Q2 2024 Marathon Petroleum Corp Earnings Call
and John Quaid. Thank you. Thank you.
Operator: Welcome to the MPC Second Quarter 2020 earnings call. My name is Sheila, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Press star 1 on your touchtone phone to enter the queue.
Sheila: Welcome to the MPC Second Quarter 2020 4Earnings Call. My name is Sheila, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Press Star 1 on your touchtone phone to enter the queue.
Operator: Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.
Sheila: 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 Corporation's second quarter 2024 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 Maryann Mannen, CEO; John Quaid, CFO; and other members of the executive team. We invite you to read Safe Harbor's statements on slide two. We will be making forward-looking statements today, but actual results may differ. Factors that could cause actual results to differ are included there, as well as in our filings with the SEC. With that, I'll turn the call over to Maryann.
Speaker Change: Welcome to Marathon Petroleum Corporation's second quarter 2024 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the investor tab.
Kristina Kazarian: Joining me on the call today are Maryann Mannen, CEO , John Quaid, CFO , and other members of the executive team.
Kristina Kazarian: We invite you to read the Safe Harbor's statements on slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I'll turn the call over to Maryann.
Maryann Mannen: Thanks, Kristina. And good morning, everyone. I want to take a moment to recognize Mike Hennigan's leadership as CEO of MPC over the last four years. Mike's record of accomplishment has been tremendously valuable. During his tenure, Mike delivered MPC's transformative strategic priorities and returned a peer-leading $40 billion to shareholders. We're fortunate to have Mike as executive chairman of MPC's board going forward. Moving to the global macro environment, in the second quarter, supply of refined products reached all-time seasonal highs.
Maryann Mannen: Thanks, Kristina, and good morning, everyone.
Speaker Change: I want to take a moment to recognize Mike Hennigan's leadership as CEO of MPC over the last four years.
Speaker Change: Mike's record of accomplishment has been tremendously valuable. During his tenure, Mike delivered its transformative strategic priorities and returned a peer-leading $40 billion to shareholders. We're fortunate to have Mike as Executive Chairman of MPC's board going forward.
Speaker Change: Moving to the global macro environment, in the second quarter, supply of refined products reached all-time seasonal highs. The margin environment, supported assets running at high utilization, and new capacity additions continue to ramp.
Maryann Mannen: The margin environment, supported assets running at high utilization, and new capacity additions continue to ramp up. At the same time, demand for refined products sets new records globally. We expect 2024 to be another year of record refined product consumption. Within MPC's domestic and export businesses, we are seeing steady demand year-over-year for gasoline and diesel and growing demand for jet fuel. As we look forward, demand growth is expected to outpace near-term capacity additions over time, with limited global refining capacity additions expected through the end of the decade.
Speaker Change: At the same time, demand for refined products set new records globally.
Speaker Change: We expect 2024 will be another year of record refined product consumption.
Speaker Change: Within MPC's domestic and export businesses, we are seeing steady demand year over year for gasoline and diesel and growing demand for jet fuel.
Speaker Change: As we look forward, demand growth is expected to outpace near-term capacity additions over time, with limited global refining capacity additions expected through the end of the decade. These fundamentals still support an enhanced mid-cycle environment for refining.
Maryann Mannen: These fundamentals still support an enhanced mid-cycle environment for refining. The U.S. refining industry is expected to remain structurally advantaged over the rest of the world. We believe our assets will remain the most competitive in each region in which we operate. Our fully integrated refining system and geographic diversification across the Gulf Coast, MidCon, and West Coast regions provide us with a competitive advantage. We are steadfast in our commitment to safely operate our assets and protect the health and safety of our employees. Operational excellence and commercial execution have driven sustainable structural benefits, uniquely positioning us to capture market opportunities. Our execution remains core to our value delivery.
Speaker Change: The U.S. refining industry is expected to remain structurally advantaged over the rest of the world. We believe our assets will remain the most competitive in each region in which we operate.
Speaker Change: Our fully integrated refining system and geographic diversification across the Gulf Coast, MidCon, and West Coast regions provide us with a competitive advantage.
Speaker Change: We are steadfast in our commitment to safely operate our assets and protect the health and safety of our employees.
Speaker Change: Operational excellence and commercial execution have driven sustainable structural benefits, uniquely positioning us to capture market opportunities. Our execution remains core to our value delivery. Our disciplined capital investments are focused on high return projects.
Maryann Mannen: Our disciplined capital investments are focused on high-return projects. In refining, we are making investments predominantly in our large, competitively advantaged facilities to optimize our assets and position MPC well into the future. In midstream, MPLX continues to execute attractive growth opportunities focused on bringing in incremental third-party cash flows. We continue to grow our natural gas and NGL value chains. In the second quarter, MPLX closed the Whistler transaction.
