Q1 2023 Marathon Petroleum Corp Earnings Call

Speaker 1: Thanks for watching!

Speaker 1: We.

Speaker 2: Welcome to the MPC first quarter 2023 earnings call. My name is Sheila and I will be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Press star 1 on your touch tone phone to enter the queue. Please note that this conference is being recorded.

Speaker 2: I will now turn the call over to Christina Kazarian. Christina, you may begin.

Speaker 3: Welcome to Marathon Petroleum Corporation's first quarter 2023 earnings conference call. The slides that accompany this call can be found on our website at marathon petroleum.com under the investor tab. Joining me on the call today are Mike Hennigan, CEO , Mary Ann Mannen, CFO , and other members of the executive team.

Speaker 3: 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. And with that, I'll turn it over to Mike. Thanks, Christina. Good morning, everyone. Let me first share our view on the macro environment. In the first quarter, volatility in the global energy market remained high, driven by uncertainties around the potential for recession, the pace of China's economic recovery, and the impact of sanctions on Russian products.

Speaker 3: At the same time, supply remains tight, supported by nearly 4 million barrels per day of global refining capacity that has come offline in the last couple of years.

Speaker 3: Global demand continues to grow as the need for affordable, reliable energy increases throughout the world.

Speaker 3: IEA is projecting 2 million barrels a day increase in 2023.

Speaker 3: Since last quarter, distal cracks have come down, gasoline cracks have improved, as expected given the onset of the summer driving season.

Speaker 3: So overall, we believe supply constraints and growing demand will support strong refining margins throughout 2023.

Speaker 3: Cracks have decreased from 2022 levels, but are still above historic mid-cycle levels.

Speaker 3: In alignment with what we said last quarter, we remain bullish into the driving season and gasoline strength is expected to improve the diesel situation while jet demand continues to improve. As we continue throughout the year, much will depend on the ongoing recovery in China and the extent, if any, of recessionary impacts.

Speaker 3: as we invest in our global commercial strategy and our cost advantage refining system is well positioned to supply growing markets. This quarter despite significant planned turnaround work at several key facilities in particular in our Gulf Coast region at Galveston Bay in Garyville.

Speaker 3: we delivered the strongest first quarter results in the company's history. Planned maintenance activities reduced refinery throughput by 11 million barrels compared with the fourth quarter.

Speaker 3: adjusted EBITDA of nearly $4 billion or $15.09 per barrel.

Speaker 3: MPLX remains a strategic part of MPC's portfolio as it continues to grow its cash flows and capital returns. Our midstream segment delivers durable and growing earnings. This quarter, it generated adjusted EBITDA of $1.5 billion, which is up 9% year over year. MPLX distribution to MPC was roughly $500 million this quarter and an annualized rate of over $2 billion.

Speaker 3: which fully covers MPC's dividend, as well as half of our planned 2023 capital program.

Speaker 3: During the first quarter, we advanced value creating projects.

Speaker 3: At Galveston Bay, we completed the STAR project.

Speaker 3: Rather than expand the GBR Cokers, we elected to upgrade the Resid Hydrocracker Unit as it offers better conversion and increased liquid volume yield. Fractionation modifications offer increased diesel recovery and the refinery will be able to process significantly more discounted heavy crude.

Speaker 3: Overall, Star is expected to add 40,000 barrels per day of incremental crude capacity and 17,000 barrels a day of rigid processing capacity.

Speaker 3: Startup activities are progressing and we expect Star to ramp through the second quarter of 2023. The incremental profitability from this project will primarily be determined by the spread between heavy crude and untreated diesel over the incremental 40,000 barrels a day of crude capacity.

Speaker 3: At the Martinez Renewable Fuels Facility, we reached full Phase I production capacity of 260 million gallons per year of renewable fuels, ramping to design rates and yields as planned.

Speaker 3: Phase 2 construction activities are on schedule. Pre-treatment capabilities are expected to come online in the second half of 2023, which will enable the facility to ramp to its full expected capacity of 730 million gallons per year by the end of 2023.

Speaker 3: Martinez will be among the largest renewable diesel facilities in the world, underpinned by a competitive operating and capital cost profile, robust inbound and outbound logistics flexibility, an advantaged feedstock slate, and our strategic relationship with Nest Day.

Speaker 3: In the first quarter, we returned over $3.5 billion to MPC shareholders via dividends and share repurchases.

Speaker 3: today we announced an additional five billion dollar share repurchase authorization reinforcing our commitment to strong capital returns

Speaker 3: Let me share some of the progress on our low carbon initiatives.

Speaker 3: The Martinez and Dickinson facilities are competitively advantaged.

Speaker 3: They're supported by upstream value creation integration with our Beatrice and Cincinnati pre-treatment plants and downstream integration with our vast marketing footprint.

