In Ohio, Marathon Petroleum agreed to acquire Andeavor (formerly Tesoro) for $23.3 billion, based on MPC’s April 27, 2018, closing price of $81.43. ANDV shareholders will have the option to choose 1.87 shares of MPC stock, or $152.27 in cash subject to a proration mechanism that will result in 15 percent of ANDV’s fully diluted shares receiving cash consideration. This represents a premium of 24.4 percent to ANDV’s closing price on April 27, 2018. MPC and ANDV shareholders will own approximately 66 percent and 34 percent of the combined company, respectively.
The deal creates the largest US oil refiner (and a top-five refiner globally) at 3.1 million barrels per day of capacity — Valero is around the same size, but that includes overseas operations.
The proposed acquisition geographically diversifies the portfolio into attractive markets and increases access to advantaged feedstocks: Andeavor’s refineries in California, the Mid-Continent and the Pacific Northwest complement MPC’s existing Gulf Coast and Midwest refining footprint. MPC expects to fully realize ≥$1 billion in annual run-rate cost and operating synergies within the first three years, in addition to the expected synergies from ANDV’s Western Refining transaction.
At closing, Greg Goff, ANDV chairman and chief executive officer, will join MPC as executive vice chairman. As executive vice chairman and an executive of MPC following closing, Goff will provide leadership and be integrally involved in the strategy for the combined company. Goff, along with three other Andeavor directors, will also join the board of directors of Marathon Petroleum.
The Marathon portfolio
MPC is the nation’s second-largest refiner, with a crude oil refining capacity of approximately 1.9 million barrels per calendar day in its six-refinery system. Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 20 states and the District of Columbia. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation’s second-largest convenience store chain, with approximately 2,740 convenience stores in 21 states. MPC owns, leases or has ownership interests in approximately 10,800 miles of crude oil and light product pipelines. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership. Through MPLX, MPC has ownership interests in gathering and processing facilities with approximately 5.9 billion cubic feet per day of gathering capacity, 8.4 billion cubic feet per day of natural gas processing capacity and 610,000 barrels per day of fractionation capacity. MPC’s fully integrated system provides operational flexibility to move crude oil, NGLs, feedstocks and petroleum-related products efficiently through the company’s distribution network and midstream service businesses in the Midwest, Northeast, East Coast, Southeast and Gulf Coast regions.
The Company formed a joint venture with The Anderson’s, Inc., The Anderson’s Marathon Ethanol LLC, to construct and operate one or more ethanol plants in the U.S. Construction of the first plant, in Greenville, Ohio, began in late 2006, and the plant began production in Feb. 2008. Marathon has also acquired a 35% interest in The Anderson’s Clymers Ethanol LLC with a facility in Clymer’s, Ind., that began production in May 2007.
MPC owns a biofuel production facility in Cincinnati, Ohio, that produces biodiesel, glycerin and other byproducts. The capacity of the plant is approximately 70 million gallons per year. MPC also holds interests in ethanol production facilities in Albion, Michigan; Clymers, Indiana; and Greenville, Ohio. These plants have a combined ethanol production capacity of 415 million gallons per year and are managed by a co-owner.
The Andeavor portfolio
Andeavor is a premier, highly integrated marketing, logistics and refining company. Andeavor’s retail-marketing system includes more than 3,200 stores marketed under multiple well-known fuel brands, including ARCO, SUPERAMERICA, Shell, Exxon, Mobil, Tesoro, USA Gasoline and Giant. It also has ownership in Andeavor Logistics LP and its non-economic general partner. Andeavor operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United States.
In July 2017, we reported that Tesoro was looking to invest $3.5 million to retrofit its 8,000-barrel-per-day diesel hydrotreater at the Dickinson refinery to produce renewable diesel from corn oil or soy oil for supply into the state’s B5 market. The North Dakota Industrial Commission recently granted the company $500,000 towards the retrofit project that could be online by the end of the year. The company hasn’t yet agreed supply deals for its feedstock but will be looking to buy locally.
