Marathon to purchase Andeavor in $23bn deal: Update

Adds detail from call.

Marathon Petroleum will acquire US independent refiner Andeavor, creating the largest US independent refining, pipeline and retail company with assets in every US region.

The proposed $23bn transaction would expand Marathon Petroleum beyond its midcontinent and US Gulf coast concentration into the west, where Andeavor has built a tightly integrated business down the US west coast and in the Rocky mountains. The purchase adds midstream infrastructure in the Permian basin and western US to a Marathon Petroleum portfolio that connects the US Gulf coast to the upper midcontinent, combining two companies that have worked to control every stage of the flow from oil fields to cars and trucks at retail stations.

"That's a powerful combination here," Marathon chief executive Gary Heminger said. "The two companies really emulate each other in how we go to market."

The combined company will operate more than 3mn b/d of crude processing capacity across 16 refineries in the US west coast, Rockies, midcontinent and US Gulf coast refining markets. The companies operate retail networks supplying almost 9,000 stores from coast to coast.

But neither significantly operates today in the markets of the other. That lack of overlap should ease regulatory review and prompted the earliest discussions of a combination, Andeavor chief executive Greg Goff said.

"I kind of look at it and say, why wouldn't you?" Goff said. "And you do not come up with any reasons, to be quite honest with you."

Both companies anticipated the acquisition closing by the end of this year.

The deal, if successful, would expand Marathon Petroleum into two new challenging markets: California and Mexico.

Andeavor has staked a dominant refining and retail position in California as others have looked to reduce exposure to its separate carbon standard and difficult permitting environment. Marathon Petroleum never ruled out interest in the state, though it made no public effort to pursue business in a market with unique regulatory and supply pressures.

"We will continue to look if there are any strategic opportunities on either coast," Heminger said in 2013. "What we do best is where we are integrated."

Marathon would also acquire pipeline lease and storage agreements secured through the only successful US downstream open season bids on Pemex assets so far in Mexico. Andeavor last fall began delivering fuel to Arco branded customers through 315,000 bl of Pemex storage space and 9,535 b/d of pipeline capacity in Baja California and Sonora.

Marathon had no immediate plans to push further inland from its exports out of Texas to Mexican ports on the Gulf of Mexico, Heminger said. But the acquisition would assist that growth.

Vehicles that both companies have used to expand those midstream businesses — Andeavor Logistics and MPLX — would remain separate.

Andeavor refineries and logistics assets in the Rockies, northern midcontinent and western US Gulf coast all operated outside of Marathon Petroleum markets. There were no operational redundancies, both executives said today.

"We do not see anything today that does not fit in the company, but we will always be on top of how we improve the company," Goff said.

But a new Marathon would manage a more unified, nationwide refining presence in every region but the Atlantic coast.

"Sixteen refineries will keep anyone up at night," Heminger said.

The companies had no plans to leverage the massive new commercial operation into a new trading business, either.

"I learned long ago that our shareholders own us to run the assets, not to be in speculative trading," Heminger said.

Goff will join Marathon as executive vice chairman of the board and as an executive in the company. Heminger will remain chief executive. Three Andeavor directors will join the Marathon Petroleum board.

The new company would remain headquartered in Findlay, Ohio, but maintain an office in San Antonio, Texas, where Andeavor has its headquarters.