Speaker 3: The strategic partnerships we're cultivating with Neste, ADM, and the Anderson's creates platforms for additional collaboration within renewables.

Speaker 3: This quarter we made an investment in an emerging producer of dairy, farm-based renewable natural gas, providing the ability to participate in early stage development at an attractive entry point.

Speaker 3: Our vibrant subsidiaries progressing a commercially feasible assessment for converting bio-based feedstocks into gasoline and sustainable aviation fuel.

Speaker 3: We believe through these projects and opportunities, we are taking steps to advance our goal to lower the carbon intensity of our operations and the products we manufacture and supply to a growing market.

Speaker 3: At this point, I'd like to turn the call over to Mary Ann.

Speaker 3: Thanks, Mike. Moving to first quarter results, slide five provides a summary of our financial results.

Speaker 3: This morning we reported earnings per share of $6.09. Adjusted EBITDA was $5.2 billion for the quarter. And cash flow from operations, excluding unfavorable working capital changes, was nearly $4.2 billion. During the quarter, the EBITDA was $5.2 billion.

Speaker 4: We returned $337 million to shareholders through dividend payments and repurchased nearly $3.2 billion of our shares.

Speaker 4: Slide 6 shows the reconciliation between net income and adjusted EBITDA, as well as the sequential change in adjusted EBITDA from fourth quarter 2022 to first quarter 2023.

Speaker 4: adjusted Ibadah was lower sequentially by approximately 600 million dollars.

Speaker 4: Corporate expenses were roughly in line with our guidance, and despite general inflationary pressures, we have maintained cost discipline since taking $100 million out of corporate costs since 2020. The tax rate for the first quarter was 21%, resulting in a tax provision of approximately $800 million. Moving to our segment results, slide seven provides an overview of our refining and marketing segment. Like many in the industry, several of our refineries were impacted by winter storm Elliott at the end of December . These impacts carried into the first quarter.

Speaker 4: reducing our crude throughput by 3 million barrels. Winter storm Elliot and higher planned maintenance in the Gulf Coast region reduced overall refining utilization, which was down 5% to 89%. Sequentially, per barrel margins were lower in all regions.

Speaker 4: compared with the fourth quarter.

Speaker 4: Capture was 98%, reflecting a strong result from our commercial team, particularly given the extensive turnaround activity this quarter.

Speaker 4: although we experienced higher natural gas prices in the West Coast. We expect operating costs per barrel to be lower in the second quarter as reflected in our guidance. Slide 8 provides an overview of our refining and marketing margin capture this quarter, which was 98%. Our commercial teams executed effectively in a volatile market environment. Light product margin tailwinds were balanced against impacts associated with inventory builds and planned maintenance activity.

Speaker 4: Capture results will fluctuate based on market dynamics. Still, we believe through our commercial efforts, our capture baseline has moved closer to 100%. As our strategic pillar indicates, we have been committed to improving our commercial performance and believe that the capabilities we have built over the last 18 months will provide a sustainable advantage.

Speaker 4: We have meaningfully changed the way we go to market from a commercial perspective throughout our entire company. We believe these capabilities will provide incremental value beyond what we have realized to date.

Speaker 4: Slide nine shows the change in our midstream adjusted IBITDA versus the fourth quarter of 2022.

Speaker 4: Our midstream segment delivered resilient first quarter results. Adjusted EBITDA was 9% higher year over year reflecting business growth.

Speaker 4: Our midstream business continues to grow and generate strong cash flows. We are advancing our capital plan with projects anchored in the Marcellus, Permian, and Bakken Basins. These disciplined investments in high return projects along with our focus on cost and portfolio optimization are expected to grow our cash flows.

Speaker 4: This will allow us to reinvest in the business and return capital to unit holders. This quarter MPLX distributions contributed $502 million in cash flow to MPC. MPLX remains a source of durable earnings in the MPC portfolio.

Speaker 4: and is a differentiator for us compared to peers without mainstream businesses. Slide 10 presents the elements of change in our consolidated cash position for the first quarter. Operating cash flow, excluding changes in working capital, was nearly $4.2 billion in the quarter. Working capital was a $98 million headwind for the quarter, driven primarily by increases in crude and product inventory, offsetting benefits from a decrease in refined product receivables related to lower product sales. Capital expenditures and investments totaling $664 million.

Speaker 4: remaining under our current share repurchase authorization, which includes the additional $5 billion approval announced today. At the end of the first quarter, NPC had approximately $11.5 billion in cash and short-term investments. Turning to guidance, on slide 11, we provide our second quarter outlook.

Speaker 4: We expect crude throughput volumes of roughly 2.6 million barrels per day, representing utilization of 91%.

