“Refiners are subject at the end of the day to commodity risk,” Gianna Bern, president of risk-management consultant Brookshire Advisory & Research Inc. in Chicago, said in a telephone interview today. “Putting in place a structure that provides a stable investment return would be viewed positively amongst investors.”
Refiners have embraced the model as a way to reap more value from pipeline assets for which investors will pay a premium. Marathon Petroleum Corp., which was spun off from Marathon Oil Corp. last year, sold 17.3 million units in MPLX LP on Oct. 25, creating an MLP valued at $2.3 billion, according to data compiled by Bloomberg.
The companies have used the creation of MLPs, share buybacks and dividend increases to lessen earnings volatility inherent in refining and draw investors including Warren Buffett’s Berkshire Hathaway Inc. and BlackRock Inc. As of Sept. 30, Berkshire was one of the largest shareholders of Phillips 66, with 27.2 million shares, or 4.3 percent of the company. BlackRock disclosed Dec. 6 that it holds a 10 percent stake in Marathon Petroleum.
Phillips 66 and Marathon Petroleum have sought a niche as refiners with growing operations in other energy sectors. Marathon Petroleum plans to grow its pipeline business through new projects tied to its refining operations and acquisitions, Garry Peiffer, president of MPLX, said Dec. 11 in a telephone interview.
Phillips 66, which has stakes in 15 operating refineries, a chemical joint venture with Chevron Corp. and the DCP unit with Spectra, plans $3.7 billion in 2013 capital spending, a 6 percent increase over this year’s estimated total, according to the statement.
About $1.8 billion of that represents Phillips 66’s contribution toward spending by its chemical and pipeline joint ventures for new infrastructure projects, natural gas liquids production and a petrochemical plant.
Tesoro Corp. and Delek U.S. Holdings have already formed pipeline MLPs.