Q4 2020 Marathon Petroleum Corp Earnings Call
And other members of the executive team, we invite you to read the Safe Harbor statements on slide two we will be making forward looking statements today actual results may differ factors that could cause actual results to differ are included there as well as in our filings with the SEC with that I'll turn the call over to Mike.
Thanks, Kristina good morning, everyone.
I want to start by welcoming a couple of new members to our executive team first in January we announced the appointment of Maryann mannen as our new CFO.
She joins US having spent nearly a decade as a CFO in the energy services and manufacturing sectors.
Marian brings deep financial acumen, and strategic leadership expertise critical for delivering our business transformation objectives, including strict capital discipline and overall expense management to lower our cost structure I am excited for the perspective and business insights you will add to our executive team as we work together to continue strengthening.
Our financial and competitive positions.
Yesterday, we announced Brian Davis has joined the company in our newly created role of Chief Commercial Officer, Brian has spent over three decades in the industry has extensive commercial experience as recent deep background in renewables and alternative energy and a track record of developing and enhancing capabilities is highly complementary.
True to our strategic focus on improving our commercial performance. We look forward to his leadership in developing and implementing a holistic and integrated strategy for Mpc's commercial business.
These additions will be integral in supporting our strategic initiatives as we progress through 2021 and beyond.
Before we get into our results for the quarter wanted to provide a brief business update.
The unprecedented challenges this year created by the Covid pandemic accelerated the need for us to act swiftly and decisively to change how we conduct our business for three initiatives highlighted on the slide focus on the aspects of our business within our control strengthening the competitive position of our assets improving our commercial performance and low.
<unk> our cost structure.
During the year, we've been faced with many tough decisions, but our team continues to make tangible progress on all three initiatives in ways. We believe will drive stronger through cycle earnings and position the company for long term success.
Slide number five highlights some of our actions taken around our strategic priorities this quarter.
First we continue progressing the sale of the Speedway business <unk>.
During the quarter, we responded to the second request from the FTC and continued to support 711 and its efforts to secure antitrust clearance or.
Our interactions with 711, and our interactions with the FTC have gone well.
As everyone is aware the timing of the close is dependent on the FTC process and we continue to target closing by the end of the first quarter of 2021.
Within the scope of what we can control, we're finalizing transition services agreements with 711 and I expect to have them completed by the end of February.
Moving onto other actions to reposition our portfolio, we continue to advance our investments in renewables.
During the quarter, we worked through startup issues and are ramping production at our Dickinson North Dakota renewable fuels facility.
This facility is now the second largest renewable diesel facility in the United States.
Consistent with the timeline, we discussed last quarter, we have begun the load trains and ship renewable diesel out of the facility. We remain on track to reach full production by the end of the quarter.
Since the last time, we reported for you. We've also made excellent progress on our plans to convert our Martinez refinery into a renewable fuels facility with.
We've continued to progress engineering and permitting activities, we expect commissioning in the second half of 2022 with approximately 17000 barrels per day of capacity.
Further we expect the pre treatment systems will be online in 2023, and the reach full capacity of approximately 48000 barrels per day by the end of 2023.
Finally, we continue to exercise strict discipline on how capital and expense dollars are spent.
This year, we accomplished our goal of significantly reducing our capital spending levels by over $1 4 billion from the initial 2021 plans. We also reduced our 2021 2020 forecasted operating expenses by more than our target of $950 million.
I started off my comments by saying that we're focused on the things we can control no matter. What lies ahead, we're setting the company on a path to drive stronger through cycle earnings and position the company for longer term success.
I'd like to take a moment on slide six to reinforce comments made on our last earnings call around priorities for the proceeds from the sale of our Speedway business.
We continue to receive questions on our use of proceeds framework. So I wanted to reiterate that our plans have not changed we remain committed to using the sale proceeds to strengthen our balance sheet and return capital to MPC shareholders.
An important priority and our commitment is to defend a solid investment grade credit profile on a mid cycle basis, we expect to target Mpc's standalone debt to EBIT EBITDA leverage metric of around one to one five times.
This metric contemplates MPC earnings and also includes distributions from MPLX.
The significant and stable distributions from MPLX, we don't envision a MPC balance sheet with less than $5 billion of debt on a through cycle basis.
As a reminder, we also expect to increase the cash component of our core liquidity core liquidity position by an additional $1 billion to offset the loss of cash flows from speedway upon completion of the sale.
With respect to debt reduction, we have approximately $2 $5 billion of debt.
Can be addressed with minimal friction cost will.
We will be thoughtful on how we reduce incremental debt amounts to minimize costs, while not jeopardizing our credit rating.
Within this framework, we continue to expect that the remaining proceeds will be targeted for shareholder return, we continue to evaluate the form and timing and we'll share more details as we get closer to the transaction close.
Moving to slide seven we highlight some of the reductions we've made to our cost structure.
In refining we've reduced our operating cost by more than $1 billion from the 2019 spending levels in the midstream business, we have reduced our cost by over $200 million and at the corporate level. We've applied the same discipline and these reductions are reflected in our fourth quarter results.
We're pleased with these results when you consider we have not compromised on our commitment to safely operating our assets and protect the health and safety of our employees customers and support the communities in which we operate.
In fact, the full year 2020 was the company's best performance ever in this area with a nearly 30% improvement across both our process and personal safety rates and our best ever environmental performance.
Moving to another key focus area slide eight highlights our focus on capital discipline.
Today, we announced our 2021 capital outlook for MPC.
We significantly reduced our capital our capital program from 2019 levels.
Mpc's investment plan now stands at approximately $1 $4 billion excluding MPLX.
This reflects a nearly one $7 billion reduction from 2019, and a $1 $2 billion reduction from our initial plans for 2020 prior to the pandemic.
Our 2021 outlook reflects funding for growth projects already underway. However, our incremental growth capital will be primarily focused on renewables and projects that we expect will help us reduce future operating costs.
We expect our team's focus on lowering our cost structure and capital discipline.
To be something that will be a recurring theme for 2021 and beyond.