Speaker 4: Utilization is forecast to be higher than the first quarter levels due to planned turnaround activity having a lower impact on crewed units in the second quarter.

Speaker 4: Plan turnaround expense is projected to be approximately $400 million in the quarter, with activity primarily in the Midcon and West Coast regions.

Speaker 4: We expect turnaround activity to be front half weighted in 2023. By the end of the second quarter, we expect to spend roughly $760 million on turnaround in 2023, and anticipate the full year turnaround spend to be comparable to the level of spend in 2022.

Speaker 4: Operating costs per barrel in the second quarter are expected to be lower at $5.20, as we expect to see benefits from higher throughput and lower energy costs.

Speaker 4: As we look further into 2023, we anticipate our operating costs per barrel would decline and trend towards the more normalized level of $5 per barrel as we complete turnaround in project activity.

Speaker 4: Distribution costs are expected to be approximately $1.35 billion for the second quarter. Corporate costs are expected to be $175 million, representing the sustained reductions that we have made in this area. To recap, our first quarter results reflect our team's strong operational and commercial execution across the company.

Speaker 4: Our capital allocation framework remains consistent. We will invest in sustaining our asset base while paying a secure, competitive dividend with the potential for growth. We want to grow the company's earnings, and we will exercise strict capital discipline. Beyond these three priorities.

Speaker 4: We are committed to returning excess capital through share repurchases to meaningfully lower our share count. With that, let me pass it back to Mike.

Speaker 3: Thanks, Marianne. In summary, our results reflect the strongest first quarter in the company's history, generating $5.2 billion of adjusted EBITDA.

Speaker 3: MPLX remains the source of durable earnings in the MPC portfolio, distributing just over $500 million to MPC this quarter.

Speaker 3: And as MPLX grows its free cash flow, we believe it will have capacity to increase capital returns to MPC.

This quarter we invested $664 million. We will invest capital where we believe there are attractive returns.

We remain focused on ensuring the competitiveness of our assets as we progress through the energy evolution.

Solid execution of our three strategic pillars is foundational.

We remain steadfast in our commitment to safely operate our assets, protect the health and safety of our employees, and support the communities in which we operate.

We believe the improvements we've made to our cost structure, portfolio, and commercial and operational execution have driven sustainable structural benefits which will enable us to capture opportunities irrespective of the market environment.

We believe MPC is positioned as the refiner investment of choice with the ability to generate the most cash through cycle and delivering superior returns to our shareholders with our steadfast commitment to returning capital.

Let me turn the call back to Christina. Thanks, Mike. As we open the call for your question, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we'll reprompt for additional questions. Sheila, we're ready for them.

Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your touch tone phone. If you wish to be removed from the queue, please press star then two. If you are using a speaker phone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touch tone phone.

Our first question will come from Neil Mehta with Goldman Sachs. Your line is open. Yeah, good morning team and congrats on a great first quarter. I had a couple questions here. The first is around the West Coast. We're all watching Singapore margins right now.

continues to trade very weak. And just your perspective of, do you think the weakness in Asia is a reflection of demand? And do you see risk that that product comes to the West Coast, at which point there could be some downward pressure on pad-side margins?

Yeah. Hi, Neil. It's Rick. Really?

I think the way we look at it is we're looking at it from a global perspective. So we'll touch on the West Coast here in a moment. But when you think globally, it's a great call out to put Asia and Singapore in a bucket, but I'd also throw Europe into that bucket as well. And if we've learned anything over the last couple of years as trade flows and …

that is support for US cracks. We see it as bullish for MPC. I mean, we're hearing rumors of both regions you mentioned Singapore and Asia and Europe . We're hearing rumors of run cuts there, which we see as bullish for us, especially on the West Coast, as you know, the incremental barrel.

at times comes from Asia and if it doesn't come to the West Coast we see that as positive for margins and cracks. And then lastly I'd say our break even is structurally lower than it's been in the past and as we view Europe as the marginal player in the world we have a competitive advantage as you know on energy costs.

feedstock acquisition, complexity of our refineries, our workforce, our reliability. And then last but certainly not least, we have an incredible export, global export program on products. So we're able to clear our markets quite well.

So we believe when you add all of those up, Neil, it really gives us quite the competitive advantage, specifically in the West Coast, but I would say in pads 2, 3, and 5 where we operate. And with that, I'll ask Brian if he has any specific comments on products in the West Coast to add.

