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By Thyagaraju Adinarayan and Garima Goel
Jan 30 (Reuters) - The uneven impact of the shale oil boomon the U.S. refining industry was brought into stark relief thisweek as Midwest and Gulf Coast refiners with easy access tocheap domestic crude posted strong earnings, while weak marginsspelled the death of another East Coast plant.
Phillips 66 and Marathon Petroleum Corp reported quarterly earnings on Wednesday that far exceeded WallStreet estimates as they fattened margins by processing more ofthe cheaper crude from North American shale fields.
Valero Energy Corp -- which said on Tuesday that itsnet income soared to $1 billion in the fourth quarter from $45million a year earlier -- said it was looking to boost exportsof refined products to South America as it used more domesticcrude oil instead of more expensive imports.
"Exports of refined products are at record level," saidRaymond James Analyst Pavel Molchanov. "This is boostingrefineries that are on the Gulf Coast, which is really wherethis is taking place."
But the sudden flood of domestic crude has done little tohelp companies whose refineries are mostly in eastern states.
Hess Corp announced on Monday that it would exit therefining business altogether to focus on exploration andproduction. The company's Port Reading refinery in New Jersey,which will be closed by the end of February, incurred losses intwo of the past three years.
Chief Executive John Hess has said his company's strategy isto focus on lower-risk, higher-return assets such as itsposition in the Bakken oil shale in North Dakota.
RECORD PRODUCTION
Boosted by rising shale oil production, U.S. crude output isexpected to grow by 900,000 barrels per day (bpd) this year to arecord 7.3 million bpd, the U.S. Energy InformationAdministration said earlier this month.
In November, the International Energy Agency forecast thatU.S. oil output, aided by surging volumes from shale and otheronshore rock formations, could top production from Saudi Arabiaand Russia by 2017.
The biggest increase is expected to come from the Bakkenshale field in North Dakota and Montana, and the Eagle Fordshale in Texas.
Phillips 66 said on Wednesday it expects to process morethan 200,000 bpd of domestic shale crude this year -- 80 percentmore than in 2012.
"Phillips 66 is enhancing refining returns by increasingaccess to advantaged feedstocks, as well as increasing exportcapabilities at its coastal refineries," said the company, whichwas spun off from ConocoPhillips last year.
Marathon, which has increased the capacity of its Detroitrefinery by 13 percent to 120,000 bpd to help it process muchcheaper Canadian heavy crude, said on Wednesday it also plans toboost earnings at its Midwest and Gulf Coast refineries byincreasing its use of cheap domestic crude.
To increase its Midwest refineries' access to cheap crudefrom the Bakken field and the Canadian tar sands, Marathon willbe the anchor shipper on Enbridge Inc's proposedSouthern Access Extension, which will transport crude oil fromFlanagan, Illinois, near Chicago to Patoka, Illinois, a crudestorage and blending hub.
STRONG EARNINGS
Phillips 66's adjusted earnings rose by more than threetimes from a year earlier to $1.37 billion, or $2.06 per sharein the fourth quarter. Analysts on average were expecting $1.68per share, according to Thomson Reuters I/B/E/S.
Adjusted earnings in its refining business soared to $916million from $27 million.
Marathon reported a profit of $755 million, or $2.24 pershare, handily beating the average estimate of $2.10 per share.
The company's refining and marketing gross margin averaged$9.17 per barrel of oil, up from 39 cents per barrel a yearearlier.
Findlay, Ohio-based Marathon said it expects to complete thepurchase of BP Plc's 451,000 barrel-per-day Texas Cityrefinery on Feb. 1. It also said its board had approved anadditional $2.65 billion share buyback program.
