Third Quarter
Market Watch Property owners in 10 Kansas counties could be
approached next year by a Canadian energy firm looking to build more than 2,000 miles of crude oil pipeline in the United States. TransCanada Keystone Pipeline LLC is proposing to build and operate a main pipeline from the Canadian province of Alberta to existing terminals in Salisbury, Mo., and the Illinois towns of Wood River and Patoka. That line would carry up to 435,000 barrels of crude oil a day. Separately, Keystone hopes to build two new pipeline extensions to take oil from terminals in Fort Saskatchewan, Alberta, and deliver it to existing crude oil terminals in Oklahoma. One of those – dubbed the Cushing extension – would stretch 292 miles from Platte County, Neb., to Cushing, Okla. (Source: Associated Press Newswires) All of a sudden, Canada has turned into the new
frontier in non-OPEC oil and gas developments. Russia has rumbled about taking over the huge Sakhalin II field, whereas OPEC itself cut back production over 1.2 million barrels a day, due to which the demands on non-OPEC producing countries have increased even more. New emphasis has been put on friendlier non-OPEC countries due to this step. It has been agreed by Shell Canada and Western Oil Sands that they would invest billions into the planned expansion of its Athabasca oil sands project in order to bring production up to 100,000 barrels per day. In addition, third-quarter profit more than doubled on increased output from oil deposits in Alberta, said Suncor Energy Inc., the world's biggest oil-sands producer. Suncor plans to spend at least $3.6 billion (Canadian) to boost oil-sands production to about 350,000 barrels a day by 2008. That’s the year TransCanada’s pipeline is expected to become available to push up to 400,000 barrels per day to refineries in the midwestern United States. (Source: Asia Pulse) Citgo, the U.S. refining and marketing subsidiary
of Venezuela’s state oil firm PDVSA, plans to sell two asphalt refineries at Paulsboro, N.J., and Savannah, Ga., and a stake in a pipeline system. The sale of Citgo’s 15.8 percent stake in the 5,500mile Colonial pipeline system is “more advanced than” the refineries, according to a company spokesperson. Citgo will stop providing gasoline to 1,600 7-Eleven gas stations in the U.S. and plans no expansions for its remaining U.S. refineries in the foreseeable future. The sales are part of Citgo’s strategy to reduce its presence in the U.S. PDVSA’s board earlier this year approved the sale of a 41.25 percent interest in a Houston refinery to its majority partner in the venture, U.S. major Lyondell Chemical. (Source: Business News Americas)
Canadian Deal Eyed for Refinery Projects Two potential projects that are focused on the refining of more Canadian crude oil were advanced to the next step this month. At Detroit, a proposed project that would allow the refinery to process 100 percent heavy, viscous Canadian crude oil has moved into the front-end engineering and design (FEED) phase. Expected to be completed by late 2007, the FEED at the 100,000 bpd refinery will include engineering for a new delayed coker, a sulfur recovery complex and a hydrogen plant. Fluor Corporation, a contractor for the Garyville refinery FEED, was awarded the Detroit FEED contract. In addition, a similar heavy oil upgrading project has moved to the feasibility phase at the Catlettsburg, Ky., refinery. The proposed modifications at the 222,000 bpd Catlettsburg refinery would allow for the processing of up to 180,000 bpd of heavy Canadian crude. The feasibility study is expected to be completed by late 2007, at which time a decision will be made about moving the project to the FEED stage. Both refinery heavy oil upgrade projects would include associated pipeline projects and are expected to significantly reduce crude oil supply costs. A crude oil supply from Canada, which has the second largest crude oil reserves in the world, is also attractive as a reliable and stable source of crude oil. MOC will issue a request for proposals to engage interested oil sands producers in a process that could lead to a joint venture for these proposed projects.
November 2006 ®
Earnings 2006
Third Quarter MPC Results
$ millions Adjusted income from operations M barrels/day Refined products sold* Crude oil refined
2005
2006
804.8
1,679.3
1,400.4
1,431.7
979.6
1,030.7
*Excludes matching buy/sell volumes
The refining and wholesale marketing gross margin was a key driver of the increase in income for MPC during the third quarter of 2006 averaging 32.71 cents per gallon versus 17.74 cents in the comparable 2005 quarter. In addition, total refinery throughputs averaged a record 1,249,000 barrels per day (bpd) during the third quarter of this year, 4.5 percent higher than the 1,195,000 throughputs during the third quarter of 2005. The amount of crude oil refined also rose during the third quarter 2006 compared to third quarter 2005. On the retail side of the business, SSA gasoline and distillate gross margin averaged 14.10 cents per gallon during the third quarter of this year, up from the 12.32 cents per gallon realized in the third quarter of 2005. SSA’s same-store gasoline sales volumes and merchandise sales revenues increased 4.9 and 6.7 p ercent, respectively, during the same period.
The Andersons Marathon Ethanol LLC Formed Marathon and ethanol producer The Andersons, Inc., recently finalized an agreement to build one or more ethanol plants under the name The Andersons Marathon Ethanol LLC. As a part of the 50/50 joint venture agreement, The Andersons will provide day-to-day management of the ethanol plants, as well as corn origination and distillers dried grain and ethanol marketing services. MPC will blend the ethanol into its gasoline. The first site will be at Greenville, Ohio, and other sites selected will be contingent upon several factors, including access to adequate corn, proximity to ethanol and distillers dried grain customers, infrastructure and transportation and economic incentives. Decisions related to the construction of any additional ethanol plants will be dependent upon a variety of market conditions and other relevant factors.
