Not since Marathon Petroleum (NYSE: MPC) was spun off back in 2011 has there been so much activity going on at the corporate level of this business. Not only is it looking to restructure its pipeline subsidiary, but it may even calve off a whole other business segment into a completely new company. On top of all of this, a new presidential administration could cause a lot of changes that could profoundly impact the bottom line. Here are several quotes that cover how all of these things are impacting management's thought process and how investors should interpret this.
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Putting a plan together for MPLX
There has been a lot of talk recently about Marathon's plans for its subsidiary partnership MPLX (NYSE: MPLX). For several months, activist investor group Elliot Management has been calling for a shakeup to get more shareholder value out of those midstream assets. In January, management announced a major restructuring plan for MPLX, which CEO Gary Heminger highlighted in his prepared comments:
There are lots of opportunities for growth at MPLX, but its current structure has made raising capital rather prohibitive. So along with this large spending plan, Marathon will exchange its incentive distribution rights that come with its general partnership stake for a larger limited partnership stake in the company. Over time, no incentive distribution rights should significantly reduce its cost of capital.
This structural change may not be the only one coming down the pipe, though. According to Heminger, management is also taking a hard look at its retail assets:
This could go either way, really. The consensus seems to be that Speedway could be spun off into its own entity and Marathon would retain a stake in the business. The benefit to this is it would be a quick jolt of cash from the spin off, but the downside would be that the company wouldn't have the consistent earnings and cash flow it provides when the retail segment is going through a cyclical downturn. Until we get a definitive decision, though, this is all just speculation.
Border taxes won't impact us
Oil refiners are probably the business most likely to see an impact from the proposals from President Trump related to taxes and regulation. One that could be an adverse effect is a border adjustment tax with Mexico, since refiners import a lot of crude from there. According to Heminger, the possibility of these taxes isn't as much of an issue for Marathon as it would be for retail customers. He said:
Tax situationtoo uncertain
Another hot-button issue with the Trump administration is all the potential changes to taxes. According to CFO Tim Griffith, Marathon is taking a wait-and-see approach because there are potentially so many moving parts here that it's way too soon to determine the impact. Said Griffith:
MPLX standing on its own
One analyst question from the conference call was whether MPLX can expect support from the parent company in terms of financing for the coming year. This was something that was pretty common in 2016 because it was rather hard for MPLX to secure capital. In response, Executive Vice President of MPLX Don Templin said he foresaw MPLX being able to stand on its own this year and why it was possible:
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