Q2 2022 Marathon Petroleum Corp Earnings Call
<unk> remains on track.
We continue to progress our Martinez renewable fuels facility with the first phase of the facility currently targeted to be mechanically complete by year end.
Once completed the facility is expected to be capable of bringing nearly 50000 barrels a day of renewable diesel supply into the market.
We also expect to be able to close our JV with <unk> in the coming months.
The timeframe for completing the facility and closing the JV are dependent upon the timing of obtaining of the air quality permit.
We'll continue to look for other opportunities to generate a return on capital such as cost reduction projects and opportunities that build out our competencies and increase our competitive advantages to drive returns and shareholder value.
And fourth at they're executing against the first three objectives, we look to return capital to shareholders in the three months since our last earnings call. We have repurchased $4 1 billion of shares and today, we announced a separate and incremental $5 billion share repurchase authorization.
At this point I'd like to turn the call over to Maryann.
Thanks, Mike moving to our sustainability efforts in June we published our annual sustainability report and our annual perspectives on climate scenarios report.
We continued to make progress on our greenhouse gas reduction targets and $3 2021, we have achieved a 23% reduction in our scope, one and scope two intensity emissions.
And an 11% reduction in our absolute scope three category 11 greenhouse gas emissions.
Our perspectives on climate related scenarios, which is aligned with TC ft standards provides insight into some of the strategic considerations, we take to set meaningful objectives dedicate resources to accomplish them and then hold ourselves accountable and demonstrate results. Our sustainability report showed can.
<unk> progress on the sustainability goals that we have set for ourselves, which we have been reporting on since 2011.
We believe our investors and other interested stakeholders will find that the extensive disclosures in these reports illustrate our company's financial strength adapted.
Adapted newness and resilience to climate related risks.
Moving to second quarter results Slide five provides a summary of our second quarter financial results.
This morning, we reported adjusted earnings per share of $10 61.
This quarter's results were adjusted to exclude a $230 million benefit related to changes in the 'twenty 2020 'twenty, one RVO requirement published by the EPA.
Adjusted EBITDA was nearly $9 $1 billion for the quarter and cash flow from operations, excluding favorable working capital changes with almost $7 billion.
During the quarter, we returned $313 million to shareholders through dividend payments and repurchase approximately $3 3 billion of shares through.
Through the end of July we have repurchased $4 $1 billion of shares since our last earnings call.
Slide six shows the reconciliation between net income and adjusted EBITDA as well as the sequential change in adjusted EBITDA from first quarter 2022 to the second quarter of 2022, adjusted EBITDA was higher sequentially, driven primarily by an approximately $6 $4 billion increase.
Refining and marketing.
Our tax rate for the second quarter was 22%, resulting in a tax provision of $1 $8 billion. The tax rate is higher this last quarter due to refining and marketing representing a larger component of earnings in the quarter.
Moving to our segment results Slide seven provides an overview of our refining and marketing segment during the quarter. Our R&M team was focused on supplying transportation fuels to meet market demand.
Refining ran at 100% utilization processing, approximately $2 9 million barrels of crude per day at our 13 refineries safely and reliably.
This is the same level of throughput achieved back in 2019 pre pandemic before the closures of Gallup and Martinez.
Capture was 96%, reflecting a strong result from our commercial team in a volatile market.
Operating expenses were higher in the second quarter, driven primarily by natural gas prices, which were approximately $3 per and then btu higher in the second quarter versus the first quarter.
While we have been able to mitigate some of the impact of higher prices. The cost increase we have seen in the first half of the year has been almost entirely driven by higher energy costs.
We continue to believe the cost reductions we made to bring our structural operating costs down to approximately $5 per barrel are sustainable.
With higher natural gas prices, we would expect operating costs to remain elevated in the third quarter distribution costs were modestly higher in the second quarter versus the first quarter due to higher refinery utilization.
Which resulted in higher system volumes.
Turning to slide eight which provides an overview of our refining and marketing margin capture this quarter. Our capture results. This quarter were impacted by a few key factors.
Secondary products continue to be a headwind as prices lagged higher light product prices. This was partially offset by strong gasoline and distillate margins as well as higher volumetric gain due to higher product prices.
Backwardation created headwind during part of the quarter, but during this time, we were able to leverage our robust logistics capabilities to translate a portion of our physical barrels into the market on a more prompt basis and our ability to capture 96% of the market indicator across an incredibly volatile three months was in part due to.
Our commercial responses.
