HOUSTON -(Dow Jones)- Marathon Oil Corp. (MRO) said Thursday that the lack of physical integration between its refining and exploration and production segments was a leading driver behind the spinoff of its downstream business.

Although the Houston-based company took advantage of some financial benefits of having all the segments together under one company, Marathon was not able to benefit from the integration in practice, Executive Vice President Dave Roberts told analysts during a conference call following the announcement of the split Thursday. Only about 5% of the crude produced by the Marathon was being used by the company's refineries, he said.

Marathon Chief Executive Clarence Cazalot said the company's management team believed now is "the right time to proceed with this transaction," because the company finished major investments and is now financially better positioned than in 2008 when the company first thought about spinning off its refining business. Significant improvement in the global financial markets and higher commodity prices gave the company confidence to go ahead with the split now, he said.

Cazalot said the new exploration and production company will be highly competitive among its new peer group of independent oil and gas companies because a large part of its portfolio is focused on oil assets, which are more profitable than natural-gas reserves. The new exploration company has a substantial, geographically diverse oil and gas portfolio, he said. "We have a very stable profitable base of assets with low-risk defined growth," Cazalot said.

The new refining company, to be called Marathon Petroleum Corp., will maintain its capital discipline and has no plans to increase capital spending or consider making acquisitions of international assets, said Gary Heminger, executive vice president for Marathon's downstream segment.

Marathon said the upgrade to the 106,000-barrel-a-day Detroit refinery, which will expand its ability to process heavy crudes, should be finished by 2012.

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