At this point I'd like to turn it over to Maryann to.
To review the fourth quarter results.
Thanks, Mike.
<unk> nine provides a summary of our fourth quarter financial results. This morning, we reported an adjusted loss per share of <unk> 94.
This reflects pretax adjustments of $851 million, driven primarily by a $1 $2 billion pretax lower of cost or market inventory benefit.
These adjustments can be found in detail on slide 29 and in the appendix.
Adjusted EBITDA was $907 million for the quarter. This includes the results from both the continuing and discontinued operations.
Our dividend payment for the quarter were $377 million.
Slide 10 shows the reconciliation from net income to adjusted EBITDA as well as the sequential change in adjusted EBITDA from the third quarter of 2020 to the fourth quarter of 2020.
Adjusted EBITDA was down $100 million quarter over quarter, driven primarily by lower earnings in refining and marketing and speedway.
As a result of the contemplated sale of Speedway, both the third and fourth quarter results reflect speedway as a discontinued operations.
Moving to our segment results Slide 11 provides an overview of our refining and marketing segment for.
Fourth quarter, adjusted EBITDA was negative $702 million, a decrease of approximately $80 million when compared to the third quarter of 2020.
As a result of the contemplated sale of Speedway adjusted EBITDA for the R&M segment now includes the direct dealer business.
Crack spreads and margins remain under considerable pressure.
<unk> across our three regions were impacted by weaker crack spreads and narrower crude differentials.
As a result of these challenging macro conditions, we moderated throughput levels, which resulted in capacity utilization of 82% for the fourth quarter.
In response to these challenging conditions. The team continues to focus on structurally lowering cost and driving efficiencies.
When you compare our R&M expense to the prior year 2020 expenses are over $1 billion lower than 2019, and we continue to pursue opportunities to lower cost.
Slide 12 shows the change in our midstream EBITDA versus the third quarter of 2020.
Our midstream segment continues to demonstrate earnings resiliency and stability, increasing by $22 million from the last quarter.
This performance is underpinned by stable fee based revenues growth from organic projects and the continued execution on operating expense reductions.
It is worth highlighting that MPLX, which contributes a substantial portion of Mpc's midstream EBITDA.
Inflected to excess cash for 2020 for the first time in the partnership's history.
Funding, both capital spending and distributions.
With this inflection MPLX began repurchasing units in the fourth quarter.
Slide 13 provides an overview of speedway results as discontinued operations.
Fourth quarter, adjusted EBITDA is down $66 million from third quarter fuel and merchandise revenues were impacted by seasonality as well as COVID-19 related lower fuel demand and lower resulting foot traffic in the stores.
On a year over year basis merchandise sales were up one 8%.
Slide 14 presents the elements of change in our consolidated cash position for the fourth quarter. It reflects both our continuing and discontinued operations.
Within continuing operations operating cash flow before changes in working capital was $144 million in the quarter.
Changes in working capital was $804 million source of cash in the quarter.
As rising commodity prices and increasing utilization continue to offset working capital cash use impacts from the first quarter.
During the quarter debt declined $344 million, we returned $377 million to shareholders through our dividend.
Our cash balance at the end of the quarter for both continuing and discontinued operations was approximately 550 $555 million.
Slide 15 provides our capital investment plan for 2021, which reflects our continuing focus on strict capital discipline.
Mpc's investment plan, excluding MPLX total approximately $1 4 billion.
The plan includes just over 1 billion for the refining and marketing segment of which approximately $250 million for roughly 25% is it related to maintenance and regulatory compliance spending.
Our growth capital is approximately $800 million.
Blip between renewables and ongoing projects such as the Star project.
Keeping these ongoing projects moving forward will enhance the capability of our refining assets, particularly in the Gulf Coast.
Within renewable spending we have capital allocated for potential projects like our Martinez conversion.
Until close we will fund Speedway capital and anticipate this spending will be approximately $150 million.
The plan also includes approximately $50 million for our midstream segment for projects such as the cap line reversal.
Also included is approximately $150 million of corporate spending to support activities, we believe will enhance our ability to lower future costs.
This morning, MPLX also announced its 2021 capital plan investment plan, which includes approximately $800 million of organic growth capital and $165 million of maintenance capital.
On slide 16, we provide our first quarter outlook, which includes estimated throughput at our facilities based on projected regional demand.
We expect total throughput volume of just over $2 5 million barrels per day.
A slight increase compared to the fourth quarter actual throughput.
Planned turnaround costs are projected to be $150 million in the first quarter, which includes activity in our Galveston Bay refinery for.
For the year, we expect turnaround spending to come in at below our 2020 levels, reflecting a lighter than average year.
Total operating costs, including major maintenance and engineered projects are projected to be $5 35 per barrel for the quarter. This operating expense guidance rep.
It represents a slight increase from fourth quarter actuals to account for higher cost associated with work we plan to do in conjunction with our turnarounds.
Distribution costs are expected to be approximately $1 $3 billion for the first quarter.
This slight increase relative to fourth quarter actual is due to cost associated with moving product to the west coast from our new Dickinson renewable diesel facility.
As a reminder, our Dickinson renewable facility is accounted for in the guidance, we provided for the R&M segment.
For Speedway, we expect fuel fuel volumes of approximately one three to $1 5 billion gallons and merchandise sales in a range of one for three to 153 billion.
With that let me turn the call back over to Mike for some closing remarks.
Maryann.
I'd like to take a moment to provide some comments on our responsibilities around corporate leadership.
Last quarter, we discussed the recent publication of our 2020 climate perspectives report highlighting opportunities and strategic planning work for companies engaged in related to climate scenarios.
We also discussed our goals to reduce greenhouse gas emissions methane emissions and freshwater withdrawal intensities.
It is important that we set objectives for the organization to drive our continuous improvement on ESG, our principles for leading and sustainable energy position us to deliver strong results in this space.