Nine shows the change in our midstream EBITDA versus the first quarter of 2022.
Our midstream segment continued to demonstrate earnings resiliency and stability with consistent results from the previous quarter.
Performance is underpinned by strong operations and a commitment to strict capital discipline MPLX remains a source of durable earnings in the MPC portfolio as MPLX continues to generate free cash flow. We believe it will have the capacity to return significant capital to its unit holders.
Today, MPLX announced an incremental $1 billion unit repurchase authorization.
Slide 10 presents the elements of change in our consolidated cash position for the second quarter.
Operating cash flow was approximately $7 billion in the quarter, which excludes changes in working capital.
Working capital was roughly flat for the quarter as we saw benefits from an increase in crude oil payables related to higher refining throughput offset by build in crude oil inventories since the first quarter of 2021 working capital related to increasing prices has been a source of cash.
Capital expenditures and investments totaled $546 million. This quarter, we continue to spend on our star project, which is projected to increase crude capacity at the Galveston Bay refinery by 40000 barrels per day. This.
This project is expected to be completed early 2023.
We are progressing the conversion of our Martinez renewables fuel facility and expect the first phase to be mechanically complete by year end.
During the quarter.
<unk> returned $313 million to shareholders through our dividend and repurchase approximately $3 $3 billion worth of shares at the end of the second quarter MPC had approximately $13 3 billion.
Cash and short term investments.
As Mike mentioned earlier, we remain committed to a secure competitive and growing dividend.
Objective has been to complete the $15 billion repurchase program. No later than the end of this year, we remain on track to meet this commitment upon completion of the program, we will reassess our dividend level.
The launch of this program in May 2021, we have repurchased approximately $12 1 billion shares.
At an average share price of approximately $74 per share.
Over this time, we have reduced MPC share count by approximately 162 million shares or over 24%.
We've received the board's approval for its separate and incremental $5 billion share repurchase authorization, we will work through our capital allocation priorities and continue to assess the market environment to determine how we might execute against this authorization.
Turning to guidance on slide 11, we provide our third quarter outlook, we expect crude throughput volumes of roughly $2 7 million barrels per day, representing 94% utilization utilization is forecasted to be lower than second quarter due to higher planned turnaround activity.
Planned turnaround expense is projected to be approximately $400 million in the third quarter with activity spread across all three regions as.
As we've mentioned on previous earnings calls our planned turnaround activity is back half weighted for 2022.
Turnaround activity is reflected in our third quarter throughput guidance. We expect this elevated level of activity may reduce our light product yields.
We will optimize to minimize the impacts, but we think our capture rate for the third quarter could be lower than the second quarter and.
And coordinating maintenance work, we will always try to maximize turnaround and catalyst cycle to the economic optimum, but we also do not compromise on safety or asset integrity and ensure work is scheduled to achieve this balance total operating costs are projected to be $5 50 per barrel for the quarter.
We are expecting higher operating cost in the third quarter. This is primarily driven by the elevated cost of natural gas as well as slightly higher project expense work, which we normally coordinate to occur during turnarounds to limit the impact on throughput reduction.
As a reminder, natural gas has historically represented approximately 15% of operating costs. Our natural gas sensitivity is approximately $330 million of annual EBITDA for every $1 change per <unk>. This equates to a sensitivity of approximately <unk> 30 per barrel cost.
Distribution costs are expected to be approximately $1 $3 billion for the third quarter.
Corporate costs are expected to be $170 million, representing the sustained reductions that we have made in this area.
In closing, we will continue to optimize our system to provide as much transportation fuel to the market as demand requires.
We remain committed to advancing our low cost initiatives and focus on areas to drive continued commercial outperformance and we will stay steadfast in our plan to execute against our capital allocation priorities to drive shareholder value. Let me turn the call back to Christina Thanks, Maryann 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. Operator, we're ready for the question.
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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Our first question will come from Doug Leggate with Bank of America. Your line is open.
Hello, Good morning, everyone and Mike Vesey, Bob Thanks for taking my questions.
Tom.
Thanks, I guess.
Mike in the last couple of months, we've seen shell.
PBF.
With the restructure of the ownership of the MLP.
Obviously, the relative yields remain very wide between yourselves and MPLX I know have asked you about this before but.
I was just wondering if there's been any reconsideration is too.
The appropriate now that you've come through the buyback more or less the appropriate ownership structure of MPLX.
Doug we have talked about this before I mean.
