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Marathon Petroleum Corp. Board Concludes Review Of Midstream Business, Says It Was 'unanimous decision of its Board of Directors to maintain MPC's current midstream structure, with the company remaining the general partner of MPLX LP'

FINDLAY, Ohio, March 18, 2020 /PRNewswire/ -- Marathon Petroleum Corporation (NYSE:MPC) today announced the unanimous decision of its Board of Directors to maintain MPC's current midstream structure, with

Benzinga · 03/18/2020 11:54

FINDLAY, Ohio, March 18, 2020 /PRNewswire/ -- Marathon Petroleum Corporation (NYSE:MPC) today announced the unanimous decision of its Board of Directors to maintain MPC's current midstream structure, with the company remaining the general partner of MPLX LP (NYSE:MPLX).

"Today's announcement concludes a comprehensive evaluation that included extensive input from multiple external advisors and significant feedback from investors," said J. Mike Stice, chair of the special committee of the Board that led the midstream review process. "Looking forward, we are excited to provide a clear path for our business. We believe in MPLX's strategic focus on free cash flow generation, and distributions from our continued ownership of MPLX will remain an important, through-cycle source of cash for MPC."

Decision Rationale:

  • Midstream Value Already Unlocked: Historical MPC dropdowns, totaling $1.6 billion of earnings before interest, taxes, depreciation and amortization (EBITDA), unlocked $13 billion of midstream value, including $7 billion of cash proceeds to MPC. These proceeds enabled MPC's robust return-of-capital program over the last several years.
  • Unwinding Businesses Consumes Capital: In MPLX separation scenarios, MPC would require the repurchase of Refining Logistics and Fuels Distribution (RLFD) assets and services, representing $1.4 billion of 2019 EBITDA. Considering the approximately $1.8 billion of distributions MPC receives from MPLX, executing a repurchase of RLFD and a separation of the remaining midstream entity would be cash-flow negative to MPC. It would also require approximately $11 billion to $15 billion of balance sheet resources, which could otherwise be returned to MPC shareholders.
  • Significant Known Cash Costs and Valuation Risks with Separation:A separation would introduce likely tax costs of $1 billion or more depending on the scenario, and MPLX debt restructuring costs of up to $500 million. Additionally, increased earnings volatility and market valuation risks would be anticipated for both MPC and MPLX, post-separation.
  • MPC Receives Significant Value from MPLX: MPLX distributions to MPC of $1.8 billion in 2019 represent an ongoing, large, stable source of cash flow that will be even more critical to MPC following the separation of Speedway and the loss of its predictable cash flows.