Jan 30 The uneven impact of the shale oil boom
on the U.S. refining industry was brought into stark relief this
week as Midwest and Gulf Coast refiners with easy access to
cheap domestic crude posted strong earnings, while weak margins
spelled the death of another East Coast plant.
Phillips 66 and Marathon Petroleum Corp
reported quarterly earnings on Wednesday that far exceeded Wall
Street estimates as they fattened margins by processing more of
the cheaper crude from North American shale fields.
Valero Energy Corp -- which said on Tuesday that its
net income soared to $1 billion in the fourth quarter from $45
million a year earlier -- said it was looking to boost exports
of refined products to South America as it used more domestic
crude oil instead of more expensive imports.
"Exports of refined products are at record level," said
Raymond James Analyst Pavel Molchanov. "This is boosting
refineries that are on the Gulf Coast, which is really where
this is taking place."
But the sudden flood of domestic crude has done little to
help companies whose refineries are mostly in eastern states.
Hess Corp announced on Monday that it would exit the
refining business altogether to focus on exploration and
production. The company's Port Reading refinery in New Jersey,
which will be closed by the end of February, incurred losses in
two of the past three years.
Chief Executive John Hess has said his company's strategy is
to focus on lower-risk, higher-return assets such as its
position in the Bakken oil shale in North Dakota.
Boosted by rising shale oil production, U.S. crude output is
expected to grow by 900,000 barrels per day (bpd) this year to a
record 7.3 million bpd, the U.S. Energy Information
Administration said earlier this month.
In November, the International Energy Agency forecast that
U.S. oil output, aided by surging volumes from shale and other
onshore rock formations, could top production from Saudi Arabia
and Russia by 2017.
The biggest increase is expected to come from the Bakken
shale field in North Dakota and Montana, and the Eagle Ford
shale in Texas.
Phillips 66 said on Wednesday it expects to process more
than 200,000 bpd of domestic shale crude this year -- 80 percent
more than in 2012.
"Phillips 66 is enhancing refining returns by increasing
access to advantaged feedstocks, as well as increasing export
capabilities at its coastal refineries," said the company, which
was spun off from ConocoPhillips last year.
Marathon, which has increased the capacity of its Detroit
refinery by 13 percent to 120,000 bpd to help it process much
cheaper Canadian heavy crude, said on Wednesday it also plans to
boost earnings at its Midwest and Gulf Coast refineries by
increasing its use of cheap domestic crude.
To increase its Midwest refineries' access to cheap crude
from the Bakken field and the Canadian tar sands, Marathon will
be the anchor shipper on Enbridge Inc's proposed
Southern Access Extension, which will transport crude oil from
Flanagan, Illinois, near Chicago to Patoka, Illinois, a crude
storage and blending hub.
Phillips 66's adjusted earnings rose by more than three
times from a year earlier to $1.37 billion, or $2.06 per share
in the fourth quarter. Analysts on average were expecting $1.68
per share, according to Thomson Reuters I/B/E/S.
Adjusted earnings in its refining business soared to $916
million from $27 million.
Marathon reported a profit of $755 million, or $2.24 per
share, handily beating the average estimate of $2.10 per share.
The company's refining and marketing gross margin averaged
$9.17 per barrel of oil, up from 39 cents per barrel a year
Findlay, Ohio-based Marathon said it expects to complete the
purchase of BP Plc's 451,000 barrel-per-day Texas City
refinery on Feb. 1. It also said its board had approved an
additional $2.65 billion share buyback program.