From lowering the carbon intensity of our operations and products, improving energy efficiency and conserving natural resources to increasing renewable fuels production and embracing innovation and deploying advanced technologies. We believe the goals we are setting in our transparent disclosures on how we plan to achieve them place marathon at the leading edge of our <unk>.
Industry.
We're seeing recent improvements in our ESG ratings, reflecting our hard work in the area.
Slide 20 in the appendix highlights to some of these accomplishments.
Our approach to sustainability also reflects our commitment to create shared value with our stakeholders for communities, where we operate our people our business partners and many others, how we conduct our business enhances the performance we deliver we look forward to two even further expanding our robust engagement with the stakeholder.
And continuing to serve as a valued partner.
With that let me turn the call back over to Christina Thanks, Mike as we open the call for your questions as a courtesy to all participants we ask that you limit yourself to one question and a follow up if time permits we will re prompt for additional questions. We.
We will now open the line for questions operator.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.
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Again, if you have a question. Please press Star then one on your Touchtone phone.
First question will come from Doug Harrison with Evercore ISI. Your line is open.
Good morning, everybody.
Good morning, Doug.
Mike I have a a market outlook question and refining and specifically it looks like inventories for both gasoline and distillate are headed towards normal levels by the end of this quarter, which may be while refining margins are returning to avatar near you.
A year ago levels.
And if we see OPEC raise output later in the year, which also seems likely we could also get some help on feedstock differentials. So my question is whether you are encouraged by the trends that we're seeing in products markets and the pace of the recovery as well and.
And also whether you think.
This will be sustainable.
Yeah.
Yeah. Thanks, Doug It's a good question before I answer and I'll, let some other members of the team jump in as well I first want to say I. Appreciate your insights over the years and I want to congratulate you specifically on your next steps in your career and thank you for all your contributions to our industry.
Well. Thank you Mark you guys have been easy to support for share.
Pleasure, it's been all bad.
On your question as far as go forward I think you mentioned a lot of things that we're looking at and I guess I guess, our term is cautious optimism.
For me, specifically I tend to try not to call the market, but really called the banks for the rivers more and on the on the positive side. Some of the things that you mentioned that we clearly see and we have that I call. It cautious optimism as a result.
Hopefully vaccinations will go smooth and hopefully we'll come out of this.
Pandemic.
In a robust way so that's kind of the Bull view and then the bear cases, we saw towards the end of last year cases were going up you know restriction started to kick in a little bit more.
And we saw with a lot of people anticipated, which was a tough December and into January now, we're approaching February and we'll head into the spring. So so for US. There's a bull case that says things are moving in the right direction. There is a bear case that says we're not through with this pandemic, yet and we got some more.
Field to play through before we really see the end of it but but let me I'm going to let Tim comment on gasoline a little bit and Bryan can comment on the other projects. Just so you can get a sense of of.
Of what we see in the market today Tim.
Yes, Thanks, Mark Doug.
Just to reiterate Mark's comments I mean, we did see a little bit of softness into the back half for the year really after Thanksgiving and really through the end of the year almost a step down with regard to demand and again a lot of it relating to higher case rates.
We'll see we're seeing a couple of bright spots early in the year, but we're hoping for more we think this is probably going to take some time as Mike said, we really need to get the immunization protocol built in as a country.
To accelerate that process to get more and more people comfortable and that ultimately get.
Schools back in session get people back in the office get people back on the roads improved discretionary travel and we think that's going to happen, but that may take some time and I think we're going to be sort of patient over the course for year to see that really bear fruit, but definitely a better times ahead.
I think it's going to take a little bit of time to really see that I mean, where for first quarter I think based on on.
On a year over year, we're probably going to be 90% of last year's volumes at the retail gasoline level and again hope to see improvement over the continued.
For the rest of 2021.
Okay, and then also Mike a few minutes ago, you talked about.
Strategic focus and commitment to corporate responsibility.
As being key elements and so.
That makes it kind of clear to me that your leadership team.
<unk> believes that we may be experiencing a paradigm shift in an energy maybe more so than we've had in the past and so my question is.
First of all do you agree and second what are some of the things that the management team needs to do to stay on the leading edge in the industry, which I think was the phrase you used a minute ago.
In this new environment.
Yes, it's a really good question, Doug So first off yes, we do believe that there is a paradigm shift occurring.
I like the word energy evolution, so we see that occurring I guess.
The momentum towards a low carbon future as obvious we're focused on how we position ourselves as you mentioned.
I felt that we had to get some things in line relative to cost and looking at our portfolio but.
Focus on cost is essential in addition to a lower carbon intensity company is to remain competitive for the long term as these scenarios start to play themselves out as you mentioned, we have made a commitment in sustainable energy and <unk>.
Partly that comes from lowering the carbon intensity of our assets and increasing our exposure in renewable fuels production and we can talk about that in a lot more detail today, but we have our dickinson facility.
Up and running and raise working through the startup there and then we're still very optimistic about what Martinez can bring to us in that area and then we're hopeful as technologies advance that we're on top of that and commercially and responsibly put ourselves in a position for the future. So so I do agree with Europe.
Belief that it is a paradigm shift I do believe there's going to be increasing momentum towards low carbon obviously, everybody sees that occurring through the administration's announcements as well as many other companies coming out.
Our goal is to stay focused on that change and put marathon in the best position to be a long term player in that energy evolution.
Thanks again everybody.
Thank you, Doug and again congratulations on your next step.
<unk>.
Thank you. Our next question will come from Neil Mehta with Goldman Sachs. Your line is open.
Okay. Good morning team and congrats on some better than expected results here I guess the first question is just to build on that is is refining costs.
And certainly better than what we were expecting.
In the 2021 Standalone capital spending.
Price as well to the downside and that was largely at refining as well. So can you talk about both of those the capex and the Opex improvements and how much of it is cyclical given that you still are running at depressed utilization, although maybe a little bit better than what we had anticipated based on your guide.
How much of it is structural and that will carry forward.
As we recover from.
I'm here.
Yes, Neil Thanks for that question. So obviously, we've been very focused on cost stated that throughout 2020 that we needed to make a step change.
