Q2 2023 Marathon Petroleum Corp Earnings Call
Welcome to the second.
Second quarter 2023 earnings call My name is Sheila.
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 one on your Touchtone phone to enter the queue. Please note that this conference is being recorded I will now turn the call over to Kristina Kazarian Kristina you may begin.
Welcome to Marathon Petroleum Corporation's second quarter 2020 earnings conference call. The slides that accompany this call can be found on our website at marathon petroleum Dot com under the investors tab joining me on the call today are Mike Hennigan, CEO Maryann Mannen CFO and other members of the executive team. We invite you to read the Safe Harbor statements on slide two we will.
We're making forward looking statements during the call today actual results may differ factors that could cause actual results to differ are included there as well as our filings with the SEC and with that I'll turn the call over to Mike.
Thanks Kristina.
Morning, everyone.
On the macro environment refining margins continued strong in the second quarter.
Crack spreads incentivizing high refining utilization product inventory levels remain low.
Global capacity additions continue to progress slower than anticipated and we believe that global demand growth will remain strong.
In the second half of the year, the refining outlook remains healthy.
We expect year over year U S light product demand to grow consistent with what we saw in the first half of the year supported by lower energy prices and recovering air travel.
This demand strength post tight inventories and receding economic headwinds are expected to continue to support elevated margins.
And as we completed nearly four quarters of elevated turnaround activity early in the second quarter, we're expecting an increase in industry planned maintenance work by our peers in almost every region in which we operate.
Overall, we believe an enhanced mid cycle environment will continue in the U S. Due to relative advantages over international sources of supply, including energy cost feedstock.
Acquisition costs and refinery complexity.
Now turning to our results in the second quarter, we delivered strong results across our business.
In refining and marketing strong margins cost discipline and sound commercial performance led the segment adjusted EBITDA of nearly $3 $2 billion.
Our midstream segment deliver durable and growing earnings.
This quarter generated segment adjusted EBITDA of $1 $5 billion, which is up 5% year over year.
MPLX remains a strategic part of Mpc's portfolio as it anticipates growing its cash flows and increasing distributions to unit holders.
Mplx's distribution M. P. C was $502 million this quarter, an annualized rate of over $2 billion, which fully covers mpc's current dividend and half of our planned 2023 capital program not including MPLX.
During the second quarter, we progressed key projects such as completing the Star project at the Galveston Bay refinery.
The competitive position of our Galveston Bay refinery is enhanced.
The increased residual fuel and heavy crude processing as well as distillate recovery where.
We're well positioned with two premier 600000 barrel per day refineries on the U S Gulf coast with significant logistics and export capacity to support our global commercial strategy.
At the Martinez renewable fuels facility construction activities are progressing.
Pretreatment capabilities are starting to come online in the second half of 2023 and the facility is expected to be capable of producing at full capacity of 730 million gallons per year by the end of 2023.
At that point Martinez will be among the largest most competitive renewable diesel facilities with a competitive operating profile.
Bus logistics flexibility and advantaged feedstock slate and a strategic relationship with nasty.
On capital allocation in the second quarter, we returned nearly $3 $4 billion to MPC shareholders via dividends and share repurchases.
And for May 2021 through the end of July we have repurchased 264 million shares or approximately 40% of the shares outstanding.
Moving to our sustainability efforts in July we published our 12 annual sustainability report and our seventh annual perspectives on climate scenarios report.
Our perspectives on climate related scenarios, which aligns with T. C. F. These standards provides insights into how we see the energy landscape or thoughts on climate related risks and opportunities.
The resources, we put towards addressing them and the results that we've achieved.
Our sustainability report shows continued progress on goals that we've set for ourselves our efforts to strengthen the resiliency of our operations and to innovate for the future.
At this point I'd like to turn the call over to Marianne.
Thanks, Mike.
Moving to second quarter highlights slide five provides a summary of our financial results. This morning, we reported earnings per share of $5.32. Adjusted EBITDA was $4 $5 billion for the quarter and cash flow from operations, excluding favorable working capital.
Changes was over $3 $1 billion.
During the quarter, we returned $316 million to shareholders through dividend payments and repurchased $3 $1 billion of our shares.
<unk> six shows the reconciliation between net income and adjusted EBITDA as well as the sequential change in adjusted EBITDA from the first quarter of 2023 to the second quarter of 2023.
Adjusted EBITDA was lower sequentially by approximately $700 million is higher refining throughput was more than offset by lower market crack spreads.
But expenses were roughly in line with our guidance and despite general inflationary pressures, we've maintained cost discipline since taking $100 million out of our corporate costs since 2020.