MPL Celebrates 100 Years of Innovation Since Marathon Pipe Line LLC (MPL) began operations in November of 1906, the pipeline industry has undergone a transformation – much of it due to advancements in technology. Joe Baker, 31-year company veteran and MPL president, witnessed some of those changes firsthand. “When I began my career, inline ‘pigs’ basically cleaned out a pipeline,” recalls Baker, who joined the Ashland Pipeline Company at Lexington, Ohio. “Today’s ‘smart pigs’ detect and record pipeline anomalies, enabling us to take a proactive approach to maintenance. “In the early 1980s, advancements in the computerization of SCADA (Supervisory Control and Data Acquisition) improved the monitoring and control of MPL pipeline systems,” he adds. “It enabled us to perform more remote-control activities from a new consolidated Operations Center at Findlay, versus the field.” As a young engineer, Baker performed hydraulic analyses with paper charts and slide rules. “Today, computers perform that task and others more quickly and accurately,” he says. Some MPL challenges haven’t changed much, however. “We continue to battle the effects of general wear and tear on our pipeline assets and to keep our rights of way clear,” says Baker. “The pipeline industry has always been heavily regulated and regulations are getting more strict.” Today, MPL’s greatest challenge may well be building public trust. “The public needs to realize how deeply MPL cares about the communities in which we operate; after all, they’re our communities, too,” notes Baker. “We spend an extraordinary amount of effort to ensure we operate with the highest regard for health, safety, security and the environment. “I’m excited about MPL’s future,” he adds. Today’s Pipeline “We have a great company and great people – Operations Center at Findlay, Ohio and pipelines will continue to be the safest, most effective mode of petroleum transportation.”
Garyville Expanding! MPC is moving forward with the expansion of the refining capacity at its Garyville, La., refinery from 245,000 barrels per day (bpd) to 425,000 bpd. The Garyville Major Expansion (GME) will increase MPC’s total refining capacity from 974,000 bpd to 1,154,000 bpd. “The Garyville expansion project will help our country meet its growing energy needs by providing an additional 7.5 million gallons of clean transportation fuels to the market each day,” said MPC President Gary R. Heminger. With final permit approval, construction is expected to begin in mid2007 with startup planned for the fourth quarter of 2009. GME plans call for the construction of infrastructure and additional process units with the following design capacities: a 44,000 bpd delayed coker, a 70,000 bpd heavy gas oil hydrocracker, a 65,000 bpd reformer and a 47,000 bpd kerosene hydrotreater.
insideMarathonPipeLineLLC The pipeline industry emerged as a transportation innovation in 1865 with the construction of the first crude oil pipeline stretching five miles over a mountain from Pithole to Oil City, Pa. Wagons and wooden barrels initially used for transportation could not compete with the cost efficiency offered by pipelining, which knocked costs from $8 to 50 cents per barrel by 1879.
1906
MPL’s history begins. James C. Donnell, general manager of The Ohio Oil Company (The Ohio), forerunner to Marathon Oil Company, finds an abundance of oil at Casey, Ill., but no means of transportation. He expands an existing pipeline from Casey to Martinsville, Ill., where a 223-tank farm is built. Donnell lays gathering lines into Crawford and Lawrence counties, and builds a major pumping station at Stoy to move the crude to Martinsville. Construction continues, with 191 miles of eight-inch pipeline built from Martinsville to Preble, Ind. A Pipe Line Department is formed to manage these assets.
1907
The Ohio lays eight-inch line from Martinsville to Wood River, Ill., and two eight-inch pipelines from Bluffton, Ind., to Ohio-Pennsylvania line at Negley, Ohio, totaling 380 miles.
1915
The Ohio assigns more than 1,800 miles of pipeline, gathering and storage facilities to newly incorporated Illinois Pipe Line Company (IPL) as a result of government regulation. IPL, with 70,000 barrels per day (bpd) capacity, stretches from Wood River, Ill., where it connects to Prairie Pipe Line from the mid-continent oil fields, to the Pennsylvania line. Upon oil discovery at Grass Creek, Wyo., The Ohio sends pipeline engineer William E. Badger to bring it out of the wilderness. Unable to find workers, telegraph poles or water for testing the line, Badger buries the wire with the pipeline and tests the new line with air instead of water. Badger also creates standardized pipeline thread for joining pipe called Wyoming Special.
1917
From 1917 to 1931, IPL extends to Frannie, Casper and Greybull, Wyo.; follows The Ohio into Wyoming’s Sunburst field; and enters Artesia, N.M., Yates and East Texas, Desdemona and Ranger fields.
1921
The Ohio discovers large natural gas reserves in northern Wyoming, becoming involved in a different kind of pipelining. Builds natural gas pipeline from Elk Basin to Billings, Mont., and creates Gallatin Natural Gas Company to operate system. From the 1920s to the 1940s, there was growth and change in the pipeline industry. The introduction of welded pipe joints improves transportation efficiency and safety, and WWII elevates the importance of pipelines in supplying the war effort. The Department of Justice signs a consent decree revolutionizing how pipeline companies do business and encouraging joint ventures and new pipeline construction.
1943 1945 1952
A century of integrity and innovation
Marathon Pipe Line LLC traces its formation to 1906, with the discovery of a new oil field in Casey, Ill. That same year, The Ohio Oil Company (MOC’s forerunner) constructed a 223-tank farm, pumping station, gathering lines and 191 miles of pipeline to accommodate the abundance of oil.Today, MPL’s more than 500 employees participate in the management of approximately 7,500 miles of active pipeline in 15 states.
Look for more on MPL’s 100th Anniversary in upcoming editions of Detours.