Speaker Change: In refining, we are making investments predominantly in our large, competitively advantaged facilities to optimize our assets and position MPC well into the future.
Speaker Change: In midstream, MPLX continues to execute attractive growth opportunities focused on bringing in incremental third-party cash flows.
Speaker Change: We continue to grow our natural gas and NGL value chains. In the second quarter, MPLX closed the Whistler transaction. Last week, MPLX and its partners reached FID on the Blackcomb natural gas pipeline.
Maryann Mannen: Last week, MPLX and its partners reached FID on the Blackcomb Natural Gas Pipeline. It will be a 2.5 BCF pipeline connecting supply in the Permian to domestic and export markets along the Gulf Coast. This project offers a compelling value proposition while providing shippers with flexible market access. Blackcomb is expected to be in service in the second half of 2026.
Speaker Change: It will be a 2.5 BCF pipeline connecting supply in the Permian to domestic and export markets along the Gulf Coast. This project offers a compelling value proposition while providing shippers with flexible market access. Blackcomb is expected to be in service in the second half of 2026.
Maryann Mannen: Additionally, MPLX recently increased its ownership in Bangalore. This pipeline transports NGLs from the Permian to Sweeney, Texas, and it is currently expanding its capacity to 250,000 barrels a day. This transaction is immediately accretive and enhances MPLX's Permian NGL value chain as part of its developing wellhead-to-water strategy. MPLX is strategic to MPC's portfolio, providing a $2.2 billion annualized cash distribution to MPC. This fully covers MPC's dividend and nearly all of our 2024 capital programs.
Speaker Change: Additionally, MPLX recently increased its ownership in Bengal. This pipeline transports NGLs from the Permian to Sweeney, Texas, and it is currently expanding its capacity to 250,000 barrels a day.
Speaker Change: This transaction is immediately accretive and enhances MPLX's Permian NGL value chain as part of its developing wellhead-to-water strategy.
Speaker Change: MPLX is strategic to MPC's portfolio, providing a $2.2 billion annualized cash distribution to MPC.
Speaker Change: This fully covers MPC's dividend and nearly all of our 2024 capital program. And our midstream segment, which is primarily comprised of MPLX, has grown its adjusted EBITDA at nearly 7% compound annual growth rate over the last three years.
Speaker Change: Strong coverage, low leverage, and growing cash flows provide MPLX financial flexibility, placing it in an excellent position to continue to significantly grow its distributions, further enhancing the value of this strategic relationship.
Speaker Change: MPC's total capital return since May 2021 has reduced MPC's share count by nearly 50 percent.
Speaker Change: Cash generation will continue to influence buyback capacity as we return to a normalized balance sheet.
Speaker Change: Given our highly advantaged refining business and the $2.2 billion annualized distribution from MPLX, we believe we can lead peers in capital returns through all parts of the cycle.
Speaker Change: MPC generated second quarter adjusted earnings per share of $4.12. Our operational excellence and commercial performance support our quarterly results.
Speaker Change: This quarter, we delivered refining utilization at 97%.
Speaker Change: capture of 94% of 2% while other refining peers reported sequential declines.
Speaker Change: Adjusted R&M EBITDA per barrel of $7.07 in cash from operations, excluding the impacts of working capital of $2.7 billion.
Speaker Change: both of which led Refining Peers, and we returned $3.2 billion to our shareholders.
Speaker Change: The capabilities we have built provide a sustainable advantage, and we expect to continue to see the impact on our quarterly results.
Speaker Change: Let me turn the call over to John . Thanks, Maryann. Slide 5 shows the sequential change in adjusted EBITDA from first quarter 2024 to second quarter 2024, as well as the reconciliation between net income and adjusted EBITDA for the quarter.
John Quaid: Adjusted EBITDA was higher sequentially by $133 million, driven by increased results in both our refining and marketing and midstream segments.
John Quaid: The tax rate for the quarter was 16%, resulting in a tax provision of $373 million. The second quarter tax rate largely reflects the earnings mix between our R&M and midstream businesses, lower sequentially primarily due to higher throughput. Slide 8 shows the changes in our midstream segment adjusted EBITDA versus the first quarter of 2024. The two midstream transactions Maryann discussed earlier further enhance our Permian value chains for both natural gas and NGL.
John Quaid: The tax rate for the quarter was 16%, resulting in a tax provision of $373 million.
Speaker Change: The second quarter tax rate largely reflects the earnings mix between our R&M and midstream businesses.
