Q4 2023 Marathon Petroleum Corp Earnings Call
Please note that this conference is being recorded I will now turn the call over to Kristina Kazarian Kristina you may begin.
Kristina Kazarian: Welcome to marathon Petroleum's fourth quarter 2023 earnings conference call. The slides that accompany this call can be found on our website at marathon petroleum Dot com under the Investor Tab, joining me on the call today are Mike Hennigan, CEO Maryann Mannen, President John <unk> CFO and other members of the executive team. We invite you to read the Safe Harbor statement.
Kristina Kazarian: On slide two we will be making forward looking statements today actual results could differ factors that cause actual results to differ there as well as in our SEC filings references to M. P. C capital during the prepared remarks today reflect standalone M. P. C capital, excluding MPLX with that I'll turn the call over to Mike.
Michael J. Hennigan: Thanks, Kristina good morning, everyone and thank you for joining our call.
Michael J. Hennigan: First of all I'd like to recognize some changes we made at our executive management level.
The man, who has been appointed President of N. P. C. In this role she will be responsible for our refining and marketing commercial and <unk> organizations.
Michael J. Hennigan: John Quealy previously CFO of MPLX succeeds maryanne and CFO of MPC.
Michael J. Hennigan: In addition to these changes Rick Hessling has been appointed Chief Commercial Officer, Eric will lead our global feedstock and clean products teams with the goal of maximizing margin capture across the entire value chain.
Michael J. Hennigan: Brian part D has been appointed Chief Global optimization Officer, Brian.
Brian will be responsible for assessing and redefining business processes that are critical to improving our performance, including our value chain optimization efforts and determining investments needed to accelerate the delivery of results.
Michael J. Hennigan: At a high level. These organization changes put more emphasis on advancing important value, creating initiatives driving increased performance throughout our entire value chain and making a step change in our cash flow generation capability.
Michael J. Hennigan: Turning to our 2023 results, we're pleased to continue to deliver on our strategic commitments.
Michael J. Hennigan: Full year cash provided by operating activities was over $14 billion on a consolidated basis, reflecting our team's strong execution.
Michael J. Hennigan: Our refining and marketing business delivered excellent full year results generating EBITDA of $12 $712 74 per barrel throughput and capture of 100%.
Michael J. Hennigan: These results reflect strong utilization of our assets and improved execution against our commercial strategy.
Michael J. Hennigan: Incremental to our refining and marketing results, our midstream business posted nearly $6 $2 billion of EBITDA.
EBIT for the midstream segment grew by approximately 7% year over year or by approximately $400 million.
Michael J. Hennigan: We expect MPC will receive $2 $2 billion of annual cash distributions supported by Mplx's. Most recent 10% increase to its quarterly distributions.
Michael J. Hennigan: MPLX MPLX is strategic to Mpc's portfolio.
The current pace of cash distributions fully covers mpc's dividend and more than half of our planned 2024 capital program.
We expect MPLX to increase its cash distributions as it pursues growth opportunities further enhancing the value of this strategic relationship.
Operator: I'll turn the call over to Kristina Kazarian.
Michael J. Hennigan: We are committed to returning excess capital to shareholders. In 2023, we've returned 11 $6 billion through share repurchases, bringing total repurchases to over $29 billion since may of 2021.
Kristina Kazarian: Welcome to Marathon Petroleum's 4th Quarter 2023 Earnings Conference Call. The slides that accompany this call can be found on our website at MarathonPetroleum.com under the Investor tab. Joining me on the call today are Mike Hennigan, CEO; Maryann Mannen, President; John Quaid, CFO; and other members of the Executive Team. We invite you to read the Safe Harbor Statements on Slide 2. We will be making forward-looking statements today, but actual results could differ.
In addition, we increased mpc's quarterly dividend by 10% in the fourth quarter over the past five years, we have grown our quarterly dividend at a compound annual growth rate of over 12%.
Kristina Kazarian: Factors that cause actual results to differ are there as well as in our SEC filings. References to MPC Capital during the prepared remarks today reflect stand-alone MPC Capital, excluding MPLX. With that, I'll turn the call over to Mike. Thanks, Kristina. Good morning, everyone.
Michael J. Hennigan: For the full year 2023. This capital return represents a payout of 92% of our operating cash flow excluding changes in working capital highlighting our commitment to superior shareholder returns.
Thank you for joining our call. Thank you. First, I'd like to recognize some changes we made at our executive management level. She has been appointed president of MPC. In this role, she'll be responsible for our refining and marketing, commercial, and HES and S organization. John Quaid, previously CFO of MPLX, succeeds Maryann as CFO of MPC. In addition to these changes, Rick Hessling has been appointed Chief Commercial Officer. Rick will lead our global feedstock and clean products teams with the goal of maximizing margin capture across the entire value chain. Brian Partee has been appointed Chief Global Optimization Officer.
Michael J. Hennigan: Executing on our commitments combined with a strong macro environment led to total shareholder returns of approximately 31% for MPC in 2023.
Michael J. Hennigan: Turning to our view on the refining macro environment as we head into 2024.
Global oil demand hit a record high in 'twenty, three and we see another year of record oil consumption and 24.
Michael J. Hennigan: Yeah. It is currently projecting demand growth of over one 2 million barrels per day with their projections, having been raised higher over the last three consecutive months.
Michael J. Hennigan: And our system, both domestically and within our export business, we're seeing steady demand year over year for gasoline diesel and jet fuel.
Brian will be responsible for assessing and redefining business processes that are critical to improving our performance, including our value chain optimization efforts and determining investments needed to accelerate the delivery of results. At a high level, these organizational changes put more emphasis on advancing important value-creating initiatives, driving increased performance throughout our entire value chain, and making a step change in our cash flow generation capability. Turning to our 2023 results, we're pleased to continue to deliver on our strategic commitment, with full year cash provided by operating activities of over $14 billion on a consolidated basis, reflecting our team's strong execution.
Michael J. Hennigan: Global supply remains constrained and anticipated global capacity additions have progressed slower than expectations.
Michael J. Hennigan: Gasoline and diesel inventories remain tight globally and as we look into 'twenty four we anticipate that above average turnaround activity globally in the first quarter as well as the transition to summer gasoline blend will be supportive of refining margins.
Michael J. Hennigan: As we look further into 2024, we believe the U S refining industry will experience an enhanced mid cycle environment due to global supply demand fundamentals and its relative advantages over international sources of supply, including energy cost feedstock acquisition cost and refinery.
Our refining and marketing business delivered excellent full-year results, generating EBITDA of $12.74 per barrel throughput and a 100% capture rate. These results reflect strong utilization of our assets and improved execution against our commercial strategy. Incremental to our refining and marketing results, our midstream business posted nearly $6.2 billion of EBITDA, even if the midstream segment grew by approximately 7% year over year or by approximately $400 million. We expect MPC will receive $2.2 billion of annual cash distribution, supported by MPLX's most recent 10% increase to its quarterly distribution.