We continue to look at it it's not something that we have off the radar screen, but we continue to come to the same conclusion, we have for quite some time that those other situations where people are rolling up their mlps. We think are in a much different.
Situation than we are.
We're pretty pleased with our Mlps performance continues to get cash back to MPC.
The structure itself, obviously gone out of favor with investors for a little bit, but we think thats starting to turnaround as well. So it's something we keep looking at Doug but at the end of the day, we're still comfortable with the structure that we have and we think it works for the marathon family to have both MPC and MPLX.
I apologize on one predictable, but I just wanted to get your latest thoughts on that so thank you.
My follow up is kind of related I guess right.
Operational reliability.
You guys demonstrated in some of your peers also to be able to take advantage of the environment I think speaks to the way youre running the business, which really gets to the issue of a sustainable base dividends, which you have an increase since 2020.
I understand the point about.
You wanted to get the speedway proceeds redeployed.
But today your dividend is I guess about two thirds of the distributions you get from MPLX was basically means MPC free cash flow isn't paying the dividend. The toll. So just wondering if you can give us as to what you think about where.
With the right level.
This dividend as a proportion however, you want to measure it consolidated cash floor. However, you want to look at it but it seems the base dividend relative to the earnings power of the business is quite dislocated if you like I'll leave it at that thank you.
Yes, Doug it's a good question and I know some people have been asking us on the last couple of calls where we are on the dividend.
I think from Ryder from wrong, we stated that we were going to maximize the share buyback program and complete that and then and then reset the dividend that is still our intention.
Were $12 billion through the $15 billion program, everybody has seen the pace at which we can can execute that's.
Guided by our trading volume and the programs that we have in place so we're pretty close to to.
Talking about that in a more constructive way.
We are committed and we said this in our remarks, we're committed to a competitive dividend we want to show the market that will grow that dividend.
It's probably taken a little longer than everybody is new patients has been as far as this return program, but it's actually been executing well in our mind.
As Maryann said in the prepared remarks, we bought back quite a bit of the shares of $74. So we're feeling pretty good about that in general in and we're not too far off.
Release into the market, where our head is on the dividend.
Thanks for taking my questions.
Youre welcome Doug.
Our next question will come from Neil Mehta with Goldman Sachs. Your line is open.
Good morning team really terrific terrific execution this quarter.
First question I had was actually on the crude markets. It's obviously been volatile, but we've seen differentials widen out for a couple of different basins Brent <unk>.
Western Canadian crude has opened up as well just love your perspective from a commercial perspective.
What do you think is driving some of the opening of the differentials.
Do you see yourselves as well positioned to capture some of that volatility.
Good question, Neil Let me, let me take that.
Hi, Neil really great question, because we are seeing a lot of volatility in both of those markets specifically to Ti first.
Seeing strong production in the Permian and.
Both on the <unk>, specifically, so if you look at where MPC is positioned and our connectivity with our pipeline commitments with Galveston Bay really sitting in the backyard of the Permian.
Really nobody is better positioned than us to take advantage of Ti MTO and then specifically on WCS that has widened out 'twenty one plus under.
And that's happening Neil for a variety of reasons. One we believe the SPR barrels have put significant pressure on the medium sour barrels in the Gulf Coast.
And WCS needs declare to the Gulf coast. So it needs to compete directly with the medium sour barrel and the early SPR releases were predominantly medium sour. So from an MPC perspective, we have historical space out of Canada.
We're able to take advantage of that in all three regions. The west coast, the mid Con and all of the Gulf Coast. So we feel very good about that macro environment going forward. If those arbs stay open will be as well positioned as anyone to capture those advantages.
Yes.
That's great color.
Follow up is.
Your views on renewable diesel we've seen soybean oil and vegetable oils come off a little bit and now there's talk of an extension of the blenders tax credit.
CFS. However has come down so can you talk about all the moving pieces that goes that go into the economics of rodeo and how that ties back into your view of the profitability of that asset.
Okay, I had many others right Brooks.
I'll take your question on that.
You are right there are a lot of moving parts to the economics of renewable diesel.
Some recent headwinds Elsea pass prices are little lower than we would anticipate feedstock prices across the board level higher.
Then there is some tailwind.
We've got a bigger.
Contribution from RIN pricing, a bigger contribution from from our D prices. So a lot of moving pieces in it.
And the equation, but one thing I will tell you is when we look at like our <unk> project.
<unk>.
When you when you take all the puts and takes the plus and minuses together, we're pretty much on par with where we expected the project to come in and so that's our experience with <unk>, we expect the same.
