Morningstar | Andeavor's merger with Marathon Petroleum looks on track to close later this year.
By investing in improving its refineries’ competitive positioning and integrating the recently acquired Western Refining assets, Andeavor should be able to drive an increase in refining earnings amid a stable margin environment. In combination with expanding its retail marketing and logistics segments, Andeavor could potentially increase EBITDA by $1.4 billion, or 45%, by 2020. The recently completed acquisition of Western Refining added three midcontinent refineries that are well positioned to capitalize on the long-term growth of U.S. crude oil production to Andeavor’s portfolio, while diversifying its California exposure. Through further cost reductions, yield improvements, and throughput increases, Andeavor expects to wring $200 million in synergies from the acquired assets by 2020.At the same time, investments centered on its existing asset base, most notably plans to combine its Los Angeles-area refineries, should improve yield and feedstock flexibility while adding $175 million to EBITDA. Additional projects, including plans to produce xylenes for export to Asia, could ultimately increase that figure further. In the marketing retail segment, Andeavor aims to increase higher-margin branded fuel volumes, increase convenience-store sales, and expand its store count to over 4,000 from 3,200 currently to increase earnings by $350 million by 2020. Expansion into Mexico should drive additional earnings growth beyond 2020 while offering an outlet for its California refineries’ production in the future as demand in the state wanes.Andeavor Logistics expects earnings growth of $500 million by 2020 on a combination of organic growth and dropdown of assets from Andeavor. With existing or underdevelopment assets that generate approximately $700 million a year in EBITDA, Andeavor can support another decade of drops to Andeavor Logistics. Meanwhile, thanks to the acquisition of Western Refining Logistics, Andeavor Logistics now has a foothold in the fast-growing Permian that creates multiple investment opportunities.Andeavor is an independent petroleum refining and marketing company. The company has three segments: Marketing, which sells gasoline and diesel fuel in the western and mid-continent U.S. through Retail, Branded, and Unbranded channels along with convenience store products; Refining, which buys and refines crude oil and other feedstocks into transportation fuels; and Logistics, which transports, stores and distributes crude oil, feedstocks and refined products through its terminals and pipelines or terminals and pipelines owned by Andeavor Logistics LP and third-parties in its market areas as well as through purchases and exchange arrangements with other refining and marketing companies.
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