Q3 2025 Marathon Petroleum Corp Earnings Call
Speaker #1: Welcome to the MPC . Third quarter 2020 Earnings Call . My name is Shirley , and I'll be your operator for today's call .
Speaker #1: At this time , all participants are in a listen only mode . Later , we will conduct a question and answer session . Press star one on your touchtone phone to enter the queue .
Speaker #1: Please note that this conference is being recorded . I will now turn the call over to Kristina Kazarian . Kristina . You may begin .
Speaker #2: Welcome to Marathon Petroleum Corporation's third quarter 2020 earnings conference call . The slides that accompany this call can be found on our website at Marathon Petroleum .
Speaker #2: Under the investor tab . Joining me on the call today are Maryann Mannen CEO John Quaid CFO , and other members of the executive team .
Speaker #2: We invite you to read the Safe Harbor statements on slide two . We will be making forward looking statements today . Actual results may differ .
Speaker #2: Factors that could cause actual results to differ are included there, as well as in our SEC filings. With that, I will turn the call over to Marianne.
Speaker #2: Thanks, Kristina, and good morning. I'd like to take a moment to recognize Mike Hennigan at the end of the year.
Speaker #2: Mike will be stepping down as executive chairman . Mike's guidance has been tremendously valuable to our board , to me and our entire leadership team .
Speaker #2: We thank him for his service as well as all of his contributions . He will be missed in the third quarter , we delivered strong cash generation of $2.4 billion utilization in the quarter was 95% .
Speaker #2: As we executed our planned refinery turnarounds safely and on time . Our team delivered 96% capture despite significant market driven headwinds . Year to date , capture is 102% .
Speaker #2: This compares to the prior year's level of 95% . We believe this demonstrates our commitment to deliver sustainable , improving commercial performance in varying market conditions .
Speaker #2: We have generated $6 billion of operating cash flow , excluding changes in working capital , and have returned $3.2 billion to shareholders through the third quarter .
Speaker #2: Last week , we announced a 10% increase to Mpcs dividend , reflecting our confidence in our business outlook . We believe that we should be able to lead in cash generation through cycle , delivering peer leading results .
Speaker #2: In October . Our blended crack was over $15 per barrel , which is seasonally strong and more than $5 per barrel , or 50% higher than the same time period last year .
Speaker #2: Diesel and jet demand are up modestly across our system , while gasoline is flat to slightly lower . The product inventory draws reported last week signal strong demand .
Speaker #2: Gasoline and distillate inventory levels remain below five year averages . Current market fundamentals are indicative of tightness in supply and supportive demand , which we believe will persist into 2026 .
Speaker #2: Throughout the quarter , we completed several transactions advancing our strategic objectives and optimizing our portfolio . We sold our interest in an ethanol production joint venture as the partner .
Speaker #2: Strategic goals evolved and diverged , and opportunity came for MPC to exit the partnership at a compelling multiple . MPL acquired a Delaware Basin sour gas treating business , and the remaining 55% interest in the NGL pipeline .
Speaker #2: These transactions further MPL growth profile . MPL increased its distribution this quarter , reflecting conviction in its growth outlook . We now expect to receive $2.8 billion annually from MPL .
Speaker #2: MPL continues to target a distribution growth rate of 12.5% over the next couple of years, which would imply annual cash distributions to MPC of over $3.5 billion.
Speaker #2: We are driving value and positioning MPC to be industry leading in its own capital return program with our competitive integrated refining and marketing value chains and durable midstream growth driving increasing distributions from MPL .
Speaker #2: We believe MPC is positioned to deliver industry leading cash generation through all parts of the cycle . Now I'll hand it over to John to discuss our financial performance .
Speaker #3: Thanks , Marianne . Moving to third quarter highlights . Slide four provides a summary of our financial results . morning we reported third quarter adjusted net income of $3.01 per share .
Speaker #3: We delivered adjusted EBITDA of $3.2 billion and $2.4 billion of cash flow from operations , excluding changes in working capital . MPC returned over $900 million to capital of capital to shareholders in the quarter , with repurchases of 650 million and dividends of 276 million .
