Unconventional hydrocarbons Boost Profit for Refining Companies: Marathon Oil Corporation (MRO), Valero Energy Corporation (VLO), Murphy Oil Corporation (MUR)

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The U.S. refining industry is expected to take advantage of this situation for another one or two years before the new refining capacity makes the market more competitive again. Refiners have been making significant hydro-cracker investments over the past one and half years.

As indicated above, integrated players will make the most of the opportunity and Marathon Oil Corporation (NYSE:MRO) is one such player. The company has announced it will spend over $1.8 billion in 2013 on 215 to 250 net wells in the Texan Eagle Ford Shale.

To put things in perspective, Marathon Oil Corporation (NYSE:MRO) has allocated $800 million to the liquids-rich Bakken play in North Dakota and $100 million for further development of the Oklahoma resource basin. Its investment in Texan Eagle Ford Shale will further boost the company’s profitability which scaled to  new heights in 2012. It reported its refining and marketing gross margin increased to $10.45 per barrel for the year, up significantly from $7.75 per barrel in 2011.

While most companies are busy with investments, some players are getting rid of unprofitable operations as well. Murphy Oil Corporation (NYSE:MUR) , which has substantial downstream operations including refining and marketing, has announced its plans to spin off its U.S. downstream subsidiary into an independent and separately traded company.

The move is aimed at providing investors with options of buying different businesses of the company instead of one consolidated entity.

While this shift is obviously drawn from a perspective of hiving off the refining business, which is traditionally less lucrative than the exploration business, the ongoing boom in refining margins could offer some arbitrage opportunity to traders and aggressive buyers.

The fact that the Murphy Oil Corporation (NYSE:MUR)’s profits are growing is underlined by a special dividend of $2.50 per share for a total dividend of approximately $500 million and a share buyback program of up to $1 billion.

The article Unconventional hydrocarbons Boost Profit for Refining Companies originally appeared on Fool.com and is written by Jacob Wolinsky.

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