Marathon sells Minn. facilities for $900M

  • Article by: JENNIFER BJORHUS , Star Tribune
  • Updated: October 6, 2010 - 9:56 PM

Refinery and SuperAmerica stores sold to private equity firm; the 3,100 affected workers are expected to keep their jobs.

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SuperAmerica gas stations, including this one in Mendota Heights, are getting new owners.

Photo: Glen Stubbe, Star Tribune

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Marathon Oil Corp., one of the state's major suppliers of gasoline, is radically shrinking its Minnesota footprint, selling its St. Paul Park refinery and all of the state's 200-plus SuperAmerica stores to a private equity partnership for $900 million.

The cash-and-stock deal, announced Wednesday, is expected to close by the end of the year. It's the latest in a number of sales in the last 18 months as refiners in the United States and Europe cut back on refining capacity amid concerns of an oversupply of crude oil.

The sale affects about 3,100 workers, most of them employed at SuperAmerica stores, but the new owners say they don't anticipate any layoffs. The stores will keep the SuperAmerica brand name.

Brad Slawson Jr., president of Teamsters Local 120, which represents 200 workers at the refinery, said he doesn't expect any downsizing or other problems.

"The parties are in negotiations and expect this to be a smooth transaction," Slawson said.

Marathon announced the preliminary deal in May with an early pricetag of $800 million. Marathon spokeswoman Angela Graves said Wednesday the price rose after a complete valuation of the assets.

She wouldn't discuss specific reasons for shedding its Minnesota operations, saying only that it's always reviewing its portfolio. "We saw an opportunity to divest a package of facilities," Marathon spokeswoman Angela Graves said. "These are great assets."

In addition to the refinery and the roughly 233 SuperAmerica stores in Minnesota, the sale includes six SuperAmerica stores in Wisconsin and one in South Dakota, the SuperMom's bakery and a 17 percent equity interest in the Minnesota Pipeline, a 300-mile pipeline that moves crude oil from Canada and elsewhere to the Twin Cities and supplies most of the crude for the refinery in St. Paul Park.

The sale does not include the 90 or so Marathon-branded gas stations in the state, which are owned by independent businesses. Under terms of the sale, Marathon will continue to supply refined products to those stations, which will keep using the Marathon name, Graves said.

The St. Paul Park refinery processes 74,000 barrels of oil a day, primarily producing gasoline and diesel fuel. It's the smallest of the seven refineries owned by Marathon Petroleum Co. LP, the subsidiary of Houston-based Marathon Oil Corp. that is making the sale. The St. Paul Park refinery formed about 6 percent of Marathon Petroleum Co.'s refining capacity.

The buyers -- ACON Investments in Washington, D.C., and TPG Capital, the buyout arm of the TPG investment company in Fort Worth, Texas -- said they're forming a new stand-alone company to operate the assets: Northern Tier Energy LLC.

Ann Kohler, an energy analyst for Del Mar, Calif.-based Caris & Co., said a number of factors drove the sale. Oil companies roared through much of the 2000s but the recession has squeezed margins and has companies scouring their portfolios for non-core assets, which the small St. Paul Park refinery clearly was. Marathon has a stated goal of shedding $2 billion to $4 billion in assets, she said.

"The fundamentals will continue to be challenging for the industry over the next several years," Kohler said.

Plus, she said, Marathon has been shifting its focus from the retail and distribution end of the business to the more profitable "upstream" end: oil exploration. In 2007 it paid $6.2 billion for Western Oil Sands Inc. in Canada and spent nearly $4 billion upgrading and expanding its flagship refinery in Garyville, La., to handle the heavier crude coming down from there.

An easy divestment

Blake Fernandez, a research analyst at Howard Weil Inc., an energy investment firm in New Orleans, said that Marathon's St. Paul Park refinery was not well integrated into Marathon's overall "downstream" distribution system and could be lopped off without affecting overall operations.

The refining industry is in the early stages of a round of consolidation, the analysts said, with several companies looking to reduce capacity. What's somewhat unusual in the current round of sales, they said, is the strong role private equity is playing. Other refiners aren't in the position financially to go shopping, Kohler said.

"This time, the only entities that we are seeing really stepping up to the plate are the private equity" companies, Kohler said.

In July, Murphy Oil Co. announced plans to exit the refining business and put three refineries on the market, including its refinery in Superior, Wis., that processes 35,000 barrels a day.

Earlier this year, Valero Energy Corp. in San Antonio, Texas, sold one of its refineries to PBF Energy Co. and is in the process of selling a second one to the same investor group. PBF is a Connecticut energy company backed by Blackstone and First Reserve Corp., both private equity groups.

Fernandez, the analyst, said detailed financials on the purchases haven't been released, but it appears Marathon got a good price for its wares.

"This is probably one of the more attractive ones from a seller's standpoint," Fernandez said.

The St. Paul Park refinery, one of the state's two refineries, has a long history in the Twin Cities. The refinery began in 1939 as Northwestern Refining Co. In 1970 it was sold to Ashland Petroleum, which merged with Marathon in 1997 and jointly owned the refinery. Marathon eventually bought out Ashland's stake.

Flint Hills Resources out of Wichita, Kan., operates Minnesota's largest refinery, the Pine Bend facility in Rosemount. That refinery processes up to 320,000 barrels a day, and Flint Hills estimates it supplies roughly half the conventional gasoline sold in the state.

Jennifer Bjorhus • 612-673-4683

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