Speaker Change: Moving to our segment results, slide six provides an overview of our refining and marketing segment for the second quarter.
Speaker Change: Following significant turnaround activity in the first quarter, our refineries ran at 97% utilization, processing nearly 2.9 million barrels of crude per day.
Speaker Change: Refining operating costs were $4.97 per barrel in the second quarter, lower sequentially, primarily due to higher throughputs.
Speaker Change: Lower project-related expenses associated with reduced turnaround activity and lower energy costs. In our largest region, the U.S. Gulf Coast, our operating costs were $3.73 per barrel, demonstrating our cost competitiveness.
Speaker Change: Sequentially, per barrel margins were down, primarily due to lower crack spreads.
Speaker Change: Slide 7 provides an overview of our refining and marketing margin capture of 94% for the quarter.
Speaker Change: Capture in the Quarter reflected tailwinds from gasoline margins offset by increased headwinds from secondary product pricing, which was driven by high refining industry utilization.
Speaker Change: Gasoline margins were supported by a falling price environment during the quarter. And in addition, our integrated system and realized demand across our multiple sales channels was a competitive differentiator to our capture performance.
Speaker Change: Slide 8 shows the changes in our midstream segment adjusted EBITDA versus the first quarter of 2024. Our midstream segment is generating strong cash flows. This quarter, MPLEX distributions contributed $550 million in cash flow to MPC.
Speaker Change: The two midstream transactions Maryann discussed earlier further enhance our Permian value chains for both natural gas and NGLs.
Speaker Change: Through organic growth and disciplined investments, MPLEX continues to provide growing cash flows to MPC.
John Quaid: MPLX is a differentiator in the MPC portfolio and remains a source of durable earnings growth. Planned turnaround expense is projected to be approximately $330 million in the third quarter, with activity focused in the MidCon and Gulf Coast regions.
Speaker Change: MPLX is a differentiator in the MPC portfolio and remains a source of durable earnings growth.
Speaker Change: Working capital was a $541 million source of cash for the quarter, primarily driven by the decrease in refined product prices.
Speaker Change: This quarter, capital expenditures and investments were $541 million.
Speaker Change: And during the second quarter, MPLX issued $1.65 billion
Speaker Change: The proceeds of which MPLEX expects to use to retire senior notes maturing in December of this year and February of next year.
Speaker Change: MPC returned $2.9 billion through share repurchases and $290 million in dividends during the quarter.
Speaker Change: And in July , we've repurchased just over $900 million of MPC shares, leaving $5.8 billion remaining under our current share repurchase authorizations.
Speaker Change: and highlighting our commitment to superior shareholder returns.
Speaker Change: At the end of the second quarter, MPC had approximately $6 billion in consolidated cash and short-term investments, excluding cash at MPLX.
Speaker Change: Turning to guidance, on slide 10 we provide our third quarter outlook.
Speaker Change: We are projecting crude throughput volumes of just over 2.6 million barrels per day, representing utilization of 90%.
Speaker Change: Planned turnaround expense is projected to be approximately $330 million in the third quarter, with activity focused in the MidCon and Gulf Coast regions.
Speaker Change: Turnaround expense for the full year is anticipated to be approximately $1.4 billion.
Speaker Change: Operating costs are projected to be $5.35 per barrel in the third quarter. Distribution costs are expected to be approximately $1.55 billion. And corporate costs are expected to be $200 million.
Speaker Change: In summary, our second quarter results reflect strong cash generation and disciplined capital allocation.
Speaker Change: The R&M segment generated $2 billion of adjusted EBITDA, and MPLX distributed $550 million to MPC.
Speaker Change: This supported investments of over $500 million and capital return of approximately $3.2 billion. With that, let me pass it back to Maryann.
Maryann Mannen: Thanks, John .
Maryann Mannen: My priorities are consistent with those that made MPC a peer-leading energy investment. We are unwavering in our commitment to safe and reliable operations.
Maryann Mannen: Operational Excellence, Commercial Execution, and our Cost Competitiveness yield sustainable structural benefits and position us to deliver peer-leading financial performance irrespective of the market environment.
Maryann Mannen: to do this.
Maryann Mannen: We will optimize our portfolio to deliver outperformance now and in the future.
Maryann Mannen: We'll leverage our value chain advantages, ensure the competitiveness of our assets, and continue to invest in our people. Our execution of these commitments position us to deliver the strongest through-cycle cash generation.
Maryann Mannen: Durable midstream growth should deliver cash flow uplift.
John Quaid: We will invest capital but be disciplined where we believe there are attractive returns, which will enhance our competitiveness.
