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UPDATE 3-Marathon Petroleum combines midstream units, surprise loss drags down shares

(Adds analyst quotes, additional share movement, details on refining results)

May 8 (Reuters) - Marathon Petroleum Corp said on Wednesday it would combine its midstream units in a $9 billion deal, but shares fell more than 5 percent following a surprise quarterly loss on lower-than-expected refining margins.

The deal comes months after the U.S. refiner said it had been weighing a possible merger of MPLX and Andeavor Logistics LP, the two master limited partnerships (MLPs) in its midstream segment that transport, store and market crude oil and its refined products.

“This transaction simplifies our MLPs into a single listed entity and creates a leading, large-scale, diversified midstream company anchored by fee-based cash flows,” Chief Executive Officer Gary Heminger said in a statement.

The deal further deepens the refiner’s presence in the Permian basin, the largest oilfield in the United States, building on its $23 billion Andeavor acquisition last year, the company said.

Marathon has been strengthening its midstream operations and retail unit, which includes Speedway gas stations and convenience stores and Andeavor’s retail and direct dealer business, to diversify its revenue streams beyond refining.

“This transaction can likely unlock $2 billion value net to MPC that is being discounted by the market due to the overhang of this combination and concerns around future growth,” Cowen & Co said.

Marathon Petroleum shares have fallen 4 percent so far this year, underperforming a 11 percent rise in the broader S&P 500 Energy Index.

Andeavor Logistics units rose nearly 9 percent to $35.66, while MPLX units fell about 2.5 percent to $30.76.


Marathon Petroleum also reported a surprise first-quarter loss on Wednesday due to lower-than-expected refining margins and higher inventories.

The company’s shares fell 5.3 percent to $56.31 as its surprise quarterly loss contrasted with rivals HollyFrontier Corp, Valero Energy Corp and Phillips 66 , refiners that beat profit estimates at a time when analysts had expected poor performances.

Loss from Marathon Petroleum’s refining and marketing unit nearly tripled to $334 million, bigger than $262 million estimated by Credit Suisse. Refining margins per barrel of $11.17 also fell short of Credit Suisse estimate of $13.85.

Excluding items, the company reported a loss of 9 cents per share, while analysts had expected a profit of 5 cents, according to IBES data from Refinitiv. (Reporting by Debroop Roy and Nishara Karuvalli Pathikkal in Bengaluru; Editing by Sriraj Kalluvila and James Emmanuel)