At the same type of contribution with with.
With Martina is going forward.
One thing that I would like to add though is what we really do is a lot of things I'm talking about outside of our control what are the regulatory prices the feedstock price it's going to be.
I'd really like to focus on what we do.
And specific to that concern we pay attention to all the feedstocks and we pivoted to the most.
Lowest cost feedstock slate the lowest carbon intensity slate bye bye.
Sure.
Optimizing our feedstock acquisition process. The other thing we did is.
Even though that that project was supposed to be 100%.
Refined bleached.
Deodorize soybean oil we used our pre treatment facilities that Beatrice, Nebraska in Cincinnati to essentially bring in AR.
Fully pretty treated the feed slate in there so really concentrate on the things that we can control to deliver the EBITDA that a lot of moving parts and chip.
We're just doing the best we can with it.
Thanks, guys.
Youre welcome Neal.
Our next question will come from Manav Gupta with credit Suisse. Your line is open.
Mike you bought a lot of capital discipline to MPC investors really respect you for that.
But maybe different environment versus then you actually took what MPC.
You have the best in class midstream footprint in Permian and northeast two basins, where volumes that are actually growing materially we are seeing e&ps raised capex. In these regions. My question is for the right opportunity organic order and organic.
A link to spend more at the midstream level to benefit from the projected volume growth.
Yes, Manav I think.
The answer to that is yes, I mean, obviously, we probably would prefer to do that at the MPLX level as opposed to MPC.
We are definitely looking and trying to figure out ways to create value on both of those basins.
As everybody knows we've said for quite some time now.
Concentrated in the Permian and concentrate in the Marcellus area, we did announce on the call earlier today that we are.
Advancing couple more processing plants, one up in the Marcellus, which has been kind of a constrained area for a little bit of time now and it looks like growth is going to start to pick up there and then we've also announced another plant down in the Permian as well so.
We're very attentive.
Hopefully, we will find more opportunities in both of those basins. Because we think they are both going to continue to grow.
Everybody is very aware of the global natural gas situation, we remain constructive on it and.
<unk> is involved in that growth as we can be.
My second and very quick follow up is again very positive operating cost on the golf course below $4. You. If you look at last couple of you that's been trending down, but you actually did not close on unprofitable assets, sometimes when you build an unprofitable asset the cost can come down you got bus has been coming down.
Yes.
Number of assets has remained the same so help us understand how you are able to push through these lower opex numbers.
Okay. Manav. This is manav. This is ray Brooks I'll take that question I think it comes down to a couple of things one is definitely.
Paying attention to cost control ascribing to be the low cost safe reliable operator.
And then the other key word is reliability. So when we look at the Gulf Coast for the second quarter.
We ran extremely well 135 million barrels a day.
Throughput in those two assets at Gary Bell in Galveston Bay, So best ever performance, there out of those assets and they're phenomenal assets.
Hey, and then the other thing is it's just concentrating on costs, we've talked about this many times.
Over over the earnings calls the last couple of years, we've got two refineries there that performed very well in the Solomon Opex survey that comes out every two years, Gary Bill Historically has been a very good first quartile refinery in Galveston Bay has improved over the past couple of years, So just strict cost discipline.
After after we pay attention to all of our safety and maintenance cap just questioning everything we're spending there and running brailey reliable. So even though your question was on cost in the Gulf Coast, We're really happy with <unk> with.
With our margin performance I'm going to let Rick talk a little bit on that.
Yes, so manav, so hand in hand with op costs goes refining margin per barrel and we have really taken mikes push on improving the commercial performance. We have an acronym we call CCI continual commercial improvement in the Gulf Coast and this is let's goes.
For all three regions with the Gulf Coast, specifically, I think you're continuing to see us separate ourselves and improve quarter to quarter.
And in simple terms amount of what we're doing is we are expanding the crack we are expanding the margin from feedstocks to products. We're optimizing every day is a focus that is relentless within our team and its something truly that's been going on for years, but youre now really seeing.
The dividends of the Optionality that the team has created the logistical flexibility.
And our ability to take a feedstock into the refinery for res team has successful operating.
Metrics that he's shown improve and that is best in industry for quite some time with with his toolkit and then taking that all the way to the end consumer I can't stress enough. How proud we are of our team and it's an initiative that's.
Very important to us and one that I think you will continually I'll ask you to continually watch because.
I feel confident in our performance in the quarters ahead as well.
