The refining companies could continue their solid outperformance over the interim. The Energy Information Administration estimates that oil production from shale plays will increase at a compound annual growth rate of nearly 2% from 2011 to 2040.
Profits in spin-offs
Phillips 66 (NYSE:PSX) was spun-off from ConocoPhillips (NYSE:COP) in 2012, and is now one of the largest independent refiners in the U.S. Phillips 66 (NYSE:PSX) focuses on downstream operations, which includes refining and marketing, midstream and chemicals. The refiner also pays a 2.1% dividend yield.
The Phillips portfolio includes 15 refineries with a net crude oil capacity of 2.2 million barrels per day, which is close behind the output that market-leader Valero Energy Corporation (NYSE:VLO) generates. Its refining and marketing segment accounts for over 80% of revenues, with chemicals accounting for 20%, which is in line with the revenue breakdown at Valero Energy Corporation (NYSE:VLO).
Although its dividend yield is only around 2%, Phillips is a big believer in buying back shares. The company announced a $1 billion buy back that adds to its $1 billion program that it implemented back in August 2012.
Marathon Petroleum Corp (NYSE:MPC) is the fourth largest domestic refiner, having a capacity of over 1.7 million barrels per day. The refinery company is the 2011 Marathon Oil Corporation (NYSE:MRO) spin-off with a focus on the Midwest and Gulf Coast. Marathon owns six refineries in the U.S., with an aggregate crude oil refining capacity in excess of 1.1 million barrels per day, well below its Phillips 66 (NYSE:PSX) and Valero Energy Corporation (NYSE:VLO) peers.
Marathon also gets over 90% of its revenue from the refining and marketing segment, while its Speedway segment generated 5.5% and pipeline transportation 3.8%. Its 90% exposure to the refining segment is above its peers, which is around 80%.
However, all these dissimilarities to Phillips and Valero Energy Corporation (NYSE:VLO) are a positive. Marathon acquired BP plc (ADR) (NYSE:BP)‘s Texas City refinery, which is one of the largest complexes in the country. The project completion will add an extra 80,000 barrels a day of heavy oil processing capacity.
Marathon also has one of the best balance sheets in the industry. The company has nearly $5 billion in cash and a debt to capital ratio that’s below 25%.
Valero is the world’s largest independent refiner, owning 15 refineries in the U.S., Canada, and the United Kingdom. Valero’s first quarter 2013 refinery throughput volume averaged an impressive 2.5 million barrels per day, up 0.4% from the 2012 first quarter. Valero’s biggest segment is the Gulf Coast. This area churned out some 1.5 million barrels per day during the quarter.
The refinery company pays a 2% dividend yield. The big news for Valero is its spin off of its retail business. Back in May, the company completed its plans to spin off 80% of the outstanding shares of its retail segment, CST Brands. This should allow the company to focus on its refining business.
The company also plans on selling off its remaining 20% stock over the next year and a half, which will boost liquidity further. Other big tailwinds for Valero includes a number of new projects, including its Parkway Pipeline project with Kinder Morgan Energy Partners LP (NYSE:KMP) and the recently completed Montreal product pipeline. Both projects are expected to be accretive to 2013 earnings.