In September 2016, Tesoro reached an agreement to acquire Virent. The acquisition, the partners said, will support the scale up and commercialization of Virent’s BioForming technology for the production of low carbon bio-based fuels and chemicals. As a result of the acquisition, Virent will become a wholly owned subsidiary of Tesoro and remain in Madison, Wisconsin. In late 2015, Virent was named the #1 Hottest Small Company in the Advanced Bioeconomy by the readers and invited selectors in the Digest’s Hot 40.
In January 2016, Tesoro unveiled its plan to foster the development of biocrude made from renewable biomass, which can be co-processed in its existing refineries, along with traditional crude oil. And the company has identified three new partners in the process: Fulcrum BioEnergy, Virent, andEnsyn Corporation. Ensyn has applied for a pathway with the California Air Resources Board to co-process its biocrude, produced from tree residue – called Renewable Fuel Oil – in Tesoro’s California refineries.
Bullish on Biocrude: The Digest’s 2016 8-Slide Guide to Tesoro’s biocrude strategy and partners
Tesoro has unveiled its plan to foster the development of biocrude made from renewable biomass, which can be co-processed in its existing refineries, along with traditional crude oil. And the company has identified three new partners in the process: Fulcrum BioEnergy, Virent and Ensyn. Here, we look at Tesoro’s strategy, rationale and the partners in question.
In September 2016, we reported that $1.2 million in upgrades are planned for the Andersons Marathon Ethanol joint venture 110 million gallon facility in Greenville. Planned works include adding a processing tank for its distilling process in an effort to keep the 2008 facility up to date. The Andersons teamed with Marathon in the joint venture in 2006, with The Andersons running day-to-day operations and Marathon blending the ethanol into their gasoline. The facility also produces DDGS, E85, CO2 and corn oil in addition to ethanol. Marathon Petroleum Corp. acquired from Mitsui & Co. (U.S.A.) Inc. its interests in three ethanol companies for $75 million in cash in August 2013.
Marathon and the Renewable Fuel Standard
“We advocate repeal of the RFS,” Marathon says in its corporate guidance. “Despite the mandate reductions proposed by the EPA, which would apply only to 2014, the RFS provisions in EISA ’07 are simply unworkable. In order to satisfy the demands of the Clean Air Act, the EPA requires MPC – and other obligated parties – to force more corn ethanol biofuel into gasoline transportation fuel than the vehicle fleet can safely absorb, and to blend cellulosic biofuels that do not exist. And we face significant fines if we do not comply with these requirements.”
And Marathon is reportedly to be a prime mover in Texas Sen.John Cornyn’s plan to overhaul the Renewable Fuel Standard, favoring the D8 RIN credit that would be generated when a gallon of gasoline is produced that contains more than 10 percent ethanol. “Biofuel and agricultural voices do not support the D8 RIN,” Brooke Coleman, head of the Advanced Biofuels Business Council, told Reuters..
In recent weeks, Marathon expressed optimism that RFS reform was at hand. Company president Don Templin explained to investors, “We have consistently believed that the RFS is broken and we need either significant reform or repeal. MPC has always been focused on a long term solution that in our view permanently addresses all the issues and problems with the RFS. Clearly the PES situation recently has that maybe put a little bit more focus on RIMs and the RFS. But our view is that you need to have a long term solution. And we’re actually, fairly optimistic or optimistic about the legislative efforts that are ongoing in Washington D.C. led by Senator Cornyn and others and we think it will result in a solution that I think has some short term relief but more importantly has a long term solution to RFS eliminating the mandate and allowing our transportation fuels and other transportation fuels to be able to participate in a free market.”
CEO Gary Heminger added, “we have the right legislators at the table working on this. Senators Cornyn and Cruz along with Grassley and Ernst. Grassley and Ernst being from the Corn Belt states are all very involved. So we’re both sides of the table working on this. And then on the house side, The Chairman, Walden along with our Congressman Shimkus are very, very involved. So they are the right people at the table trying to get this issue off a high center. And I’m fairly confident that we’re going to get there this spring.”
The Bottom Line
Industry experts have not rated this a major issue for biofuels — but we of course look at relationships with Fulcrum, Virent and Ensyn that are potentially weakened — not strengthened — by this move.