Yeah, thanks Rick and good morning Neil. Just a couple quick data points. You know, very good question. We are seeing some fundamental shifts in global trade flows as a result of economic activities and product sanctions, etc. Rick did mention the marginal barrel coming into the West Coast is...

traditionally been for many years an import coming from the Far East. So just on order of magnitude we're looking at 250,000 barrels a day to balance the system, primarily gas and jet fuel, and we expect that balance to continue to trend in terms of favoring more imports as we go forward as more...

facilities are converted to RD on the West Coast. Other data point I think that's relevant in terms of penetrating the West Coast market from the Far East is also the tanker rates and availability of the foreign fleet. Current rates out of South Korea into the West Coast are about eight bucks a barrel. That's about 2x of what historically we've seen in the market. And the other two components that make it a little bit tricky to push incremental barrels into the West Coast are, of course, in California to meet the car bobs.

Is there a consideration here though, given the degree of economic uncertainty that might be out there about

The downside resilience through strengthening the balance sheet as we've seen in the past, you know, companies have gotten themselves in trouble by buying back stock towards the top of the cycle. And guys have generally been counter-cyclical in your buyback approach.

Hey, Neil, thanks for the question. It's Mary Ann. So, you know, look, first of all, as you know, we've got a little over $11.5 billion of cash sitting on the MPC balance sheet. And you've heard from the team and Mike this morning, you know, our views on the balance of the year. We do take into consideration each time we make our decisions on what the share repurchase will look like.

of time so we have the ability to evaluate all of those things as you just outlined for us. Thank you guys.

Our next question will come from Doug Leggett with Bank of America. Your line is open. Good morning, guys. This is actually for Doug. Thank you for getting me on. My first question is on the macro and how you are positioned for the second quarter. Your peers are seeing really solid demand numbers and your opening commentary was quite constructive.

weigh in on that. So first and foremost is we look across, um, you know, an outlook for demand. We, we really look comprehensively at our entire book of business from a marketing standpoint. So it's including our wholesale class of trade or direct dealer, our branded job, or our national accounts. So we really think that that's more reflective of the market as a whole.

And let me give you some color on the quarter. So I'll give you some numbers in terms of what Q1 looked like relative to Q1 of 2022. So on the gasoline front, our book of business is just described was up 4.7%. The EIA call on demand on Q1 was about 1.7%. On the West Coast, despite some historically heavy rainfall and flood events, we were at

Northeast.

On the West Coast, often asked in terms of distillate, we were actually up 1.4% year-on-year again despite those weather events. And then on the jet fuel side of the business, we saw a 6% rise in demand on the corridor, which comes to about 5% from the EIA perspective. And we expect to see jet to continue to grow on the trend that it's been on really over the last two years.

to reach pre-pandemic levels late this year into early 2024. A couple other really important data points as we look forward on demand, I think it's important to mention that if we look at gasoline, you know, last year around this time of year we were about four dollars and twenty cents per gallon at retail. We're currently around 361, so about 15 percent below prior year.

Now, as it relates to some of the sluggishness in demand in the first quarter on the distillate side of the book, as we look domestically, certainly inflation is creating some degree of drag on demand. We're seeing that really pretty consistently across the US on a nominal basis coming off a pretty high clip over the last year or so. But it goes without saying, with the inflationary pressures.

do expect to see some demand curtailments and we do see that manifesting but it's not something that is a bright red light for us right now it's something that we're watching closely as we trend into the ag season here in the mid-con we're seeing early signs of you know recovery of demand as we go into the second quarter and have optimism as we roll through the balance of the year

The last thing I would say is, you know, as we look forward and we've seen a shift away from a demand perspective favoring diesel to gasoline, we do think that that sets up well for our commercial capabilities as we look to do more inter and interregional optimization as we come away from a strong, strong distillate lead over the last year and a half or so.

visibility provided by the $5 billion expansion today. But I want to ask about the ordinary dividend.

In our view, refining is not contributing to that dividend today, as it's more than covered by the distributions from MPLX. So, as you close out spending on the STAR project and consider what we think is a reset in the mid-cycle, it looks like the dividend has a lot of capacity to increase here. How are you thinking about that piece of your value proposition?

Thanks for the question. So, you know, as it relates to the dividend, we continue to be committed to the secure, competitive and as we've said, you know, potentially growing dividend. We've committed to evaluate that dividend at least annually and we intend to do so in a very similar schedule as we did in 2022.

You know, it is part of the capital allocation framework, as we've shared, and we will evaluate that, you know, in a similar time frame as we did in 2022. I just want to add to that. Thanks for noticing that, you know, one of the things that we think is unique in our value proposition is that we do feel like aenny positioning is a hard task, and in fact whenucht that you cannot

is the two plus billion dollars that we're getting from MPLX. And if you listen to the call earlier, MPLX had a very strong quarter. We continue to grow the cash flows at MPLX.

you know, we'll have a similar distribution increase discussion later in the year, but I think it's pretty important to understand that, you know, two plus billion dollars coming in, as you mentioned and I mentioned in prepared remarks, covers the dividend and a good portion of the capital. So I think it's a...

