Author Topic: MPC - Marathon Petroleum  (Read 11776 times)

Viking

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2535
Re: MPC - Marathon Petroleum
« Reply #20 on: September 10, 2020, 05:46:31 PM »
So can someone help me understand why the stocks with pipeline exposure have such high yields? The ones i have started following are ENB, TRP and FTC. Each company has a very different business model / assets and current payout ratios are below 80% of FCF. Each appears to be weathering the current storm just fine. All reported and there was zero discussion about dividend cuts.

Is the concern:
1.) economic: covid is here for the medium term so economic damage will be large / demand for energy will lag well into 2021 and possibly into 2022
2.) structural: move to electric vehicles will reduce demand long term
3.) balance sheet: companies carry too much debt
4.) political 1: if Democrats are elected no new pipelines will be built (lower growth) and regulation will be increasing (higher costs)
5.) political 2: if Democrats are elected taxes will be increasing

I think ‘energy’ has been the worst performing asset class the past decade. It everything in this sector toxic? Or are the pipeline companies, especially those with a focus on natural gas, ok investments? Especially in a yield starved world :-)

—————————-

Listening to the Marathon Q2 call, management talked about the importance of monetizing assets and returning capital to shareholders. I wonder if we do not see a shift in all energy companies. From ‘growing production’ to ‘harvesting undervalued assets’. Marathon seems to want to shed assets and return the $ to shareholders with Speedway being the first big step. Perhaps we see massive consolidation in all things energy in the coming year, especially if the economy remains in recession well into 2021. Buffett must be licking his chops :-)
« Last Edit: September 10, 2020, 06:01:25 PM by Viking »


Dalal.Holdings

  • Hero Member
  • *****
  • Posts: 1563
Re: MPC - Marathon Petroleum
« Reply #21 on: September 10, 2020, 05:53:36 PM »
Rise in corporate taxes should not affect MLP unitholders much.

If no new pipelines are built, that increases the value of existing pipeline networks (they'll command higher fees).

If inflation rises so will the fees they collect. Meanwhile many midstream players have secured fixed low interest rate debt stretching out decades in the current environment...

The argument for crude obsolescence in 10 years is very weak. Natural gas utilization in the U.S. is not going away for much longer. Ditto for petrochemicals/plastics (NGLs).

Maybe it's the trend to ESG investing? Who knows. I'll jump in though. I think it's much more attractive and sensible than commercial REITs paying 6% or so.
« Last Edit: September 10, 2020, 05:55:55 PM by Dalal.Holdings »

Saluki

  • Full Member
  • ***
  • Posts: 243
Re: MPC - Marathon Petroleum
« Reply #22 on: September 10, 2020, 06:11:52 PM »
Well, the price of refiners tend to fluctuate with the difference between what you buy petroleum for and what you sell, the finished products for (the crack spread), which right now is pretty bad:

https://www.eia.gov/finance/markets/products/prices.php

It's also affected by aggregate demand, which I think is down by 10%. 

I'm not going to go link happy in this post, but you can find the info on the EIA website or other place. There are about 1/3 less refineries now than there were in the 1980s, but the amount of refined production is about 50% more than it was in the 1980s.  There are fewer refineries, pushing out more barrells, which means more money for the toll bridge operator.

Yes, it's probably impossible to build a new one in the US for environmental reasons, although there is a new refinery in the middle east and one built in china recently, so if you close down a refinery, it's probably closed for good.  That makes existing refineries an okay industry. 

Yes, there is debt and you don't control the price of the inputs or outputs, but when the crack spread is favorable, you make money and it won't get competed away by a new entrant.  The better refineries are also able to sell more complex distillates for things like plastics, paints etc. and make a nice return.  Some of these operators also own big stakes in the marketing and distribution which can be operated as a separate business PSX owns a lot of PSXP,  PBF owns a lot of PBFX. 

It's a good, not a great business, but a lot of them seem to be selling at attractive valuations compared to the last year.   Buffett used to own over 10% of PSX and would buy whenever it dipped below $80, it's in the high 50s now. Klarman bought PBF in the 20s and sold in the 30s, it's now $6.50.
If it's important, do it every day. If it's not important, don't do it at all.  -Dan Gable

Spekulatius

  • Hero Member
  • *****
  • Posts: 6080
Re: MPC - Marathon Petroleum
« Reply #23 on: September 10, 2020, 07:02:27 PM »
Yes, I think getting tainted with being part of the energy sector and ESG trends have hurt the pipeline and refinery stocks,

I am conflicted on the refineries and my pick would be PSX over MPC because they have better assets, imo. The knock on refineries is that EV may cause less demand. One doesn’t need the entire demand to collapse, if the demand shrinks faster than supply the margin/ spread pressure may make refining a really bad business long before the business goes entirely away.
Just recall, there was a dark age for refineries when overcapacity and lack of supply from cost advantaged crude was causing low profits for refineries for a long time. It was abundant shale oil that was one of the main reasons the refineries started to do better. So in an indirect way, the fortunes of the refining sector are tied to the shale, Imo.
« Last Edit: September 11, 2020, 04:09:19 AM by Spekulatius »
Life is too short for cheap beer and wine.