Michael J. Hennigan: Complexity.
Michael J. Hennigan: Our capital allocation priorities remain unchanged.
Michael J. Hennigan: These include first sustaining capital 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.
Second our dividend, we're committed to paying a secure competitive and growing dividend, we intend to evaluate the dividend at least annually.
Michael J. Hennigan: Third growth capital, we will invest capital discipline, where we believe there are attractive returns, which will enhance our competitiveness and position MPC well into the future.
Michael J. Hennigan: Beyond these three objectives, we will return excess capital through share repurchases to meaningfully lower our share count.
MPLX is strategic to MPC's portfolio. The current pace of cash distribution fully covers MPC's dividend and more than half of our planned 2024 capital program. We expect MPLX to increase its cash distribution as it pursues growth opportunities, further enhancing the value of this strategic relationship.
Michael J. Hennigan: From May of 'twenty, one through January 2024, we reduced our total share count by approximately 45%.
Michael J. Hennigan: Purchasing approximately 300 million shares at an average price of $97.
Michael J. Hennigan: As we execute in 2024, we remain committed to share repurchases as a key component of our capital allocation priorities.
We are committed to returning excess capital to shareholders. In 2023, we returned $11.6 billion through share repurchases, bringing total repurchases to over $29 billion since May of 2021. In addition, we increased MPC's quarterly dividend by 10% in the fourth quarter.
Michael J. Hennigan: Mpc's Standalone 2020 for capital investment plan, excluding MPLX totals $1.25 billion.
Michael J. Hennigan: Underpinning our commitment to safety and environmental performance sustaining capital was approximately 35% of capital spend.
Over the past five years, we have grown our quarterly dividend at a compound annual growth rate of over 12% for the full year 2023. This capital return represents a payout of 92% of our operating cash, excluding Changes in Working Capital, highlighting our commitment to superior shareholder returns. Executing on our commitments combined with a strong macro environment led to total shareholder returns of approximately 31% for MPC in 2023. Now, turning to our view on the refining macro environment as we head into 2024. Global oil demand hit a record high in 2023, and we see another year of record oil consumption in 2024. The IEA is currently projecting demand growth of over 1.2 million barrels per day, with their projections having been raised higher over the last three consecutive months. In our system, both domestically and within our export business, we're seeing steady demand year-over-year for gasoline, diesel, and jet fuel. However, global supply remains constrained, and anticipated global capacity additions have progressed lower than expectations.
Michael J. Hennigan: In refining and marketing growth spending is down nearly $200 million compared to 2023, reflecting strong capital discipline and.
Michael J. Hennigan: In 2024, we are focused on investments that enhance margin and reduce cost.
In low carbon we are investing in an opportunity that offers an attractive return lowers our cost increases reliability and reduces emissions.
Michael J. Hennigan: This morning, MPLX also announced its 2020 for capital investment plan of $1 $1 billion, which is anchored in the Marcellus and Permian basins.
Michael J. Hennigan: At this point I'd like to turn the call over to Marianne.
Thanks, Mike.
Marianne: Solid execution of our three strategic pillars remain foundational.
Marianne: We believe the improvements we've made to our cost structure.
Marianne: Portfolio and commercial execution have driven sustainable structural benefits irrespective of the market environment.
Marianne: We will continue to build on that strong foundation to recognize value throughout our business.
Marianne: Our refining utilization in 2023 was 92% as we operated our portfolio to meet consumer demand recently, we have said, we believe our average capture over longer periods of time is approaching 100% and in 2023, our full year capture was.
Gasoline and diesel inventories remain tight globally, and as we look into 2024, we anticipate that above-average turnaround activity globally in the first quarter, as well as the transition to summer gasoline blends, will be supportive of refining margins. As we look further into 2024, we believe the U.S. refining industry will experience an enhanced mid-cycle environment due to global supply-demand fundamentals and its relative advantages over international sources of supply, including energy costs, feedstock acquisition costs, and refinery complexity. Our capital allocation priorities will remain unchanged.
Marianne: 100% this.
Marianne: This commitment to commercial excellence is foundational and we expect to continue to see these results.
Marianne: While our capture results will fluctuate based on market dynamics, we believe that the capabilities. We have built over the last few years and expect to enhance further will provide a sustainable advantage.
Marianne: Turning to our operations in the Gulf Coast, The Galveston Bay reformer repairs progressed as planned we started the unit back up in mid November and returned to full operating rates by mid December.
These include, first, sustaining capacity. 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. Second, our dividends. We're committed to paying a secure, competitive, and growing dividend. We intend to evaluate the dividend at least annually. Third, growth cap.
Marianne: At our Martinez facility, we will be operating at approximately 22000 barrels per day in the short term we have been working closely with the regulators to proceed with repairs to ensure safe and reliable operations.
Marianne: Let me move to slide seven which shows our capital investment plan for 2024 and a bit more detail.
Marianne: Mpc's investment plan, excluding MPLX totals one point to $5 billion. The plan includes $1 $2 billion for refining and marketing segment.
We will invest capital but be disciplined where we believe there are attractive returns which will enhance our competitiveness and position MPC well into the future. Additionally, beyond these three objectives, we will return excess capital through share repurchases to meaningfully lower our share count. From May 21 through January 2024, we reduced our total share count by approximately 45%, repurchasing approximately 300 million shares at an average price of $97. As we execute in 2024, we remain committed to share repurchases as a key component of our capital allocation priority. MPC's standalone 2024 capital investment plan, excluding MPLX, totals $1.25 billion, underpinning our commitment to safety and environmental performance. Sustaining capital is approximately 35% of the capital span.
Marianne: Growth capital plan is approximately $825 million.
Marianne: Between traditional projects and low carbon.
Marianne: We are investing primarily at our large competitively competitively advantaged facilities to enhance shareholder value and position MPC well into the future within traditional refining and marketing $100 million is associated with a multi year project to increase finished distillate yield at the gas.
But the 10 day refinery $375 million is focused on smaller projects targeted at enhancing yields at our refineries improving energy efficiency and lowering our costs as well as investments in our branded marketing footprint.
Marianne: Within low carbon approximately $330 million is allocated to a multi year infrastructure investment at our Los Angeles refinery, which will improve energy efficiency and lower facility admissions and $20 million for smaller projects focused on emerging opportunities.
In refining and marketing, growth spending is down nearly $200 million compared to 2023, reflecting strong capital dis- In 2024, we are focused on investments that enhance margins and reduce cost. In low carbon, we are investing in an opportunity that offers an attractive return, lowers our cost, increases reliability, and reduces emissions. This morning, MPLX also announced its 2024 capital investment plan of $1.1 billion, which is anchored in the Marcellus and Permian Basins. At this point, I'd like to turn the call over to Maryann.
Marianne: Slide eight provides an overview of the multi year investment at our Los Angeles refinery.
Marianne: The Los Angeles refinery is a core asset in our west coast value chain and it's one of the most competitive refineries in the region. It's investment once completed is expected to further enhance its cost competitiveness by integrating and modernizing utility system, which will improve reliability and increase energy.
