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Marathon Petroleum expects Andeavor acquisition to produce cash to fund buybacks

Marathon Petroleum Corp. executives expressed optimism that its pending acquisition of Andeavor would enable it to continue its strategy of returning cash "beyond the needs of the business" to shareholders.

During a July 26 conference call discussing second-quarter results with analysts, executives said the company returned $1.1 billion to shareholders during the quarter, including $885 million of share repurchases.

Marathon Petroleum Senior Vice President and CFO Tim Griffith said the company has close to $6 billion in share repurchase authorization.

"That authorization was one that we pursued ... around the time of the [Andeavor acquisition] announcement, ... because we know that once these businesses come together ... the incremental cash generation is going to be substantial," Griffith said.

When announcing the deal, Marathon Petroleum executives said they expect to achieve $1 billion in annual run-rate synergies, but analysts asked whether that outlook had changed since the two refiners announced the deal.

"We're going to put out forecasts ... that we're very confident that we're going to be able to achieve and beat," Marathon Petroleum Chairman and CEO Gary Heminger said. "I can't today delineate that by month, but I think that we will have a rapid pace of being able to achieve these synergies."

Marathon Petroleum President Donald Templin clarified the company expects to capture $500 million in synergies in the first year following the acquisition related to cost and sourcing and procurement, and that synergies will grow to a $1 billion run rate by the third year as the company invests in refinery optimization and integrates the operations of the legacy Marathon and Andeavor retail businesses.

Templin said the two companies are using "clean rooms and clean teams" to compile information "so that on day one, when we go to close ... we can go after synergies."

"When we have full access ... that will reveal incremental information that will be valuable to all of our management team in terms of running the business," Templin said. "But we feel like we're making good progress and can go after synergies by using this methodology."