RadMan24

  • Hero Member
  • *****
  • Posts: 547
Re: MPC - Marathon Petroleum
« Reply #24 on: September 10, 2020, 07:19:14 PM »
Yes, I think getting tainted with being part of the energy sector and ESG trends have hurt the pipeline and refinery stocks,

I am conflicted on the refineries and my pick would be PSX over MPC because they have better assets, imo. The knock on refineries is that EV may cause less demand. One doesn’t need the entire demand to collapse, if the demand shrinks faster than supply the margin/ spread pressure may make refining a really bad business long before the business goes entirely away.
Just recall, there was a dark age for refineries when overcapacity and lack of supply from cost advantaged crude was causing low profits for refineries for a long time. It was abundant shale oil that was one of the main reasons the refineries started to do better. So in and indirect way, the fortunes of the refining sector are tied to the shale, Imo.

PSX has done well capital allocation wise, and has a great chemicals business. MPC doesn't have that type of exposure. That's the knock on MPC, imo. With that said, business is weak all around, however, petrochemical growth is still a very strong outlook demand wise going forward, despite the covid impact.

Mephistopheles

  • Hero Member
  • *****
  • Posts: 1893
Re: MPC - Marathon Petroleum
« Reply #25 on: September 10, 2020, 07:30:55 PM »
Oil and refined products aren't going away for a long time. The problem is that a need for auto fuel may very well decline in the U.S. and Europe in the next 10 years. In the U.S. it accounts for 45% of refinery output. Worldwide, passenger vehicles account for 26% of all oil usage. It only takes a small decline in cap utilization to cause big problems since these refineries are high fixed cost businesses. The other issue is that refining is a global business. It's true there will be no more U.S. refineries, but the world is adding capacity, and fuel can be transported globally.

Saluki

  • Full Member
  • ***
  • Posts: 243
Re: MPC - Marathon Petroleum
« Reply #26 on: September 11, 2020, 07:12:13 AM »
This should probably go in a discussion thread about oil tankers, but it's relevant here because the last time we had a glut, a few months ago, it was very profitable for VLCCs and SuezMax operators but very painful for refiners. 

https://www.bloomberg.com/news/articles/2020-09-11/oil-traders-snap-up-tankers-in-sign-second-wave-glut-may-be-near

It could be that we experience a glut in crude AND a pickup in demand for finished products, assuming more production, in which case there still may be glut of stuff coming in and the bottleneck is the refiners, which could be bullish for refiners.  If there is a glut of the input, it becomes cheaper, and more demand for the output makes it more expensive, so a very nice crack spread. 

However, if the expected glut is due to a recession or another wave of the pandemic, that's not good for refiners.
If it's important, do it every day. If it's not important, don't do it at all.  -Dan Gable

bizaro86

  • Hero Member
  • *****
  • Posts: 1610
Re: MPC - Marathon Petroleum
« Reply #27 on: September 11, 2020, 07:36:20 AM »
This should probably go in a discussion thread about oil tankers, but it's relevant here because the last time we had a glut, a few months ago, it was very profitable for VLCCs and SuezMax operators but very painful for refiners. 

https://www.bloomberg.com/news/articles/2020-09-11/oil-traders-snap-up-tankers-in-sign-second-wave-glut-may-be-near

It could be that we experience a glut in crude AND a pickup in demand for finished products, assuming more production, in which case there still may be glut of stuff coming in and the bottleneck is the refiners, which could be bullish for refiners.  If there is a glut of the input, it becomes cheaper, and more demand for the output makes it more expensive, so a very nice crack spread. 

However, if the expected glut is due to a recession or another wave of the pandemic, that's not good for refiners.

Yeah, basically the crack spread is a function of the supply-demand balance for refining capacity.

Dalal.Holdings

  • Hero Member
  • *****
  • Posts: 1563
Re: MPC - Marathon Petroleum
« Reply #28 on: January 07, 2021, 02:24:24 PM »
Took profits on this

valuebet

  • Newbie
  • *
  • Posts: 10
Re: MPC - Marathon Petroleum
« Reply #29 on: January 08, 2021, 07:12:52 AM »
Took profits on this
Hi, what were your thoughts on this one, is it a fair price now?