And in refining, particularly rain his team have taken that and put up some really good actions in place.
I'll, let him comment.
But overall I think what youre seeing from US is trying to reset our overall cost structure, whether it's in the corporate area or midstream or refining.
To your point, we do expect over time as we get past the pandemic for variable cost to.
Come up a little bit at the same time, we believe that many of the cost reductions that we have in place for structural their fixed cost in nature. Obviously, we're hopeful that we have more variable costs and that the demand for our products comes back up but I think you've seen.
Over the last couple of quarters, a pretty sustainable step change and Thats, what we were hoping to show the market as far as capital Neil What we're doing there is is pivoting to what Doug just referred to as a new paradigm. We have a bunch of projects that are already in progress in refining that will continue to finish those out.
Examples of that would be like the star project, we have going on down in the Gulf Coast. That's an important project for us that is still going to take some time to get through but at the end of the day, we're going to do those projects that we think are in progress and are still valued we're going to look for projects in refining that lower our costs going forward or chi.
<unk> the dynamic we have around this energy evolution, and then obviously pivot more into the renewable space, we have a bunch of things planned for both Dickinson and Martinez.
The first step in this energy evolution renewables is the hot topic in and I think we're in a real good position to to put ourselves in a good spot. There. So ray do you have anything you want to add or share, Mike or Neil I'll, just give a little bit more color on the on the Opex and this should be fairly consistent with what we talked about.
During the last earnings call, but for for Op ex reductions from refining. It wasn't just one thing it was from a multitude of things, but if I had a key on two items I would say the first is scrutinizing the number of people in our facilities versus both contractors and employees and just.
You know.
Looking at the number of people we have the number of projects, we were working on and so forth and not just cutting people, but also consolidating contractor companies and really taking out efficiency look at that day.
The other thing that we really wanted to do and our procurement supply chain group did a phenomenal job of working with US is making sure that we really leveraged spanned across our $2 9 million barrel a day of refining system. So looking at all of our contracts goods and services and making sure that we just had the best terms.
And best contracts out there.
Just wanted to jump onto what Mike said earlier too as our goal is to make sure that these reductions are structural as possible.
Early on in the pandemic, we did some deferral activity with turnarounds, but largely that was too.
Get out of the initial period of March April may timeframe, but since then we've caught up on our turnaround work and going into this year.
We'll do more of the same so that's just for a little bit more color on opex.
Thanks, guys.
Up is just on the transaction the speedway transaction, but can you just walk us through what are the gating items to close the deal your conviction level debt you can close it in Q1 and Mike I've asked his question. So many times over the last couple of months, but can you just kind of walk through the waterfall again of I guess <unk>.
$5 billion for cash coming in plus another one two or so from the government and based on where your debt level is what the sort of the ballpark ability to return capital to share shareholders.
So that framework so two questions there.
Gating factors and then.
And then return of capital framework.
Okay.
Yeah, Neil on the first one the major gating factor is the FTC process with 711. So so we're watching the process, we're contributing where we can and as needed, but that's really a process between 711 and the FTC.
What we know as of today continues to go well and like I say I use the word we're targeting for the end of Q1 or were hopeful that the end of Q1 is the right timing.
But that really the gating item is essentially that process.
<unk> is not really our our process its more 711 and the FTC. So we're supporting it where we can as I mentioned in our prepared remarks, we've responded to questions. We're supporting it as much as we can.
The other activities that we have to.
Get accomplished which we're very confident we will get done.
Is the transition services, obviously, it's a major transaction between us and 711 and there are some services that marathon is going to transition to 711 over time. So that's been a lot of the internal work that we've been doing recently, but the bottom line.
Everybody keeps asking about use of proceeds were as anxious as anybody to get to that spot.
But at the end of the day the major gating item as we don't have control of that timing. Although we can do is continue to give you. The best insight we have and right now we still say we're <unk>.
<unk> ended the first quarter, we're targeting that we think that's achievable based on what we know so thats, our our best guidance at this point.
On your second issue as far as the use of proceeds.
We've tried as best we can to frame what we believe is the two main pillars that we're going to be targeting which is getting the balance sheet back to where we wanted to be and then return capital to our shareholders as quickly and as efficiently as we can.
And on the first issue we've tried to make this statement debt.
Our debt situation maturities is theres about $2 5 billion that comes with essentially minimal friction costs and will jump on that one right away right today, we have a little over $11 billion of debt.
We'll continue to try and evaluate as everybody wants to know where as mid cycle going to be et cetera, et cetera, we need to work with the agencies. So our financial team Maryanne and Tom and the Treasury team will work with the agencies as to the proper path to bring that debt down to a level that we think is the right spot.
In an effort to try and give as much color as we can we've kind of said to people that hey, we don't see it going below $5 billion and that's kind of like our low for.
Finding case, if you want to call debt. So if you say.
In that regard we have about a little over $11 billion, we don't see it going below five so.
A number to put on the piece of paper is around six depending on how well the recovery is and how quick the recovery is and working with the agencies et cetera.
Absent that we say, we're going to return capital we've talked about.
What's the best way to do that and the only reason we don't give additional color. There is because at least in our mind. We believe right. Now is end of March as the targeted timeframe. So we have another 60 days to go and we will continue to evaluate the market and the opportunities and we've been going through this.
Internally with our board with our advisors with ourselves and we have a pretty good framework, but we just don't want to get ahead of ourselves you know in case, you know it takes a little longer than we were expecting so we do want to return that capital to shareholders I personally am a believer that refining to a large extent is a return of capital business.
We got to position ourselves, where we're generating cash and then think about the best way to create value returning it to shareholders and we've talked about all the various ways to do that.
It's predominantly in a in a buyback type mode. That's what we're thinking about and then there's pros and cons to the various ways that you can do that and then kind of our commitment is once we get close enough that we know we're there then.
We'll come on.
Publicly and give a little bit more color as to how we think that will affect itself, but our our goal is as efficiently and as a as quickly and effectively as we can we want to try and provide debt return of capital.
Very clear thanks, guys.