The tax rate for the second quarter was 18.4%, resulting in a tax provision of approximately $583 million or tax provision included a $53 million discrete benefit related to prior years.
Moving to our segment results slide seven provides an overview of our refining and marketing segment.
Finding utilization increased 4% to 93% despite significant turnaround activity as planned work had a lower impact on crude units in the second quarter.
During the quarter at Galveston Bay and incident occurred at one of their refineries catalytic reformers. This unit has been out of service since may 15th. This resulted in approximately 2.5 million barrels of crude throughput reduction and an approximate 1% reduction to capture.
Sequentially per barrel margins were lower in the Gulf Coast, and mid con regions, driven by lower crack spreads and our sour crude differentials.
Capture was 97%, reflecting a strong result from our commercial team, particularly given the extensive turnaround activity early in the quarter.
Refining operating costs were $5 15 per barrel in the second quarter lower sequentially due to higher throughput and lower energy cost slide eight provides an overview of our refining and marketing margin captured this quarter.
Which was 97% our commercial team executed effectively and achieved a strong capture result, considering a significant amount of planned and unplanned refinery downtime gasoline and distillate margin tailwind, we're balanced against the weaker secondary product pricing.
We are also seeing incremental product yield and crude mix benefits from recent major capital projects caps.
Capture results will fluctuate based on market dynamics, we believe that the capabilities. We have built over the last few years will provide a sustainable advantage.
This commitment to commercial performance has become foundational and we expect to see the results of this emphasis.
Slide nine shows the change in our midstream segment adjusted EBITDA versus the first quarter of 2023.
Our midstream segment delivered strong second quarter results.
Adjusted EBITDA, while flat sequentially was 5% higher year over year, our midstream business continues to grow and generate strong cash flows. We are advancing high return growth projects anchored in the Marcellus and Permian basins.
These disciplined capital investments along with our focus on cost and portfolio optimization are expected to grow our cash flows. This will allow us to reinvest in the business and return capital to unitholders.
Slide 10 presents the elements of change in our consolidated cash position for the second quarter operating cash flow excluding changes in working capital was $3 $1 billion in the quarter.
Working capital was an $854 million tailwind for the quarter, driven primarily by changes in crude oil and refined product inventories.
Capital expenditures and investments totaled $570 million this quarter consistent with our 2023 outlook.
MPC returned nearly $3 $4 billion via share repurchases and dividend during the quarter. This represents 108% pay out of the $3.1 billion of operating cash flow excluding changes in working capital highlighting our commitment to superior shareholder returns and as of today.
We have approximately $6 $3 billion remaining under our current share repurchase authorization at.
At the end of the second quarter MPC had approximately $11.5 billion in consolidated cash and short term investments.
Turning to guidance Slide 11, we provide our third quarter outlook, we expect crude throughput volumes of roughly $2 7 million barrels per day, representing utilization of 94%.
Utilization is forecasted to be higher sequentially due to lower planned turnaround activity in the third quarter and enhance mid cycle margins continue to incentivize high refining utilization, while we have not confirmed a startup date, our throughput guidance assumes the reformer at the Galveston Bay refinery will be down for the entire quarter.
Plaint turnaround expense is projected to be approximately $120 million in the third quarter operating cost per barrel in the third quarter are expected to be $5.10. As we expect to see benefits from higher throughput and lower cost given we have completed the significant portion of our turnaround and project activity.
Costs are expected to be approximately $1 $4 billion for the third quarter corporate costs are expected to be $175 million, representing this sustained reductions that we have made in this area.
To recap our second quarter results reflect our team's execution against our strategic pillars across the company 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, 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.
Thanks Marianne.
In summary, we will continue to invest capital to ensure the safe and reliable performance of our assets and where we believe there are attractive returns year to date, we've invested over $1 $2 billion.
Our focus on operational excellence and sustained commercial improvement will position us to capture this enhanced mid cycle environment.
MPLX remains a source of growth in our portfolio distributing over $2 billion N. P. C annually and as MPLX continues to grow its free cash flow. We believe we will continue to have capacity you increase its cash distributions cash contributions have M. P C.
We believe M. P. C has positioned us to refine our investment of choice with the strongest through cycle cash flow generation and the ability to deliver superior returns to our shareholders.
With that let me turn the call back over to Christina Thanks, Mike as we open the call for your questions as a courtesy to all participants we ask that you limit yourself to one question and a follow up if time permits we will re prompt for additional questions and now we'll open the call Sheila.
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 if you wish to be removed from the queue. Please press Star then two if you are using a speakerphone 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 Touchtone phone.
Our first question will come from Doug Leggate with Bank of America. Your line is open.
Thanks, Good morning, everyone and thanks for having me on.
