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Operations Review:
Refining, Marketing & Transportation
Marathon’s downstream business set financial, operational and safety performance records despite challenges created by Hurricanes Katrina and Rita, and an aggressive construction program. Marathon’s Garyville and Texas City refineries were first in the industry to return to operation following the storms.
In response to fuel shortages created by the hurricanes, Marathon’s Catlettsburg, Kentucky, refinery took the unusual step of converting into gasoline many products normally sold as higher-value specialty chemicals. Meanwhile, working around the clock, the Company deployed its barge fleet — the largest private petroleum fleet on the inland waterway — to keep markets supplied when pipeline shipments were curtailed because of commercial power outages.
Despite downtime due to back-to-back hurricanes, Marathon’s refineries set records for crude oil and total throughput, as well as product yield. Approximately 60 unit throughput records were set across the seven-plant system during 2005. The percentage of refining unit process capacity available to operate at maximum rates — called mechanical availability — was a strong 94.8 percent. Refinery utilization of high-sulfur crude oils increased from approximately 59 percent to 62 percent, leveraging a price discount to premium-price low-sulfur crude oils.
Although product demand was dampened by high fuel prices, Marathon’s Brand Marketing organization increased sales of gasoline by 2.3 percent compared to 2004. In addition, Speedway SuperAmerica LLC (SSA) increased same store sales of gasoline 4 percent and same store merchandise sales 11.7 percent. SSA has posted 12 consecutive quarters of more than 9 percent same store merchandise sales growth. Pilot Travel Centers LLC, Marathon’s 50 percent-owned joint venture, increased distillate and gasoline sales volume and non-motor fuel sales by more than 7 percent compared to 2004.
Because performance improved across all downstream components, Marathon’s income from operations in refining, marketing and transportation was the largest in Company history. Segment income from downstream operations came to $3 billion.
Important developments during the year laid the groundwork for further success, including the $300 million low-sulfur fuel and expansion project at the Detroit refinery, which increased throughput capacity from 74,000 to 100,000 bpd, bringing Marathon’s total refining capacity to 974,000 bpd.
The Detroit expansion translates into an additional one million gallons of fuel per day now available to Midwest consumers. A new gas oil hydrotreater, as well as unit upgrades throughout the refinery complex, will help the Company meet federal requirements for low-sulfur gasoline and ultra low-sulfur diesel fuel. The Detroit project, combined with new gasoline desulfurization units commissioned at Garyville and Robinson, Illinois, in 2005, completes the majority of Marathon’s multiyear clean fuels program, which becomes fully effective in 2006.
The Company also purchased a 388,000-barrel light-products terminal in Fort Lauderdale, Florida, enhancing service to the Florida market, as well as adding flexibility to supply product elsewhere in the South.