Pipeline Department transfers assets to newly incorporated Marathon Pipe Line Company. MPL instantly ranks as 14th largest U.S. pipeline company, with total traffic of 417,000 bpd /crude and 27,000 bpd /refined products.
1959
As part owner of Oasis Oil Company, MPL helps build Sidrah Pipe Line through Libya. Challenges range from unexploded WWII land mines and pipeline contraction/expansion to shifting sands. Company engineer L. J. Schwartzkopf develops/patents digital-to-audio translation accumulator, which vocally reads flow meters at pumping stations – doing away with need to manually read and log information every two hours.
1960
Celebrating its 75th anniversary in 1962, The Ohio Oil Company changes its name to Marathon Oil Company and the new red M logo design replaces Pheidippides trademark launched in the 1930s. Marathon partners in the construction of Capline, a 40-inch crude line from St. James, La., to Patoka, Ill. Marathon Pipe Line becomes partners in joint venture to build Louisiana Offshore Oil Port (LOOP) in Gulf of Mexico, to accommodate large crude oil tankers. A $3.6-million project centralizes control of pipeline operations with technologically advanced computerized system at Findlay from locations in Illinois, Wyoming and Texas. Marathon Pipe Line helps place 74 miles of 30-inch pipe beneath 370 feet of water in the North Sea in 55 days, becoming the first North Sea operator to triple-coat pipeline. LOOP and its connecting pipeline and storage network, LOCAP, is profitable for first time. MPL volumes average 1.8 million bpd. MPL sells interest in Platte Pipeline and continues to operate line until 2000.
1981 1988 1996
Between 1998 and 2001, the company became a joint venture between MOC and Ashland Inc. and the pipeline organization became Marathon Ashland Pipe Line LLC (MAPL). MAPL focuses on Operational Excellence, wins the 2001 President’s Award for Responsible Care.® MAPL partners in joint venture Centennial Pipeline, a 795-mile converted natural gas line from the Gulf Coast to the Midwest. Cardinal Products Pipeline, a 150-mile, common-carrier line built to meet the transportation fuel needs of the Central Ohio region, begins operation.
The Ohio dissolves IPL, creating internal pipeline department.
MAPL implements Integrity Management Plan, requiring the integrity of pipeline systems be overseen using stringent testing, maintenance and evaluation of releases, third-party damage and other relevant data.
The Ohio pioneers aerial surveillance of rights of way. Mike Murphy, famous stunt pilot, covers 550 miles a day, which took two or more months to inspect on foot. If problems were sighted, he’d buzz the nearest pump station, dropping a message in a metal tube.
In 2005, Marathon Ashland Pipeline LLC becomes Marathon Pipe Line LLC (MPL), upon MOC’s acquisition of Ashland’s 38 percent interest in Marathon Ashland Petroleum LLC (MAP).
The Ohio partners in 1,252-mile Platte Pipeline, spanning nearly half a continent, bringing crude oil from Wyoming to Illinois. The Platte is the most advanced system of its time.
1968 1972
Today, MPL owns, operates, leases, or has ownership interest in approximately 7,500 miles of pipeline throughout 15 states. MPL volumes average 2.8 million bpd.
2002 2003 2004
2006
Market Watch Property owners in 10 Kansas counties could be
approached next year by a Canadian energy firm looking to build more than 2,000 miles of crude oil pipeline in the United States. TransCanada Keystone Pipeline LLC is proposing to build and operate a main pipeline from the Canadian province of Alberta to existing terminals in Salisbury, Mo., and the Illinois towns of Wood River and Patoka. That line would carry up to 435,000 barrels of crude oil a day. Separately, Keystone hopes to build two new pipeline extensions to take oil from terminals in Fort Saskatchewan, Alberta, and deliver it to existing crude oil terminals in Oklahoma. One of those – dubbed the Cushing extension – would stretch 292 miles from Platte County, Neb., to Cushing, Okla. (Source: Associated Press Newswires) All of a sudden, Canada has turned into the new
frontier in non-OPEC oil and gas developments. Russia has rumbled about taking over the huge Sakhalin II field, whereas OPEC itself cut back production over 1.2 million barrels a day, due to which the demands on non-OPEC producing countries have increased even more. New emphasis has been put on friendlier non-OPEC countries due to this step. It has been agreed by Shell Canada and Western Oil Sands that they would invest billions into the planned expansion of its Athabasca oil sands project in order to bring production up to 100,000 barrels per day. In addition, third-quarter profit more than doubled on increased output from oil deposits in Alberta, said Suncor Energy Inc., the world's biggest oil-sands producer. Suncor plans to spend at least $3.6 billion (Canadian) to boost oil-sands production to about 350,000 barrels a day by 2008. That’s the year TransCanada’s pipeline is expected to become available to push up to 400,000 barrels per day to refineries in the midwestern United States. (Source: Asia Pulse) Citgo, the U.S. refining and marketing subsidiary
of Venezuela’s state oil firm PDVSA, plans to sell two asphalt refineries at Paulsboro, N.J., and Savannah, Ga., and a stake in a pipeline system. The sale of Citgo’s 15.8 percent stake in the 5,500mile Colonial pipeline system is “more advanced than” the refineries, according to a company spokesperson. Citgo will stop providing gasoline to 1,600 7-Eleven gas stations in the U.S. and plans no expansions for its remaining U.S. refineries in the foreseeable future. The sales are part of Citgo’s strategy to reduce its presence in the U.S. PDVSA’s board earlier this year approved the sale of a 41.25 percent interest in a Houston refinery to its majority partner in the venture, U.S. major Lyondell Chemical. (Source: Business News Americas)
Canadian Deal Eyed for Refinery Projects Two potential projects that are focused on the refining of more Canadian crude oil were advanced to the next step this month. At Detroit, a proposed project that would allow the refinery to process 100 percent heavy, viscous Canadian crude oil has moved into the front-end engineering and design (FEED) phase. Expected to be completed by late 2007, the FEED at the 100,000 bpd refinery will include engineering for a new delayed coker, a sulfur recovery complex and a hydrogen plant. Fluor Corporation, a contractor for the Garyville refinery FEED, was awarded the Detroit FEED contract. In addition, a similar heavy oil upgrading project has moved to the feasibility phase at the Catlettsburg, Ky., refinery. The proposed modifications at the 222,000 bpd Catlettsburg refinery would allow for the processing of up to 180,000 bpd of heavy Canadian crude. The feasibility study is expected to be completed by late 2007, at which time a decision will be made about moving the project to the FEED stage. Both refinery heavy oil upgrade projects would include associated pipeline projects and are expected to significantly reduce crude oil supply costs. A crude oil supply from Canada, which has the second largest crude oil reserves in the world, is also attractive as a reliable and stable source of crude oil. MOC will issue a request for proposals to engage interested oil sands producers in a process that could lead to a joint venture for these proposed projects.
