WRAPUP 2-Valero, Marathon profits up, refiners eye more U.S. crude

Tue Apr 30, 2013 1:40pm EDT

* Valero EPS $1.18 v Street $1.00

* Marathon Petroleum EPS matches Wall Street view

* Shares fall as investors eye narrowing spreads-analyst

By Anna Driver

HOUSTON, April 30 (Reuters) - Valero Energy Corp and Marathon Petroleum Corp reported higher first-quarter profits on Tuesday as both U.S. refining companies kept looking for ways to boost the use of cheaper domestic crude oil.

The shale boom in the United States has prompted refining companies to invest in infrastructure and transportation assets to increase the flow of less expensive crude from places like the Eagle Ford formation in South Texas to refineries located along the Gulf Coast and elsewhere.

For example, Valero said it ordered 2,500 railcars in the first quarter and was able to ship crude oil from Texas to its refinery in Quebec City.

"The whole business today is about location, location, location, and if you don't have location, you have to have logistics," Bill Klesse, Valero's chief executive officer, told analysts on a conference call.

Marathon Petroleum's Galveston Bay plant, which it acquired from BP Plc on Feb. 1, is well positioned to process "growing supplies of North American crude oil," said Gary Heminger, Marathon Petroleum's chief executive officer.

The Findlay, Ohio, company also plans to spend about $300 million over the next several years on infrastructure in the Utica formation in the Midwest.

Valero's first-quarter profit topped Wall Street's expectations as the San Antonio-based refiner's margins were higher than expected. Analysts said Marathon's profit matched their estimates, helped by a lower tax rate and lower corporate expenses.

STOCKS SLIP ON SUPPLY CONCERNS

But investors pushed shares of refining companies lower as the market eyed narrowing spreads between certain grades of crude oil, reducing a profit advantage for some, analysts said.

"There's been a real narrowing of that WTI-Brent spread and we have very robust crude inventories at this time, which will eventually increase fuel supplies as maintenance season winds down," said Ann Kohler, an analyst at Imperial Capital, in New York.

The sector "faces real headwinds," she said.

In Cushing, Oklahoma, crude stocks remain high at 51 million barrels despite some pipeline projects coming online to help relieve that glut.

Shares of Valero fell 2.8 percent to $40.34 while Marathon's shares fell 4.8 percent to $78.45 in midday New York Stock Exchange trading.

Valero also said it would evaluate the creation of a master limited partnership (MLP) for its logistics assets following the tax-free spinoff of its retail business this week.

Valero had a profit of $654 million, or $1.18 per share, compared with a loss of $432 million, or 78 cents, a year before, when the company took a charge related to its plant in Aruba.

Analysts on average had expected a profit of $1.00 per share, according to Thomson Reuters I/B/E/S.

Marathon finalized its purchase of the Galveston Bay refinery in February. The plant, known for a 2005 explosion that killed 15 workers, was purchased from BP Plc as part of a $2.4 billion sale of Gulf Coast assets.

Marathon, the third-largest stand-alone U.S. refining company, said its first-quarter profit rose 22 percent to $725 million, or $2.17 per share. Those earnings met the analysts' average estimate, according to Thomson Reuters I/B/E/S.

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