UPDATE 2-Cheaper US crude fuels Phillips 66, Marathon profit growth

* Phillips 66 Q4 adj EPS $2.06 vs est. $1.68

* Phillips 66 to process 80 pct more domestic crude this year

* Marathon Q4 EPS $2.24 vs est. $2.10

* Shares rise in early trade

Jan 30 (Reuters) - Oil refiners Phillips 66 and Marathon Petroleum Corp reported quarterly earnings that raced past Wall Street estimates as they processed more of the cheaper crude from North American shale fields, lifting their refining margins.

Phillips 66's shares rose 5 percent to $62.75 in early trade on Wednesday, while those of Marathon were up 1 percent at $72.92.

The companies, like rival Valero Energy Corp, are planning to increase their capacity to refine domestic crude oil instead of expensive imported crude. They are also looking to boost exports of refined products to South America.

"Exports of refined products are at record level. This is boosting refineries that are on the Gulf Coast, which is really where this is taking place," Raymond James Analyst Pavel Molchanov said.

Boosted by rising shale oil production, domestic crude output is expected to grow by 900,000 barrels per day (bpd) this year to a record 7.3 million bpd, the U.S. Energy Information Administration said earlier this month. The fast growth has depressed crude prices in North America.

The biggest increase is expected to come from the Bakken shale field in North Dakota and Montana, and the Eagle Ford shale in Texas.

Phillips 66 said on Wednesday it expects to process more than 200,000 barrels per day (bpd) of domestic shale crude in 2013 - 80 percent more than 2012.

"Phillips 66 is enhancing refining returns by increasing access to advantaged feedstocks, as well as increasing export capabilities at its coastal refineries," said the company, which was spun off from ConocoPhillips last year.

Marathon too has raised the capacity of its Detroit refinery by 13 percent to 120,000 bpd to help it process much cheaper Canadian heavy crude.

However, the rising production has not helped companies with refineries mostly in eastern United States. Hess Corp, which had money-losing refineries in the region, is exiting the refining business to focus on exploration and production.

Hess, under pressure from an activist investor to break itself up, reported a fourth-quarter profit on Wednesday as production from its wells in the Bakken oilfield soared.

STRONG BEAT

Phillips 66's adjusted earnings in the fourth quarter rose by more than three times to $1.37 billion, or $2.06 per share. Analysts were expecting $1.68 per share, according to Thomson Reuters I/B/E/S.

Adjusted earnings in its refining business soared to $916 million from $27 million in the year-earlier period.

Marathon reported a profit of $755 million, or $2.24 per share, bigger than estimates of $2.10 per share.

Its refining and marketing gross margin averaged $9.17 per barrel of oil, a jump from $0.39 per barrel a year earlier.

Findlay, Ohio-based Marathon said it expects to complete the purchase of BP Plc's 451,000 barrel-per-day Texas City refinery on Feb. 1. It also said its board had approved an additional $2.65 billion share buyback program.

Valero posted a surprisingly strong quarterly profit on Tuesday.