Marianne: Efficiency. Additionally, a portion of this improvement addresses a new regulation mandating further reductions in emissions Dysregulation applies to all southern California refineries improvements are expected to be completed by the end of 2025, we expect to generate a return on our investment of approximately.
Maryann T. Mannen: Thanks, Mike. Solid execution of our three strategic pillars remains foundational. We believe the improvements we've made to our cost structure, portfolio, and commercial execution have driven sustainable structural benefits irrespective of the market environment. We will continue to build on this strong foundation to recognize value throughout our business. Our refining utilization in 2023 was 92% as we operated our portfolio to meet consumer demand. Recently, we have said we believe our average capture over longer periods of time is approaching 100%. And in 2023, our full-year capture rate was 100%.
Marianne: 20%.
Marianne: Turning to slide nine at Galveston Bay, we are investing to construct a 90000 barrel per day high pressure distillate Hydro Treater. This project is planned to strengthen the competitiveness of their refinery to increase production of higher value finished products. Once in service the new distillate Hydro treater will upgrade high.
Marianne: Silver distillate to ultra low sulfur diesel eliminating the need for third party processing, where sales into shrinking lower value high sulfur export market.
Marianne: This strategic investment ensures we provide the clean burning fuels the world demands and further enhances the competitive position of our U S Gulf coast value chain.
Marianne: The project is expected to be complete by year end 2027, and generate a return of over 20%.
Maryann T. Mannen: This commitment to commercial excellence is foundational, and we expect to continue to see these results. While our capture results will fluctuate based on market dynamics, we believe that the capabilities we have built over the last few years and expect to enhance further will provide a sustainable advantage. Turning to our operations in the Gulf Coast, the Galveston Bay Reformer repairs progressed as planned. We started the unit back up in mid-November and returned to full operating rates by mid-December.
Marianne: Turning to our low carbon initiatives, we challenge ourselves to lead in sustainable energy by setting meaningful targets to reduce greenhouse gas emissions methane emissions and freshwater intensity.
Marianne: Targets, which we believe we can demonstrate a tangible pathway to accomplish.
Marianne: In our 2024 capital outlook, we are investing to significantly lower energy intensity and emission that Los Angeles, one of our largest refineries. Additionally, we are investing in smaller amounts of capital.
Maryann T. Mannen: At our Martinez facility, we will be operating at approximately 22,000 barrels per day in the short term. We have been working closely with the regulators to proceed with repairs to ensure safe and reliable operations. Let me move to slide seven, which shows our capital investment plan for 2024 in a bit more detail. MPC's investment plan, excluding MPLX, totals $1.25 billion.
Marianne: Capital in early stage development, like Orangey, which could significantly aid and greenhouse gas emission reductions in the future.
Overall, we're taking disciplined steps to advance our goal to lower the carbon intensity of our operations and the products, we manufacture while continuing to supply our growing and evolving market I safely operating our current asset base with the objective to deliver superior cash flow, let me turn the call over to John.
Maryann T. Mannen: The plan includes $1.2 billion for the refining and marketing segment. Our growth capital plan is approximately $825 million, but it is split between traditional projects and low carbon. We are investing primarily at our large competitively-advantaged facilities to enhance shareholder value and position MPC well into the future. For example, within traditional refining and marketing, $100 million is associated with a multi-year project to increase finished distillate yield at the Galveston Bay Refinery. $375 million is focused on smaller projects targeted at enhancing yields at our refineries, improving energy efficiency, and lowering our costs, as well as investments in our branded marketing footprint. In the low carbon category, approximately $330 million is allocated to a multiyear infrastructure investment at our Los Angeles refinery, which will improve energy efficiency and lower facility emissions, and $20 million for smaller projects focused on emerging opportunities.
Thanks, Marion moving to fourth quarter highlights Slide 11 provides a summary of our financial results.
John Edwards: This morning, we reported adjusted earnings per share of $3 98 for the fourth quarter and $23 63 for the full year.
John: This quarter's results were adjusted to exclude the <unk> 14 cents per share net effect of three items.
$145 million LIFO inventory charge of $47 million of net recoveries related to MPLX as Gary Bill incident response, and a $92 million gain recognized by MPLX adjust.
John: Adjusted EBITDA was over $3 5 billion for the quarter and almost $19 billion for the year.
John: Cash flow from operations, excluding working capital changes was nearly $2 $3 billion for the quarter.
John: And $13 9 billion for.
John: For the year.
John: During the quarter, we returned $311 million to shareholders through dividend payments and repurchased over $2 5 billion of our shares.
Maryann T. Mannen: Slide 8 provides an overview of the multi-year investment at our Los Angeles refinery. The Los Angeles refinery is a core asset in our West Coast value chain and is one of the most competitive refineries in the region. This investment, once completed, is expected to further enhance its cost competitiveness by integrating and modernizing utility systems, which will improve reliability and increase energy efficiency. Additionally, a portion of this improvement addresses a new regulation mandating further reductions in emissions. This regulation applies to all Southern California refineries, and the improvements are expected to be completed by the end of 2025. We expect to generate a return on our investment of approximately 20 percent. Turning to slide 9, at Galveston Bay, we are investing to construct a 90,000 barrel per day high-pressure distillate hydrotreater. This project is planned to strengthen the competitiveness of the refinery through increased production of higher-value finished products. Once in service, the new distillate hydrotreater will upgrade high-sulfur distillate to ultra-low sulfur diesel, eliminating the need for third-party processing or sales into shrinking lower-value high-sulfur export markets.
John: Slide 12 shows the sequential change in adjusted EBITDA from the third quarter to fourth quarter of 2023 as well as the reconciliation between net income and adjusted EBITDA for the quarter.
John: Adjusted EBITDA was lower sequentially by approximately $2 $2 billion, driven by lower R&M margins.
The tax rate for the quarter was 18%, reflecting the impacts of the MPLX structure and a discrete benefit largely related to state taxes for 2024, we expect our tax rate to be around 21%.
John: Moving to our segment results.
John: <unk> 13 provides an overview of our refining and marketing segment for the fourth quarter.
John: Our 13 refineries ran at 91% utilization processing, nearly two 7 million barrels of crude per day.
John: Sequentially per barrel margins were lower across all regions driven by lower crack spreads capture.
John: Capture for the quarter was 122%.
John: Refining operating costs were $5 67 per barrel in the fourth quarter higher sequentially due to higher energy cost, particularly on the west coast as well as higher project related expenses associated with planned turnaround activity.
John: Slide 14 provides an overview of our refining and marketing margin capture of 122% for the quarter. We ran we ran well and our commercial teams executed effectively to deliver strong results capture this quarter benefited from light product margin tailwind in particular for jet fuel.
John: As well as less of a headwind from secondary product prices.
John: Slide 15 shows the changes in our midstream segment adjusted EBITDA versus the third quarter of 2023.