Youre welcome Neal.
Our next question comes from Doug Leggate with Bank of America, You May proceed.
Good morning, everyone happy new year, Mike and team.
For all did well.
Thanks for that same to you.
Youre going to hit me for this I'm going to bleed on about the same same issue of my first question and I've got a follow up on the macro for Ray Please.
And it's really I wanted to do some very quick math with you make sure I'm thinking about this right.
For your market cap is about $30 billion your share of MPLX. Two thirds is about $16 billion. So let's assume for some of the parts basis that means that the value recognized for everything else is about $14 billion on.
You are potentially going to have a $10 billion share buyback program, if I net $6 billion for debt Paydown.
Those are pretty enormous numbers, obviously, so first of all am I thinking about.
Secondly, how exactly would you expect to deploy such a scale of our buy box, which I guess is neal's question.
And I'm thinking along the lines of like a bought deal.
No regular.
Our acquisition of shares in the market what are you actually thinking about structural timing because those numbers are obviously pretty significant when you look at it that way.
Yeah, Doug first of all you know I don't hate you for asking the question. It's a fair question and I know you've asked a few times about do we plan to use any of the proceeds towards MPLX.
And as I stated before we don't see that as in the best interest, but we do see to your point you know returning that capital and I think you've made the point. It is it'll be a large sum of money it'll take some time to effective effectively do it efficiently et cetera. So that's part of what we're kicking around in and a lot.
Things come into play.
Whereas the equity you're going to be when we actually go to do this.
What's the best method pros and cons relative to that so so part of the reason that we don't get more detailed at this point I just use this as the example is when we announced the deal we were trading in the thirties now we're trading in the around the mid forty's or so and we'll see where we are.
In 60 days or whatever the timing turns out to be obviously to your point if youre trying to convinces we're undervalued, where 100% aligned with you. We think that there's a lot of opportunity in our equity, but part of the process and looking at the pros and cons is whereas that equity you're going to be by the time, we get there.
There and what's the best way to to actually go about doing things.
Debt side of that I mentioned, a little bit you know that'll be ongoing conversations with the rating agencies, we do want to protect our investment grade ratings. So that's important to us we want to see how the pandemic.
<unk> continues to play itself out as you heard Tim mentioned earlier.
We're feeling good and then all of us.
Restrictions and things give you a little bit of a pause, but we're feeling pretty good about that as well. So <unk> taken that all into consideration is what we're thinking about and then to your point you know it'll be a large return of capital and it will definitely take some time and.
When we get there we'll give we'll give as much color as we can as to what we think at that time, and then there'll be some ongoing dialogue to your point.
The numbers are good and where.
We're happy that we're in that position. So we think we'll be able to affect our balance sheet.
Adjustment that's really good for us we think we'll be able to affect return of capital. That's really good for us It will take some time and the only thing that we're holding out as the method and the timing because we'll have to wait and see.
When that time comes hopefully that helps I'm trying my best to give you guys as much color as I can.
But at the same time trying not to get ahead of of where we're going to be when we actually receive the proceeds.
Operator.
Thank you. Our next question will come from Roger read with Wells Fargo. Your line is open.
Hey, good morning.
Good morning, Roger.
And I just want to say I'm glad to know that we sell side don't have to talk to you and to your stock being undervalued debt Thats Gary company on our side.
Thanks, I appreciate that.
Kitchen cabinet for the day.
We had a kick back into some of the stuff has been asked and maybe to dig a little GE per on a couple of things.
First off I think.
Debt tariffs had mentioned on the crack spreads, but as we know at least part of the moving of crack spreads here has been rens related and I know.
With the separation of Speedway youre retaining the wins inside of the R&M segment I was just curious how you're looking at the impact of the increase from the Rins cost net how we should think about that flowing through the company now that we are going to have.
I guess essentially already add the separation in terms of how it comes Gary.
Hey, Roger that's a good question on Rins I'll, let Brian take that one.
Thanks.
Hey, Roger Good morning. Thank you, yes, so great question so.
Rent expense is real right, it's cash out the door, we face it's an element of our industry, but RIN costs are also very transparent day in day out. So we really believe for consideration is given really across the entire value chain. When you look at refiners ethanol producers blenders marketers that sit in the value chain and established.
Daily prices. So that's not to say that it's a quote unquote in the crack I think empirically that's very difficult to point to.
No different than hydrogen costs for catalyst costs being in the crack, but it's a very transparent element in the value chain that we believe is fully considered in the commercial tension across all the various players that we mentioned specific to speedway, yes, absolutely zero impact I mean, we've always treated speedway is a third party.
Customer and our contracts across our entire book really give for consideration for RIN cost for in value but.
So really no impact no shift in value when you think about between segments. As a result of the separation the last point to make on this really is across our entire book, we have extensive terminal network and a pretty robust marketing platform. The least of which is in the speedway book of business. So historically, our near historical last couple of years.
70% to 75% of our RFS obligations, Glenn has been met really through wet blending with thick and thin you could add roughly another 10% of that and you can keep doing the math and the Martinez. So we are quickly approaching 100%. So we feel like historically is positioned well on this issue we're positioned right today, and we're going to be position, even better into the future.
Okay. That's helpful. Thanks, and then.
I guess as a.
Somewhat unrelated follow up here.
On the Capex for the renewables I think.
I'm, sorry, I'm going to try to find that the chart here I was flipping around all the different pages, but I think it's 325% or $3 50 in renewables capex.
<unk> 'twenty 'twenty, one is that all Martinez I mean, I know you've mentioned some other things in renewables. So I was just curious what all is included in that 350 and as we think about Martinez would it be another <unk> 50 in 'twenty two as you sort of a preliminary way to think about it.
Yeah, Roger So so yeah, you're right on that most of that is Martinez. That's the way to think about it there's a little bit it's a dedicated to didn't consume but mostly martinez.
And that's the.
The start of what we believe is going to be a multi phased projects all I'll, let ray give you a little bit more color on that.
To talk a little bit about timing in the in the.
