Re: Re: (NYSE:MPC)
J Mako,
You're right, I didn't really elaborate on what I thought is interesting about it and your points are all valid. Paul and I have been discussing refineries for some time now - part of the discussion was spurred by the phenomenon of the Cushing, Oklahoma delivery point, where refiners such as CVR Energy, Delek, HollyFrontier and Western Refining have enjoyed margins of more than $20 a barrel. (search for Western Refining in the forum and you can trace back the discussion).
1. Refining is an ugly busy - some people say that retailers make more money on the cigarettes and gums than the gas, which could be correct most of the time, but sometimes unique situations like Cushing come about and the margins prove very attractive. The business is also defined by high volatility based on refining margins or crack spreads - in the case of Marathon those are based on Midwest (Chicago) and U.S. Gulf Coast Light Louisiana Sweet crude oil over West Texas Intermediate crude oil. In Q2 those spreads widened enough to bring approximately $1 billion in free cash flow. Unfortunately, the pendulum swings both ways.
2. The pipeline business is also interesting to me and you're absolutely right that it's tiny - what interested me is that the segment income from transportation was equal to the retail segment's income despite the fact that transportation revenue is 0.5% of retail revenue. This doesn't make it a great investment, but an interesting fact. What interests me is the potential connection with the Canadian Oil Sands - that could be a game changer for this small segment. A few years back I read a good amount about the pipeline business in relation to natural gas and I still find it fascinating how territorial monopolies can be created through this infrastructure.
3. The retail business in my mind represents real estate - I'm really interested how the emergence of electric or natural gas vehicles would alter the use and specifications of the existing gas stations. The latter is easier to imagine than the former.
4. Of the refiners I have screened, Marathon sells at the lowest PE ratio, but this is a cyclical business, so we don't know whether that's good or bad.
Considering all these facts only provides an interesting read, something I think about and shelf away. I don't know whether this is a good investment at these prices, but at lower prices it might become one - with time I've become very picky with my investments, trying to know enough about a short list of securities to have confidence to invest in them when prices fluctuate.
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