Mike I wanted to pick up on one of the headlines from your press release switch.
Seems to be coming a bit of a recurring theme of sustained commercial improvements and I guess as a capture rate question, but can you just walk us through.
What's going on in your capture because it looks like where it's why we bought pre Covid for example, leaving the distortions of Covid that are out of it for a minute.
Your capture rates seems to have stepped up as that portfolio is it something else is trading whats going on to help address that issue and capture it.
Yeah. Good morning, Doug Thanks for the question.
I'm going to let Rick give a little more detail, but I'll I'll start off with.
Couple of comments, one we have made structural changes and have changed our commercial process quite a bit.
With that said I know yourself and a lot of the analysts like to look at that capture metric I just want to always caution people that the metrics that I care more about is cash flow generation and earnings profitability. So I look at that much more than that capture metric because I think there's pros and cons to it but to your point.
Obviously, it has trended up and and driven by a lot of the things that we've changed over the last couple of years. So I'll, let Rick give a little more detail.
Yeah, Doug first off very perceptive question I think it's a good callout and warranted.
We do believe this structural change is something that's going to stick in fact, we continue to improve and we're never going to be done improving in this category. So it's something that we focus on daily.
And giving you an answer I think you will respect that I will have to be broad as to not give away what I would call true competitive advantages, but it's all the buckets you've touched on its optimization. It's trading it's all of the above and the best way I can say it Doug it's a holistic.
Change in our mindset on everything we do to optimize our assets around our size, our logistics system, our knowledge, our expertise and its driving incremental value throughout our entire system from feedstocks to products and there isn't anyone in the company that's not engaged I mean, I can't say enough.
If our goal is to be the best cash flow generator through cycle and this just isn't a one and done exercise. This is the mindset that not only our commercial team, but our entire company is attacking every day.
We'll continue to watch it Rick thanks for the color.
My follow up is also a question that.
It's hard not to bring this up every other quarter, but.
Maryann.
On the buyback pace in July as $800 million.
Your your dividend at the MPC level is about 150% covered by your distributions from MPLX.
Why should we not assume dot buybacks should be ratable, what mid cycle, what kind of level going forward.
Hey, Joe Good morning, Maryann, Thanks for the question.
From a capital allocation framework perspective, and hopefully even from the comments that Mike and I have both made here. This morning, we remain committed to superior returns and remain committed to our capital allocation as we have defined it you know as it relates to the buyback.
As you know each quarter now we are trying to look as best as we can we take a series of things into consideration we look at market, we look at our cash flows.
And we try to do the best job, we possibly can to maximize our ability to perform in a given quarter as you've seen $3 1 billion in the quarter.
When you look from month to month, you see that you know visibility is as you get all our quarterly documents, you'll see a bit of variability there.
But again, we remain committed we think share repurchase is a very efficient return of capital you know as it relates to the dividend again, an important part of our capital allocation framework as we've shared in the past.
We remain committed to that we want it to be sustainable, we certainly want to be competitive and the opportunity to grow that as well I hope that answers your question Maryanne.
Give me the clarification question are your price agnostic because your shares are pretty much it.
The all time highs earlier this year.
Again, Doug we try to be as opportunistic as possible as we can in the quarter. So we hope that that's the you know what you are seeing from our approach to that.
So yes, we continue to buy back stock as you have seen opportunistically. Okay. Thanks, so much.
Yes.
Let me just add a couple of comments to it.
As I just said to your first question Yeah. The number one concentration is to generate cash and then and then I'm a believer that this business has both return on and return of capital as its requirements. So on the return on we are investing capital to improve our earnings and grow our cash flows over time.
But we're also committed some return of so we use the word strict capital discipline, we set our programs such that we're gonna be able to participate in both sides of that because I'm a big believer in both we've got to show the market that we can invest capital wisely to grow earnings and we also want to show the market that were written.
Turning capital to the owners. So that's a program that we've been on for you know for a while here a couple of years, we're going to continue in that mode and I just want to give you a little bit more flavor as to how we look at it but it all starts with generating cash and then optimizing return on and return of.
Very good thank you.
Youre welcome.
Next we will hear from Neil Mehta with Goldman Sachs. You May proceed.
Yes, good morning, good morning team.
Want to get your perspective on the product markets, we've really seen a firm up here.
Cross the crack and so any perspective, you have on the strengthening recent strengthening of BARDA.
Are you seeing from a demand perspective, and your own system for diesel jet and gasoline.
Neil Good morning. This is Brian Yeah, Let me, let me first comment on the demand side of the equation because we are seeing the demand side of the equation really lead the crack so on gasoline in the quarter. Our system was up and when I say our system. It's really our entire marketing book was up 4% year on year versus an EIA call of about two per.
