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Marathon Announces $4.2B 2016 Budget, With Large Chunk For MarkWest Growth

Marathon Petroleum Corp. outlined a $4.2 billion 2016 capital investment plan at an investor meeting on Thursday, just two days after the company said MarkWest Energy Partners LP unitholders overwhelmingly approved a merger with MPC's master limited partnership (MLP), MPLX LP.

The plan includes $1.5 billion for MPC's refining and marketing segment and nearly $400 million for its retail gasoline subsidiary, Speedway. More importantly for the merger, which officially closed on Friday, MPC said its pipeline and transportation segment, which includes MPLX and now MarkWest, would have $2.2 billion to get to work on its highly anticipated growth. About $1.7 billion of that budget is for MPLX.

"We continue to focus on investing in our more stable cash-flow generating midstream and Speedway businesses, as well as pursuing margin-enhancing projects in our core refining and marketing business," MPC CEO Gary Heminger said. He added that the addition of MarkWest "substantially expands the companies' opportunity set across the hydrocarbon value chain." MPC's capital plan also includes a focus to expand its inventory of assets that could be dropped down to MPLX to target its growth profile over the next several years.

MPC plans to spend more next year than it has in 2015. Last year at this time, the company announced a capital budget of $2.53 billion, of which just $659 million was set aside for its pipeline and transportation segment. MarkWest's budget last year called for $1.5-1.9 billion in spending. The largest component of the MPLX investment plan, MPC said, comes with $1.2 billion for MarkWest's ongoing development of natural gas and natural gas liquids (NGL) infrastructure to support its customers in the Southwest and Northeast, particularly in the Marcellus and Utica shales.

MarkWest unitholders voted by a wide margin on Tuesday to approve the merger with MPLX in a deal valued at about $10 billion (see Shale DailyDec. 1). MarkWest unitholders are to receive $1.28 billion in cash and 1.09 MPLX common units per MarkWest common unit. The tie-up combines the nation's second largest natural gas processor and its fourth largest crude oil refiner to create one of the largest MLP's in the country that is expected to generate a mid-20% compound annual distribution growth rate through 2019.

With the deal completed, MarkWest CEO Frank Semple joined MPC's board of directors and will serve as vice chairman of the MPLX general partner. The company's remaining executives join MPLX and will continue to work from MarkWest's headquarters in Denver, CO.

MarkWest operates in the Appalachian and Permian basins, the Midcontinent and the Barnett, Eagle Ford and Haynesville shales. Its largest position, however, is in the Marcellus and Utica shales, where it processes about 75% of the total rich gas produced in those plays. At the investor meeting, MPC said MarkWest's own forecasted organic growth capital between 2016-2020 is $7.5 billion, of which more than $6 billion is expected to be invested in the Northeast.

Under new leadership, MarkWest would continue to focus on expanding its gas gathering capabilities and NGL transportation and developing more processing and fractionation facilities in the Northeast and Southwest.

MPLX said it is also continuing to develop the 50-mile Cornerstone Pipeline to transport condensate from Southeast Ohio to MPC's refinery in Canton, OH. The pipeline's route would allow it to connect to various Utica Shale condensate and fractionation facilities, demonstrating why the merger was desirable for MPC with its assets overlapping MarkWest's to provide more NGL supplies for its refining business.

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