Phased approach that we have to it but we're we're pretty pretty excited about the opportunity.
Hey, Thanks, Mike, Yes, as Mike said earlier.
We are progressing the Martinez renewable fuels project and that is a bulk of the projected.
Renewable spend in 2021, just to tell you where we are right now we're in definition engineering show wearing a third phase of the engineering on the project and we're also working to progress our permits so we're working with the governmental regulatory the NGO all the stakeholders in our project.
For our aggressive permitting efforts in our FERC our focus remains to have the first phase the first of the hydro trainers.
<unk> converted to renewable diesel facility our diesel unit in.
In the second half of 2022, and then we would follow that up with the remaining two hydro traders and 2023, along with a pretreatment system. So.
It's a stage project and the reason that we're doing the first stage in 2022 is that requires a lease amount of the <unk>.
Equipment modification to do that so we're starting to evaluation stage, but just wanted to give you a little color on the project.
I appreciate it thank you.
Youre welcome.
Yeah.
Thank you.
Amit.
Our next question will come from Doug Leggate with Bank of America. Your line is open.
Thank you Mike I'm, So sorry, my line dropped for Ni.
Our operating for your question, but I am honored to Cvs from Transco. So thank you for a while.
I apologize again everybody.
My follow up question was probably for Ray on rates actually I guess for.
All along from Mr. Terrorism's question earlier on crack spreads, but I wanted to be a little bit more specific it seems to us.
We're seeing not so.
LPG substitution in Asia, probably heat related.
Driving up not for Brexit spreads in Europe, obviously us at the gross.
The order effects from the gasoline pool. So I'm just wondering if you could share on any observations you have specific issue or we've seen gasoline crack supports coming from non transportation sources I just wanted to get your color on that and I'll leave it there. Thank you.
Yeah, Doug sorry about that this is Brian per T. I think on the the Napa brand spread we have seen some some uptick in the demand over in Asia.
The result of obviously the cooler temperatures over there and really the entire petrochemical complex. So.
We've seen some steady demand outside of the U S Gulf and even even beyond moving over to Asia, and really moving into the petrochemical space. So I think it's been supportive to that.
No that that's a long term structural shift but in the short term.
<unk> seen that we've seen that as a positive.
No I just wanted confirmation of that tailwind for us in place, but again, a COVID-19 sort of interest to you guys I appreciate the answers.
Youre welcome Doug.
Thank you. Our next question comes from Manav Gupta with Credit Suisse. You May go ahead.
Hey, guys wanted to focus on the Gulf Coast operating costs, which look like.
Bob.
Down about 31%.
This is one of the lowest we have seen record mtc and definitely well below a number of your peers. So what has allowed us to achieve this I know like they focused on cost reductions, but trying to understand what's best for ticket driving the Gulf coast cost reductions here.
Yeah Manav, it's a good question and I'll, let ray give you some specifics there.
Hey, Manav good morning say on the Gulf Coast, we have two refineries large refineries Gary Bell, one in Louisiana, and Galveston Bay, and Texas and of course, Gary Bell has always been a very low cost for refinery for us and so the ability to get better there is somewhat limited the begged reductions that we've had in.
Our Gulf Coast structure has been at Galveston Bay, they've they've made significant improvements.
And their opex and that really showed in the back half of 2020.
A quick follow up here is on your.
Facility. Obviously, you are spending some money right now to move the product for California, but Canada has already is talking about introducing the painesville standards kick in to any for any thought.
The location of debt facility will allow you to look at products seem to see across the border. So is that something you are considering and also.
Please go ahead possible at the Beacon.
For the day also besides the luck of the facility.
Yeah.
Hey, Manav. This is Brian Partee, just to address kind of the market disposition out of Dickinson of course, we're looking for the highest valued markets. The design for Dickinson any expectation in and around placement is certainly in California, and that really has proven to be the most lucrative markets out of the box, but we're having active dialogue with.
Outside of really the West coast in California, and including Canada, and we'll continue to chase that highest value placement, but with our position in the Portland area in the Pacific Northwest, we really feel optimally positioned.
With the wet physical position to be able to move product into Canada, and even export as well as into California, and we also think long term with the contemplated.
Project at Martinez really complementary to having kind of a robust position out on the west coast and the last thing I would say.
Beyond just Canada, there is a lot of different contemplated low carbon fuel standards in the U S as well that with the load out on rail we have really ultimate flexibility only limited by the rail infrastructure in the U S, which is quite robust so and a long weighted way of saying, we really feel like we've got a good we're in a great position logistically to optimize the placement of the prop.
Act out of out of Dickinson.
Okay.
<unk> mentioned that they can seamlessly.
We have pre treatment options for debt concern, but that wouldn't be that would be at our facility with Beatrice pretreat corn oil so that that is in progress.
Thank you.
Youre welcome.
Thank you. Our next question will come from Paul Cheng with Scotiabank. Your line is open.
Hey, guys good morning.
Good morning, Paul.
I think the first question I have yet for great great.
The opex cost in refining and distribution costs.
Really impressive.
So at this point.
Oh the.
Say whatever debt you are doing that you think you're already capturing it as you say goodbye.
That would be a debt limit the upside or that.
I'm sure that you continue to drive the cost down, but it's been really a step function change from baseball and all that we could expect or debt. This is a pretty good day and any improvement would be putting them with debt.
So thats the first question.
Question, Yes, puppy for my end client Brian.
I looked at your.
Okay.
For a more aggressive.
Our commercial trading and everything so.
So when we look at.
Marathon.
Do you have the Y fifth from.
Getting paid and also the white person now for your organization or that that's what we need is only the first step and when they're going to take some time for your total you'll get out and where you see the most opportunities.
For the improvement in return.
Good day.
From that operation in West Wits and are we going to see that increase the risk.
So Paul I'll start on both of them and then I'll let.
Ray and Brian chip in so so on the cost.
We've made a significant move as you noted.
We're going to challenge ourselves in 'twenty, one and beyond to continue to look at each part of our portfolio and where we're spending money, whether it's in refining or on the corporate side et cetera. So I.