John: Our midstream segment delivered strong fourth quarter results for the full year 2023, our midstream segment EBITDA is up 7% compared to the prior year.
John: Our midstream business is growing and generating strong cash flows as we advance high return growth projects anchored in the Marcellus and Permian basins.
John: Slide 16 presents the elements of change in our consolidated cash position for the fourth quarter.
Operating cash flow excluding changes in working capital was nearly $2 $3 billion in the quarter driven by both our refining and midstream businesses.
Working capital was a $1 1 billion dollar use of cash for the quarter, driven primarily by declining crude prices.
John: Cash from ops for the quarter was also impacted by a $320 million headwind from changes in our income tax receivable, which you might usually expect to see as a working capital change.
John: Capital expenditures and investments totaled $896 million this quarter.
John: This includes Mpls is acquisition of full ownership of a gathering of processing joint venture in the Delaware basin for approximately $270 million.
John: MPC returned $2 $8 billion via share repurchases and dividends during the quarter. This represents an approximate 125% payout of the $2 3 billion of operating cash flow excluding changes in working capital.
John: Highlighting our commitment to deliver superior shareholder returns.
As of January 26, we have approximately $5 $9 billion remaining under our current share repurchase authorization.
John: And at the end of the fourth quarter MPC had approximately $10 $2 billion in consolidated cash and short term investments, including approximately $1 billion of MPLX cash.
John: Turning to guidance on slide 17, we provide our first quarter outlook.
John: We expect crude throughput volumes of almost $2 5 million barrels per day, representing utilization of 83%.
John: Utilization is forecasted to be lower than fourth quarter levels, due mainly to higher turnaround activity.
John: Planned turnaround expense is projected to be approximately $600 million we are executing.
John: <unk> turnarounds at four of our largest refineries Galveston Bay, Gary will Los Angeles and Robinson.
John: All in the first quarter when margins are typically lower to minimize the financial impact of these outages.
Turnaround expense for the full year is anticipated to be similar to last year at about $1 3 billion.
John: Operating costs in the first quarter are expected to be $5 85 per barrel higher sequentially due mainly to lower throughput volumes associated with the significant planned turnaround activity.
John: Distribution costs are expected to be approximately $145 billion for the quarter corporate costs are expected to be $185 million.
With that let me pass it back to Mike.
Thanks, John.
Michael J. Hennigan: We've delivered strong execution on our strategic commitments again. This year. This includes running reliably with high utilization structural improvements to our commercial performance fostering our low cost culture and strengthening the competitive position of our assets.
And MPLX. The partnership has continued to grow increasing its cash flow and its cash distribution MPC.
We've invested capital to grow earnings while exercising strict capital discipline. This has resulted in superior cash flow generation and supported the repurchase initiatives.
Looking forward, we will continue to prioritize capital investments to ensure the safe and reliable performance of our assets and we will also invest in projects, where we believe there are attractive returns.
We believe our focus on safety environmental I'm, sorry, operational excellence and sustained commercial improvements will position us to capture this enhanced mid cycle environment, which we expect to continue longer term given our advantages over marginal sources of supply and growth growing global demand.
Michael J. Hennigan: Mpc's midstream segment, consisting primarily of MPLX has grown EBITDA by $1 $3 billion since 2019, which is a 6% compound annual growth rate over the last four years.
Michael J. Hennigan: As MPLX continues to grow its free cash flow. We believe it's in a strong position to continue to consistently grow its distributions.
Michael J. Hennigan: As a result of MPLX, increasing its distribution, 10% of reach the last two years MPC expects to receive $2 $2 billion of cash distributions, which reflects a $400 million increase since 2020.
Michael J. Hennigan: Each 10% distribution increase is approximately $200 million of additional cash flow that MPC received through its ownership in the partnership.
Michael J. Hennigan: In summary, this year, we generated $14 billion of cash from operations, we increased our dividend, 10% repurchased 11 $6 billion of shares resulting in a 92% payout ratio in 2023, Mpc's total shareholder return was 31%.
Michael J. Hennigan: We believe MPC is positioned as the refiner investment of choice with the strongest through cycle cash generation and the ability to deliver superior returns to our shareholders.
Speaker Change: With that let me turn it 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 Sheila we're ready.
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 speaker phone you may need to pick up the handset first before pressing the numbers once again, if you would.
Sheila: Have a question. Please press Star then one on your Touchtone phone.
Sheila: Our first question will come from Neil Mehta with Goldman Sachs. Your line is open.
Neil Mehta: Good morning, Mike Good morning team thinks they should give us great quarter and the first question is really on slide 14, and that's what we're getting from investors. This morning, which is the 122% system capture in that $885 million of margin uplift and I recognize there's some sensitivities, but what you can say it and can't say.
Neil Mehta: Here.
Neil Mehta: Just can you talk about what drove that strength and how much of this is appeals onetime ish versus stuff, we want to carry forward.
Hey, Neil Good morning, it's maryann.
Maryann T. Mannen: Thanks for the question, so first and foremost as you know commercial performance has been.
Maryann T. Mannen: And we will continue to be a foundational pillar for us in terms of delivering outstanding execution and meeting the goals and objectives that Mike shared with you around delivering that through cycle cash flow throughout the cycle.
Maryann T. Mannen: In the quarter, we generated about 122% capture as we shared.
Maryann T. Mannen: Overall as you know we've been talking about our ability to continue to drive toward 100% over the last couple of quarters. We can Bryan have been sharing with you. Some of the key elements around structural changes that we believe are sustainable and then Mike announced this morning, a couple of other changes, which we think will continue to drive.
Maryann T. Mannen: Our ability to identify and deliver against that foundational principle.
In the quarter, we had a couple of benefits that delivered the 122%. So first of all you know strong light product margin and frankly, a more favorable secondary products impact this.
Maryann T. Mannen: This is not abnormal for this period of time, having said that we also saw stronger jet fuel premiums could diesel and the benefit of diesel blending excuse me of butane blending in the quarter as well.
To your question how much of this is repeatable obviously some of those things are not repeatable particular, when you look at the.
Maryann T. Mannen: The sharp drop in crude oil and refined product prices.
Maryann T. Mannen: We also did have the ability of having as I shared with you our reformer at G. D R.
Maryann T. Mannen: Other benefits of projects that we completed fully operating in the quarter. So let me pause there and see if that's that helped to answer your question at all.
That's great Maryann Atlantica color there as the follow up is just on slide 17, particularly with the deck here, which is.
Speaker Change: It does seem like a period of heavier turnaround.
Speaker Change: Q1, particularly in the West Coast region, just maybe you could talk about the decision around.
Speaker Change: Where are you took base.
Speaker Change: Maintenance, how that fits into the full year plan and anything anything we should be thinking about as you as you approach this turnaround season.
Michael J. Hennigan: Yeah, It's Mike.
Michael J. Hennigan: I think we said in our prepared remarks that our turnaround spend this year is about the same as last year, but the way you should think about it is as Maryann mentioned in the first quarter were pretty heavy at four of our largest facilities our largest financial generating facilities. So we're taking advantage of the fact that margins are down.