Pretty important point as to the way we think about all the cash flows within the portfolio. So thanks for pointing that out and it does come into our thinking as we advance both dividend and repurchase activity.

I appreciate the comments, guys. Thank you. You're welcome. Our next question will come from Manav Gupta with UBS.

I quickly just wanted to focus a little bit on the Galveston-based Star project. I think it's not as well understood. And if you could help us understand how to model it a little more accurately, I mean 40,000 barrels increase, we can model more accurately.

but how does a 17,000 barrel resist processing capacity, what are the spreads we should watch for that so we can give you full credit for this project because I honestly don't think you're getting too much credit for this project and your numbers. Mike, if it's Mike, I'll start, and then I'll let Tim add some color.

As far as modeling, the way to think about the incremental change at the plant now is we'll be able to run 40,000 barrels a day of more heavy crude with the additional processing capability. So the way to model it is 40,000 times the delta between heavy crude and untreated or unfinished distillates.

That's exactly what Star is doing and then we can add in commercial changes to that, etc. But as far as the modeling, it's that delta for whatever margin you think. And today, I will say right today, that's running about $15 to give you a point in time. Multiply it by the $40,000 and wherever you project margins into the future. Tim can give a little bit more color on where we stand on the project.

indeed, you know, finished up during the mechanical completion during the first quarter turnaround. And then we've been in startup during April . So that's, that's all looking, looking good from that standpoint. I think the other thing that I would say is that we ended up, you know, expanding the

the RUE, the Resid Hydrocracker, instead of the GBR Cokers. And that's really because of the better conversion and the liquid volume expansion that you get with the addition of the hydrogen. So that can maybe be explained a little bit. If you look at a comparison between a Coker and the RUE unit, if you put 100 barrels of liquid into the Coker, you get about 80 barrels of liquid out and the rest is coke.

that's lower valued. If you put that same hundred in the RUE unit, you get 107 barrels of liquids out. So obviously that 27 barrels is about 34 percent increase in liquids which are higher valued. So that's why we made that decision. I would also point out that

GBR is unique in that it's got the only operating Resid Hydro Tracker unit in the U.S. So that's what made that beneficial. And we had a pretty capital-efficient project there to make the modifications to the ROO as opposed to starting with another Greenfield Coker. So hopefully that's helpful. That is very helpful. My follow-up quickly here is your first phase of Martinus is...

already on. Looks like a very smooth start compared to some of the other projects which are facing problems. Now obviously at some point pre-treat comes on and then the second phase. So if you could just walk us through when everything starts up and then there is one small request is that when everything starts up you probably are one of the bigger producers of renewable diesel. So at some point if you could break those earnings out for us then we would be able to break them.

The facility did ramp up to the design rates as planned and as scheduled. We're happy to report that the remaining construction activities at Martinez are on schedule. Regarding the pretreatment unit, that's scheduled to come online in the second half of 2023. And then by the end of the year, we're looking to have the full rate.

a renewable segment. You know as we've shared before for 2023 we we won't have a renewable segment but we recognize the question we recognize the importance of our renewables and commitment to you know low carbon strategies and we'll continue to evaluate that.

and make a proper determination as these projects come full online as to when we'll do that. Thank you so much for your help.

determination as these projects come full online as to when we'll do that. Thank you so much for your help. Our next question comes from Paul.

with Scotiabank. Your line is open. Hey, guys. Good morning. Can I just go back into the Garrison's Day? Can you talk about wanting more happy oil? Does it in any shape or form change your product plate?

And also that, what is the OpEx associated with running that additional process?

that what is the op-ex associated with running that additional offset or that expanded offset.

Yeah, Paul, I think you hit it on the head. It just gives us more ability to run heavy crudes. So that's at the front end, and the incremental coming out the back end is distillate. You know, the project itself coming out of the Resid hydro-treater, it's unfinished distillate, but that's why I was trying to answer Manav's question of how to model it.

The easiest way to think about it is heavy crude to unfinished distillate. That's the crack spread of the incremental change. So we should assume that the entire 40,000, because that you have a monometric expansion, so that your fuel could be up, say, 43,000-baric good day. Is that all and that would be additional or 70%?

No, no, it's the 40 Monov. I'm sorry, Paul. I'm saying, just like I answered to Monov is, it's 40,000 barrels a day of crude that comes into the plant, heavy crude. What comes out of the plant is untreated distillate.

I see. Okay, so the entire membrane will be treated distillate. And how about the OpEx associated with that unit? Is that incremental cost? We haven't given that specific unit itself specifics.