Maryann Mannen: We will invest capital but be disciplined where we believe there are attractive returns which will enhance our competitiveness.
Maryann Mannen: We are committed to leading in capital allocation. We will return excess capital through share repurchases.
Maryann Mannen: MPC is positioned to create exceptional value through peer-leading performance, execution of our strategic commitments,
Kristina Kazarian: and a compelling value proposition. Let me turn the call back over to Kristina. Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will re-prompt for additional questions. We will now open the call. Sheila?
Speaker Change: Thank you. We will now begin the question and answer session. If you have a question, please press star then 1 on your touchtone phone.
Speaker Change: If you wish to be removed from the queue, please press star then 2.
Speaker Change: If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers.
Speaker Change: Once again, if you have a question, please press star then 1 on your touchtone phone.
Speaker Change: Our first question will come from Manav Gupta with UBS.
Manav Gupta: Your line is open.
Manav Gupta: Good morning and congratulations on a very strong start.
Manav Gupta: And looking at all these very attractive projects that you're doing in midstream, Maryann, like Bangal, Whistler, and now Blackcomb.
Speaker Change: and looking at the way the distribution is growing at MPLX, like, is the thought process somewhere here to try and grow the distribution at MPLX for 10% and even if you can do it for two more years, that distribution to MPC jumps to like 2.7 plus.
Speaker Change: At that point is covering your full capex and full dividend. So technically you are a recession proof refiner.
Speaker Change: Thanks, Manav. I think you said it well. You know, the strategy that we are trying to execute in MPLX
Speaker Change: We've talked about targeting mid-single-digit growth.
Speaker Change: seen over the last three years, we've achieved that almost 8% in distributable cash flows
Speaker Change: And to your point, we have increased the dividend over the last three years, and more so in the last two years, 10% per year.
Speaker Change: We believe that our strategies well head to water, as we explained, and the key initiatives that you just articulated for me, our investment in Bengal, our JV in the Utica, Whistler, and then also just recently the FID of Blackcomb, we think continue to support
Speaker Change: our ability to deliver in growing mid-single-digit growth.
Speaker Change: Therefore, our goal of increasing that distribution and bringing it back to MPC creates, we believe, incremental strategic value between MPC and MPLX.
Speaker Change: And as you stated well, that will fully cover the MPC dividend and largely the capital that heretofore MPC has been putting to work.
Speaker Change: So again, we think that strategic relationship becomes incredibly more important as we are able to increase MPLX's distribution going forward.
Speaker Change: Perfect and a very quick follow-up is looking at the Gulf Coast OPEX I think $3.70 through the lowest in the business if like probably the lowest. Help us understand what's been the drivers of this because probably three or four years ago you were not the lowest cost.
Speaker Change: Gulf Coast operator. Looks like you've now gotten there, so help us understand some of the initiatives and can this be sustained here.
Mana: Manav, thanks. So, you know, as you know, one of our key initiatives...
Mana: One of our priorities with respect to our peer leading initiatives.
Speaker Change: has been profitability per barrel, and we see that as a cost-competitive commitment, if you will, in each of the regions where we operate. As we've been talking about for, you know, the last few years,
Speaker Change: The work that we have been doing, we believe, is sustainable. Ultimately, again, what we're trying to do is to deliver the best Ibbett-Doppler barrel in each of those regions. We appreciate your recognition of the Gulf Coast.
Speaker Change: I'll pass it to Rick to see if he wants to add any comments on the Gulf Coast.
Rick: Yes, so on the Gulf Coast, I will share that with utilization where it's at. We believe it to be a highly constructive market going forward and continue to rebound enough.
Rick: Thanks guys
Speaker Change: Thank you.
Speaker Change: Next we will hear from Neil Mehta with Goldman Sachs. You may proceed.
Neil Meadow: Good morning Maryann and team and Maryann I want to kick off with you which is you know as you take on the reins of the business
Neil Meadow: and CEO role. Can you talk about the first six months on the job? What are your key objectives? And what are you focused on here?
Maryann Mannen: Yeah, good morning, Neil. Thank you.
Maryann Mannen: I'll say first and foremost, continuing to create exceptional value.
Speaker Change: You know, as we've shared here and tried to articulate here this morning,
Speaker Change: We believe we can deliver the strongest dividend per barrel and cash flow per share.
Speaker Change: and we're going to continue to focus on notwithstanding our safe and reliable operations every day, all day.
Speaker Change: delivering outstanding operational excellence,
Speaker Change: Here, that will be a focus as we go forward to ensure that our profitability per barrel is the strongest.