Michael J. Hennigan: In the first quarter. So we're spending 600 in the first quarter, which is a high number relative to the full year and I know, we don't traditionally give quarter to quarter, but I'll. Just tell you that you know next quarter the turnaround number drops down to like 200, or so somewhere in that range. So.
We're being opportunistic in some regard a lot of the activity does get plan, but at the same time.
Michael J. Hennigan: We wanted to take advantage of the fact that the margin environment now is constructive for us to be offline. So that when margins. We think we're going to be a lot stronger in the second quarter, we will have our four largest facilities turnaround and ready to deliver results.
Thanks, Mike.
Michael J. Hennigan: Youre welcome Neal.
Michael J. Hennigan: Our next question will come from Manav Gupta with UBS. Your line is open.
First of all congrats guys I know one of the goals was to get 200, plus and capture although Michael always stays focused on EBITDA or better margin and free cash I know one of the bullet.
Manav Gupta: Get to 100% gap so congrats on whole issue thing that Marc.
Manav Gupta: My question here is on the two growth projects.
Manav Gupta: Los Angeles some of the people out there are looking to exit the state given the tougher laws you are actually going back and investing in this project. So help us understand what's driving that and again on the Galveston Bay moving from you know updating high sulfur to USD what kind of.
<unk> uplift could you get if you do execute this project.
Yeah Manav this is Mike I'll start.
First of all thank you for the comment on capture and as you said, it's not my favorite metric but.
Michael J. Hennigan: I'm a big believer in how much cash are we generating how much cash per share regenerating and I want to lead in those categories.
The metric that I spend the most time looking at but.
It does give some good indication as mayor said, it's hard to differentiate the question Neil asked between what's happening in the market and what are some of the structural improvements that we've implemented over the last couple of years here, but anyway. Thanks for the comment as far as our capital investment I'm Hope everybody sees a couple of things one is.
Yes, we are investing in our la facility, it's an area, where we believe that we can put a decent amount of investment in there and really improve the competitiveness of that facility, but we already believe it's one of the top facilities on the West coast. So it is an area that we want to invest in now that particular <unk>.
<unk> is about efficiency reliability, and lowering our cost and to your point being a very reliable supplier out there as an important part of the equation.
The other project that we've announced is a margin enhancement project.
And in our view things, we're not going to get easier from hydro treated.
Distillate into the future and if you look at the spreads today, even today, they're pretty wide. So at the end of the day, what's driving us the most in both of those when we put this in the slides is we think both of these projects are north of 20% returns and hopefully we're conservative on that but we think they are very good investments and again in two of our largest.
Michael J. Hennigan: Highest financial generating facility. So one of the themes that you've heard from US is we're going to invest in projects that we feel really strong about it on a return basis, but theyre also enhancing and competitive positions of some of our biggest facilities and I think you've heard the theme from us for a while here its margin enhancement.
Michael J. Hennigan: Lower cost inefficiencies and out on the West coast. The other driver is <unk>.
Michael J. Hennigan: Emissions reduction goals that are going to occur over time and in this project will take care of that and in a large way and that's why we grouped it into our low carbon area. So hopefully that gives you a little bit more color.
Okay Perfect My quick follow up here is.
We're looking to ramp towards the nameplate capacity of renewable diesel project on the West coast.
You can give us some update over there how is that project progressing.
Maryann T. Mannen: Certainly it's maryann.
Maryann T. Mannen: Currently we are running at about 22000 barrels a day versus our nameplate at 48, we're going to continue to run at that level as we work with the regulators to determine what repairs need to be complete in order to be able to get to that nameplate at 48, as we think about that as you know we've got our JV partnership.
With next day so.
Maryann T. Mannen: You know really what we're looking at is the differential for MPC of about 13000 barrels a day, so not meaningful to the 3 million barrel system that we run but again running at 22 overall for the facility and we will continue to work with our regulators to.
Maryann T. Mannen: To determine when we can bring it to full 48.
Speaker Change: Thank you so much.
Speaker Change: Yeah.
Youre welcome Ana.
Speaker Change: Thank you next we'll hear from Doug Leggate with Bank of America Securities You May proceed.
Hello, Thank you good morning, everyone.
Speaker Change: Mike.
Doug Leggate: I hate to do this I wonder if I could try to capture your question a different way because we we I guess have a slightly different view of this if we look at your system is more of an MLP.
Doug Leggate: We see a great deal of linearity between the indicators for margin on what you are delivering I think I agree with you I didn't capture it is a terrible metric to try and measure a linear program business frankly, but what we do see however is the mix of inputs seems to be changing some.
Which is allowing you to capture more of the margins. So my question is really that.
Doug Leggate: What are you doing in your commercial business or operations that is changing the optimization of the slate that you are running in your system. Obviously, there are lots of moving parts around could in the U S. Right now with <unk> and a few other things.
Doug Leggate: Is that a factor.
Doug Leggate: Yeah, Hi, Doug This is Rick so I'll take a stab at that so.
Rick D. Hessling: So we are significantly.
Rick D. Hessling: I would say every day, Doug we are optimizing our slate and we look at this regionally we look at this by playing out but in the end, Doug I think what we do better than others in the industry as we optimize for the betterment of our total return.
At the end of the day. So we are we are not we could sub optimize one plant for the benefit of another and we have worked for years decades as a matter of fact to give ourselves optionality within our mid Con system. We're currently juggling optionality with <unk>.
Max and our West Coast and Pacific Northwest system as well as we've worked on it for for quite a while on the Gulf Coast. So.
You are onto something from a crude slate perspective, it's constantly changing we're constantly pushing the norm on what we should run what crudes, we look at what assays, we look at updating our system. So this is just an ongoing exercise.
Rick D. Hessling: Been happening now for several years now and I've said it before we're unpacking everything from a to Z, Doug We're leaving no rock unturned in terms of capturing value in that that not only goes certainly on the crude slate side, but it goes throughout our entire value chain.
Rick D. Hessling: Hey, Doug its Mike I know, it's been a source of frustration since we don't give a lot of detail in this area for competitive reasons, but to Rick's point, we've made some changes and to be honest with you I'm more excited about what's the future for us.
Michael J. Hennigan: Brian <unk>, new role as head of global optimization for US I think is going to make a step change for where we're going so we've had a lot of momentum in this area.
Michael J. Hennigan: It's showing up in the results.
Michael J. Hennigan: We discussed.
Captures not my favorite, but generating cash is and at the end of the day I think we have more opportunity in the whole area. If we run well and then deliver commercially we will continue to generate cash and be a good source of return for shareholders.
Michael J. Hennigan: Lp's are a complicated beast and you guys seem to have figured out so thank you for the answer guys.
My follow up is probably for Mike.
Might be familiar yet not sure congratulations everyone in their new roles, but Marianne if I look at slide 21, you are showing your debt maturity profile at the MPC level.
Obviously.