<unk>.
Most recent weak we see continued strength, we were up 7% last week on the gasoline pool. So we continue to see the strength, which is very encouraging as we enter the back half of the driving season here in the West Coast has been an outsized performer, 5% on the quarter, 8% last week and then looking at diesel has been largely flat yeah, yeah. He's got a call for the <unk>.
Order of up about 1% and of course, I think everybody is pretty dialed into jet, we had a 9% increase on a quarter.
For jet fuel demand year on year versus an EIA of about 3% and just real quick on the crack I would say that the big story here over the last 30 to 60 days its been the distillate.
I mean, our view is distillate really ran up late last year, obviously with the situation in Ukraine.
Uncertainty around sanctions and the first part of this year over in the EU and now we have a lot more certainty. So the market came off pretty precipitously since the beginning of the year and now we're seeing it recovered to a more fundamental level.
Yes, Thanks, Tim it's been notable that the follow up is just around the dividend.
It's a it's down to about 2% given.
Strong Doc has been.
Both perspective, and just your perspective on that is there headroom to raise the fixed dividend remind us again, when when you typically would do that.
Neil Thanks for the question. It's Marianne So you know as I mentioned, hopefully you see that we've got a couple of criteria for the dividend, obviously yield only being one of them a sustainability of that and obviously the potential to grow so.
As we've committed we will be back next quarter with our intention to share with you our plans for the dividend. So next quarter consistent with our approach from last year as well I hope that answers your question.
Thanks Barry.
Okay.
Thank you.
Next question will come from Manav Gupta with UBS. Your line is open.
Hum.
Hey, guys. My question is like this year, you are bringing to conclusion.
If you are a big Mega projects the Galveston.
Martinez oddity.
At this point you haven't indicated another Mega project. So should we assume in the year 2024 more of your Capex would be dedicated to quick hit projects, which generally are not that expensive and that doesn't mean that you would either 2020 for capex could be downwards as 2023, unless you pick up on <unk>.
That project at this stage.
It's maryann and thanks for the question.
You characterized it well as we shared with you star is largely behind us and as you heard from our comments as well.
Teen is on its way to be with this next phase up and running by the end of the quarter. As you know we're a bit early to give 2024 guidance, we'll get a little bit closer to that and give you. Some more color are we intend to give U S. As we have in prior quarters to look at what we would be contemplating spending in refining as well.
As you know our low carbon initiatives as well.
But I think you stated it well we haven't talked about.
Any significant major projects here hereto for hope that hope that helps monitor.
I just wanted to add just a little early in the year. We obviously have some insight as to what we're planning to do in 'twenty four but we'll talk about that in subsequent quarters as opposed to now.
I completely understand my quick follow up here is as I understand when you first innovation. The Martinez project. It was more of soybean refined undefined as you broaden the partner somewhere your own thought process or what you want to run change and at this stage you are looking at a higher percentage of lower.
Ci feedstocks versus soybean can you comment a little bit on that.
Yes, Manav this is Brian certainly yes.
Got it pretty dead on there in terms of the strategy and the strategic relationship. We have with next day I just a couple of things I mentioned around your question, though that we are on startup diet here. So as mentioned, we've got our pretreatment facility coming online and really the the full horsepower of this facility really enters in the back half of this.
Here, but we're quite confident in our ability with our relationship with next day that really is looking beyond just Martinez you know this is just the beginning of our relationship.
But one point of view that I will share with you not martinez specific but to give just a little bit of perspective, we just exited July with our operation up in Dickinson and we ran a 74% advantage feed slate out of our facility up in Dickinson and at startup design was very similar.
Martinez, so hopefully that frames things up for you a little bit better of what to expect when we get Martinez up the full rate later this year.
Manav, it's Mike I, just wanted to add that when we look at the project, we try and challenge ourselves.
As Brian said without the advantaged feedstocks to make sure we're comfortable that we have a good project even in that conservative nature and then obviously the commercial teams are going to work very hard to optimize the feedstocks, whether it's to our other refineries or to the Rd facilities, but we try and start off before we deploy that capital in.
Such a way that we feel comfortable that we will have upside as we do better commercially on the feedstock side.
Thank you so much.
Youre welcome.
Okay.
Next you will hear from Paul Cheng with Scotiabank. Your line is open.
Alright. Thank.
Thank you.
Good morning.
Good morning.
I think in the past.
If we're looking at your refining portfolio.
Awesome.
The biggest potential upside.
So is there any clear the investments initiated that.
Currently thinking on debt to capture that upside.
First question.
Second question that way.
