Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. ANDEAVOR (50104) 10-Q published on Aug 07, 2018 at 8:52 am
Reporting Period: Jun 29, 2018
On July 3, 2018, we were notified that the waiting period with respect to the notification and report forms filed under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired and we have received the necessary regulatory clearance in Canada. These matters satisfy certain conditions to the closing of the MPC Merger, but others remain.
Andeavor stockholders as of the Record Date were invited to attend a special meeting on September 24, 2018 to consider and vote upon a proposal to adopt the MPC Merger Agreement and other matters related to the MPC Merger. MPC stockholders as of the close of business on the Record Date were invited to attend a special meeting on September 24, 2018 to consider and vote upon a proposal to approve the issuance of MPC common stock in connection with the MPC Merger and other matters related to the MPC Merger. Pending approval of shareholders and customary closing conditions, we expect to close the strategic combination with MPC on October 1, 2018.
Although our Logistics segment has minimal exposure to commodity prices, the spot prices of the commodities that it handles have all increased during the second quarter. Crude oil prices rose to their highest levels since late-2014 as OPEC-led supply reductions and robust demand from emerging economies drew global stocks below their 5-year average. The U.S. benchmark crude West Texas Intermediate (“WTI”) gained over $9.00 per barrel during the quarter and prompted producers to add 54 rigs according to the U.S. oil and gas drilling rig count. With drilling activity at its highest level in three years and continued productivity gains in well completions, U.S. production of both oil and gas reached record levels during the second quarter. Despite the increase in U.S. oil production, crude stocks continued to trend below the 5-year average as U.S. refinery consumption and crude exports each set new records. Continued exports of refined products, particularly to Latin America, are providing incentive for U.S. refiners to maximize production of gasoline and diesel. These factors create a positive outlook for U.S. oil, gas, natural gas and refined product throughput volumes; however, regional impacts may differ.
During the second quarter, the markets in which we operate continued to experience volatility. Brent crude oil (“Brent”) increased approximately $9 per barrel ending the quarter at nearly $80 per barrel. The spread between Brent and WTI crude prices also fluctuated throughout the period between a low of $4.40 per barrel and a high of $11.37 per barrel. U.S. crude production continued to increase at record levels driven by Permian basin shale production. Operator efficiencies and a supportive price environment remain a key driver of domestic crude production growth. Continued record export volume, particularly out of the Gulf Coast, along with healthy refinery utilization helped balance this new domestic supply. As a result, domestic crude inventories spent most of the second quarter below the five-year average and maintained a significant year over year deficit. Discounted inland crudes along with various refinery outages supported Mid-Continent refining margins. West Coast margins were aided by heavier than normal Spring maintenance which kept PADD 5 refinery runs below the five-year average for the majority of April and May. Refinery utilization recovered quickly in June post turnaround activity but product exports to Latin American countries continue to support higher West Coast refinery run rates. We continue to monitor the impact of changes in both market prices and fundamentals on our business.
On April 1, 2018, we implemented the first phases of a new ERP system designed to upgrade our technology and improve our financial and operational information. As a result of the system implementation, we updated our framework of internal controls to reflect the system enhancements and corresponding changes to our business processes. While we believe that the ERP system and related changes to internal controls will ultimately strengthen our internal control over financial reporting, there are inherent risks in implementing a new ERP system. We will continue to evaluate and test these control changes in order to provide certification as of December 31, 2018 on the effectiveness of our internal control over financial reporting.
Between June 20 and July 11, 2018, six putative class actions were filed against some or all of Andeavor, the directors of Andeavor, and MPC and certain of its subsidiaries, relating to the MPC Merger. Two complaints, Malka Raul v. Andeavor, et al., and Stephen Bushansky v. Andeavor, et al., were filed in the U.S. District Court for the Western District of Texas. Four other complaints, captioned The Vladimir Gusinsky Rev. Trust v. Andeavor, et al., Lawrence Zucker v. Andeavor, et al., Mel Gross v. Andeavor, et al., and Hudson v. Andeavor, et al., were filed in the U.S. District Court for the District of Delaware. The complaints generally allege that Andeavor, the directors of Andeavor, MPC and certain of its subsidiaries disseminated a false or misleading registration statement regarding the proposed merger in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Specifically, the complaints allege that the registration statement filed by MPC misstated or omitted material information regarding the parties’ financial projections and the analyses performed by Andeavor’s and MPC’s respective financial advisors, and that disclosure of material information is necessary in light of preclusive deal protection provisions in the merger agreement, the financial interests of Andeavor’s officers and directors in completing the deal, and the financial interests of Andeavor’s and MPC’s respective financial advisors. The complaints further allege that the directors of Andeavor and/or MPC are liable for these violations as “controlling persons” of Andeavor under Section 20(a) of the Exchange Act. The complaints seek injunctive relief, including to enjoin and/or rescind the MPC Merger, damages in the event the merger is consummated, and an award of attorneys’ fees, in addition to other relief.