U.S. Markets closed

Marathon Petroleum Prices $1.95B Notes for Hess Buyout

Zacks Equity Research

Marathon Petroleum Corp. (MPC), the Ohio-based independent oil refiner and marketer, announced and priced a three-part senior note offering totaling $1.95 billion. The offering is expected to close on Sep 5.

The $750 million senior note offering, due 2024, carried an interest rate of 3.625% and was priced at 99.641% of par. The $800 million offering, due 2044, carried an interest of 4.75% and was priced at 98.862% of par. The third offering of $400 million, due 2054, carried an interest of 5% and was priced at 98.77% of par.

Marathon Petroleum announced that the net proceeds from these offerings would be used to fund its affiliate, Speedway LLC’s purchase of retail and transport operations of integrated energy firm Hess Corporation (HES) (Read: Marathon Petroleum to Boost Retail with Hess Biz).

On Aug 26, the company had announced a $700 million senior unsecured term loan with the same purpose. The loan was for a 5-year period.

Marathon Petroleum is the fourth largest domestic refiner, transporter and marketer of petroleum products. The company, in its current form, came into existence following the 2011 spin-off of Houston, TX-based Marathon Oil Corp’s (MRO) refining/sales business into a separate, independent and publicly traded entity.

A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying to Marathon Petroleum's key markets. However, Marathon’s core business – refining – is faced with a high degree of volatility, while being capital intensive. This is expected to limit its ability to deliver positive earnings surprises.

Marathon Petroleum currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider a better-ranked player from the oil refining and marketing industry like EnLink Midstream, LLC (ENLC), sporting a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on HES
Read the Full Research Report on MPC
Read the Full Research Report on ENLC
Read the Full Research Report on MRO

Zacks Investment Research