Sitting with a net cash position at the MPC level.
Michael J. Hennigan: What are your what are your thoughts on where you want your balance sheet to be as those debt maturities coming through.
Michael J. Hennigan: Hey morning, Doug It's John I'll go ahead, and take that and you saw that with some jokes.
Speaker Change: If you take or not thank you.
John: No no no it's not a problem at all and I think you kind of kind of hinting at it as you were getting there we've got a lot of financial flexibility right now, we're very comfortable with the gross amount of debt that MPC has.
But certainly have the balance sheet to be very thoughtful about the right timing of refinancing that debt and really optimizing our cost of capital and really about cost of debt.
John: And I think longer term rate, we've laid out a target of kind of the gross debt to cap of 25% to 30% were a good bit a ways from that but that's something we'll continue to monitor as we look out into the future.
John: Jordan remind me is that consolidated for MPLX or standalone.
Jordan: It stand alone.
Jordan: Okay, great. Thank you. So <unk> is in a much different position I can probably speak to that one pretty well just given the SEDAR was in before where you've got a really stable company running.
Jordan: Three 5% leverage but the cash flows there can probably support a debt to EBITDA ratio of four times.
Jordan: Again, they've got some financial flexibility to be smart about what they're doing as well.
So I think both balance sheets are in really strong place.
Thank you very much.
Okay.
Jordan: Our next question comes from Paul Cheng with Scotiabank. Your line is open.
Paul Y. Cheng: Hey, guys good morning.
Paul Y. Cheng: Martin path.
Paul Y. Cheng: I think in the past.
We have shown that you are not really interested in acquisition off a way finding asset.
Paul Y. Cheng: But one may argue with that I mean, given how well you are wondering your facility.
Do you think that that's a bad day, which will be at the two you'll have some additional offset to your platform. So you can that pie your technical knowhow to even a bigger pulp and also in the Gulf Coast to Hey, where should we find the right.
Paul Y. Cheng: If we add additional facility would that further diversify and reduce the operating rates are having multiple sorry can also.
Paul Y. Cheng: Frankly that that will perhaps even increase.
Paul Y. Cheng: Commercial and optimization opportunities. So just wanted to see if that I mean, how would you guys look at that.
Bad debt questions internally.
Paul Y. Cheng: Yeah, Paul first off Dave happened. This group is constantly looking at the market and what assets are available.
I always say I never say never but in the meantime, while Dave is working on that side of the equation. We're also looking at the footprint, we have and the assets we have and that's part of the reason that we came out with the announcement today two of our key facilities. We think we can make a meaningful change.
Paul Y. Cheng: And we've been more transparent than normal to try and explain to people. We think we got north of 20% return projects here on the assets that we own ourselves. So there's always a balance all between obviously the assets you own you know inside and out whereas the ones you're evaluating an externally there is a little bit of concern.
From diligence et cetera, but what I will tell you you know I think people know my DNA in general, but at the same time, you know Dave and his team are challenging where can we make investments that are outside of our portfolio.
Paul Y. Cheng: Haven't done a lot as you mentioned on the refining side, but we have made some investments will recall in low carbon we made some investments in some pretty train facilities on the low carbon side, we've invested in an R&D facility. So.
David and his team are looking at both refining and outside of refining and we just constantly talk about that and decide where do we think we want to put our capital and for REIT for today.
Paul Y. Cheng: Pleased to report that we think we have two pretty good projects, but the other part let me just mentioned it's one last thing because this is kind of important on this slide where we talk about our capital we say in traditional refining we're investing 475 million Maryann mentioned that 100 of that is related to the <unk>.
Paul Y. Cheng: DHT project, but $375 million of that is what we don't typically talk about on earnings calls.
These are projects in all of our facilities that are higher return really good projects for us, but they don't have the sexy headlines about them, but if you look at it though 375 out of the $4 75, and traditional or are these smaller high return projects. So.
Paul Y. Cheng: The team does a nice job.
Paul Y. Cheng: Tim and his organization are constantly looking for areas, where we can make margin improvement lower cost increase reliability.
He said you know this all starts with you got to run reliably and then you've got to be smart commercially and I think we've demonstrated that a little bit and then we just try to invest capital to keep bolstering that equation. So hopefully that gives you a little more color.
Paul Y. Cheng: Absolutely.
Speaker Change: Can I just go back into the commercial question.
In the fourth quarter, you guys definitely done well and your site yet and if we're looking at.
Versus day to day.
Speaker Change: The margin capture 100 additional 22%.
Speaker Change: I know that you can share how much of them is coming from the.
Speaker Change: Commercial side of the business that you have done really well and that's why that you are seeing that.
Speaker Change: That much better.
Tetra and also at that.
Speaker Change: In the policy, you're saying that one of the maybe a holy Grail for commercial auto.
Speaker Change: <unk> is that you will be able to optimize based on a breakdown to assign the wind optimized based on the total company.
Speaker Change: We are weak in that process do you think that you already there or that you are just still stretching to the surface on that process.
Speaker Change: Yeah, Paul I'll start with the second part as I said I'll repeat myself, a little bit, but we still think theres quite a ways to go where we can do better and that was part of the reasoning behind the organizational change Brian's role as global optimization lead is going to his team is going to work with the commercial guys with our refining.
Speaker Change: <unk> heard me say redefined process find places to invest change what we're doing today. So I think we've made a lot of progress.
Speaker Change: People always ask what inning or I guess, it's football season, so what quarter or are we in and that's always hard to ascertain because I think we keep peeling the onion back and see that we can make another step change so.
I'm optimistic that we got a lot of road to go and I think at the end of the day. Our mantra is we'll just keep watching our results and you'll see what comes out of it as far as the first part its always hard that's why I'm not the biggest fan of that metric, it's always hard to differentiate some of the market factors that Maryann mentioned.
And obviously the fourth quarter you get butane blending is one thing that enhances capture but but there is a significant if I wanted to give some kudos to our team there isn't a significant change in the way we're approaching the business. You know you heard from Rick earlier, and so I think it is additive to whatever the market has given us and my my thought is the way.
We have to run the company is we don't control the margin environment, but whatever margin environment is given to US we just got to deliver more results and generate more cash and more cash per share. So while everybody outside and inside wants to talk about that capture metric I just keep looking at the one that matters. The most to me.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Hey, Paul It's Maryann I, just might try to add a bit more around some of the things that we're doing specifically around commercial performance without necessarily trying to give you a percentage, but we've been talking over the last several quarters about the capabilities. We built regionally obviously at Houston office in Singapore Office in London.
Speaker Change: That has helped us.
Speaker Change: Laughingly thing to Mike about cracking the code on linear programming, but you know some.
Speaker Change: Some of the capabilities that Rick and Brian and their respective teams have built historically give us very robust tools and data analytics that allow us to assess the decisions that we've made to know how good or bad those decisions were and what we might do with that to change. It. So it is building these capabilities are building.
Speaker Change: Stable.
Speaker Change: Learning and.
