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Marathon Oil to spin off refining, pipeline assets

By OGJ editors
HOUSTON, Jan. 13
-- Marathon Oil Corp. will spin off its downstream business, forming an independent refiner to be named Marathon Petroleum Corp. based in Findlay, Ohio.

The parent company, Marathon Oil, will remain in Houston.

Gary R. Heminger, now Marathon Oil downstream executive vice-president, will be president and chief executive officer of Marathon Petroleum. Clarence P. Cazalot Jr. remains Marathon Oil president and chief executive officer.

Marathon Oil expects the transaction to be effective June 30.

Affected assets
Refinery locations and capacities to be operated by the spun-off company are Garyville, La., 464,000 b/d; Catlettsburg, Ky., 212,000 b/d; Robinson, Ill., 206,000 b/d; Detroit, 106,000 b/d; Canton, Ohio, 78,000 b/d; and Texas City, Tex., 76,000 b/d. Crude capacity of the Detroit refinery is being expanded by 15,000 b/d in a project that will increase heavy-oil processing capacity by about 80,000 b/d.

Marathon Petroleum also will operate wholesale and retail operations, including the Speedway retail chain, and Marathon Pipe Line LLC. Through the pipeline subsidiary, the new company will own, operate, lease, or have ownership interests in about 9,700 miles of oil and product pipelines.

Marathon Oil’s core exploration and production areas are the US, Equatorial Guinea, Libya, and the North Sea. Other areas in which the company is active include Angola, Indonesia, the Iraqi Kurdistan region, and Poland.

The upstream company also holds a 20% interest in the Athabasca Oil Sands Project, a joint venture with Shell (60%) and Chevron (20%) that includes the Muskeg River and Jackpine mines, the Scotford upgraders, and more than 215,000 acres of potentially mineable land.

Marathon Oil also has an integrated gas unit that includes a 60% interest in a 3.7-million-tonne/year LNG plant and 45% in a methanol company in Equatorial Guinea.

Financing
Before the spinoff, Marathon Petroleum plans to borrow $2.5-3 billion to establish a cash balance of at least $750 million. It will use cash above that level repay intercompany debt with Marathon Oil. Remaining proceeds will be distributed to Marathon Oil before the spinoff date.

JP Morgan and Morgan Stanley will provide a $2.5 billion, 364-day bridge facility. The firms also will provide Marathon Petroleum a $2 billion, 4-year revolving credit facility.

Before the spinoff, Marathon Oil will reduce its long-term debt by about $2.5 billion through cash on hand and proceeds of the debt repayment from Marathon Petroleum. It will continue servicing the remaining $5 billion in long-term debt after the spinoff.


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