Okay. The second question is quite simple. Marianne, in your presentation, you indicate that first quarter results were being heard by the Can you quantify and also say where that unhearable inventory impact

in the quarter was 98%. There were a couple of key factors that actually impacted our performance. One of those, as I mentioned, was planned turnarounds. Obviously, that impacted throughput. Galveston Bay, and as you know, we took Galveston Bay. We took that opportunity to...

complete star as well. And there was also turn around in the mid con as well. The second driver was inventory impacts and you may remember from the fourth quarter we actually had a tailwind. We built some inventory in the quarter. We wouldn't expect necessarily that inventory to impact.

Actually, our guidance for Q2 at roughly $400 million is above the first quarter actual turnaround expense. This will be for us four quarters of heavy turnaround, somewhat unprecedented. We made what we think were some good decisions in early 2022.

would see benefit as we look at the turnaround expense there. So I'll pause there and see if maybe Rick and or Brian want to add any incremental color with respect to the performance in the quarter. And, Marianne, I just want to clarify that. So the...

first quarter statement saying that it's a negative inventory, unfavorable inventory impact. That is the absence of the fourth quarter benefit or that is actually the negative inventory impact in the first quarter. No, Paul, sorry about that. It is actually a negative impact.

And can you tell us which region that the majority of inventory builds happen, or it's just across all regions? Yeah, we had inventory builds across all regions, Paul. OK, we do. Thank you.

You're welcomeour next question will come from San klan, with wolfree.

You're welcome. Our next question will come from Sam Markolin with Wolf Research. Your line is open.

Hi, good morning everybody. Thanks for taking the question.

This one's on diesel. It connects to some of your comments earlier about the heating impact and...

you know, maybe some timing related factors in the market. But, you know, there was an expectation that as jet fuel recovered, that it would benefit the diesel market because there was some over blending of jet components into diesel and, you know, we ran into sort of tough demand comps around both price and weather. And so, you know, maybe that benefit didn't necessarily filter through, but I was wondering if since you're so...

You guys are pretty indexed heavily to the jet market. You probably see things that other operators don't. If you think that that benefit is maybe coming just a little bit on a lag, particularly given some of your comments around demand on the jet side, which seems to be performing as expected. Thanks. Yeah, Sam, this is Brian . Yeah, very good.

Very good question, very on point. You know, I think the question here and the paradox is demand looks fairly decent as you look across the distillate barrel, but we've seen this sell off here over the last several weeks. So there there in lies the question. And, you know, our view is it's a little bit overdone. But I think the read through is not on the macro fundamentals of supply and demand. But the one element that we think.

overreached into the distillate market and the outlook was the Russian sanctions. So we've all been anticipating the sanctions that went into place earlier this year and the associated impacts were uncertain. And as you know the market doesn't process uncertainty very well and I think the market had a more

bearish view, if you will, of those sanctions and the implications in terms of slowing flows into the global market. And what we've seen is those flows have continued, albeit at a pretty significant discount. They have continued. So I think the overreach or the overarching sentiment around distillate and valuation is not on supply and demand, but with a little bit more clarity around the impact or lack of impact, if you will.

on the Russian sanctions on global distillate flows. Okay, yeah that makes sense. We saw the same thing in crude I guess. Oh sorry, go ahead. I was just going to add, Sam, we still are constructive on jet recovery as well to your point. You know it's been slowly you know moving in the right direction. We think that's going to continue to advance throughout and if gasoline is as strong as we think it's going to be, I mean inventories are still pretty low gasoline compared to last year.

more than covers the MPC dividend. But what's interesting now is that your interest income on your cash balance covers like half of the MPC dividend or almost. And there's a matter of uncertainty in the economic environment, but then there's also sort of what's going on with rates and the optimal capital structure around that. So I'm just wondering if maybe there's a change to kind of the mid cycle.

cash balance that I think was 1.5 billion dollars that you were targeting. Thanks.

Yeah, I'm going to start and turn it over to Mary and thanks for pointing that out as well, Sam. One of the things I know all the analysts want to hear, what are we going to do over the next 12 months or so? And what we've been trying to say is it's much more of a dynamic discussion. Obviously, having north of $11 billion on the balance sheet is an important part of what we're doing.

And at the end of the day, you said it very well. We're generating a decent amount of earnings off of that compared to where we were just a short time ago. So overall, I think the message that everybody should take away is we're not projecting out 12 months as to what we're going to do there because we think it's a real-time discussion. We are committed, as everybody has seen our DNA, we're committed to returning capital....

from the board, so we're committed to returning capital. I think you've seen us be very strict in our discipline on investing capital. We'll continue to do that. And our thought is, over the long term, that gives us the ability to increase value for shareholders. I think Mike's covered it well. You know, we talked about, you know, this period of time where weisationally was carbon carbon PET p especially

You can see over the last several quarters the impact of the benefit of interest income on those cash balances as well, Sam. So, I hope we've covered your question well.