Thank you so much for a detailed response and congrats on a great quarter guys.
Thanks Manav.
Thank you. Our next question will come from Roger read with Wells Fargo. Your line is open.
Yes. Thank you good morning, Mark good to hear you on the call for sure.
My question coming back to the 96% capture in the quarter your comments about the commercial operations helping.
And then looking at where we are thus far in the third quarter.
In Q2, we saw between the Gulf Coast, and New York Harbor quite an opening between.
Cash markets for diesel this quarter its cash markets for gasoline. So as we think about those kind of dislocations in the market the crude diff mentioned before.
What would be a reasonable expectation.
We're kind of capture performance this quarter.
Hi, This is Rick so I'll capture first and I'll pivot back to before I, specifically address your question pivot back to <unk> 0.1 of the reason youre seeing our capture where its at is optionality.
So optionality within our system.
Really directly to your point, whether its the harbor or the Gulf coast that blows out on diesel and gas we are structuring our entire system to have optionality, we don't know when and where the the.
The differentials will blow out what will be favored one month versus the next what I can tell you is when it happens we have the system to take advantage of it and that's years and years of really preparing for optionality within the system specifically to your question on the harbor versus the Gulf Coast.
Call. It appears right now as you said gas is in favor.
Where that will go will be interesting I think part of that will be on inventories how they play out within each of the regions as well as demand from a demand perspective, we are seeing very bullish signals from the consumer right. Now. So we are quite optimistic on that front.
Okay. Thanks, and then.
Maybe pivoting back to Martinez in the air permit that still require could you just help us I mean, the 30 days obviously was provided in the release, but is there any other part of that process, we need to watch in terms of.
Other other approvals required or a extension or anything like that I mean is it 30 days and should be good.
Knowing what to do or do we have to watch other events.
Hey, Brian This is Brian I'll give you an update on Martinez and I'll go back to the beginning of the second quarter on May <unk>, we were pretty excited when we got the AAR. The environmental impact report the final one approved by Contra Costa County Board of Supervisors, So that was big and that left us with one more permit.
Which was the air permit with Bay area Air quality Management District, and so they spent the next couple of months doing a technical review and actually recently July 22nd.
Posted that permit.
For public comment, which is a 30 day comment period, which would and then August 21.
So when that public comment period ends.
Along with us providing input will respond to any comments.
And that should be the end, so what getting the air permit will be.
That big deal that allows us to <unk>.
<unk> unit that when it's when it's ready and it also allows us to close our joint venture partnership with NASDAQ. So.
Where we see the light at the end of the time I'll comment on that one.
That's great good luck with it thank you.
Thanks Robert.
Our next question will come from John Royall with Jpmorgan. Your line is open.
Hey, good morning, guys. Thanks for taking my question.
So you touched on demand.
A bit near opener and it sounds very strong, but I think if I'm not mistaken I think the commentary related to <unk>.
So it'd be interesting to hear what youre seeing in your system today on the demand side of it.
Maybe where you think we sit currently relative to pre COVID-19.
Anything on your outlook for the rest of the summer would be really helpful.
Hey, John This is Rick so going forward, it's been interesting.
Back up and just talk about July and then where we're at today. So early in July we had a little bit of a speed bump and then around the fourth of July where demand was slightly below where we thought it should be.
Ever since then though we've seen week on week increases in demand is picking up really across the board, but specifically in gasoline.
Diesel study and as Mike said in his opening comments around jet.
Jud is 20% over quarter on quarter <unk> anyway, so from where we were a year ago, and we're getting very strong indicators.
From the airlines and the travel industry on domestic travel via spin.
Specifically going forward, we're seeing a very resilient consumer with a lot of pent up demand and the trends look very promising.
Certainly you have the headwinds of inflation rising interest rates et cetera, but right now I would say the following street price that has been permitted by the following <unk> market.
Winning the day and the consumer is showing some very positive demand signals today, and we view that going forward as well.
Great. Thank you that's really helpful and then on <unk>.
Utilizations.
100% in <unk> guidance is 94%.
Just wondering on sequencing you, obviously ran full out for the entirety of Q.
The expectation of three view that Youll run full out July and August and then go into some maintenance in September is there any work plan for the summer just any thoughts on the sequencing for our Utilizations.
Yes.
This is ray again, so I'll take that question, John Yes, Youre right, we ran at one.
100% utilization in <unk> and then in the third quarter.
You're guiding to 94% utilization and if you look at our turnaround number.