November 2006 ®
Earnings 2006
Third Quarter MPC Results
$ millions Adjusted income from operations M barrels/day Refined products sold* Crude oil refined
2005
2006
804.8
1,679.3
1,400.4
1,431.7
979.6
1,030.7
*Excludes matching buy/sell volumes
The refining and wholesale marketing gross margin was a key driver of the increase in income for MPC during the third quarter of 2006 averaging 32.71 cents per gallon versus 17.74 cents in the comparable 2005 quarter. In addition, total refinery throughputs averaged a record 1,249,000 barrels per day (bpd) during the third quarter of this year, 4.5 percent higher than the 1,195,000 throughputs during the third quarter of 2005. The amount of crude oil refined also rose during the third quarter 2006 compared to third quarter 2005. On the retail side of the business, SSA gasoline and distillate gross margin averaged 14.10 cents per gallon during the third quarter of this year, up from the 12.32 cents per gallon realized in the third quarter of 2005. SSA’s same-store gasoline sales volumes and merchandise sales revenues increased 4.9 and 6.7 p ercent, respectively, during the same period.
The Andersons Marathon Ethanol LLC Formed Marathon and ethanol producer The Andersons, Inc., recently finalized an agreement to build one or more ethanol plants under the name The Andersons Marathon Ethanol LLC. As a part of the 50/50 joint venture agreement, The Andersons will provide day-to-day management of the ethanol plants, as well as corn origination and distillers dried grain and ethanol marketing services. MPC will blend the ethanol into its gasoline. The first site will be at Greenville, Ohio, and other sites selected will be contingent upon several factors, including access to adequate corn, proximity to ethanol and distillers dried grain customers, infrastructure and transportation and economic incentives. Decisions related to the construction of any additional ethanol plants will be dependent upon a variety of market conditions and other relevant factors.
MPL Celebrates 100 Years of Innovation Since Marathon Pipe Line LLC (MPL) began operations in November of 1906, the pipeline industry has undergone a transformation – much of it due to advancements in technology. Joe Baker, 31-year company veteran and MPL president, witnessed some of those changes firsthand. “When I began my career, inline ‘pigs’ basically cleaned out a pipeline,” recalls Baker, who joined the Ashland Pipeline Company at Lexington, Ohio. “Today’s ‘smart pigs’ detect and record pipeline anomalies, enabling us to take a proactive approach to maintenance. “In the early 1980s, advancements in the computerization of SCADA (Supervisory Control and Data Acquisition) improved the monitoring and control of MPL pipeline systems,” he adds. “It enabled us to perform more remote-control activities from a new consolidated Operations Center at Findlay, versus the field.” As a young engineer, Baker performed hydraulic analyses with paper charts and slide rules. “Today, computers perform that task and others more quickly and accurately,” he says. Some MPL challenges haven’t changed much, however. “We continue to battle the effects of general wear and tear on our pipeline assets and to keep our rights of way clear,” says Baker. “The pipeline industry has always been heavily regulated and regulations are getting more strict.” Today, MPL’s greatest challenge may well be building public trust. “The public needs to realize how deeply MPL cares about the communities in which we operate; after all, they’re our communities, too,” notes Baker. “We spend an extraordinary amount of effort to ensure we operate with the highest regard for health, safety, security and the environment. “I’m excited about MPL’s future,” he adds. Today’s Pipeline “We have a great company and great people – Operations Center at Findlay, Ohio and pipelines will continue to be the safest, most effective mode of petroleum transportation.”
