In mid January Marathon announced that they would be spinning off their refining segment. This news was well received in the market due to the potential that the two separate entities would be valued greater than the whole. Investment dynamics caused by the recent recession should make the upstream operations even more profitable in the near future.
Many individuals outside of big industry do not understand the time frame that is involved with increasing drilling capacity. Back when oil was $150/bl most every company was pursuing projects to grow their upstream operation. The wait time at equipment fabrication shops was extremely long and engineering contractors were charging record prices to help assist with project execution.
Many companies had to rethink their project plans as oil prices crashed down to about 1/3 of their record levels. Numerous drilling projects were canceled due to the uncertainty caused by the market correction and the potential supply glut was avoided. Now that the global economies have rebounded from the recession market demand has returned at a fast pace and is poised to grow even faster.
In the short term (1-2 years) demand has the ability to grow faster than production. As this happens Marathon's separated upstream operations will be generating record profits and will not have earnings averaged down by their more steady refining operations. As such the multiple applied to the separated upstream operations will be even higher than today and will be applied to a higher earnings number.
Marathon separating upstream and downstream operations will release great value.
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