I don't want to ever say that we're done at the same time I do appreciate acknowledging there was a pretty significant move I mean, we decided when I put out the three initiatives that cost would be a major part of what we were doing in 2020. So that's why it got a lot of attention, but it but it continues on its <unk>.
Not something that's over just because we've come to the end of the year or whatever so I'll, let ray comment a little bit more on refining and then on your second question relative to commercial and systems I mean, one of the things. If you look at in our disclosure on capital as we are spending some money at the corporate level to try and improve our.
Ourselves from a digital standpoint.
Doug mentioned, we're moving into a low carbon future.
The business has also become much more strategic from a digital standpoint.
And our new Chief Digital Officer has a lot of good thoughts that will help our commercial teams advanced the ball. So we're going to try and deploy capital in that regard and put ourselves in a much better position from an information standpoint, so that we can act on it.
Commercially, but I'll, let ray jump in and Bryan if he wants to add something there.
Yeah.
Sure Paul on the Opex I'm prepared to ask that because Mike actually asset to me. All the time are we are we done yet is there more to do.
But what I will tell you is with the $1 billion of costs taken out of the system.
We took a big bite out of the Apple in 2020, but what I will tell you is that the culture is there.
As far as questioning everything we do whether it's a person replacement, whether it's a project need to do or whatever.
There's definitely the mentality in refining the question everything that we do from a cost standpoint.
The one thing that I want to emphasize though is the one thing that's not in play as anything that would impact the safety or environmental performance from our refineries Mike in his opening comments talked about 2020 being the safest and best environmental performance that we've had so that that always is a key thing, but we are came realized quest.
And everything we do beyond that.
Hey, wait just curious that Gary.
Tim, but you guys have a restructuring at bar than apparel.
People from Timothy.
So people are gone so.
So that benefit already for the exact closing into the fourth quarter or we have another leg up.
The first quarter debt, when we see that benefit coming in.
Yes on that one Paul you'll see some of the benefit occurring in the first quarter. We did the restructuring in the back end of 2020, but you'll actually see the benefit in the first quarter.
But before I turn it over to Brian parts here since we have two Brian's now you may have been asking relative to Brian Davis, Who's just joined us, but Brian Davis is not on the call for today, but I'll, let Brian parts can you talk a little bit from products and I'll, let Rick kick in with a little bit from crude and by our next call, Brian Davis, who will be with us.
And we'll be able to get his insights as well.
Yes, Thanks, Mike Paul This is Brian Partee, Yes, just to answer your question on people and systems and commercial opportunity. The short answer is absolutely. Yes, I mean, we've gone through a massive transformation over the last several months realigning on the clean products side of the business, our marketing supply and trading our international book as well.
All into one unified organization. So I think just org structure alone will help has helped unleashed opportunities as Mike indicated we are spending quite a bit of time building out for a massive.
System to integrate the back office and that's in flight and underway and really long term see great potential we're starting to see the benefits of that already and when we think about commercial performance. It's not just revenue. It's looking at the expense and distribution cost as you called out earlier inventory positions as well. So it's really the full deployment of capital across the.
Value chain not just on the revenue side, but I'm extraordinarily encouraged with where we're at and we're really pivoting Paul to be quite honest with you from really a legacy is more of an operational focus with a refining over the last decade, running full capacity and utilizing physically infrastructure and arbs to maximize value to the system that we're in today.
Which is requiring a little different playbook and more commerciality. So.
We're excited to work with the team to bring that all to bear and we're seeing benefits already we'll continue to build on that here over the next year.
Thank you.
Just sticking with.
Really quick question.
Should we look at it over the next several with the cash.
Capex for 2021 will be sort of the pace and I and youre not going to be substantially higher bad debt.
Yeah, Paul on capital you know, we're not giving guidance beyond that but I can give you. My general philosophy is like I mentioned earlier, we're going to obviously finished the projects that we have in progress.
Some of those are going to go into 'twenty one into 'twenty. Two so that's ongoing as far as investment in refining asking ready to look at.
Ideas that reduce cost and put ourselves in a position for a low carbon future. So energy intensity. As an example is something that's still matters a lot in the energy evolution.
Looking at putting ourselves in a position, where we checked both of those boxes of cost and carbon emission reductions et cetera are going to be top of mind for us at the same time, we're pivoting to investment into renewables and some of the other areas, which will give you some more color as time goes on but I think that.
The general philosophy of it and as far as the absolute spend.
We'll obviously give a give guidance as we progress, but I think just in general I think that's the philosophy that you should be thinking about and.
It kind of started off with the way Doug asked the question. We do think there's a paradigm shift occurring and our reaction to that is you know get our costs down and be very conscious of the new environment and trying to check off two two birds with one stone.
Put ourselves portfolio wise in a position where our refining assets are in a good spot for many decades to come that's obviously a goal for us.
And position ourselves for the products, we're making are with the demand in the market. So that's that's kind of our overall philosophy and we will continue to challenge what we're doing in that area and I. We tried to give you a little bit more color what that breakdown of capital. So hopefully that helps people get a sense of what we're thinking and philosophy wise.
Thank you.
Youre welcome.
Thank you. Our next question will come from Benny Wong with Morgan Stanley You May go ahead.
Hey, good morning, guys. Thanks for taking my question.
My first question is really on your outlook on the gasoline market.
I think over the next couple of years ago.
Almost 1 million barrels per day of capacity come offline arguably half of that can be gasoline.
Look at the imports over the last.
Five years.
For importing about 5000 barrels per day, if demand ramps back up to more of a normal environment.
Could we get back to more of a importing scenario for the U S is that kind of a.
For a reasonable way to think about it or how do you guys think about that.
So I'll start off and I'll, let the guys jump in so so one of the things that I think everybody's obviously trying to understand is what does the supply demand look like post pandemic and we obviously are seeing in the short term the demand reduction.
Fly rationalizations in progress, but how that all plays itself out at the end of the day is still an unknown.