Maybe this is for Gregg what are they looking at the third quarter at your.
We will put diapers, which essentially comes in <unk> the same as the second quarter, but the turn in line activity significantly lower.
So are we missing something or what is that that number just being very conservative.
That one follow up with quite a lot of it typically is much lower.
You will have a much higher throughput in the second quarter. Thank you.
Oh, it's Mike I'll start on the first one I'll, let Rick take second one so similar to Michael's question is we'll give a little more color on 2020 for capital in the next couple quarters. We do have some projects that we think will continue to optimize our portfolio and improve upon it.
But like I said, a few minutes ago, it's a little early to talk about that capital at this point.
So if you can just hold your thought you know, we'll give a little bit more on the on the next quarter and start to give you a little bit more insight as to what we're thinking in 'twenty four.
Yes, Hi, Paul it's Rick so on our throughput guidance for <unk>, you're correct. It is lighter than <unk> and we see that as an advantage, especially as a lot of our competitors have heavier turnaround work and three Q, but with that being said Paul I think the one difference may be that.
You're not accounting for is the reformer outage. So when you factor that in that's that's.
Really takes you to where we landed in our guidance Paul that's really the only difference.
Can I clarify on that because we follow a standstill.
And so this is only going to be maybe.
Maybe half of a quarter of that.
Hey, Bentley chop.
You have 30 40000 barrel per day in total throughput.
So.
You may be surprised that the.
Okay.
Well I guess on the guidance for third quarter.
Hey, Paul It's Maryann, let me try to provide incremental color until all the commentary that Rick has given you. So youre right in the second quarter the.
The reformer was down from the 15th to the end of the quarter for purposes of guidance. This quarter. What we have assumed is we would not be operational at all so it's about 75000 a day.
When we talk about the impact last quarter. It was about 1%. If you look at the impact just strictly in the U S. Gulf coast from the absence of that that particular unit not operating it's about a 7% reduction quarter over quarter in U S. Gulf Coast, and that's about a 3% overall to the to the whole system. So.
Hopefully that's helpful to you.
Okay. Thank you.
Our next question will come from Sam Margolin with Wolfe Research. Your line is open.
Hi, everyone. Thanks for calling on me.
Okay.
This is a macro question and I want to.
Harken back to a call marathon call from earlier this year.
It is Brian .
Made the prediction that the Russian sanctions first diesel cracks had go down and then they would go up again and Thats sort of exactly what happened and it has to do with the destock pattern again.
Later on.
No specification issues and so I just want to bring that comment that to the service here and see if it is part of the reason.
For the strength, we're seeing in diesel cracks now and if you see in your export markets. For example, if you see a shortage of.
On spec product.
That's driving some of the strength.
Yes.
Hey, Tim good to hear from you yeah absolutely.
We are seeing things played out as we expected.
I mentioned it earlier I think the big thing with the Russian situation was the uncertainty and I think the market has become much more certain today for all of US in terms of really limited friction on Russian distillate barrels hitting the world market, we have seen a little bit of market share exchange deeper penetration of Russian barrels into Latin America, notably bridge.
Zil in exchange share for the U S system.
Into Europe , So we're seeing.
Over the last couple of months almost.
300000 barrels a day of distillate exports to backfill the European market and what we're hearing from customers over in Europe is really energy security no surprises a big driving factor for them. So with our team over in London right now operating really really strong we are finding really good traction for our book over into Europe , but to your broader question on demand.
The export market has been very stable and strong for many cycles now and continues to be our outlook going forward.
The case on both gasoline and distillate.
Okay. Thanks, and then this is an operational follow up.
Yes, we've seen.
Heavy intermediate.
Differentials compress it seems to correspond to a bunch of different factors maybe start starting up is one of them, but there's a couple of other similar new conversion units in new refining capacity starting up.
Lee and.
And then you have the OPEC cuts and so just on this on this heavy light setup.
And specifically on high sulfur fuel oil is this if the Titans here just a function of all of these things happening at once and then over time the market will adjust and we might see hey, just if I go back towards where it was or is this kind of the normalization with all with all the new capacity.
Yes, Sam this is Brian a couple of data points on that.
So if you look at the heavy sulfur distillate spread of course, we swung real real low last year and of course the system was in Max Distillate mode. So we were producing we the whole entire.
Refining complex is producing as much diesel as possible, which generated more high sulfur distillate, which outran hydro treating capacity by and large as we've come off of Max diesel mode, and we've been in gasoline mode here as the system. This summer.
We've seen that retrench, so more of a traditional relationship. So I think the factor to look at is really are we in Max gas or Max diesel mode and some of the things you mentioned are nominally impactful, but if youre looking specifically at the Gulf Coast. The one kind of watch out is it's a very thinly traded market. So it can move quite dramatically up or down depending on what's occurring in the system.