For $100 million, that's because we have more turnaround plus catalysts work.
That will be doing in the screen month period.
The thing I'd like to highlight though is.
One of the reasons, we ran 100% and <unk> is we really wanted to meet market demand and so we challenged ourselves to what we could do in that regard and just just one example, we had one unit at one of our plants were.
Hydro cracker, we could squeeze a little bit more life out of the catalysts and so we made a conscious decision to run through that in <unk> and do pick that work up in <unk>.
So we made those decisions it looks like they are the right thing to do but.
We do have a little bit more work coming up in the third quarter.
Yeah.
Thank you.
Thank you.
Our next question will come from Connor Lynagh with Morgan Stanley . Your line is open.
Yes. Thank you.
Good.
Two on capital allocation here. The first is a bit of a housekeeping question on the buyback just just so we're understanding this cadence that you're.
Youre buying back stock in the second quarter here is the way to think about this that youre going to continue that until the end of the initial $15 billion and youll revisit from there how should we think about the timing and pacing of the $5 billion buyback.
Hey, Conor it's maryann. Thanks for the question. So I think you captured it right as we said.
<unk> committed to completing that 15 billion no later than this year at the end of this year excuse me and you can see by the pace that we have been executing that clearly in the quarter.
Well three three in the quarter for one since the last time, we met on the earnings call.
We remain committed and on track to deliver that as we talk about the additional $5 billion authorization that we just received I would say it. This way you Shouldnt expect that we will have that incremental share repurchase authorization complete by the end of this year. So 15 billion again <unk>.
Pain firmly committed to that as we talked about the next round of $5 billion, we will evaluate market conditions and other opportunities that we have but I wouldn't assume that will be done with that $5 billion. This year.
Okay understood.
Second is a bit more high level, but.
You would like to think about investing in the business in terms of.
Banks of the river upside.
Upside downside I guess has there been any change in what you think of the upside in the business based on the events that have been ongoing in the refining industry over the past three to six months is there anything that you might not have considered to be.
A valuable project I'm thinking there might be some other projects like the star project.
That might not have competed for capital before but are starting to look more interesting.
Conor it's Mike.
I think what Youre asking is do we have a more constructive view on mid cycle.
I think the answer to that is yes, as Rick stated before right now we're in a pretty constructive environment.
Inventories are low demand hasnt gotten back to levels before COVID-19. So we're still recovering in that regard. So it is a pretty constructive environment.
But as far as to your question of does it does it change our view I mean, I think you said it well we do have banks of the river, regardless of whether mid cycle as we always look at the downside case and an upside case.
At the end of the day, our upside case as aggressive in our downside cases aggressive. So we can really get those banks of the river.
I think our mode and it was mentioned earlier in the call is we are a believer in capital discipline, we do want to invest in the business, but we want to be really strict about where we do that and again I keep saying, it's a balance between return on capital when we have good opportunities and return of capital and we've been trying to do a better job in both areas.
So I don't think our bigger picture has changed I mean, what youre hearing out of US a lot today is.
Second quarter showed what we were supposed to do is run reliably.
He and his team did a terrific job in that regard.
That's what you're supposed to do and the margins are where they are because we don't control that side and then Rick and his team and Brian and his team look at how do we maximize feedstock profitability and how do we maximize product placement profitability in.
Very proud of the team for what they did in the second quarter because it did show some of the discipline, we have been trying to achieve because we don't control the margin environment, but we do control how reliably we run we do control our cost and we do control how we set ourselves of commercially so.
Very proud of the team to accomplish what I think it was a pretty good second quarter.
I appreciate the color I'll turn it back.
Thank you.
Thank you. Our next question will come from Theresa Chen with Barclays. Your line is open.
Hi, there. Thank you for taking my questions and first I'd like to start off by.
And some of the comments made about cost inflation and also your continued reiteration of being laser focused on cost controls as we think about second half of the year and 2023 Capex expenses et cetera can you provide some incremental color on how exactly youre managing this.
Process, especially in light of tough really increasing across the board.
NRG labor materials et cetera.
As a result start and then I'll, let ray jumped in here.
Definitely seen.
Impacts of inflation, whether it's materials or anything else along those lines.
It's a reality to us and obviously everybody can also see the cost of natural gas and where it stands and Mary gave sensitivities during the prepared remarks about where they are so those are all important things that again I'd put them in the bucket of we don't control that.
Inflation is a big global picture, but.
What I ask Ray and his team to do is to really focus on areas, we do control and.
