With the United States now the world’s top oil and gas exporter, the first (and biggest) of what could be a string of oil mergers has been struck.
The U.S. ships more than 3 million barrels per day (bpd) of gasoline and diesel. The International Energy Agency forecasts that over the next five years, it will supply much of the world's growing demand for oil. Spurred in large part by a booming shale oil sector, especially from shale fields in Texas and North Dakota, oil refiners are building export terminals and processing facilities, eager to grow their share of the expanding export market.
The drive to expand is clearly evident in the more than $23 billion deal recently penned by Marathon Petroleum to acquire rival refiner Andeavor. Including the latter’s debt, Marathon will pay $35.6 billion to hold 66% of a combined company. Rob Smith, refining and marketing director for IHS Markit, says the deal could spur other oil refiners in North America to consider acquisitions. “This may end up being the biggest of the bunch,” he said. “But it would not be surprising to see other mid-tier companies merge.”
The Marathon-Andeavor merger would create one of the largest global refiners – one that is well-positioned to benefit from access to prolific U.S. shale fields and growing fuel export markets. Andeavor’s logistics and terminal operations in Texas and North Dakota will give Marathon more exposure to the U.S. shale oil sector, Reuters notes. Of particular interest is the Permian Basin in Texas, where output has driven crude production to an all-time high of over 10.5 million bpd. “The combination of the two companies allows us to go after and find ways to create a bigger presence in the Permian,” said Marathon CEO Gary Heminger, who will lead the combined company.
Texas-based Andeavor operates 10 refineries in the U.S., largely in the West, including two in California. It has pipeline, trucking and terminal operations in the Permian and in North Dakota’s Bakken region, the second-most prolific for oil production in the country. Marathon, based in Ohio, has six refineries, mostly in the Midwest, and one in Texas. “This creates one coast-to-coast, border-to-border refining and marketing company that seems well balanced with a pretty broad footprint,” said Garfield Miller, CEO of Aegis Energy Advisors.
The merged company will benefit from higher processing capacities, estimated at 3.1 million bpd of crude oil into gasoline, diesel and other fuels. It would have the sixth-largest capacity globally, behind China’s Sinopec, Exxon Mobil Corp, PetroChina, Royal Dutch Shell, and Aramco, according to IHS Markit.
The merger will also allow Marathon to enter fast-growing Mexican fuel markets. U.S. fuel exports to Mexico rose to 1.4 million bpd as of January, up more than 85% from two years ago, as local refineries struggle to meet growing demand. Andeavor is expanding its network of filling stations in Mexico. “There’s no question the new company has greater resource capability going forward into Mexico,” said Andeavor CEO Gregory Goff.