Thanks, so much.
Sam This is Rick just to tag on to what Brian was saying as part of your question. The heavy light crude differentials. So we do believe the bottoms and we're actually quite optimistic we believe that spread will get wider point forward through the end of this year and then it's really for a variety of reasons, you've got increased planned turnaround work.
Specifically in pad two and three that's going to take some crude demand needs off the table. So that will cause some links you've got the Canadian producers that have come out of their maintenance season, and they are running well and then you've got incremental Gulf of Mexico, and Venezuela production from Chevron clearing to the U S Gulf co.
So when we look at the markers and specifically Sam on heavy Canadian.
Hit its low in around June at about a $10 discount the current trade cycles got it at about a $14 discount. So it's widened out even significantly here over the last 30 days and we continue to see it widening out further when you look at before word curve between now and the end of the year.
Got it thank you so much.
Youre welcome Sir.
Next we will hear from Jason <unk> with TD Cowen you May proceed.
Yeah, Hey, thanks for taking my questions I wanted to key in on a couple of macro comments, Mike made on the top of the call I was hoping you could elaborate first Tim mentioned.
Higher maintenance moving forward it in almost every region that you operate in at.
It sounded like from Rick answered just now that was going to be in pad two and pad three.
So one can you confirm that and is that a higher maintenance sequentially or is it higher than what you would typically expect in the fall.
And then secondly on the macro you mentioned some refinery startups globally are a bit delayed I was wondering if there any.
Sites in particular that you had in mind and I have a follow up thanks.
Yeah, Jason It's Mike I'll start and then I'll, let Rick jump in.
What I was saying in the prepared remarks is we as a company have gone through four quarters of pretty heavy turnaround and so were lighter than that the rest of the year compared to what we've seen is the industry and want to see how it plays out but it looks like the industry has a lot more activity and then the rest of the year. That's that's what I was trying to.
As far as difference between where we are and where we think the rest of the industry is.
Yeah, and then I'll just tag on in terms of global refining capacity, what we've found and it appears to continue to be true is over promise and under deliver so generally speaking I really don't think it's appropriate to give you specifics, but generally speaking we're seeing delays.
Versus a.
Others throughout throughout the World meeting their projections of one that when their utilization is going to come online so more of a general comment.
Okay, Great and my follow up is on the Martinez Biofuels projects I just wanted to confirm because it's it's tough to tell.
It sounds like everything is going according to plan, but we've heard from industry sources that there are some court challenges that that youre having to address.
Is that fair in terms of what's what's going on and is there any risk that.
Any of these court challenges could could impact the ramp up of the project to the full 730 million gallons.
So there were six challenges to our land use permit we prevailed on five of them and the one is currently still being brief with the court and we anticipate a favorable outcome here in the upcoming months.
So nothing projected impact construction <unk> operation.
Okay, and just to clarify you need.
Do you can you.
Ramp up while that cord is ongoing while our cases ongoing or would you need that to be resolved before you ramp up.
Capacity.
We can continue both on construction and with the operation.
Great. Thanks, a lot.
Our next question will come from Roger read with Wells Fargo. Your line is open.
Hey, Thank you and good morning.
To follow up as well and Martina is maybe just if you can help us out with understanding some of the milestones we should watch.
We know that.
The industry has been challenged at times to get these facilities to startup cleanly, you've obviously put out a goal a full run rate by the end of the year. So as we think about this point in late October looking back at the third quarter, where would you expect to see that unit and when would you anticipate.
It it becomes a positive contributor in terms of EBITDA cash flow earnings.
Hello, Roger This is Tim I'll take I'll take that question. So first off the remaining construction activities at Martinez. They are on schedule and things are going very well as both Brian and Mike indicated early on in the prepared remarks, and the Q&A. We recently started up a portion of the <unk>.
Tina as pretreatment unit and we're now pre treating on site with one train that will really just support the phase one volumes.
The big ticket item, though is when we ramp.
Up with the second train at the end of the year when we bring alongside the Rd capacity.
When the facility conversion is complete.
I would give it a positive remarks team is doing a great job and we look forward to the end of the year.
Roger It's Mike to you.
Question financially you're gonna be thinking into 'twenty four as Tim said, we're ramping we're starting up we're going to bring on the additional units and all.
All goes well will be on by the end of the year and so you'll start to see the financial performance more in 'twenty four.
On a go forward basis.
That makes sense and then maybe this question is for Maryann.
Dickinson is a very small operation so I understand.