Yes, thank you so much. Have a great day. You're welcome. Our next question will come from Jason Gableman with TD Cohen. Your line is open. Good morning. Thanks for taking my questions. I wanted to first ask on the light heavy spreads. They've come in quite a bit.

Uh, it looks like Brent Maya is now below $12. Um, can you just talk about what you're seeing in the market, why that tightening is occurring and, and if we're resetting back to maybe something that's a more typical light, heavy spread versus where we've been, uh, you know, the past six months or so.

Hi Jason, it's Rick. So actually we believe the market's been overdone, which is often the case in markets. You know, when you look at Q4, one could say it was overdone to the positive for us. Right now we're looking and saying it's overdone to the negative. And a lot of things are yet to play out. And what I mean by that is when you look at the OPEC Plus, you know, the

announced cuts, what will they really cut? History says they announce something and then often do less. So we'll watch that play out throughout, you know, throughout the global flows. But in addition to that, I think a dynamic that we've seen change and we actually view as a positive for us in some instances.

is barrels are staying closer to home. So what do I mean by that? When you look at Gulf of Mexico production, you look at BP's Mad Dog 2, look at Shell's VTOL platforms that just came online, that's incremental production right in our backyard in the Gulf Coast. We have a really close pulse on Canadian production.

I don't think it's as bad as it is today. Where it will go, that's a tough call. We just don't feel it is as depressed of an environment from a sweet sour spread as what you're seeing today. And then lastly, I'll state, you know, we were a big buyer of SPR barrels. Those barrels will just be coming into our system. That data is public. So when you add up all of the pluses and minuses, we actually feel a little more optimistic today going forward.

You counter parties, you purchase, or you bought into the small RNG business. And then I guess the other thing is you have exposure to natural gas sourcing via MPLX. So I was just hoping you could discuss maybe broadly how you see this business evolving.

over the next few years, how big it could get, what the areas of growth you're focused on, particularly in light of the Inflation Reduction Act. Thanks.

So I'll start. We're very enthusiastic that there could be some opportunities, albeit we think it's going to take a considerable amount of time for those to develop. You know, we guided at the last quarter that we would spend about $350 million roughly in our low carbon portfolio.

As you heard in our prepared remarks, we have some things going on in a couple different areas. I think at the end of the day, that's why I keep using the word evolution rather than transition. It's going to evolve over a long period of time. It's going to be something that we think will be additive to our base business.

But it'll take a while for it to be meaningfully different than the strong refining and natural gas footprint that we have. But we're trying to be attentive to it. I mean, we understand how the pendulum is going to move in that direction. We think the pace will be slower than other people think in general.

But at the same time, we do think there's some opportunities for us. You know, as we mentioned, you know, we've made a small investment in renewable natural gas, which if that continues to be what we think it could be, we'll continue to, you know, put capital to work there. We went in at an early entry point. We thought that was important for us. And then we'll see if we can grow out that business as well.

That's just one example. So we're attentive to it. You know, Dave's team, you know, has a lot of resource looking for opportunities for us, and as we see them, we'll continue to update you. Got it. Thanks. Sheila, I think we're ready for the next question.

to it. Dave's team has a lot of resource looking for opportunities for us. And as we see them, we'll continue to update you. Got it. Thanks. Sheila, I think we're ready for the next question. Thank you. Our next question...

Your line is open. Thanks. Good morning. I'd like to come back to the commentary on the gasoline markets, just kind of maybe dig in a little deeper where you see the bigger issues, be it gasoline supply itself, whether it's...

components and then as we think, you know, across the five pads, you know, the stress is not evenly distributed, right? I mean, pad three doesn't look all that bad on its own, but pads one, two and five all show kind of different issues. So between the regional things you're looking at, you know, the underlying demand trends and then anywhere else there's a...

you know, octane components or something else, you know, can you walk us through where you think the biggest challenges will be for supply. Yeah, Roger, good morning. This is Brian . So I'll give you a little bit more color on kind of our views. And I think you're fairly rooted in it based on your questions. You know, the way I look at the markets, they're fairly well balanced and in check. So if you look at the ARB, the only more really interesting ARB right now is the New York Harbor market, as you indicated, on gasoline, both whether it's the Midwest rather than.

havoc in the New York Harbor and the markets and the balances. But one of the kind of related read-throughs, if you will, on the interplay between Europe and the New York Harbor, I think is relevant. As we've looked through the transition over the last couple of years, the New York Harbor has been longtime positioned as really the recipient of the push barrels, gasoline barrels coming out of Europe .