Speaker Change: Ultimately, at the end of the day, we want to have our peer-leading capital allocation and we'll continue to drive all that we do to ensure that those allocation principles
Speaker Change: return on and return of our peer leading.
Speaker Change: I shared a little bit, we're going to continue to do that, leveraging our value chains. We also want to ensure, as we always have, the competitive nature of those assets is something that we will continually evaluate.
John Quaid: And then last, as we talk about, one of the things that I just shared here is the durable midstream growth in our business. With the cash flows, we think that is another compelling value proposition for MPC. And with all that, we should be able to deliver the strongest through-cycle cash flow. I think those are the things that you will see me continue to focus on, not only in the next six months but continuously as we drive value for our shareholders.
Speaker Change: And then last, as we talk about, one of the things that I just shared here is the durable
Speaker Change: with the cash flows, we think that is another compelling value proposition for MPC. And with all that, we should be able to deliver the strongest.
Speaker Change: I think those are the things that you will see me continue to focus on, not only in the next six months, but continuously as we drive value for our shareholders.
Speaker Change: Thank you, Maryann. If I can drill down on one specific item. Over the last couple of years, the business and the value has really been created largely organically.
Speaker Change: There are some questions about whether you pursue M&A in the renewable diesel space. There was trade articles around Neste in particular. So just love your your comments on how do you create value in that business and any any thoughts around that specifically.
Operator: Our next question will come from Paul Cheng with Scotiabank. Your line is open.
Speaker Change: Our next question will come from Paul Cheng with Scotiabank. Your line is open.
Paul Chang: Thank you. Good morning, Maryann and John and the team.
Paul Chang: Rick, for TMAX, it's been up and running for a number of months. Do you think that all the impact has already been felt in the marketplace, or do you believe there's more to come?
Speaker Change: We are surprised that two-thirds of the incremental barrels seem to be being exported to Asia.
Speaker Change: and allow him to give you some incremental color in particular on what's happening in the West Coast.
Speaker Change: We have the ability to run these advantage barrels.
Speaker Change: Not only at Anacortes, but at L.A. So, it's been very positive for us. See it being that way going forward, Paul.
Speaker Change: And then in terms of the export comment to Asia, not surprising at all. In fact, we expect that plus or minus will continue. And Paul, that'll largely be dependent on differentials and...
Paul Chang: Your quality differentials and your transportation, shipping transportation to the West Coast. So when you factor in those two variables, you'll be able to back into what will happen here going forward.
John Quaid: And then, hey, good morning, Paul. It's John.
John Quaid: And then, hey, good morning, Paul, it's John . On the other margin change you see for R&M, not all of it, but it primarily relates to us finalizing our insurance claim for the Galveston Bay Reformer.
John Quaid: On the other margin change you see for R&M, not all of it, but it primarily relates to us finalizing our insurance claim for the Galveston Bay Reformer. So we would have finalized that, recognized that income in the first quarter, and then received the cash proceeds in Q2. So you have that recognition in Q1, but again, it's the final one, so there's really nothing to offset it in Q2. That's what's driving the change you're seeing there.
Speaker Change: So we would have finalized that, recognized that income in the first quarter, and then received the cash proceeds in Q2. So you have that recognition in Q1, but again, it's the final one, so there's really nothing to offset it in Q2. That's what's driving the change you're seeing there.
Speaker Change: Our next question comes from Roger Read with Wells Fargo. Please go ahead.
Roger Reed: Yeah, thanks. Good morning and congrats Maryann on everything. I'd just like to maybe take a couple of shots at some of the macro stuff here as we think about
Roger Reed: the what we call better than mid-cycle, but whatever new mid-cycle, how you're looking at the structure of the market, and then how that fits in with
Speaker Change: I mean, what's generally been higher utilization throughout the industry, you know, putting a little pressure on cracks here, at least for a few months this summer, how maybe you think that works out as we look out over the next, call it six to 12 months.
John Quaid: Sure, Roger, thanks. There are a couple of things I'd say. First and foremost, you know, over the long haul, we continue to believe in an enhanced mid-cycle. It'll continue in the U.S. We talked a little bit about what we saw happen in Q1, Q2, coming off of, you know, pretty high turnaround across the space and on in Q1. And then you see obviously, you know, continued volatility here, supply and demand. But over the long haul, as I mentioned, we do not see, you know, really any challenge there.
Speaker Change: Sure, Roger, thanks. A couple of things I'd say. First and foremost, you know, over the long haul, we continue to believe in an enhanced mid-cycle. It'll continue in the U.S.
Speaker Change: Clearly, in the short term, we talked a little bit about what we saw happen in Q1, Q2.
