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Marathon Petroleum to Invest $1.2B in Galveston STAR Project

Zacks Equity Research

Marathon Petroleum Corporation MPC recently revealed plans to invest around $1.2 billion in its Galveston refinery, located on Galveston Bay of Texas, for the South Texas Asset Repositioning (“STAR”) program during the 2019-2022 period. The total cost of the project is estimated to be around $1.5 billion, lower than its previous projection of $2 billion.

Per the company, the STAR Program is on track for completion on schedule and well within budget. The project is expected to add 40,000 barrels per day of crude capacity at the Galveston refinery. Moreover, it is intended to integrate the company’s former Texas City refinery into the nearby Galveston Bay refinery, currently the second largest in the United States. It plans to increase the efficiency and reliability of the refinery via boosting residual oil processing capabilities, upgrading the crude unit and integrating facility logistics.

The STAR Program at the refinery is expected to reach completion by early-2022. Once the program comes online, it is expected to yield around $525 million in EBITDA per annum. Marathon Petroleum, through its subsidiary, selected Fluor Corporation FLR for implementing the engineering and procurement work at the facility last year. Following the completion of the program, the Galveston Bay refinery is expected to achieve updated U.S. Environmental Protection agency Tier 3 gasoline sulfur standards.

Marathon Petroleum expects the internal rate of return from the project to be more than 40%. Moreover, the strategic positioning of the facility is commendable, as products from the facility can easily reach Florida, U.S. East coast, Eastern Mexico, making it a crucial export point. The refinery’s connectivity and exporting options can maximize refinery utilization. Additionally, the company is planning to participate in a Permian pipeline to supply crude to the refinery.

Price Performance

Marathon Petroleum has declined 17.4% in the past year compared with 6.9% collective fall of the stocks belonging to the industry.

Zacks Rank and Key Picks

Currently, Marathon Petroleum has a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

Houston, TX-based Archrock, Inc. AROC is an oil & gas equipment and services providing company. Its bottom line in 2019 is expected to increase 39.6% year over year. The stock currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Houston, TX-based Par Pacific Holdings, Inc. PARR is a refining and marketing company. In 2019, its earnings are expected to grow 41.5% year over year. The company currently holds a Zacks Rank #2.

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