And try to offset some of these natural higher cost.
Things that we don't control coming at us.
At the end of the day I mean, you gave a good example of ways that we can do things differently. We can manage our turnaround scheduled differently than we've done in the past we can look at the costs that we're spending in each of those areas differently.
It's kind of interesting for those who know me.
Spend a lot of time on the downside and we've had a pretty upside quarter that we've been talking about.
But I think it's good discipline for us to have that.
Reliability mode to have a good commercial motives as Rick said, China.
Improve ourselves commercially all the time and then to your 0.3. So when inflation comes at you hopefully you said a lot of groundwork in your thinking as to how to be disciplined to attack that and rather rather than just complain about it happening because it's going to happen and it's going to happen later times, because it's a cyclical business.
But ray and his team have done a very nice job.
I'm very proud of where the cost structure of the company has come in the last couple of years and now I will turn it over to him if he wants to add additional color yes.
Not much more to add based on what Mike said, we don't control gas prices labor labor cost.
We don't necessarily control that the one thing I will elaborate a little bit on is material cost when we look at a lot of the work that we have coming up in the near future, whether it's Martinez whether its work at Gary Bell, whether its Galveston Bay Star.
Most of the large equipment purchase material purchases already on site. So we've got that.
We're able to check that off from a cost standpoint, and the reliability of materials supply standpoint. So.
We'll monitor the situations, whether it's a labor gas and adjust accordingly, but.
The fundamental premise that we're always looking to be low cost operator, we'll continue to strive for that.
Thank you.
As a follow up to your comments about.
Chinas project just.
On the heels of the.
Hum public workshop really.
When really scrutinizing, our crop spaced in stocks in general what is your view on that as it potentially may impact your assets and feedstock procurement plant.
If it does.
Hi.
Just one question for <unk>.
Clarification are you referring to the L. CFS.
Plan Okay.
Shaking our head yes.
Essentially what that is we see that as a potential benefit right now where.
If we if we step back a year ago, we kind of looked at I'll CFS is a $200 a ton.
<unk>.
Level and most recently, we've been in the $90 a ton, but with carbs recent announcement.
And I'll say the stage support for a re scoping plan.
Their desire is to increase the ghd reduction in the state which at.
The bottom line well.
Put more pressure on.
People to generate credits in the state. So we see that as a potential tailwind from where we are right now so what I said to an earlier question, though is there's a lot of moving parts in the renewable diesel economics between rens and L. CFS in BTC and feedstock costs and all of them.
That.
And we don't necessarily control them, but we balanced between them and we feel pretty good right now definitely how how our debt consent economics are working and we feel real good going into the <unk> project in total.
Thank you.
Thank you. Our next question will come from Paul Cheng with Scotiabank. Your line is open.
Thank you hi, good morning, guys.
Yes.
Oh my.
Since you took over as CEO .
I think over the past two and a half years the permanent Ben.
<unk> dramatic improvement.
The efficiency and everything had been pool pump.
Then Paul.
Shifting you and you have this system in peso.
MPC consider or maybe.
And so as a potential consolidator at the refinery.
Refining industry, we still have quite a threat.
Fragmented market.
Given your strong execution and the platform that you haven't been pace.
The first question.
The second question is that.
Third quarter ton of lung CT is high so that would suggest that 2022.
The total turnaround cost things like that is going to be much above.
The historical assay.
So is that causing any different.
<unk> by the catch up spending from 2020 in 'twenty, one or that is just purely from the timing of the cycle and should we assume 2023 with Glenn Beck.
Back down to a more normal level. Thank you.
No Paul first of all thank you for the compliments, it's really been a team effort over the last couple of years. So I appreciate your comment there.
As far as a consolidator in refining again, I never say never but we have enough from a refining footprint in my mind to be effective at the end of the day. We are believers that we're going to see these good times and bad times and refining and as I said previously my own monitors I want us to be a good performer in the down cycle and if we.
Can do that then I know, we're going to have the discipline to be a good performer in the up cycle. So we're concentrating on how we run the business regardless of where the margin environment. As you heard ray on costs you heard Rick on commercial initiatives. So I think we're in a good spot there and I think we have enough.
Exposure.
I never say never but.
The chances of us increasing our footprint in refining is not high.
Instead.
I am a big believer in returning capital as we've been doing but I'm also constantly looking for opportunities for us and the word I used a lot more as adjacencies I like to look for things that are close to our business that can make us more competitive one of my three months.