Garyville Expanding! MPC is moving forward with the expansion of the refining capacity at its Garyville, La., refinery from 245,000 barrels per day (bpd) to 425,000 bpd. The Garyville Major Expansion (GME) will increase MPC’s total refining capacity from 974,000 bpd to 1,154,000 bpd. “The Garyville expansion project will help our country meet its growing energy needs by providing an additional 7.5 million gallons of clean transportation fuels to the market each day,” said MPC President Gary R. Heminger. With final permit approval, construction is expected to begin in mid2007 with startup planned for the fourth quarter of 2009. GME plans call for the construction of infrastructure and additional process units with the following design capacities: a 44,000 bpd delayed coker, a 70,000 bpd heavy gas oil hydrocracker, a 65,000 bpd reformer and a 47,000 bpd kerosene hydrotreater.
approached next year by a Canadian energy firm looking to build more than 2,000 miles of crude oil pipeline in the United States. TransCanada Keystone Pipeline LLC is proposing to build and operate a main pipeline from the Canadian province of Alberta to existing terminals in Salisbury, Mo., and the Illinois towns of Wood River and Patoka. That line would carry up to 435,000 barrels of crude oil a day. Separately, Keystone hopes to build two new pipeline extensions to take oil from terminals in Fort Saskatchewan, Alberta, and deliver it to existing crude oil terminals in Oklahoma. One of those – dubbed the Cushing extension – would stretch 292 miles from Platte County, Neb., to Cushing, Okla. (Source: Associated Press Newswires) All of a sudden, Canada has turned into the new
frontier in non-OPEC oil and gas developments. Russia has rumbled about taking over the huge Sakhalin II field, whereas OPEC itself cut back production over 1.2 million barrels a day, due to which the demands on non-OPEC producing countries have increased even more. New emphasis has been put on friendlier non-OPEC countries due to this step. It has been agreed by Shell Canada and Western Oil Sands that they would invest billions into the planned expansion of its Athabasca oil sands project in order to bring production up to 100,000 barrels per day. In addition, third-quarter profit more than doubled on increased output from oil deposits in Alberta, said Suncor Energy Inc., the world's biggest oil-sands producer. Suncor plans to spend at least $3.6 billion (Canadian) to boost oil-sands production to about 350,000 barrels a day by 2008. That’s the year TransCanada’s pipeline is expected to become available to push up to 400,000 barrels per day to refineries in the midwestern United States. (Source: Asia Pulse) Citgo, the U.S. refining and marketing subsidiary
of Venezuela’s state oil firm PDVSA, plans to sell two asphalt refineries at Paulsboro, N.J., and Savannah, Ga., and a stake in a pipeline system. The sale of Citgo’s 15.8 percent stake in the 5,500mile Colonial pipeline system is “more advanced than” the refineries, according to a company spokesperson. Citgo will stop providing gasoline to 1,600 7-Eleven gas stations in the U.S. and plans no expansions for its remaining U.S. refineries in the foreseeable future. The sales are part of Citgo’s strategy to reduce its presence in the U.S. PDVSA’s board earlier this year approved the sale of a 41.25 percent interest in a Houston refinery to its majority partner in the venture, U.S. major Lyondell Chemical. (Source: Business News Americas)
Canadian Deal Eyed for Refinery Projects Two potential projects that are focused on the refining of more Canadian crude oil were advanced to the next step this month. At Detroit, a proposed project that would allow the refinery to process 100 percent heavy, viscous Canadian crude oil has moved into the front-end engineering and design (FEED) phase. Expected to be completed by late 2007, the FEED at the 100,000 bpd refinery will include engineering for a new delayed coker, a sulfur recovery complex and a hydrogen plant. Fluor Corporation, a contractor for the Garyville refinery FEED, was awarded the Detroit FEED contract. In addition, a similar heavy oil upgrading project has moved to the feasibility phase at the Catlettsburg, Ky., refinery. The proposed modifications at the 222,000 bpd Catlettsburg refinery would allow for the processing of up to 180,000 bpd of heavy Canadian crude. The feasibility study is expected to be completed by late 2007, at which time a decision will be made about moving the project to the FEED stage. Both refinery heavy oil upgrade projects would include associated pipeline projects and are expected to significantly reduce crude oil supply costs. A crude oil supply from Canada, which has the second largest crude oil reserves in the world, is also attractive as a reliable and stable source of crude oil. MOC will issue a request for proposals to engage interested oil sands producers in a process that could lead to a joint venture for these proposed projects.
November 2006 ®
Earnings 2006
Third Quarter MPC Results
$ millions Adjusted income from operations M barrels/day Refined products sold* Crude oil refined
2005
2006
804.8
1,679.3
1,400.4
1,431.7
979.6
1,030.7
*Excludes matching buy/sell volumes
The refining and wholesale marketing gross margin was a key driver of the increase in income for MPC during the third quarter of 2006 averaging 32.71 cents per gallon versus 17.74 cents in the comparable 2005 quarter. In addition, total refinery throughputs averaged a record 1,249,000 barrels per day (bpd) during the third quarter of this year, 4.5 percent higher than the 1,195,000 throughputs during the third quarter of 2005. The amount of crude oil refined also rose during the third quarter 2006 compared to third quarter 2005. On the retail side of the business, SSA gasoline and distillate gross margin averaged 14.10 cents per gallon during the third quarter of this year, up from the 12.32 cents per gallon realized in the third quarter of 2005. SSA’s same-store gasoline sales volumes and merchandise sales revenues increased 4.9 and 6.7 p ercent, respectively, during the same period.
The Andersons Marathon Ethanol LLC Formed Marathon and ethanol producer The Andersons, Inc., recently finalized an agreement to build one or more ethanol plants under the name The Andersons Marathon Ethanol LLC. As a part of the 50/50 joint venture agreement, The Andersons will provide day-to-day management of the ethanol plants, as well as corn origination and distillers dried grain and ethanol marketing services. MPC will blend the ethanol into its gasoline. The first site will be at Greenville, Ohio, and other sites selected will be contingent upon several factors, including access to adequate corn, proximity to ethanol and distillers dried grain customers, infrastructure and transportation and economic incentives. Decisions related to the construction of any additional ethanol plants will be dependent upon a variety of market conditions and other relevant factors.
