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Marathon Focused on Midstream Growth

Marathon Petroleum Corp. (MPC) says it will focus strongly on its midstream and retail businesses to balance earnings from the company's refining and marketing segment, as growing U.S. onshore oil and gas production has opened more opportunities for the nation's fourth largest refiner.

A key component of MPC's strategy will be MPLX, the master limited partnership it formed last year to operate, develop and acquire pipelines and other midstream assets across the country, CEO, Gary R. Heminger told financial analysts during an investor day presentation in New York on Wednesday.

"We recognize that earnings volatility is an issue for long-term investors, and we are addressing that by growing more aggressively the segments of our business that produce more stable cash flows," Heminger said following the presentation.

Although MPLX's share price has increased 77% since it went public last year, Heminger told analysts that MPC will continue to make significant investments in its refining and marketing segment as it will remain a critical source of both crude and other refined products for the company's pipeline transportation segment and MPLX, as well.

"Our refining segment is core to our business," he said. "We will continue to make investments in refining assets to capture margin improvement opportunities and optimize our operations. Such investments will include conversion projects and light sweet crude processing capabilities."

MPC CFO Don Templin said that over the next three years the company expects to invest $640 million in midstream assets that are part of its refining and marketing segment. He said MPC will dedicate $2.4 billion in pipeline transportation, including MPLX and $925 million for growing the Speedway convenience store segment. In all, total investments will exceed the previous three-year period by $2.4 billion.

In the midstream space, the company currently has $2.2 billion planned for growth projects through 2016.

Gary Peiffer, president of MPLX and executive vice president of MPC, said growing North American oil and gas production will require a bevy of new transportation and logistics options. Peiffer said one of the biggest areas of opportunity will be the Bakken Shale in North Dakota.

In November, MPC committed to be an anchor shipper on Enbridge Inc.'s $2.6 billion Sandpiper Pipeline, which will serve as a twin to the North Dakota feeder system running to Superior, WI (see Shale Daily, Nov. 26). MPC has agreed to fund 37.5% of the construction in exchange for a 27% equity interest in the North Dakota system.

Meanwhile, MPLX is evaluating right-of-way options to construct a $140 million pipeline in Ohio, dubbed Cornerstone (see related story), that will connect Utica Shale production in the southeastern part of the state to MPC's refinery in Canton, OH. More than 600 wells have been drilled in the state, and condensate production is slowly mounting.

Midstream companies are developing infrastructure to gather wellhead condensate and output from natural gas processing plants in the Appalachian Basin. A recent analysis from Bentek Energy LLC estimates that oil and condensate production will increase from 21 million b/d to 156 million b/d by the end of 2018, while natural gas liquids output from the Utica has led to a projected spike of nearly 4.7 Bcf/d of additional cryogenic processing capacity between now and 2015, according to RBN Energy.

For now, MPC is focused on delivering local supplies of crude, condensate and natural gas to its Canton, OH, and Catlettsburg, KY, refineries. Earlier this year, the company said it was adding condensate splitters to both locations as part of a $300 million investment in the region to put the company in a better position to handle increasing volumes (see Shale Daily,May 3).

"As Utica production continues to grow and if it ultimately exceeds our ability to process condensate at our Canton and Catlettsburg refineries," Peiffer told analysts Wednesday, "the Cornerstone project could be the foundation for other organic projects to ship, for example, excess condensate west to the refineries in western Ohio [and Canada].”

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