(Reuters) – Marathon Petroleum Corp. ( MPC.N ) has agreed to rival Andeavor ( ANDV.N ) for more than $ 23 billion in the largest ever-closed relationship between US oil refineries, giving the combined company a nationwide presence and improving access to growing export markets.
The United States has become the forefront of the world's fuel exporter, shipping more than 3 million barrels a day (bpd) of gasoline and diesel. The refineries have benefited from the booming production of slate fields in Texas and North Dakota and are building export terminals and processing facilities.
The acquisition of Andeavor gives Marathon more access to the booming US shale oil sector, thanks to Andeavor's existing logistics and terminal operations in the Texas and North Dakota shale areas. Rising yields from the Permian Basin, the largest oil field in the US, has driven the country's crude oil production to an all-time high of over 10.5 million barrels a day.
"The combination of the two companies allows us to look for ways to create a larger presence in the Perm," said marathon chief Gary Heminger, who will lead the combined companies.
The company would make Valero Energy Corp. ( VLO.N ) the largest US refiner that could process 3.1 million barrels of crude oil into gasoline, diesel and other fuels. US motorists consume more fuel than any other country in the world, and demand across the country reached a record 9.3 million barrels a day in 2017.
Companies that can refine light crude oil in slate fields such as Andeavor will be better positioned to benefit from the production boom.
The deal also gives Marathon a line in the fast-growing Mexican fuel markets. Andeavor expands its service station network in the country. The dilapidated refineries of Mexico can not satisfy the increasing demand of the population for gasoline and other products.
U.S. Fuel exports to Mexico have risen to 1.4 million barrels a day since January, more than 85 percent from two years ago.
The deal rates Andeavor, formerly known as Tesoro, at about $ 152 per share, or about 24 percent more than the closing price on Friday of $ 122.38 ,
"For Andeavor, we think that's pretty good," said Scotia Howard Weil analysts in a note. "Not many have seen this coming."
MARATHON INCREASES AND EXPANDS
Ohio-based Marathon shares fell $ 5.90, or 7.2 percent, to $ 75.53 a share, even after the board added an additional Share repurchase of $ 5 billion had been approved. Also, the Wall Street forecasts for the quarterly profit were missed significantly on Monday with rising expenditure.
Andeavor, headquartered in San Antonio, grew 13 percent to $ 138.57.
Including Andeavour's debts, Marathon pays $ 35.6 billion on Friday night to hold 66 percent of a $ 58 billion combined company.
Andeavor operates 10 refineries in the United States, mainly in the western part of the country. It has pipelines, trucking and terminal operations in the Perm, along with North Dakota Bakken region, the second most productive state for oil production in the country after Texas. (To see a picture from the company flyers, click here: reut.rs/2JFgc58)
"This creates a coast-to-coast, border-to-end refinement and marketing company that balances well with a pretty shining footprint, "said Garfield Miller, CEO of Aegis Energy Advisors.
Marathon's six refineries are located mostly in the Midwest, with a location in Texas City, Texas. The Midwest region has reduced its reliance on Gulf Coast crude in recent years and has drawn more of its barrels from Canada and North Dakota. Now it produces more products than it needs and has searched for export markets for additional opportunities.
Analysts from Tudor Pickering Holt said they expect the two companies to be located to avoid cartel barriers.
The combination of the companies' logistics subsidiaries will not happen immediately, Marathon CEO Gary Heminger said in a conference call after the transaction. He called this combination a "Day 2 problem".
Andeavor is building a retail network of gas stations in the Mexican states of Baja California and Sonora under the ARCO brand.
U.S. The refineries in the Gulf Coast are increasingly integrated into the energy industry of the region. This will reduce bottlenecks caused by underinvestment in refineries throughout Latin America.
"There is no question that the new company will have greater resources in Mexico," said Andeavor Chief Executive Gregory Goff during a conference call with analysts.
The companies did not explain Goff's role, but the Andeavor manager said he was likely to be involved in the operation and the technology. The stock traded at $ 13 each in 2010, when Goff took the helm at Andeavor in 2010 and has increased almost tenfold in the last eight years.
The transaction is expected to close in the second half of this year.
Reporting by John Benny and Shubham Kalia in Bengaluru, Gary McWilliams in Houston; additional coverage by Jarrett Renshaw in Philadelphia and Jessica Resnick Ault in New York; Arrangement by Susan Thomas and Bill Trott