MPL Celebrates 100 Years of Innovation Since Marathon Pipe Line LLC (MPL) began operations in November of 1906, the pipeline industry has undergone a transformation – much of it due to advancements in technology. Joe Baker, 31-year company veteran and MPL president, witnessed some of those changes firsthand. “When I began my career, inline ‘pigs’ basically cleaned out a pipeline,” recalls Baker, who joined the Ashland Pipeline Company at Lexington, Ohio. “Today’s ‘smart pigs’ detect and record pipeline anomalies, enabling us to take a proactive approach to maintenance. “In the early 1980s, advancements in the computerization of SCADA (Supervisory Control and Data Acquisition) improved the monitoring and control of MPL pipeline systems,” he adds. “It enabled us to perform more remote-control activities from a new consolidated Operations Center at Findlay, versus the field.” As a young engineer, Baker performed hydraulic analyses with paper charts and slide rules. “Today, computers perform that task and others more quickly and accurately,” he says. Some MPL challenges haven’t changed much, however. “We continue to battle the effects of general wear and tear on our pipeline assets and to keep our rights of way clear,” says Baker. “The pipeline industry has always been heavily regulated and regulations are getting more strict.” Today, MPL’s greatest challenge may well be building public trust. “The public needs to realize how deeply MPL cares about the communities in which we operate; after all, they’re our communities, too,” notes Baker. “We spend an extraordinary amount of effort to ensure we operate with the highest regard for health, safety, security and the environment. “I’m excited about MPL’s future,” he adds. Today’s Pipeline “We have a great company and great people – Operations Center at Findlay, Ohio and pipelines will continue to be the safest, most effective mode of petroleum transportation.”
Garyville Expanding! MPC is moving forward with the expansion of the refining capacity at its Garyville, La., refinery from 245,000 barrels per day (bpd) to 425,000 bpd. The Garyville Major Expansion (GME) will increase MPC’s total refining capacity from 974,000 bpd to 1,154,000 bpd. “The Garyville expansion project will help our country meet its growing energy needs by providing an additional 7.5 million gallons of clean transportation fuels to the market each day,” said MPC President Gary R. Heminger. With final permit approval, construction is expected to begin in mid2007 with startup planned for the fourth quarter of 2009. GME plans call for the construction of infrastructure and additional process units with the following design capacities: a 44,000 bpd delayed coker, a 70,000 bpd heavy gas oil hydrocracker, a 65,000 bpd reformer and a 47,000 bpd kerosene hydrotreater.
insideMarathonPipeLineLLC The pipeline industry emerged as a transportation innovation in 1865 with the construction of the first crude oil pipeline stretching five miles over a mountain from Pithole to Oil City, Pa. Wagons and wooden barrels initially used for transportation could not compete with the cost efficiency offered by pipelining, which knocked costs from $8 to 50 cents per barrel by 1879.
1906
MPL’s history begins. James C. Donnell, general manager of The Ohio Oil Company (The Ohio), forerunner to Marathon Oil Company, finds an abundance of oil at Casey, Ill., but no means of transportation. He expands an existing pipeline from Casey to Martinsville, Ill., where a 223-tank farm is built. Donnell lays gathering lines into Crawford and Lawrence counties, and builds a major pumping station at Stoy to move the crude to Martinsville. Construction continues, with 191 miles of eight-inch pipeline built from Martinsville to Preble, Ind. A Pipe Line Department is formed to manage these assets.
1907
The Ohio lays eight-inch line from Martinsville to Wood River, Ill., and two eight-inch pipelines from Bluffton, Ind., to Ohio-Pennsylvania line at Negley, Ohio, totaling 380 miles.
1915
The Ohio assigns more than 1,800 miles of pipeline, gathering and storage facilities to newly incorporated Illinois Pipe Line Company (IPL) as a result of government regulation. IPL, with 70,000 barrels per day (bpd) capacity, stretches from Wood River, Ill., where it connects to Prairie Pipe Line from the mid-continent oil fields, to the Pennsylvania line. Upon oil discovery at Grass Creek, Wyo., The Ohio sends pipeline engineer William E. Badger to bring it out of the wilderness. Unable to find workers, telegraph poles or water for testing the line, Badger buries the wire with the pipeline and tests the new line with air instead of water. Badger also creates standardized pipeline thread for joining pipe called Wyoming Special.
1917
From 1917 to 1931, IPL extends to Frannie, Casper and Greybull, Wyo.; follows The Ohio into Wyoming’s Sunburst field; and enters Artesia, N.M., Yates and East Texas, Desdemona and Ranger fields.
1921
The Ohio discovers large natural gas reserves in northern Wyoming, becoming involved in a different kind of pipelining. Builds natural gas pipeline from Elk Basin to Billings, Mont., and creates Gallatin Natural Gas Company to operate system. From the 1920s to the 1940s, there was growth and change in the pipeline industry. The introduction of welded pipe joints improves transportation efficiency and safety, and WWII elevates the importance of pipelines in supplying the war effort. The Department of Justice signs a consent decree revolutionizing how pipeline companies do business and encouraging joint ventures and new pipeline construction.
1943 1945 1952
A century of integrity and innovation
Marathon Pipe Line LLC traces its formation to 1906, with the discovery of a new oil field in Casey, Ill. That same year, The Ohio Oil Company (MOC’s forerunner) constructed a 223-tank farm, pumping station, gathering lines and 191 miles of pipeline to accommodate the abundance of oil.Today, MPL’s more than 500 employees participate in the management of approximately 7,500 miles of active pipeline in 15 states.
Look for more on MPL’s 100th Anniversary in upcoming editions of Detours.
