MPC - Marathon Petroleum

[Mephistopheles]

Well, FWIW, they've outlined debt repayment and return of capital as uses in the initial press release:

Certainty of Value for MPC Shareholders: The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives.

Significant After-Tax Cash Proceeds: This transaction is expected to result in after-tax cash proceeds of approximately $16.5 billion. MPC expects to use the proceeds to both repay debt to protect its investment grade credit profile and return capital to shareholders. Specific details will be announced at the time of transaction close.

It's weird that the stock didn't move after this announcement, what is the market thinking? $21 billion was even higher than previously projected.

[Dalal.Holdings]

Add $1.1B in tax optimization...

https://www.bloomberg.com/news/articles/2020-08-10/marathon-poised-for-1-1-billion-tax-refund-from-coronavirus-aid

[RadMan24]

Well, FWIW, they've outlined debt repayment and return of capital as uses in the initial press release:

Certainty of Value for MPC Shareholders: The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives.

Significant After-Tax Cash Proceeds: This transaction is expected to result in after-tax cash proceeds of approximately $16.5 billion. MPC expects to use the proceeds to both repay debt to protect its investment grade credit profile and return capital to shareholders. Specific details will be announced at the time of transaction close.

It's weird that the stock didn't move after this announcement, what is the market thinking? $21 billion was even higher than previously projected.

I think part of the problem is where do they put the money? You mention debt payments and capital returns, but its almost like PNC - in this environment and outlook, does it make sense to do a value acquisition or just wait and see how this pandemic plays out? The reinvestment options are not appealing, so a capital return/debt repayment option seems to be the best if only option.

[Dalal.Holdings]

There would be few greater return opportunities outside of retiring some debt and buying back 6% yielding stock at these prices. The Andeavor acquisition was large enough and is still being worked through, so M&A at this point seems overkill outside of maybe anything small and bolt on.

You already have a co that is one of the largest refiners in the world with control of a large midstream network. They are closing two refineries themselves. Questionable what the point would be in adding to their already large refinery/midstream footprint at this point.

[Dalal.Holdings]

Another way to look at it—

If you subtract the $16.5B cash from your estimated EV you get $30B.

EV of the remaining MPC post speedway sale (subtracting $16.5B cash from current EV) becomes < than the market cap of $23B at about $16B. So the upside I see for shareholders post sale to your EV target is north of $80%...

FYI Grossbaum's math is correct, mine is wrong: shareholder upside to target EV of $30B ex Speedway post transaction is ~55%, not 80%.

[Maple Fun]

This thing keeps dropping....

[Mephistopheles]

How familiar are you with the refinery industry? Everything I see shows it is a totally shit industry, but this stock is now selling for an adjusted EV/EBIT of like 1-2 if you discount Speedway and MPLX. Has anyone looked at MPLX with regards to valuation? Question - how does its pipelines compare with the ones that Buffett just picked up? It seems like they are mainly for crude oil vs. the nat gas ones that Buffett bought. If crude production plummets, can they be used for NG or no?

Long term it's not looking good whatsoever, I think electric vehicles are close to or have reached critical mass and the sales will only accelerate in the years to come. At this valuation, I see it as a really cheap call option on the crack spread.

[Spekulatius]

How familiar are you with the refinery industry? Everything I see shows it is a totally shit industry, but this stock is now selling for an adjusted EV/EBIT of like 1-2 if you discount Speedway and MPLX. Has anyone looked at MPLX with regards to valuation? Question - how does its pipelines compare with the ones that Buffett just picked up? It seems like they are mainly for crude oil vs. the nat gas ones that Buffett bought. If crude production plummets, can they be used for NG or no?

Long term it's not looking good whatsoever, I think electric vehicles are close to or have reached critical mass and the sales will only accelerate in the years to come. At this valuation, I see it as a really cheap call option on the crack spread.

It is highly debatable , if you can truly segregate MPLX out from MPC.

MPLX crude pipes cannot be reused for NG generally, they are not in the right locations or don’t have the right end points. In some cases it is theoretically possible, but generally speaking , a  competing NG pipe already exists in most cases.

[Dalal.Holdings]

There are good NG midstream plays out there...EPD is one I’ve lately added (though it has crude pipelines as well).

I view refineries and pipelines similar to railways—critical infrastructure that is too difficult (regulations) and/or onerous (expensive) to replace these days. Look at how old most of the refineries in the U.S. are. Look at how difficult it is to get a new pipeline approved in lots of places in U.S. (DAPL, Keystone). This results in moats around existing players, especially in some geographies.

These strike me as tollbooth type businesses whose fees should grow with inflation (midstream + refineries) with minimal maintenance capex needs (midstream, not refineries). I’ll take the double digit payout in some cases. Gasoline, jet fuel, diesel, marine fuel, etc are not going away any time soon.

MPC, the refiner with the largest U.S. refining capacity, with $16.5B coming its way (will result in over $5B net cash) seems like a safe way to get paid >7% a year even if refining takes some time to come back. Remember that MPLX debtholders do not have recourse to MPC assets.

[lnofeisone]

How familiar are you with the refinery industry? Everything I see shows it is a totally shit industry, but this stock is now selling for an adjusted EV/EBIT of like 1-2 if you discount Speedway and MPLX. Has anyone looked at MPLX with regards to valuation? Question - how does its pipelines compare with the ones that Buffett just picked up? It seems like they are mainly for crude oil vs. the nat gas ones that Buffett bought. If crude production plummets, can they be used for NG or no?

Long term it's not looking good whatsoever, I think electric vehicles are close to or have reached critical mass and the sales will only accelerate in the years to come. At this valuation, I see it as a really cheap call option on the crack spread.

It is highly debatable , if you can truly segregate MPLX out from MPC.

MPLX crude pipes cannot be reused for NG generally, they are not in the right locations or don’t have the right end points. In some cases it is theoretically possible, but generally speaking , a  competing NG pipe already exists in most cases.

It's totally possible to change a pipeline from oil to nat gas. The only difference is extra pump stations and shut off valves. To Spek's point, you have to look at where the pipes are laid. MPLX isn't really near to any of the major NG fields but there aren't many NG alternatives to where MPLX pipes are. Bigger problem for MPLXto try to convert to NG pipelines is that the existing NG pipelines are filling the demand just fine.

I think people have given up on oil. I'm no luddite (in fact have only recently closed out my TSLA position) but we are still selling plenty of ICE vehicles. Oil usage growth (yep, growth) is still positive. I would be amazed if we go 100% electric in the next 5 years. 

As far as Buffett's acquisition of D pipelines, I think he got a great deal. No idea what's going on with D. I have heard some interesting theories that they are moving to renewables/software company like status (https://news.dominionenergy.com/2020-01-16-Dominion-Energy-Moves-Forward-with-Electric-School-Bus-Program). I don't exactly buy it/understand it especially given their move to extend their nuclear licenses for 80 years (arguable wind/solar can now compete with nuclear on LCOE basis). They sold NG pipes. One of them runs through NY which is basically impossible to replicate.