As part of refining, but now that it's going to be a much bigger overall operation granted you own half of it via the nasty joint venture, but how should we think about from a reporting accounting standpoint, when or when or will we see a breakout of renewable diesel operations.
From the rest of the business.
Thanks for the question Roger as you said you know as it relates to Dickinson first you know we've been operating for about two years.
And consistent with the way we have expected profitability there. Although you know with some of the moving parts are different we continue to see the performance of that.
Consistent with what we thought Mike just shared with you when we should expect to see real contribution from Martinez. So we will evaluate both dickinson in and Martinez in terms of their total contribution as you know we've said for 2023.
We are not planning.
To break that out, but we'll come back to you as we continue to move along our path of profitability for both Dickinson and Martinez.
And Roger it's Mike the other thing and I know you know this already but obviously the refining assets.
Cash flows are significantly higher than what's happening in renewable diesel I think the way you should think about that is us looking at all our assets and we talk about portfolio optimization to take two assets that we did not think would be competitive long term and deserving of investing capital and put them in a positive cash flow mode going.
Forward, obviously in a diesel mode as opposed to a crude mode. So I think I think it's more of a portfolio optimization realization compared to where we are on refining cash flows.
Alright, well I'll just leave you with my final thoughts on it which is we haven't really put a lot in.
Valuation uplift because it's difficult to know exactly what some of the contribution will be where so I think more disclosure will be a positive.
Yes.
Okay I appreciate that feedback. Thank you. Thank you.
Thank you. Our next question comes from John Royall with Jpmorgan. Your line is open.
Hi, good morning, Thanks for taking my question.
So my first question is just coming back to the Galveston Bay reformer is there an update on when we could see that coming back I know, you're assuming out for the full quarter with <unk> your guidance, but maybe just a little bit of color on where you are in that restart process beyond just that assumption in your guidance.
Okay.
So John this is Tim I'll take part of that.
And all I can really share is that we are expeditiously and prudently completing the repairs on that unit.
And we don't have any further guidance beyond what maryann has already provided relative to schedule.
Okay Fair enough and my next question was on tax you.
You had a very well right in <unk>, you called out 50 million ish of that looks nonrecurring.
But even when I adjust for that it's still trending down the past couple of quarters is that just on the mix of non taxable MPLX versus refining with refining coming down.
Last couple of quarters or are there any other moving pieces to think about the tax rate.
Hey, John It's it's Marianne yes, thanks for that so as we stated the 53 million that I called out for you is related to prior periods.
It's a good news story, we were successful on a resolution of an item that has prior period benefit and it will have some but I'll bet smaller benefit going forward and that's about 13 cents in the quarter. As you stated typically the biggest mover on our rate is the relationship between our midstream business and our refining business, but from time to time, we could.
So have discrete items.
Those items could be positive or negative and in some cases they are positive, but as you stated the typical driver there and when you look at our federal rate and the state tax rate would be that that relationship.
So if I adjust that out the $53 million this quarter. That's a that's a decent run rate to think about going forward.
One of the things that you said.
When you look at that rate, it's a little bit lower than average I think you probably coming to a around a 20% ZIP code in the in the quarter.
<unk> seen from last year, we brought on about 22%.
And so you know there is a range there is a range there, but certainly 'twenty is at the lower end of that when you look at the relationships between refining and midstream today.
Thank you.
Thank you. Our next question comes from Theresa Chen with Barclays. Your line is now open.
Hi, Thank you for taking my question.
Just had a quick follow up related to the discussion.
Martinez ramped up in your renewable diesel outlook in general related to the economics of L. CFS. It seems that the final draft proposed changes will be submitted to carb over the next couple of months and I'd love to hear your thoughts and expectations on that where do you see that landing in your general outlook for pricing from here.
Theresa Good morning. This is Brian Yeah. So we've been very actively involved with carb on the valuation of the reset we remain optimistic we believe carb foundational he wants to find a way to support the program. Obviously L. PFS prices have come off fairly precipitously over the last couple of years as Rds penetrated so we.
We're expecting support for the market, but but note L. CFS is the smallest variable in our overall value equation. So it's not been a big needle mover, but we do think it's important going forward to underpin the profitability on the Rd space. In addition, obviously, we're looking at markets beyond California. So is elsia first prices come down in California.
Theres other state level programs on the West coast and beyond that we're finding opportunities to penetrate with our Rd market position.
Thank you.
Thank you. Our next question will come from Matthew Blair with key P. H you May proceed.
Hey, good morning, Thanks for taking my questions here Chicago diesel cracks were were quite weak earlier in July even related to other pad to market like <unk>.
Group three do you have any color on on what was going on here it looks like they've recovered so far but any color as to why Chicago do you saw at one point was with <unk>.