And as refining balances have changed, a little bit more of a change in terms of consumer preference in Europe towards gasoline and away from distillate on the back end of Dieselgate and some of the outfall of that several years ago in Europe have now created more of a pole environment into the New York Harbor. So that dynamic has changed and progressed over the last year. And yes, you're right to say that is one of the more interesting markets in the US. So we're glad we're doing that. We've got Madam and Betty we're going to start off with round.

I'm confident that the market will work to close that gap. We're active in that market. We continue to see opportunity to push further into that market. Beyond that, octane, just for a moment, we had a huge blowout last summer in octane, almost $5 a barrel. We had a really strong start in the first quarter on octane values, but we do see that plateauing. More naps are coming into the stream for blending.

gasoline and actually as we switch you know from a diesel optimization throughout the system to more of a gasoline focus that'll help the balances and even some of the favorability of the light grids in the Gulf Coast have a better yield on the gasoline slash octane side of the book so you know the forward view on octane is still favorable but not we don't see

quite the environment that we enjoyed last year as we progressed through the summer months. And Roger, it's Mike. Brian gave a lot of specifics. I'll just give you my simplistic view is gasoline inventories, like you said, are spread around in the different regions, but there's still 10 million barrels below last year, 17 million barrels below the five-year average. The demand numbers are strong relative to last year if you look over a longer period of time. So...

And for the first time in whatever it is, 18 months, gasoline is now over distillate. That's a change in the environment going into this summer that wasn't there last summer. So we still think it's a very constructive environment for us. And we'll see how it plays out.

Thank you. Our next question will come from John Royal with JP Morgan. Your line is open. Hi, good morning. Thanks for taking my question. So just a follow-up on capture rates. Just any thoughts on the moving pieces directionally?

in 2Q from the 98% in 1Q. It's another heavy maintenance quarter, but you have the non-recurrence presumably of inventory impacts. So should we center around maybe the 100% level as a starting point, maybe a little lower due to maintenance or any other moving pieces we should think about?

John , thanks for the question. It's Mary Ann. I'll give you a few high-level comments and then I'm going to pass to Brian and Rick to give you a little more detail on the quarter. You're right, actually, as we talked about, turnaround is, you know, slightly higher in the second quarter, but we will be touching less of the crude units just as an example. And so, you know, while there is some planned maintenance, you know, the impact of that effect is going to reach or dry down if in doubt. I mean, Warren is going to be at H I on this project so I'm not threatening whole entire society to either.

little more color on their expectations for Q2. Hey John it's Rick so I'll just double click on really the last item Mary Ann touched on. You know I can't emphasize enough under Mike's leadership we've unpacked and changed everything we do commercially from A to Z from feedstocks through finished products there isn't anything that hasn't been looked at under

incremental value by region going forward in every region we operate in. We're continuing on this journey and it's a journey that won't end and it's quite the change for us corporately as we improve collaboratively from refining all the way through commercial. So

If you can't tell, we're quite excited about it and without giving too much detail, we would encourage you to stay tuned and continue to look at our results. Our boss tells us let our results speak for themselves and that's the mantra we live by and feel good about in this metric as you've seen over the last year.

sites in the industry. Moving further down the value chain for enhanced margin capture is also another important attribute that we have momentum behind, whether it's our export program and delivered cargos or a branded business. All the things that we've done historically, we're just doing better today and with more focus and rigor down the value chain. And the last thing I would say is

Rick and I are proud of the work that the team's done and we've got more to get.

Thank you. And we do have time for just one more question. Our last question will come from Teresa Chin with Sparkways. Your line is open. Okay.

Hi there, thank you for squeezing me in. Just really quickly, Brian , on your demand commentary, clearly you've categorically beaten all the industry data in the first quarter, and as we are a month and change into the second quarter, I am curious to hear a little bit more on the diesel side. So you're seeing some early indications of incremental demand from an ag perspective. What about trucking, just because we've seen some of the easing in the tenage data?

Yeah, Teresa, sure. On the distillate side, we do see ag picking up. Of course, that's a year on year comp, so it's hard to get a complete read. We expect it to be a strong season. We do see, again, as I mentioned earlier, some softness on the transversation side of the business, largely driven through consumption and the curtailment of consumption. Whether it be activity at the ports, over the road, fairly consistently with our big customers, we've heard that the positive stand out, though...

I would mention is in the mining business. And we do have a pretty big exposure on the mining side of the industry. And we do see robust activity on the mining side of our business throughout really all regions. But it's really that consumer consumption component that we're watching very closely. As we transition here seasonally, I think it's early, as I stated earlier, to call favorably or unfavorably which direction things are going to break. But it is something that we're keeping it close.

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