WRAPUP 2-Cheaper crude and fuel exports help U.S. refiners' profits

Wed Jan 29, 2014 4:28pm EST

By Kristen Hays and Anna Driver

HOUSTON Jan 29 (Reuters) - Marathon Petroleum Corp, Valero Energy Corp and Phillips 66, the three largest U.S. independent refiners, reported quarterly results on Wednesday that topped Wall Street estimates as cheaper crude prices and rising exports helped profits.

Sour crudes from Mexico, Saudi Arabia, Texas and the U.S. Gulf of Mexico contributed to the lower prices, along with the opening of more pipeline capacity throughout 2013 that increased flows of cheaper inland U.S. crudes to Gulf Coast refineries - replacing some types of more expensive imports.

New infrastructure - built in large part to handle surging output of unconventional North American crudes from shale deposits and Canada's oil sands - has benefited plants on the Gulf Coast, home to more than 40 percent of U.S. refining capacity.

Many of those refineries have ramped up exports of fuels to Europe and Latin America, where demand is surging because of a lack of local refining capacity.

Marathon more than doubled its refined product exports to 298,000 barrels per day in the fourth quarter from year-ago levels, and aims to increase that capacity to 400,000 bpd. Phillips 66's exports reached 197,000 bpd, a 32 percent rise on the year and toward its goal of 500,000 bpd of export capacity.

U.S. officials said exports of refined products hit a record 3.66 million bpd last week.

"Gulf Coast refiners are the best positioned to benefit from price-advantaged North American crudes and the global refined product market," Roger Read, a refining analyst at Wells Fargo, told clients on Wednesday.

Marathon shares gained 4 percent to $86.52, Valero added 2.4 percent to $51.40, while Phillips 66 shares closed down 1.2 percent to $74.18.

DEBATE OVER CRUDE EXPORT BAN

With output of domestic U.S. crudes surging and available refinery capacity limited, some oil producers have urged Congress to lift a ban on nearly all crude oil exports that was imposed in the 1970s.

Valero has come out firmly against scrapping the rule, apparently because it could mean higher domestic crude prices.

Marathon Petroleum Chief Executive Gary Heminger told analysts the company was not opposed to U.S. crude exports, but that the debate over whether to lift the prohibition could "take a long time" in Washington.

With some political analysts saying voters who remember long gas lines from the 1970s will balk at lifting the ban, some refiners are investing in infrastructure to boost exports.

Phillips 66 Chief Executive Greg Garland said the company is considering building a condensate splitter at the same marine terminal in Freeport, Texas, where a liquefied petroleum gas export terminal is under construction.

Condensates are very light hydrocarbons defined as crude under U.S. law, and cannot be exported without being processed.

Garland had previously said Phillips 66 didn't envision building a splitter, but the company's recently-launched midstream partnership provided a natural home for that infrastructure. He also said it would be an export terminal.

"When you look at the economic value created, it encourages you to do these things," Garland told Reuters in an interview.

Heminger hinted that Marathon, which is building condensate splitters at its Ohio and Kentucky refineries to process Utica shale condensate, is considering a similar project on the Gulf Coast, though he wasn't explicit. He said the light hydrocarbon also can be part of refineries' crude slates and shipped to Canada to dilute heavy Canadian oil so it can move in pipelines.

"We are looking more at the opportunities we have to be able to bring that condensate into our system along with the Utica condensate that we've already announced," he said.

MORE PIPELINE CAPACITY

Additional pipeline infrastructure last year eased Gulf Coast crude prices, cutting costs for refiners.

Gulf Coast crude benchmark Light Louisiana Sweet, which had traded at an average $1-a-barrel premium to international Brent for most of last year, fell abruptly to a steep discount in the fourth quarter - further discouraging imports.

Valero Energy's fourth quarter profit was lifted by a $325 million gain on the sale of its interest in retail business CST Brands Inc. Excluding items, the San Antonio company had a profit of $1.78 per share. Analysts on average had expected a profit of $1.66 per share.

It said its 235,000-barrel-per-day Quebec City, Quebec, refinery was expected to run 100 percent North American crude oil by the end of 2014. Valero has been boosting the refinery's capacity to receive crude oil from the United States by rail.

Marathon, which operates large plants in Garyville, Louisiana and Texas City, Texas, also had a profit that surpassed expectations, but maintenance costs contributed to a lower quarterly profit.

For the fourth quarter, Marathon reported net income of $626 million, or $2.07 per share, down from $755 million, or $2.24 per share, in the year-ago period. Excluding items, Marathon earned $2.10 per share, a figure that handily beat analysts average estimate of $1.15 per share.

Phillips 66 had a quarterly profit of $826 million, or $1.37 per share, compared with $708 million, or $1.11 per share in the same quarter a year earlier. Adjusting for certain items, Phillips 66 had a per share profit of $1.34. Analysts on average had expected a profit of $1.10 per share, according to Thomson Reuters I/B/E/S.

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