Speaker Change: Q2 coming off of, you know, pretty high turnaround, you know, across the space and on in Q1. And then you see obviously, you know, continued volatility here.
Speaker Change: Supply Demand. But over the long haul, you know, as I mentioned, we do not see, you know, really any any challenge there. There could be, you know, supply that comes online. But when you look at the demand that we are expecting over the long term, we think that'll that'll be absorbed.
John Quaid: There could be, you know, supply that comes online. But when you look at the demand that we are expecting over the long term, we think that'll be absorbed. Clearly, some short-term volatility. You know, China, obviously, you know, just recent reports there in terms of where their demand flow is, you know, decisions by OPEC, all of which we think could have some short-term volatility. But over the long term, enhanced mid-cycle, we believe.
Speaker Change: Clearly some short term, you know, China, obviously, you know, that just recent reports there in terms of where their demand flow is.
Speaker Change: you know, decisions by OPEC, all of which we think, you know, could have some short-term volatility, but over the long-term, enhanced mid-cycle, we believe.
John Quaid: You know, depending on how you think about that mid-cycle, one of the ways that we like to articulate, you know, when we're running a billion barrels, if you think it's a dollar, you know, it's an incremental billion dollars to the MPC portfolio. Just a way for you to maybe frame that. I'll pass it to Rick and let him give you a little more color there.
Speaker Change: You know, depending on how you think about that mid-cycle, one of the ways that we like to articulate, you know, when we're running a billion barrels,
Speaker Change: If you think it's an incremental billion dollars to the MPC portfolio, just a way for you to maybe frame that. I'll pass it to Rick and let him give you a little more color there.
Rick: Yeah Roger, just a few more comments. So when you look, S&D is really in line with our expectations. It's really what and where we thought it would be. But when you drill down even further and look at utilization,
Rick: closer to home domestically. Over the last couple of weeks, even domestic utilization is off some 4%, ironically bringing us to this 90% utilization level, which is where our guidance is going forward. So we see that as continuing to be very constructive.
Speaker Change: And then I'll just spend a moment talking about our demand. Our demand within MPC, both domestically and from an export perspective,
Speaker Change: is very steady.
Speaker Change: on the gas and diesel side, and we're seeing really strong signals on the jet side. So we believe those tailwinds combined with the supply and demand picture that's truly in balance further backs up our mid-cycle plus thoughts going forward.
Speaker Change: I appreciate that. You kind of clipped me on my follow-up on the demand side, so I'll leave it there and turn it back to you all. Thanks. Thank you, Roger.
Speaker Change: Our next question will come from John Royall with J.P. Morgan. Your line is open.
John Quaid: So, my first question is just looking at your 90% utilization guide for 3Q. It's pretty low for MPC for a 3Q. There is a fair amount of turnaround activity, it appears, just from the total turnaround dollars. But my question is, is there any economic downtime or pulling forward of a turnaround activity or, in any way, any kind of response to the weaker crack environment buried in that 90%?
John Royal: Hi, good morning. Thanks for taking my question.
John Royal: So, my first question is just looking at your 90% utilization guide for 3Q. It's pretty low for MPC for a 3Q. There is a fair amount of turnaround activity, it appears, just from the total turnaround dollars.
Speaker Change: But my question is, is there any economic downtime or pulling forward a turnaround activity or in any way any kind of response to the weaker crack environment buried in that 90%?
Speaker Change: Hey morning, John . It's John . I'll take that to start. You're spot-on with the turnaround comment. Really, largely what you're seeing, right, we've got activity as I mentioned in the MidCon and the Gulf Coast.
Speaker Change: That's going to affect what we're going to be able to run, and then I'll make an initial comment, turn it over to Rick if he has any furthers, but really we're going to continue to run our assets optimally to meet the demand in the market.
John Quaid: Yeah, John nailed it. We will run economically and at 90% of the guidance that we think is a fair number going forward as we're one third of the way through the quarter.
Rick: Yeah, John nailed it. We will run economically in 90% as the guidance that we think is a fair number going forward as we're one-third of the way through the quarter.
Speaker Change: Great, thank you. And then I was just hoping for a little color operationally on how Martinez is running and ramping towards the target of
Speaker Change: Getting to full by year-end. Relatedly, do you have any concerns about the price of feedstocks getting driven up by a combination of Martinez ramping back to full and Rodeo coming on and ramping its runs of lower feedstocks?
Unknown Executive: Yeah, John, this is it.
