Marathon Petroleum Could Benefit in the Long Run

Ohio-based Marathon Petroleum (NYS: MPC) looks set to become the largest independent refining and marketing company in the U.S. With highly impressive second-quarter results, its spinoff from Marathon Oil (NYS: MRO) -- now an independent upstream company -- has taken place at the most opportune time.

Double the cash
Thanks to higher refining and marketing margins, net income saw a phenomenal 98% increase over last year's second quarter, to $802 million. In fact, overall refinery inputs were a tad lower than last year's -- a drop of 1.5%. Higher gas prices at the pump have definitely been a boon for this newly spun-off unit.

Future growth plans
Moreover, there are some promising developments that could boost future operations in a big way. The company's Garyville refinery in Louisiana has been performing above expectations. A capacity of 436,000 barrels per day last year to a current output of 464,000 bpd indicates the company's appetite for expansion. However, a higher capacity doesn't seem to have whetted its appetite.

In fact, Marathon has already received the approval from state regulators to increase the refinery's overall capacity to 545,000 bpd. This is very promising. Distillate exports from this refinery have gone up in the second quarter to 70,000 bpd from 65,000 bpd earlier.

Additionally, with the advent of shale plays, sweet crude processing should see growth. The company's Texas refinery is, in fact, looking to increase crude oil processing from the Eagle Ford shale play. This region will witness a significant ramp up in production by next year, when most upstream companies will have their wells flowing.

Competition heats up
Valero Energy (NYS: VLO) has already ramped up its Eagle Ford crude inputs, with its Corpus Christi refinery processing 25,000 bpd. It is also planning to increase its Three Rivers refinery capacity from 40,000 bpd to 60,000 bpd. Valero seems to have a head start here. Marathon, which has plans to increase its sweet crude intake at its Texas City refinery, should stand to benefit.

Not only that, the company also has plans to process crude from the Utica shale play, which is currently being developed by Chesapeake Energy (NYS: CHK) . Marathon's two Midwest refineries are adjacent to the play.

Foolish bottom line
Undoubtedly, growth prospects are immense. However, investors may have to be a little more patient to see returns. Tuesday's 6% drop in share prices, followed by another 2% fall on Wednesday, might give investors good reason to grab a few shares. Patience holds the key here.

At the time thisarticle was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article.Motley Fool newsletter serviceshave recommended buying shares of Chesapeake Energy. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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