The assets, we have today and make them more competitive and sometimes that has to do with adjacency build out Dave and his team are trying to increase the profitability yet at Dickinson as an example, and Ray mentioned and our feedstock flexibility there has gotten way better.
We have a JV that's coming on is going to help us there we've done some other things too.
Our feedstock flexibility. So so that's probably where I spend more time thinking about how to create value then thinking about an overall consolidation so.
I hope that answers the first one I'm going to let ray take the take the second one yes.
Yes, Paul regarding turnaround.
And your comment that the third quarter is high.
The caveat in there again that the 2022 is back half weighted so we ran extremely the run rate for the first half was much lower than run rate for the second half, but if we go back a couple of years and look at 2020 in 2021, those were lower years from a turnaround standpoint, and yes when.
We were in the pandemic.
Some of the issues, we had with wanting to minimize.
People in our facilities, we did look to.
Lower turnaround work so some of the work that we're doing not all of it but some of the work is deferred from that period of time.
One thing I will tell you that our team really looks at and this is looking at this with in conjunction with break in Brian's team from the commercial standpoint is we really want to we wanted to do turnarounds at the <unk>.
Want to maximize our catalyst cycles, we want to maximize our turnaround cycles and we also want to try to level to spending as much as possible. So when we look at 22 and 'twenty three 'twenty four we're looking at at optimizing that and trying to level that.
Much of our capabilities across the period of time, So answer your question a little bit of deferral from 2021.
And a little bit of back half weighted in the second half of 'twenty two versus the first half of 'twenty two.
Thank you Ray.
As a follow up I mean should we assume in 2023 I thought we were going to be.
<unk> will be lower than that.
And 2022 activity level on the tower.
Hey, Paul It's Marianne we're a little early as you know, we typically will give you a quarter by quarter view of how we see turnaround expenses. So we're a bit early to give you a 2023 guidance.
Not ready to call that just yet if that's okay.
Okay. Thank you.
Thanks, Paul.
And our last question will come from Jason <unk> with Cowen Your line is open.
Yeah, Hey, thanks for taking my questions.
So you sound pretty constructive on the demand side of things, particularly gasoline, but we've seen.
Correct.
Over the futures curve come down quite a bit over the past months.
Do you think that aligns with what Youre seeing on the ground or do you think this move is.
Too far too fast cracks I think over the next year for gasoline are back below where they were prior to the Russia Ukraine War.
And then I have a follow up thanks.
Hey, Jason It's Rick it's really a great question, because youre right. We have seen a lot of volatility on cracks here. The last two to four weeks, specifically and we expect it to continue I will say fundamentally if you look at where inventories are across the.
The energy sector, they're either at or below five year averages.
We're getting good demand signals from the consumer.
And we're seeing really.
Solid feedstock differentials, we're seeing a Brent Ti that's 7% to $10. We're seeing backwardation that is only plus or minus a buck. So I would tell you from a macro perspective.
I think there is upside from here, but I'll pause there and be careful because.
It's a very volatile market oftentimes markets go too high and then the correct and go too low I believe.
I believe there is some optimism going forward from a macro perspective really because of those key factors that I just laid out for you.
Understood.
Helpful. Thanks, and then my second question just on the distribution update on last earnings call. You were kind of discussed that you would provide some sort of distribution framework update in the near future.
And it doesn't seem like we've gone to that on this call. So.
Curious.
If this is kind of in line with what Youre envisioning, providing at this time, if something change between that last call and this call are.
Just a misunderstanding on our end.
Hey, Jason It's Marianne look Youre right I think one of the things that we said was when we finished our $15 billion share repurchase we would come back to you with a bit more detail. So I think we've been consistent in that and hopefully you see that as well.
As a part of that we said we would reassess the dividend at that particular time, we're hopeful that you see the pace at which we are moving to complete that 15 billion as consistent with that communication. So.
Nothing has changed from our view.
Again committed to the $15 billion committed to a reassessment of the dividend at that particular time and hopefully the pace gives you. Some good indication of where that would be I hope that addresses that Jason.
Yes, thanks, and congrats on the quarter.
Thank you.
Alright, Sheila will if there are no other questions. Thank you for your interest in Marathon Petroleum Corporation. If you have additional questions or want clarification on topics discussed on the call. This morning. Please reach out anytime the members of our Investor Relations team will be here to help thank you for joining us.
Thank you that does conclude today's conference. Thank you again for your participation you may disconnect at this time.