Speaker Change: Yeah, John , this is Tim. I'll take that one. You know, we continue to believe Martinez is a highly competitive facility. And in the second quarter, we did bring a second unit back online, which did provide us with the ability to run at 75% of the nameplate capacity. And as we have noted in the past, we expect to bring the last production unit.
Speaker Change: Online by the end of this year, which would allow the plant to run at 100% of its nameplate capacity. So, we're on track for that.
John: Thank you.
John: Next we will hear from Jason Gabelman with T.D. Cohen. You may proceed.
Jason Gabelman: Morning. Thanks for taking my questions.
Jason Gabelman: I wanted to ask, firstly, on shareholder returns and the pace of buybacks moving forward.
Jason Gabelman: 2Q was a very strong buyback quarter. If I look, adjusting for working capital the past couple quarters, net debt has increased about $1.5 billion. At the parent,
Speaker Change: And just wondering if that's indicative.
Speaker Change: on how you're managing the balance sheet.
Speaker Change: Moving forward, as you continue to deploy that access capacity towards buybacks, or conversely, do you become a bit more cautious here in the near term with potential?
Speaker Change: For some dislocations, perhaps, in the stock price moving forward, should things continue to weaken, that maybe presents a more advantageous price to buy at. Thanks.
Speaker Change: Hey Jason, thanks. You know, with respect to buyback, I appreciate the comment on the second quarter. You could see $2.9 billion in the quarter.
Speaker Change: We continue to see share buyback.
Speaker Change: as an appropriate return of capital, particularly when you look at the current equity price of MPC and what we believe to be, over the long term, the growth and opportunity in this equity. So, you know, you'll continue to see us use...
Speaker Change: cash to buy back stock.
Speaker Change: Again, no change to that view as we look at that. Part of the reason you saw that change in net debt obviously is quarter over quarter, you saw the drawdown in cash. We've talked about what looks like a reasonable place for us to be in terms of a cash position. I can have John share a little bit more about that with you, but we're not near there. We continue to believe in buybacks and we'll go forward with that.
Speaker Change: Great, thanks. And my follow-up is just specifically on results in the mid-con. Gross margin came in very strong. I was wondering what drove that, if there was any one-time items or items you would call out for the quarter. Thanks.
Rick Hessling: Hey, Jason, it's Rick Hessling.
Speaker Change: Hey Jason, it's Rick Hessling. So, no one-time items. What I would tell you is...
Speaker Change: We believe a competitive advantage of our assets in the MidCon is our fully integrated system. We've been working for many years to create optionality.
Speaker Change: from what we call cradle-to-grave, when you think refining all the way through our end consumer, and we believe this is and will continue to pull through on our results.
Speaker Change: Thanks.
Speaker Change: Our next question will come from Carlos for Doug Leggate with Wolf Research. Your line is open.
Speaker Change: Hey y'all, this is Carlos, Doug sends his apologies. First of all congrats on the quarter and thank you for taking the question. I suppose we would like to know what the
Speaker Change: Appropriate dividend growth policy would be a presumable buyback slowdown, especially considering how strong your MPLX distribution is insofar as
Speaker Change: providing coverage for you guys on that end.
Rick Hessling: Thanks for the question, Carlos. You know, with respect to our dividend policy, there has been no change in how we think about that. You know, some criteria. One, we want that dividend to have the ability to grow. And over the last few years, you know, we look at that in the third quarter, and we'll do so again. But, you know, over the last few years, we've grown that dividend, you know, over a period of time, about twelve and a half percent compound annual growth in the change of that dividend.
Speaker Change: Thank you.
Speaker Change: Thanks for the question, Carlos. You know, with respect to our dividend policy,
Speaker Change: No change in how we think about that.
Speaker Change: to have the ability to grow and over the last few years we look at that in the third quarter and we'll do so again. But over the last few years we've grown that dividend over a period of time about 12.5% compound annual growth in the change of that dividend.
Rick Hessling: We want that dividend to be sustainable, and we, and we want that dividend, obviously, to be competitive. So we'll we'll take another look at that and share with you as we head into the third quarter, as we have in prior years. We continue to believe that when we talk about return on capital, we're looking at both dividends and share repurchase, but that our share repurchase is the primary vehicle for us in the return on capital strategy.
Speaker Change: We want that dividend to be sustainable, and we want that dividend, obviously, to be competitive. So we'll take another look at that and share with you as we head into the third quarter, as we have in prior years.
Speaker Change: We continue to believe that when we talk about return to capital, we're looking at both dividend and share repurchase, but that our share repurchase is the primary vehicle for us in the return to capital strategy.
Speaker Change: Thank you. And you actually, that's a good way for my follow-up question, which is, in a softer market, where would your priority be on that same balance of buybacks over balance sheets?
