Biggest US oil refiner posts $9.2bn loss as fuel demand dives

Marathon Petroleum, the US’s biggest oil refiner, posted a first-quarter loss of $9.2bn after taking a $12.4bn impairment charge, as fuel demand began to fall during the coronavirus lockdowns. 

The company said it would slash $1.4bn, or 30 per cent, from capital spending this year and reduce expenses by $950m in response to the “Covid-19” conditions. About half of those spending cuts would be made in the company’s midstream business, including subsidiary MPLX.

The company also sharply cut its outlook for refining throughput in the second quarter, which it expects to reach 2.1m barrels a day, or down 30 per cent from 3m b/d in the first quarter, on expectations of lower fuel needs.

“These are unprecedented times, leading us to make prudent tactical changes for 2020,” said chief executive Michael Hennigan. 

On top of the capital spending reductions, Marathon suspended share buybacks and said it would temporarily idle some facilities. Analysts said this would involve reducing run-rates at refineries. 

In April, the company issued $2.5bn of senior notes and secured an additional $1bn revolving credit facility. Total credit capacity, excluding MPLX, amounts to $7.5bn and borrowing capacity of $6.7bn. The company said it would “evaluate further actions to enhance liquidity”.

Marathon’s shares jumped by about 5 per cent on the opening of trading in New York after the results exceeded analysts’ forecasts.

The adjusted quarterly income loss of $106m was well below the forecast loss of $203m. Adjusted loss per share of 16 cents was about half the loss expected. However, total revenues in the first quarter fell from $28.6bn a year earlier to $24.1bn, below expectations.

Retail earnings before income, tax, depreciation and amortisation rose to $644m compared with $296m a year earlier, also beating forecasts — “the star of the show”, said analysts at Tudor, Pickering, Holt and Company, an investment bank. But they also noted that “debt metrics worsened considerably” because of the $12bn impairment charge.

Mr Hennigan took the helm at Marathon in March after activist investors including hedge fund Elliott Management pressed for changes in the company’s leadership and strategy.

Investors have also urged the company to spin off its Speedway retail arm. Part of Marathon’s $12.4bn impairment charge included $35m of costs “incurred in connection with the Speedway separation” and a review of the company’s pipeline business. 

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