Blue Ridge Capital buys a new position in Marathon Petroleum

Market Realist

Must-know: A guide to Blue Ridge Capital’s 4Q13 positions (Part 2 of 8)

(Continued from Part 1)

Blue Ridge Capital and Marathon Petroleum

Blue Ridge Capital initiated new positions in Marathon Petroleum Corp. (MPC), Actavis Plc (ACT), Apple Inc. (AAPL), SanDisk Corp. (SNDK), and Cheniere Energy Inc. (LNG). Notable positions that were exited include Ralph Lauren Corp. (RL) and Tenet Healthcare Corp. (THC).

Marathon Petroleum Corp. (MPC) is a new position initiated by Blue Ridge in the fourth quarter. The company accounts for a 2.64% position in the fund’s 4Q U.S. long portfolio. Marathon Petroleum is one of the largest independent petroleum product refiners, marketers, and transporters in the U.S.

The company’s recent fourth quarter results beat analyst estimates even though earnings declined 17%, to $626 million, or $2.07 per diluted share, compared with $755 million, or $2.24 per diluted share, in the fourth quarter of 2012. Revenue and other operating revenue increased 20%, to $24.93 billion. The Refining & Marketing segment saw weaker results primarily due to narrower crude oil differentials and higher turnaround costs, partially offset by higher crack spreads, more favorable net product price realizations, and higher sales volumes.

The company, which was spun off from Marathon Oil Corporation (MRO) has a master limited partnership named MPLX LP that owns, operates, develops, and acquires pipelines and other midstream assets related to the transportation and storage of crude oil, refined products, and other hydrocarbon-based products. Headquartered in Findlay, Ohio, MPLX’s assets as of December 31, 2013 consisted of a 69% general partner interest in MPLX Pipe Line Holdings LP, which owns a network of common carrier crude oil and product pipeline systems and associated storage assets in the Midwest and Gulf Coast regions of the United States, and a 100% interest in a butane storage cavern in West Virginia. MPC  owns the remaining limited partner interest in Pipe Line Holdings.

The MPLX investment provides MPC an efficient vehicle to invest in organic projects and pursue acquisitions of midstream assets. Pipeline Transportation segment income from operations, including 100% of MPLX LP’s operations declined 35% to $47 million in the fourth quarter of 2013 from $72 million in the same quarter a year ago, primarily due to a decrease in pipeline equity affiliate income and higher depreciation and operating expenses.

MPC’s Speedway segment sells transportation fuels and convenience products in the retail market in the Midwest, primarily through the Speedway convenience stores. MPC is one of the largest wholesale suppliers of gasoline and distillates to resellers within its market area. It has two strong retail brands: Speedway and Marathon. The segment saw an increase in income to $83 million in the fourth quarter of 2013 compared with $77 million in the fourth quarter of 2012, primarily the result of a higher merchandise gross margin.

MPC hedge

Chief executive officer Gary R. Heminger said that in 2013, MPC continued to strengthen its ability to capitalize on North America’s shifting energy landscape. “In addition to investing in our transportation and retail segments, we completed our acquisition of the Galveston Bay refinery in February and continued to make margin-enhancing investments in our refining system,” Heminger said. “While refining will remain our largest source of earnings and cash flow, we will augment this through expanded investments in midstream and retail in the years ahead.”

Looking to the future, Heminger pointed out that MPC’s capital expenditures will be focused on growing the midstream and retail businesses over the 2014–2016 period. MPC also returned $484 million in dividends and $2.8 billion in share repurchases during full-year 2013.

Continue to Part 3

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