Rick Hessling: Would you and would you consider re-levering the balance sheet and to what extent if that's what you choose to do?
Speaker Change: Would you and would you consider re-levering the balance sheet and to what extent if that's what you choose to do?
Speaker Change: No, I don't. I don't think we would re-lever the balance sheet. You know, we've talked about our strategy and structure as it relates to debt-to-cap.
Speaker Change: Thank you.
Carlos: You're welcome, Carlos.
Speaker Change: Our next question will come from Matthew Blair with TPH. Your line is open.
Matthew Blair: Thanks, and congrats on the remarkable quarter. On the refining side, the slides mention tailwinds on capture in Q2.
Matthew Blair: from rising gasoline margins, but we noticed that your gasoline yields was actually a little lower than normal at 49%.
Matthew Blair: So could you talk about what kept it low and do you think that will rebound as we move into the third quarter?
Rick Hessling: Yeah, hi Matt, it's Rick. So the yields were really an impact of the feedstock input. And I would tell you that the ultimate capture, though, was enabled by our ability to capture higher margin with our specific commodities. So it's, again, an attestment to the team working from cradle to grave to maximize the margin irrespective of the yield percentage.
Matthew Blair: Yeah, hi Matt, it's Rick. So the yields were really an impact of the feedstock input, and I would tell you that the ultimate capture, though,
Matthew Blair: was enabled by our ability to capture higher margin with our specific commodities. So it's again an attestment to the team working from cradle to grave to maximize the margin irrespective of the yield percentage.
Speaker Change: Sounds good. And then, speaking of refining, when we look at octane spreads by region, the Midwest really stands out. You know, we're seeing about $40 premiums versus regular gasoline compared to, say, the Gulf Coast.
Rick Hessling: Around $9. Do you have a sense of what's driving those wide Midwest octane spreads and is that something that you should be able to capture in your system?
Speaker Change: around nine dollars. Do you have a sense of what's driving those wide Midwest octane spreads and is that something that you should be able to capture in your system?
Rick Hessling: Well, it's a great call out. This is Rick again.
Speaker Change: Well, it's a great call-out. This is Rick again. Yeah, so the market is tight right now. There have been some notable disruptions in the Midwest that are straining supply and demand, Matt, and that's definitely been a benefit to us.
Speaker Change: While it has widened significantly, as you've outlined, I would say we do expect a slight pullback to stay where it's at. Probably it's overly optimistic, but with that being said, constructively right now, the Midwest is tight.
Speaker Change: Great, thank you very much.
Speaker Change: Thank you.
Speaker Change: Now our next question will come from Theresa Chen with Barclays. Your line is open.
Teresa Chen: Hi, just a quick follow-up on your midstream strategy as it complements R&M. So as you grow that wellhead-to-water footprint in Permian to the Texas Gulf Coast,
Teresa Chen: Is your preference still to keep the commodity exposure at NPC such that you get that final piece and market LPGs across the water?
Speaker Change: As your mainstream competitors do, and R&M keeps that piece of the earning, could that structurally augment R&M capture?
Dave: Yeah, Theresa, you're correct. We would keep that commodity risk, as you well stated, at MPC. No desire to move that commodity risk. I'll pass it to Dave and allow him to give you a little more color there.
Dave: Yeah, Theresa, I think as we look at building out, you know, our wellhead to water strategies, one
Dave: One thought through it is, from an MPLX lens,
Dave: and building that industry solution both for MPC and other shippers.
Dave: on the system. And the second piece of the equation, as we look at it from an enterprise perspective...
Speaker Change: Where can we complement the MPC-MPLX relationship to create that incremental value, but also, as Maryann touched on, maintaining the commodity risk of that marketing and trading activity more on the MPC books?
Rick Hessling: I think it's also a benefit.
Dave: Hope that helps.
Maryann Mannen: I think it's also the benefit of our integrated asset portfolio, I think you really see that come through.
Speaker Change: Got it, thank you.
Unknown Executive: All right, Sheila, if you have no other questions, thank you for your interest in MPC. If you guys have additional questions or would like clarification on the topics discussed this morning, please reach out, and the Investor Relations Team will be available to take your calls. Thank you for joining us today.
Speaker Change: All right, Sheila, if there are no other questions, thank you for your interest in MPC. If you guys have additional questions or would like clarification on the topics discussed this morning, please reach out and the Investor Relations Team will be available to take your calls. Thank you for joining us today.
Operator: Thank you. That does conclude today's conference. Thank you for participating. You may disconnect at this time.
Speaker Change: [inaudible]