Speaker Change: Our capabilities in the organization that we think will continue to drive our performance I hope that's a bit more helpful too.
So thank you maryann.
Speaker Change: Next we will hear from Roger read with Wells Fargo. You May proceed.
Roger: Yes, good morning, congratulations on the quarter.
Maryann T. Mannen: Thank you Roger.
Maybe just if we could address the changes here on the management team and whether or not that are core to what it does ports and about the future I don't like you're approaching the point at which the board has to make a decision to extend it.
Maryann T. Mannen: If I understood correctly from the meetings back in.
Maryann T. Mannen: November so.
Speaker Change: You can offer us up on any updates there.
Speaker Change: Yeah, Roger I'll start off with the changes are driven by two things results.
One of the things that I feel my responsibility is to reward the results that we're getting from the team has done a very nice effort across the whole team and the second part is development putting people in positions such that they they grow more personally so that they can contribute to the team. So.
Speaker Change: Both of those factors I think played into a lot of these assessments that occurred at the executive level, but it's also occurring below that that not everybody gets to see so I'm, a big believer in and the team approach.
Speaker Change: Practically all decisions that we make all of our team is involved in so you know theres a heavy component of development on top of the results that have occurred the last couple of years as.
Speaker Change: As far as me personally I think you've heard in the past that's a board decision. The board is very aware of that.
That will play itself out in time.
Speaker Change: Boards, if its not their top priority. It's obviously at the very top of the first couple is what with their responsibility is so so that's just work in progress it's been in progress for quite some time and.
It will play itself out as time goes by.
Speaker Change: Okay.
Speaker Change: And then my other question was to follow up a little bit odd.
The balance sheet question.
Speaker Change: Asked about.
Speaker Change: Debt to cap guidance, given but if you keep buying shares that theoretically you could end up shrinking the equity side, which could get you to the 25% even if you held that flat so.
None of us can predict the future exactly where all this will shake out but that sort of math imply that you could actually.
Speaker Change: And up.
Speaker Change: Staying at the same debt level in other words simply refinance the debt implying that all the cash that's on there would be eligible for share repo repurchases or some other sort of return to shareholders.
Speaker Change: And that's the right math to follow.
Speaker Change: Yeah, Hey, Roger It's Jon you read through my subtle comments very very well.
Jon: Certainly the other part of that equation right is what we're doing on the on the equity side.
So that was my commentary, we think our gross levels that are appropriate as we as we look forward because that'll be part of the math will take a look at that but.
Speaker Change: I think youre pretty spot on and I'm not sure I can add much from what you said to be honest.
Speaker Change: The other thing I would add.
Speaker Change: Yes.
Speaker Change: I'm sorry, I just wanted to just add as a general rule. My belief is we don't want to be under Levered, we don't want to be over Levered, we want to find what we think is the appropriate level and we think we've been there and we've been consistent there and that's why people should read into our cash position as that's going to be targeted for rich.
Speaker Change: Turning to shareholders.
I think our job is to generate the most cash we can run the balance sheet properly, which we've done over the past and and then at the end of the day return excess capital to shareholders.
Speaker Change: Thanks.
Speaker Change: Youre welcome.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Your next question will come from John Royall with Jpmorgan. Your line is open.
John Edwards: Hi, good morning, Thanks for taking my question.
John Edwards: So I just had a follow up on the balance sheet you had another strong quarter for the buyback of two and a half billion.
John Edwards: But with the crack environment, turning down you did end up drawing almost $3 billion of cash and despite the big maintenance coming up and <unk>. It looks like January is off to a really healthy pace.
John Edwards: 900 million.
So my question is would you expect to maintain a similar pace throughout <unk> as you progressed these turnarounds and what could that mean for the cash draw and where balances could be at the end of <unk>.
John Edwards: Yeah, Hey, good morning, John It's it's John here I'll take that one and let Mike add some other comments as well, but let me just start by saying as I roll into the seat I want to be clear. There is no change in how we're viewing return of capital as you heard even in Mike's prepared remarks.
John Edwards: Again really strong performance last year again, as we're looking to drive strong returns to our investors.
Speaker Change: And that will continue to be a key part of our capital allocation priorities in 2024, and as we look at that we're going to look at lots of things one we want to be opportunistic in the overall capital allocation.
And we'll consider the refining macro environment, along with lots of other items.
Speaker Change: But in the balance sheet, where it is but ultimately just wanted to be clear, we're gonna be steadfast in our commitment to return of capital.
Speaker Change: John its Mike the only thing that I'll add is we think it's part of our DNA and duty to return capital as part of our mantra. So we've been saying for quite some time and we've been fortunate as you said you know the margin environment has been.
Michael J. Hennigan: Conducive to generating more cash, but we we've targeted all along to return that capital to shareholders. We're going to continue to do that and then again whatever market environment, we get handled or get handed I'm, sorry, we will will make that still a priority for us.
Michael J. Hennigan: It it's on our capital allocation priority, we will start off with maintaining the assets growing the dividend investing in the business. So that's still part of our DNA as well, but at the end I only huge believers give that capital back to shareholders and then let shareholders decide where they want to invest longer term, we want to be the vehicle.
Michael J. Hennigan: We generate cash and return capital and as people have seen that over time that that isn't going to change regardless of what the margin environment is.
Speaker Change: Great. Thank you and then.
I apologize ahead of time to make for this but I do have another question on capture but you know the commercial stuff aside.
Can you help us think about some of the moving pieces in the first quarter and particularly how.
Speaker Change: How should we think about the impact of the heavy maintenance in the quarter.
Speaker Change: Is this still a.
Speaker Change: The potential to be 100% type quarter, given you have so much maintenance and any other moving pieces that we should think about it might move you away from that 100% in either direction and want to.
Speaker Change: Hey, John It's Maryann and let me see if I can take that for you in and address your question. So first and foremost as we say we continue to think for 2024, our objective is to drive toward that 100% you're absolutely right in the quarter. As we said, we've got about $600 million, but what touching a crude unit so were not expect.
Speaker Change: <unk>, a significant amount of a negative impact on our capture them. Despite the fact that we are seeing that level of turnaround now as you know we do have variables that impact the capture rate from quarter to quarter, but right. Now we are not expecting turnaround to have a substantially negative impact on that drive towards 100.
Speaker Change: <unk>.
Speaker Change: Great. Thank you very much.
Speaker Change: You are welcome.
Speaker Change: Our next question will come from Theresa Chen with Barclays. Your line is open.
Speaker Change: Hi.
To ask about the outlook.
Theresa Chen: From a product supply perspective, just so on the domestic front there does seem to be a good amount of planned work this quarter, including within your own system.
Theresa Chen: They are constructive for inventory is going to spend more but internationally. There is quite a bit of new supply coming online in one of your competitors has talked about a one 5 million barrel per day number would you agree with that and how much do you think it could be realistically utilized.
Theresa Chen: Hi, Theresa this is Rick I'll attack, the new refining capacity first so we see that coming on later versus sooner and when I say later I would say second half of this year and then some.
