC said in a statement.
 
"MPC performed very well financially and operationally in 2011, and also successfully completed the spin-off from Marathon Oil Corporation on June 30. Net income of US$2.4 billion exceeded any of the previous four years," said MPC president and CEO, Gary Heminger. "Our capabilities are built around a strategy of using our six-refinery network and logistics system to optimise the mix of our refinery inputs and capture the highest value for the refined products we produce in our plants.

"At the same time, 2011 was a year in which the impact of changing crude supply patterns and the volatile nature of crude oil prices was pronounced. We saw several factors that affected the fourth quarter to cause a small loss for MPC. The 4Q11 results were impacted primarily by the rapid increase in the price of West Texas Intermediate (WTI) crude oil," Heminger said.

"I'm very pleased with our 2011 performance," Heminger added. "In addition to the strong financial performance, our employees maintained an excellent safety record, and our Detroit Heavy Oil Upgrade Project (DHOUP) ended the year on budget and slightly ahead of schedule. As we begin 2012, our first full calendar year of operations as an independent company, we have much to be proud of and much to look forward to, including completion of DHOUP, which represents US$370 million of our planned US$1.4 billion of capital spending in 2012.”

According to a company press release DHOUP was 85% complete as of year-end 2011 and on schedule for completion in 3Q12. “Immediately following the completion of construction, there will be a 70-day turnaround with the expanded refinery anticipated to be online by year-end.”

MPC’s refining and marketing operations booked a net loss of US$182 million in 4Q11 and income of US$3.59 billion for the full-year 2011, compared with income of US$303 million and US$800 million in 4Q11 and full-year 2010, respectively.

The US$485 million decline in R&M income in 4Q11 compared with 4Q10 was attributed to “sharply lower refining and marketing gross margins, which decreased to US$0.39/bbl in 4Q11 from US$3.64/bbl in 4Q10”.

Conversely, the US$2.79 billion improvement in the segment’s full-year performance was due to higher refining margins, which averaged US$7.75/bbl in 2011, compared with the US$2.81/bbl seen in 2010. MPC attributes this increase to “favourable crude oil acquisition costs and higher crack spreads during the first nine months of 2011”.

The former was driven by “relatively wider differentials between WTI and other light sweet crudes such as Light Louisiana Sweet (LLS). In addition, the Chicago and US Gulf Coast (USGC) LLS 6-3-2-1 blended crack spread increased in 2011 by $0.71 per barrel, compared with 2010.”

Refinery throughput saw little change in 2011, rising to 1.177mbpd from the 1.173mbpd seen in 2010, while refined product sales rose to 1.581mbpd from the 1.573mbpd seen in 2010. As a consequence, crude oil capacity utilisation averaged 103% in 2011, up from the 99% seen in 2010. In 4Q11, this rose to 105%. The cost of planned turnaround and major maintenance on a per barrel basis averaged US$0.78/bbl in 2011, down from the US$1.19/bbl seen in 2010.