Aug. 10–One of the biggest refiners in the country is expected to soon gobble up a smaller competitor to create a behemoth with operations stretching from the West Coast to the East Coast, Alaska to Texas and even into Mexico. What it will mean for the rest of the refining industry is yet to be determined.
The pending $23.3 billion merger of nation’s second largest refiner, Marathon Petroleum of Findlay, Ohio, with the No. 5 refiner, Andeavor of San Antonio, will make the combined company the largest U.S. refining operation with nearly 3 million barrels a day of refining capacity and thousands of miles of pipelines. The new company, which will operate under the Marathon Petroleum name, will run 16 refineries and have nearly 12,000 company-owned and branded gas stations across most of the United States. Three of Andeavor’s top executives, including CEO Gregory Goff, will join Marathon Petroleum’s leadership team.
The combined company is expected to gain $1 billion in efficiencies — usually a euphemism for cost cutting that involves layoffs. The companies have not commented on what the combination will mean for employment levels.
The two companies have each pursued export opportunities into Mexico and the combined refiner will be able to supply both the western and eastern coasts of Mexico. Andeavor has embarked on a plan to dominate fuel distribution in northwestern Mexico, with multiple pipeline and storage deals secured with Mexico’s state-owned energy company Petróleos Mexicanos, or Pemex. Andeavor also has plans to increase the number of branded stores in the region from around 60 in 2017 to 300 by 2020, according to the company.
Marathon Petroleum Corp. already supplies Mexico’s eastern coast from its Gulf Coast refineries. Shortly after the merger was announced, Marathon CEO Gary Heminger said the refiner would evaluate further expansion into Mexico.
Votes by shareholders of both companies on the merger will be held Sept. 24, and the merger is expected to be completed by Oct. 1.
How the rest of the industry reacts remains to be seen. The largest U.S. refiner, Valero Energy of San Antonio, has not made a big acquisition for years. The last major acquisition was the $730 million purchase in 2011 of Chevron’s refinery in Pembroke, Wales in the United Kingdom.
Since then, the company has sought to grow its refining and marketing through its own investments, while reducing its involvement in non-refining businesses. In 2013, Valero spun off its retail arm as CST Brands and its pipeline and storage business as Valero Energy Partners, in which Valero maintains a controlling stake.
In May, Valero signed a deal with the San Antonio pipeline and storage company NuStar Energy to export fuels into northern Mexico, and in 2017 the refiner inked an agreement to use a new fuels terminal in the Gulf of Mexico port of Veracruz. These moves have allowed Valero to focus on its core refining business, which includes 13 U.S. refineries that can process a combined 2.2 million barrels of crude day. (Valero also has two refineries in Canada and the U.K.,with a combined processing capacity of 900,000 barrels a day.)
The redrawing of the U.S. refining map will pit the larger, geographically diverse and fully integrated Marathon Petroleum against the leaner, more focused Valero Energy Corp. Time will tell which business model comes out on top.
Rye Druzin covers energy news in the San Antonio and Bexar County area. Read him on our free site, mySA.com, and on our subscriber site, ExpressNews.com. — firstname.lastname@example.org — Twitter: @druz_journo
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