Marathon to build on Arco brand in Mexico: Update

Adds export figure, some more detail.

Marathon Petroleum's planned acquisition of fellow US refiner Andeavor would give the new company rare access to Mexico's east and west coasts.

The combination adds Marathon's massive US Gulf coast refining complex to the only US downstream company to hold lease agreements on Pemex pipelines and storage along Mexico's west coast. Andeavor last fall began supplying retailers in western Mexico's Tijuana and Baja California states through its Arco brand, with plans to expand supply to 20,000 b/d by the end of this year.

Both that expansion and the use of the Arco brand would not immediately change under a proposed $23bn Marathon acquisition of Andeavor both companies said could close later this year, Marathon chief executive Gary Heminger said today.

It also did not immediately change Marathon's preference so far to deliver Gulf coast gasoline and distillates to Mexican docks rather than pushing to control infrastructure further inland.

"Together we provide a lot of supply into that market and we will determine how we expand on that going forward," Heminger said.

Mexico began liberalizing its energy market following laws passed in 2014 that ended the seven-decade monopoly of state-run oil company Pemex. US refiners and oil majors have worked to unravel logistical and political challenges to supply fuels directly to Mexican customers.

Both Marathon and Andeavor operate downstream integrated firms that seek to wring profits through control of every supply chain step from oil field gathering lines through refining to fuel pumps and convenience stores.

Andeavor was an early mover on this model into Mexico, winning the only successful open season on Pemex pipeline and storage space.

Heminger last July noted Andeavor's expansion into western Mexico's wholesale and retail businesses. Marathon, unlike Andeavor or US Gulf coast competitor Valero, has not sought its own infrastructure or branding efforts. The refiner instead exports supply to Gulf of Mexico ports from its 571,000 b/d Galveston Bay refinery in Texas City, Texas. The company averaged 265,000 b/d of total exports in the first quarter.

"We are considering that very strongly as we go forward," Heminger said at the time. "Right now, we think our best investment has been to export into the Gulf side of Mexico, and we have been very successful in doing that."

The proposed acquisition delivers western assets otherwise out of reach of Marathon's refining and marketing business, as well as established Andeavor relationships with Pemex and Mexican retailers. The company would operate Andaevor's 125,000 b/d refinery in El Paso, Texas, which has pipeline connections to deliver fuel directly into northern Mexico. And while Marathon expects its own brand to dominate a new, almost 9,000-store retail network stretching from coast to coast in the US, the newly established Arco brand may persist in Mexico, Heminger said.

Neither company offered specific plans today for what that would bring next.

"With access into the Gulf coast into Mexico, it potentially opens up greater opportunity in Mexico for us," Andeavor chief executive Greg Goff said.