Pipeline Department transfers assets to newly incorporated Marathon Pipe Line Company. MPL instantly ranks as 14th largest U.S. pipeline company, with total traffic of 417,000 bpd /crude and 27,000 bpd /refined products.
1959
As part owner of Oasis Oil Company, MPL helps build Sidrah Pipe Line through Libya. Challenges range from unexploded WWII land mines and pipeline contraction/expansion to shifting sands. Company engineer L. J. Schwartzkopf develops/patents digital-to-audio translation accumulator, which vocally reads flow meters at pumping stations – doing away with need to manually read and log information every two hours.
1960
Celebrating its 75th anniversary in 1962, The Ohio Oil Company changes its name to Marathon Oil Company and the new red M logo design replaces Pheidippides trademark launched in the 1930s. Marathon partners in the construction of Capline, a 40-inch crude line from St. James, La., to Patoka, Ill. Marathon Pipe Line becomes partners in joint venture to build Louisiana Offshore Oil Port (LOOP) in Gulf of Mexico, to accommodate large crude oil tankers. A $3.6-million project centralizes control of pipeline operations with technologically advanced computerized system at Findlay from locations in Illinois, Wyoming and Texas. Marathon Pipe Line helps place 74 miles of 30-inch pipe beneath 370 feet of water in the North Sea in 55 days, becoming the first North Sea operator to triple-coat pipeline. LOOP and its connecting pipeline and storage network, LOCAP, is profitable for first time. MPL volumes average 1.8 million bpd. MPL sells interest in Platte Pipeline and continues to operate line until 2000.
1981 1988 1996
Between 1998 and 2001, the company became a joint venture between MOC and Ashland Inc. and the pipeline organization became Marathon Ashland Pipe Line LLC (MAPL). MAPL focuses on Operational Excellence, wins the 2001 President’s Award for Responsible Care.® MAPL partners in joint venture Centennial Pipeline, a 795-mile converted natural gas line from the Gulf Coast to the Midwest. Cardinal Products Pipeline, a 150-mile, common-carrier line built to meet the transportation fuel needs of the Central Ohio region, begins operation.
The Ohio dissolves IPL, creating internal pipeline department.
MAPL implements Integrity Management Plan, requiring the integrity of pipeline systems be overseen using stringent testing, maintenance and evaluation of releases, third-party damage and other relevant data.
The Ohio pioneers aerial surveillance of rights of way. Mike Murphy, famous stunt pilot, covers 550 miles a day, which took two or more months to inspect on foot. If problems were sighted, he’d buzz the nearest pump station, dropping a message in a metal tube.
In 2005, Marathon Ashland Pipeline LLC becomes Marathon Pipe Line LLC (MPL), upon MOC’s acquisition of Ashland’s 38 percent interest in Marathon Ashland Petroleum LLC (MAP).
The Ohio partners in 1,252-mile Platte Pipeline, spanning nearly half a continent, bringing crude oil from Wyoming to Illinois. The Platte is the most advanced system of its time.
1968 1972
Today, MPL owns, operates, leases, or has ownership interest in approximately 7,500 miles of pipeline throughout 15 states. MPL volumes average 2.8 million bpd.
2002 2003 2004
2006
Market Watch Property owners in 10 Kansas counties could be
approached next year by a Canadian energy firm looking to build more than 2,000 miles of crude oil pipeline in the United States. TransCanada Keystone Pipeline LLC is proposing to build and operate a main pipeline from the Canadian province of Alberta to existing terminals in Salisbury, Mo., and the Illinois towns of Wood River and Patoka. That line would carry up to 435,000 barrels of crude oil a day. Separately, Keystone hopes to build two new pipeline extensions to take oil from terminals in Fort Saskatchewan, Alberta, and deliver it to existing crude oil terminals in Oklahoma. One of those – dubbed the Cushing extension – would stretch 292 miles from Platte County, Neb., to Cushing, Okla. (Source: Associated Press Newswires) All of a sudden, Canada has turned into the new
frontier in non-OPEC oil and gas developments. Russia has rumbled about taking over the huge Sakhalin II field, whereas OPEC itself cut back production over 1.2 million barrels a day, due to which the demands on non-OPEC producing countries have increased even more. New emphasis has been put on friendlier non-OPEC countries due to this step. It has been agreed by Shell Canada and Western Oil Sands that they would invest billions into the planned expansion of its Athabasca oil sands project in order to bring production up to 100,000 barrels per day. In addition, third-quarter profit more than doubled on increased output from oil deposits in Alberta, said Suncor Energy Inc., the world's biggest oil-sands producer. Suncor plans to spend at least $3.6 billion (Canadian) to boost oil-sands production to about 350,000 barrels a day by 2008. That’s the year TransCanada’s pipeline is expected to become available to push up to 400,000 barrels per day to refineries in the midwestern United States. (Source: Asia Pulse) Citgo, the U.S. refining and marketing subsidiary
of Venezuela’s state oil firm PDVSA, plans to sell two asphalt refineries at Paulsboro, N.J., and Savannah, Ga., and a stake in a pipeline system. The sale of Citgo’s 15.8 percent stake in the 5,500mile Colonial pipeline system is “more advanced than” the refineries, according to a company spokesperson. Citgo will stop providing gasoline to 1,600 7-Eleven gas stations in the U.S. and plans no expansions for its remaining U.S. refineries in the foreseeable future. The sales are part of Citgo’s strategy to reduce its presence in the U.S. PDVSA’s board earlier this year approved the sale of a 41.25 percent interest in a Houston refinery to its majority partner in the venture, U.S. major Lyondell Chemical. (Source: Business News Americas)
Canadian Deal Eyed for Refinery Projects Two potential projects that are focused on the refining of more Canadian crude oil were advanced to the next step this month. At Detroit, a proposed project that would allow the refinery to process 100 percent heavy, viscous Canadian crude oil has moved into the front-end engineering and design (FEED) phase. Expected to be completed by late 2007, the FEED at the 100,000 bpd refinery will include engineering for a new delayed coker, a sulfur recovery complex and a hydrogen plant. Fluor Corporation, a contractor for the Garyville refinery FEED, was awarded the Detroit FEED contract. In addition, a similar heavy oil upgrading project has moved to the feasibility phase at the Catlettsburg, Ky., refinery. The proposed modifications at the 222,000 bpd Catlettsburg refinery would allow for the processing of up to 180,000 bpd of heavy Canadian crude. The feasibility study is expected to be completed by late 2007, at which time a decision will be made about moving the project to the FEED stage. Both refinery heavy oil upgrade projects would include associated pipeline projects and are expected to significantly reduce crude oil supply costs. A crude oil supply from Canada, which has the second largest crude oil reserves in the world, is also attractive as a reliable and stable source of crude oil. MOC will issue a request for proposals to engage interested oil sands producers in a process that could lead to a joint venture for these proposed projects.