Negative on the RVO adjusted basis.
Yeah. Matthew this is Brian Yeah, it's a great question clearly overdone, it's recovered fully.
You know the the unique nature of the Chicago complex is the marker is in the far west side of Chicago, which from time to time can get pretty volatile and I think really that's what we saw from a trade basis over on the west side of Chicago, but it has recovered quite nicely here as we've traded out of that period of time and.
We remain optimistic that we're in a good position as we head into the harvest season here in the Midwest, where we expect to see distillate strength.
It sounds good and then.
The carb data posted last night showed that in the first quarter of this year, California diesel consumption was 49% R&D and up to 8% BD.
Los Angeles refinery are you, having any problems, placing your petroleum diesel volumes in the California market.
Are you having to export any volumes to Singapore for Mexico, do you consider that a risk down the road.
Yeah. Matthew this is Brian yeah in the prompt basis no no no problems clearing the barrels, but yes, you're you're on point there is R&D penetrates the California market. It's a one for one relationship it's fairly balanced I'll say, the west coast system as a whole that our expectation and planning horizon does include the ability to make sure that we can export barrel.
Beyond the U S.
In addition, obviously jet is very very strong right now. So if you look at the yield structure in terms of how we're running our refineries, we're working really really hard to make sure that we're maximizing jet fuel in favor and the cost of the distillate side of the book.
Yeah.
Great. Thank you.
Youre welcome.
Thank you we do have time for just one more question. Our last question comes from Ryan Todd with Piper Sandler Your line is open.
Okay.
Great. Thanks.
Maybe a question on the refining side and on the Gulf Coast, you had very strong performance. Despite the downtime at the reformer at Galveston Bay.
Can you.
I'm curious as to how much contribution you saw from the store expansion in the quarter.
And maybe.
Just an update on how the expansion of that project is going forward and contribution in the future.
Yes. Thanks for the question Ryan It's Maryann, let me try to give you a little bit of color.
Look at Q1 to Q2 performance keep in mind in the U S. Gulf Coast. As you stated we were under turnaround in the first quarter and obviously ramping up. So you saw the benefits of that obviously in the second quarter. Despite the fact that you know we did have the reformer down for just a portion of the month.
I was commenting on its only about a 1% impact.
For the second quarter that will get a little bit larger as I shared given the fact that we're assuming.
It can be down I think the other thing to keep in mind is typically when we look at cost in the quarter.
When we're doing heavy turnarounds as we did in the first quarter. We're typically doing other maintenance work and that was much later in the second quarter as well as as it relates to star.
We were ramping up our comments that as we've been sharing star with ramping up through the second quarter, so minimal impact.
With respect to star, but you'll begin to see that now as we've reached the completion of that project.
Great. Thank you and maybe just a.
Kind of a high level question.
You've obviously been active today in various low carbon transportation fuels.
Meaningful investment in renewable diesel even our recent investment in the R&D of your producer.
As you look at the long term outlook for transportation fuels in your markets over the next 10 years, how are you thinking about your overall strategy.
For the transition in particular, maybe a sense of your role and a broader definition of transportation fuels.
And where do you go from here in terms of potential future investments.
Yeah, Ryan its Mike I like the word energy evolution more than energy transition I know a lot of people use energy transition, but I think it's going to evolve over a longer period of time than most of written about so we're trying to be very thoughtful we will using the word evolve we will evolve the company over.
Time.
As you pointed out two of our facilities now on renewable diesel you know we made a small investment in an R&D facility. So Dave and his team are looking at all of those opportunities.
We talked on a call earlier today about where active in some of the D O N E.
Hydrogen hubs and we'll see how that plays out over time so.
Think of US is going to be very thoughtful we try to use the word strict capital discipline, we do want to invest as opportunities present themselves, but we are committed to getting solid returns. So overall I'd say, you're going to see us chip away at little activities over time.
Constantly evolve it to your point about what are we going to look like in 10 years, and 10 years 20 years or whatever marathon has been around for 130 years, we plan to be around for 130 more so yeah, we'll evolve the company as the market dictates and obviously you know consumer preferences regulatory impacts all of those things.
No.
Drive what happens and we will be very attentive to it and we'll look to deploy capital as we see the opportunities.
Great. Thank you.
Youre welcome Brian .
Yeah.
Okay.
Alright, well. Thank you for your interest in Marathon Petroleum Corporation should you have additional questions or would you like clarification on topics discussed. This morning, please reach out and member of our Investor Relations team will be here to help today. Thank you so much everyone.
Thank you that does conclude today's conference. Thank you once again for your participation you may disconnect at this time.