We tend to like I said earlier, we look at the banks for the river. We anticipated some are some challenges on the supply demand coming into the decade. That's part of the reason why we wanted to focus on cost reductions, but the.
The question of where does the supply demand.
Up after the pandemic after the demand settles to a new normal wherever that's going to be after the rationalization settles out to where that's going to be I think that's still the question that we're all trying to get our arms around for.
For us like I keep saying is we try to look at it from a bank for the River standpoint, and then we will.
We will assess it as as time goes on.
I don't know if any if you guys have anything to add there shaking their heads. So I think that's the best we can give you at this point.
Thanks, Mike.
Helpful and can you just.
Remind us if we look at MPC system, what's the ability to flex your gasoline yield and is how different is that from from the U S complex is it more or less or relatively in line.
Or are you asking for any like flex between gasoline and distillate is that what you're asking.
Yes.
Like how high can you get your yield interest.
Gasoline output.
Overall.
Yeah.
Yeah Manny this is ray.
We typically.
We will have 10% swing that we can swing.
Swing between our gasoline gasoline and diesel and and we'll do that based on the economics that we see and what I'll tell you in the last year and the pandemic you've seen US do you know do it both ways senior so all the way to diesel and challenging ourselves how much more diesel when we make and we'd come back the other other other.
Erection.
Yes, Benny this is Rick just one thing I'll add to that.
To Ray's comments on yield a lot of that is driven by economy and a lot of that is driven by the sweet sour spread the heavy to light spread so as we've stated many times, we have great flexibility by region as Youll continue to see as we pivot from suites to sours from Heavies delights, we often say one third two thirds.
But that varies by region and that gives us the flexibility to really turn that yield knob.
Yeah.
Hey, guys very helpful. Thank you very much.
Youre welcome.
Thank you.
Our next question will come from <unk> <unk> with Citibank you May go ahead.
Net.
Hi, Thanks for taking the question.
First one Mike I wanted to touch back on the leaning into renewables. So you've talked about it several times on this call. So I wanted to take a big picture view ultimately how do you think about your ambitions here and would you think about at some point maybe as we go forward.
Holding that out either as a separate earnings stream our separate segment I think some of the peers in the space are starting to allude to or are starting to do that.
Helping sort of analysts and investors to quantify that and sort of gauge where the progress is.
That's my first question within that to sort of a tag along is on carbon capture I know you talked about.
Carbon emission reduction in energy intensity.
Earlier on this call I was curious if there's opportunities regarding carbon capture on L. CFS programs that are fairly attractive. So I wanted to sort of ask on that and then I just had a follow up on the.
On the on the cash flow statement after that thanks.
Yeah Krishna on your first one as far as renewables and segment results, we do have that on the radar screen.
At some point, we think that may be appropriate for us as you know, we just started uptick and soon so we don't even have a full quarter yet. So once we get there can set up and running and are generating results and then we have martinez.
Coming behind that then we will have more of a significant.
Discussion point on actual results as opposed to.
Where we are today, which is anticipating those results. So I can see that at some point I would I would say one of the things that.
We've worked with Christine and our team on is trying to be very consistent so people can get.
Good insight into the things that we're doing today, but at some point in the future I think you could see some changes from us and we'll give you obviously heads up when we thinking of doing that.
Second question was.
Oh, yes, carbon capture and I'll, let Barry jump in on this as well I mean right now in all of the areas of low carbon future or climate areas. There's a lot of things on the plate obviously renewable diesel as you mentioned is kind of at the top of the list because we're executing on that as we speak.
But theres a lot of different items.
We haven't talked a lot about technologies different areas that we think we can drive our carbon footprint down and theres different ways, whether it's capture or many other areas that we have on the radar screen and we're looking at it we want to make sure that what we're thinking about is economical for us going to create value for the shareholders.
Like I said, if we can.
Hit to two birds with one stone that's the best of all World. So I'll, let ray comment specifically on on capture.
Yeah.
I'll just add on captures that something that's on our radar screen, we're looking at opportunities there and I'll just emphasize that the capture part is the easier part the sequestration is it a little bit more of a challenging part. So you know you have got opportunities within hydrogen plants in some of our other options offered.
<unk> to do capture and sequestration I'll, just say that it's on our radar screen, we're looking at it but nothing nothing more incremental day really say at this point.
Okay I appreciate all the color and then just a quick follow up on volume.
Financial statements, particularly on the cash flow from working cap was obviously a good tailwind.
Quarter.
Sort of a two parter one how to think about that here in <unk>.
Is that does that hold up towards.
When you see a bit of a reversal.
And secondly, within the speedway portion of discontinued as working cap also.
<unk> was included in that was that also sort of positive there as well.
And for Sean on working capital as we've said in the past is theres a rule of thumb debt as flat price moves we have a you know a essentially a net 20 days exposure.
To that so as flat price moves itself up that's a obviously a source of capital for us and a flat price were to come down like we saw in the early part of 2020.
And then it's a use of capital. So so part of that day youre going to see is depending on where where crude prices and product prices are but but as a general rule. We are about a net 20 day exposure there.
Okay, and then phase III.
Speedway number and the discontinued also included working capital as well just to clarify that's not an ex working capital number correct.
I don't know if I'm understanding your question there the working capital.
That's right that's not the worst day will be cash, but cash flow from ops I apologize for the cash flow from ops from Speedway.
That was in the discontinued portion I just wanted to just clarify this debt.
That includes for any working capital impacts for speedway for discontinued portion of cash flows for.
That makes sense I was just sort of trying to suss out how much is how.
How much was credit of working capital impact.
Fill in MPC after speedway, but I can take that question offline as well Michael.
Okay, probably better to take it offline. Thanks, yeah. Thanks.
Thank you that is all the time that we have for questions I will now turn the call back over to Kristina Kazarian for closing remarks.
Sounds great. Thank you everyone for joining the call today, if you have any follow up after the call. Our team is available to help out with us and with that I'll turn it back to the operator.
Thank you that does conclude today's conference. Thank you again for your participation you may disconnect at this time.