Over the years when you bring on new Greenfield facilities, which are being brought on it it's been proven difficult to bring them on in a timely fashion and these specific facilities like others, we'll face challenges with logistics and supply so I.
Specifically comment on the 1.5, but I will say, we believe it'll be later versus earlier.
Theresa Chen: And then for for the demand piece specifically.
Theresa Chen: Certainly you've seen as you reference utilization.
Theresa Chen: Even here recently down 7% in the last week due to turnarounds and weather related events. When we look at that and look going forward, we're continuing to see steady demand as Mike mentioned in his opening remarks, our export book on gas and diesel has been very solid.
Theresa Chen: It was solid in 2023, and we're off to a very good start in 2004. So when we look at all of this together, we see it setting up very well trees. So for us I'm very supportive of spring and summer season.
Theresa Chen: Sure, It's Mike I'll, just add I mean, it's pretty well documented.
Michael J. Hennigan: Last year oil demand globally was over 2 million barrels a day I know some of the forecasters are calling it one plus ish.
Michael J. Hennigan: We'll see how that plays itself out for this year, but I think the bigger picture, even though there's been a lot of attention, particularly to these two refineries that are.
Michael J. Hennigan: Coming up as Rick mentioned later in the year is the reason we believe it's more constructive over time as we're still believers in demand is going to continue to rise and absent. This short term issue with some of the supply coming on we just see it very constructive where demand is going to continue to outpace and that's why we think margins will stay.
Michael J. Hennigan: And in the above mid cycle the term everybody is using.
I think at the end of the day, we'll obviously keep a watch out of it and there may be some short term.
Variations to that but I think part of the reason that we remain bullish as if we look over time, where we're just big believers in demand is going to stay robust and on paper aside from the short term issue, we don't see a whole lot of supply response.
Michael J. Hennigan: Trying to match that.
Speaker Change: Hopefully that makes sense to you.
Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you. Our next question will come from Ryan Todd with Piper Sandler Your line is open.
Ryan Todd: Great. Thanks.
Ryan Todd: And maybe.
Ryan Todd: As a follow up on that last question.
Ryan Todd: In your prepared remarks, you mentioned that you what you view as an enhanced the mid cycle environment for U S. Refiners in the coming years I mean, I think you were just talking about some of the.
Ryan Todd: Some of the Bravo globe broader global supply and demand that I think would feed into that but can you maybe talk a little bit more about.
What you view as the primary drivers of that uplift in margins particular for U S refiners.
Ryan Todd: And when you think about the go forward environment versus go forward mid cycle versus past mid cycle view.
Ryan Todd: What sort of uplift if.
And do you think about a dollar a barrel $2 a barrel or their end.
Ryan Todd: And how do you underpin that in terms of kind of U S advantages for you in your system.
Ryan Todd: Yes, Ryan it's Rick so for U S advantages they are quite significant and you know Mike touched on earlier on in his.
Rick D. Hessling: His prepared remarks, we have a feedstock advantage here.
Rick D. Hessling: Here in North America with feedstock at our doorstep and we have access to crude from around the world. So we believe that's a significant advantage and it's been very well documented we have an energy advantage with the U S being an extremely long and Nat gas and we have cheap Nat gas prices, but in addition to that when we look.
Rick D. Hessling: Our workforce at our at our assets and our refinery complexity. When you start layering all of those on top of one another Ryan.
Rick D. Hessling: Adds up significantly.
Rick D. Hessling: We believe in an enhanced mid cycle now when you think of it from our perspective. This is where our scale really comes into play. So we run a 1 billion barrel of system.
Rick D. Hessling: Billion barrel system annually. So you can pick the number we won't give you a number but it's easy math, if it's mid cycle plus a buck that adds $1 billion.
To Mpc's bottomline to Buck incentive or enhancement over mid cycle 2 billion. So.
Rick D. Hessling: That's where our scale really comes into play now.
Rick D. Hessling: Our bullish because of a lot of the reasons, Mike mentioned global demand. We believe we will hit a record consumption in 'twenty four 'twenty three was a record. We believe 24 will be a record IEA believes 24 will be will be a record in fact IEA continues to revise up up there.
Rick D. Hessling: Demand.
Rick D. Hessling: Forecast month after month and have done so for the last three months. In addition, we referenced turnarounds globally turnarounds are high when Youre looking at history and.
Rick D. Hessling: We are set up well here for a strong spring and summer.
Speaker Change: I hope that helps you.
Hey, Ryan It's Mike Let me just add.
Michael J. Hennigan: We don't pick a number we do scenario planning like bricks that gave you. Some examples but so we do scenario planning would've been two box would've been four box would've been six bucks and take a look at it from that perspective, rather than trying to estimate what the number is I'm a big believer in its hard to call. The 50 yard line, but if we get the banks of the river and we get to <unk>.
Speaker Change: <unk> zones right.
Speaker Change: We will be able to run the business properly for the long term.
Speaker Change: Okay.
And we do have time for just one more question. Our last question will come from Jason <unk> with TD.
Jason: Your line is open.
Jason: Hey, good morning, Thanks for squeezing me in.
Jason: I want them to.
Jason: I wanted to ask about the West Coast project that you disclosed.
Jason: And a two part question on it first when you referenced the returns how much is there is there a decent chunk of that that's related to avoided regulatory penalties that you would incur if you didn't do the project and then how do you get comfortable with the demand.
Jason: The outlook on the West coast and in the potential regulations that could limit.
<unk> ability to capture.
Jason: Periods, where product prices are higher.
Jason: So Jason on the on your first part there is there is nothing that you said was avoid.
Jason: Avoiding costly wherever it so nothing is related to that so it's a you know think of it as a reliability project a modernization project an efficiency project, a lower cost projects and reducing greenhouse gas, which we need to do out there. There's regulations out there that are going to occur over time.
We could've made the choice to wait until that regulatory requirement was there, but we saw an opportunity to enhance the facility ahead of time and we've kind of disclosed already we think theres greater than 20% return there.
Jason: How do we get comfortable and the overall macro it's there's going to be a tough environment for California, if things get more and more competitive out there, but we think we have a very competitive asset. So we think we're in it for the long term. We don't think all of the facilities out there will survive in the long term, but as that volatility of cars out there we want to have.
Jason: A really strong competitive reliable efficient low cost facility.
Speaker Change: Jason I will just add to that we believe our integrated system in California, as a competitive advantage over the merchant refiner as well. So when you look across our entire value chain from feedstocks and all the way through to the station level.
Speaker Change: That's a competitive advantage over the merchant refinery when you have demand declines.
Jason: Alright, and with that thank you for your interest in Marathon Petroleum Corporation should you have additional questions or like clarification on any of the topics discussed. This morning, Please reach out and member of the Investor Relations team will be here to help you. Thank you for joining us.
Speaker Change: That does conclude today's conference. Thank you for participating you may disconnect at this time.
Speaker Change: [music].