November 2006 ®
Earnings 2006
Third Quarter MPC Results
$ millions Adjusted income from operations M barrels/day Refined products sold* Crude oil refined
2005
2006
804.8
1,679.3
1,400.4
1,431.7
979.6
1,030.7
*Excludes matching buy/sell volumes
The refining and wholesale marketing gross margin was a key driver of the increase in income for MPC during the third quarter of 2006 averaging 32.71 cents per gallon versus 17.74 cents in the comparable 2005 quarter. In addition, total refinery throughputs averaged a record 1,249,000 barrels per day (bpd) during the third quarter of this year, 4.5 percent higher than the 1,195,000 throughputs during the third quarter of 2005. The amount of crude oil refined also rose during the third quarter 2006 compared to third quarter 2005. On the retail side of the business, SSA gasoline and distillate gross margin averaged 14.10 cents per gallon during the third quarter of this year, up from the 12.32 cents per gallon realized in the third quarter of 2005. SSA’s same-store gasoline sales volumes and merchandise sales revenues increased 4.9 and 6.7 p ercent, respectively, during the same period.
The Andersons Marathon Ethanol LLC Formed Marathon and ethanol producer The Andersons, Inc., recently finalized an agreement to build one or more ethanol plants under the name The Andersons Marathon Ethanol LLC. As a part of the 50/50 joint venture agreement, The Andersons will provide day-to-day management of the ethanol plants, as well as corn origination and distillers dried grain and ethanol marketing services. MPC will blend the ethanol into its gasoline. The first site will be at Greenville, Ohio, and other sites selected will be contingent upon several factors, including access to adequate corn, proximity to ethanol and distillers dried grain customers, infrastructure and transportation and economic incentives. Decisions related to the construction of any additional ethanol plants will be dependent upon a variety of market conditions and other relevant factors.
MPL Celebrates 100 Years of Innovation Since Marathon Pipe Line LLC (MPL) began operations in November of 1906, the pipeline industry has undergone a transformation – much of it due to advancements in technology. Joe Baker, 31-year company veteran and MPL president, witnessed some of those changes firsthand. “When I began my career, inline ‘pigs’ basically cleaned out a pipeline,” recalls Baker, who joined the Ashland Pipeline Company at Lexington, Ohio. “Today’s ‘smart pigs’ detect and record pipeline anomalies, enabling us to take a proactive approach to maintenance. “In the early 1980s, advancements in the computerization of SCADA (Supervisory Control and Data Acquisition) improved the monitoring and control of MPL pipeline systems,” he adds. “It enabled us to perform more remote-control activities from a new consolidated Operations Center at Findlay, versus the field.” As a young engineer, Baker performed hydraulic analyses with paper charts and slide rules. “Today, computers perform that task and others more quickly and accurately,” he says. Some MPL challenges haven’t changed much, however. “We continue to battle the effects of general wear and tear on our pipeline assets and to keep our rights of way clear,” says Baker. “The pipeline industry has always been heavily regulated and regulations are getting more strict.” Today, MPL’s greatest challenge may well be building public trust. “The public needs to realize how deeply MPL cares about the communities in which we operate; after all, they’re our communities, too,” notes Baker. “We spend an extraordinary amount of effort to ensure we operate with the highest regard for health, safety, security and the environment. “I’m excited about MPL’s future,” he adds. Today’s Pipeline “We have a great company and great people – Operations Center at Findlay, Ohio and pipelines will continue to be the safest, most effective mode of petroleum transportation.”
Garyville Expanding! MPC is moving forward with the expansion of the refining capacity at its Garyville, La., refinery from 245,000 barrels per day (bpd) to 425,000 bpd. The Garyville Major Expansion (GME) will increase MPC’s total refining capacity from 974,000 bpd to 1,154,000 bpd. “The Garyville expansion project will help our country meet its growing energy needs by providing an additional 7.5 million gallons of clean transportation fuels to the market each day,” said MPC President Gary R. Heminger. With final permit approval, construction is expected to begin in mid2007 with startup planned for the fourth quarter of 2009. GME plans call for the construction of infrastructure and additional process units with the following design capacities: a 44,000 bpd delayed coker, a 70,000 bpd heavy gas oil hydrocracker, a 65,000 bpd reformer and a 47,000 bpd kerosene hydrotreater.
