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  arathon's downstream joint venture, Marathon Ashland Petroleum LLC (MAP), had a very strong 2004. Throughout the year, MAP remained focused on its strategy of leveraging refining and marketing investments in core markets, as well as expanding and enhancing its asset base while controlling costs.
In doing so, MAP has continued its efforts to be a top-quartile performer in the U.S. downstream business, recording its
second most profitable year since its 1998 inception.
Income from operations came to $1.4 billion. MAP achieved significant savings during 2004 as the result of efficiency improvements implemented in 2003, while at the same time making the significant investments needed for growth in its core businesses.
Refining Operations
MAP achieved record refinery operating performance during the fourth quarter and full-year 2004. Crude throughput for the year averaged 939,000 bpd. Total throughputs averaged 1,110,000 bpd for the year. This full-year record performance was achieved even though MAP had undertaken a significant number of planned maintenance activities during the first quarter 2004 at the Canton, Ohio; Catlettsburg, Kentucky; and Garyville, Louisiana, refineries.
Due to the scale and reach of planned maintenance activity, first quarter crude oil distillation runs were reduced to approximately 789,000 bpd. However, near-flawless unit start-ups pushed that number to 990,600 bpd
in April and launched MAP
on its way to
more than 60
separate plant
and unit throughput records, including a per-month record of 1,024,900 barrels of crude oil processed per
day set in May.
Using as many as 3,800 contractors a day, MAP completed the Catlettsburg Repositioning Project (CRP) at its Kentucky refinery during the first quarter 2004. The largest capital project ever undertaken by MAP, the CRP enabled the company to meet the 2004 mandate for low-sulfur gasoline production and add 16,000 bpd to existing gasoline production capacity while simultaneously reducing operating costs.
At the same time, expansion of the Garyville refinery crude unit by 13,000 bpd increased MAP's average total crude oil distillation capacity to 948,000 bpd, a mark soon to be surpassed with completion of the 26,000 bpd expansion of its Detroit, Michigan, refinery planned at the end of 2005.
MAP reached an important milestone in October when a reactor vessel for the new 33,000 bpd gas
oil hydrotreater was set in place at its refinery in Detroit. This $300 million project will increase Detroit's throughput capacity to 100,000 bpd and allow Detroit to meet the Tier II clean fuels requirements for gasoline and ultra low-sulfur diesel fuel that become fully effective in 2006.
MAP's Purchasing and Commercial Services (P&CS) component contributed to the efficiency improvements MAP achieved in 2004 by engineering cost reductions throughout MAP. P&CS leveraged spending across multiple operating areas, negotiated companywide contractor rate structures and increased the use of "reverse auctions" to encourage qualified suppliers to bid for MAP contracts. Changes in scheduling and deployment of the
company-operated inland barge fleet, staff reductions, outsourcing and process improvements also contributed to efficiency improvements for the year.
 Transportation and Logistics
In transportation, MAP benefited from its first full-year operation of the Cardinal Products Pipeline, connecting its Catlettsburg refinery to the Columbus, Ohio, area -- one of the Midwest's fastest-growing markets. Comprehensive cleaning of Centennial Pipeline LLC, in which MAP is a 50-percent equity owner, allowed movement of an expanded slate of products, as well as increased volumes. Centennial
is one of only three major pipelines moving refined product from America's Gulf Coast refining center into the Midwest.
MAP also completed the most comprehensive ultra low-sulfur diesel transportation system tests
in the industry. The new ultra low-sulfur diesel
must be available by June 1, 2006. Test results
will help MAP develop appropriate transportation, terminal and marketing facility practices. The U.S. Environmental Protection Agency has recognized MAP as a leader in helping the industry define new transportation fuel issues.
Marketing
MAP's Brand Marketing component increased its
gasoline sales volume by approximately 6 percent,
or 144 million gallons, in 2004.
MAP's wholly-owned Speedway SuperAmerica LLC subsidiary had another solid year in 2004. Same store gasoline volumes increased 1 percent
as compared to 2003, the third consecutive year of increase. Same store merchandise sales increased approximately 11 percent. Same store merchandise sales have shown an increase of at least 9 percent
for eight consecutive quarters.
Pilot Travel Centers LLC, MAP's 50 percent-owned joint venture with Pilot Corporation, increased distillate and gasoline sales volume and non-motor fuel sales by more than 10 percent compared to 2003.
Marathon and Ashland Inc. are pursuing the completion of the previously announced transaction under which Marathon would acquire Ashland's 38 percent interest in MAP. The companies continue to discuss a possible modified transaction with the IRS.
The proposed MAP acquisition is highly complementary to Marathon's long-term growth strategy. One of the Company's strategic intents is to remain
a fully integrated company creating sustainable value growth. Acquiring full ownership of MAP provides Marathon with substantial growth opportunities and leverages the Company's access to the profitable Midwest growth markets. At the same time, Marathon will retain the financial and operational flexibility to continue investing in new and existing core exploration and production operations, as well as its emerging integrated gas business. |
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