Speaker #3: Slide five shows the sequential change in adjusted EBITDA from second quarter to third quarter , and the reconciliation between adjusted EBITDA and our net .
Speaker #3: Results for the quarter , third quarter , adjusted EBITDA of $3.2 billion was largely in line with the prior quarter . Rnnm segment results on slide six were strong , with adjusted EBITDA of $6.37 per barrel .
Speaker #3: Our This refineries ran at 95% utilization , processing 2.8 million barrels of crude per day , and several of our refineries achieved monthly throughput records in the quarter , including Robinson and Detroit .
Speaker #3: In the mid-con and Anacortes in the West Coast . Mid-con margins strengthened sequentially , but were offset by declining margins in the US Gulf Coast and the West Coast .
Speaker #3: Turning to slide seven , third quarter capture was 96% , with headwinds in the West Coast and the Gulf Coast jet . The diesel differentials compressed .
Speaker #3: We faced lower clean product margins and inventory changes contributed headwinds to capture the downtime of our Galveston Bay refinery , Resid Hydrocracker was also a headwind to capture of almost 2% across the whole system , with a larger effect on our Gulf Coast results .
Speaker #3: Slide eight shows our midstream segment performance for the quarter . Segment adjusted EBITDA increased 5% year over year . MPL is executing its growth strategy , targeting its natural gas and NGL value chains , and remains a source of durable cash flow growth for MPC .
Speaker #3: Slide nine shows our renewable diesel segment performance for the quarter . Our renewable diesel facilities operated at 86% utilization , reflecting improved operational reliability .
Speaker #3: Margins were weaker in the third quarter as higher diesel prices and Rin values were more than offset by higher feedstock costs . We will continue to optimize our renewable operations , leveraging their logistic and pretreatment capabilities .
Speaker #3: Slide ten presents the elements of change in our consolidated cash position for the third quarter . Operating cash flow , excluding changes in working capital , was $2.4 billion .
Speaker #3: And in the third quarter , MPL completed acquisitions of over $3 billion and issued debt in connection with those acquisitions to finance them .
Speaker #3: Also , as we discussed with you last quarter , our second quarter share repurchases were influenced by the anticipated proceeds from the sale of our interest in the ethanol joint venture , which closed in July at the end of the quarter , MPC had cash of nearly $900 million and MPL had cash of approximately $1.8 billion .
Speaker #3: Turning to guidance on slide 11 . We provide our fourth quarter outlook . We are projecting crude throughput volumes of 2.7 million barrels per day , representing utilization of 90% .
Speaker #3: The Galveston Bay Hydrocracker is expected to be at full operating capacity before the end of the month , enabling optimization of our Gulf Coast system turnaround expense is projected to be approximately $420 million in the fourth quarter , with activity mainly focused in the West Coast .
Speaker #3: We are completing our multi-year infrastructure improvement project at our Los Angeles refinery in the fourth quarter , with start up scheduled to align with the conclusion of planned turnaround work before the end of this month .
Speaker #3: These improvements are intended to strengthen the competitiveness of our Los Angeles refinery and position us to remain one of the most cost competitive players in the region .
Speaker #3: For years to come . Operating costs for the fourth quarter are projected to be $5.80 per barrel . Distribution costs are projected to be approximately $1.6 billion , and corporate costs are expected to be $240 million .
Speaker #3: With that , let me pass it back to Marianne .
Speaker #2: Thanks , John . We delivered a strong quarter in refining and marketing safe and reliable operations are foundational operational excellence is integral . The commercial team is optimizing decision making .
Speaker #2: As we leverage our value chains and capture opportunities , the market presents . We are optimizing our portfolio through strategic investments . Fourth quarter refining cracks have started out stronger than seasonal averages .
Speaker #2: Current fundamentals highlight the market tightness and support our enhanced Midcycle outlook into 2026 . Our integrated value chains and geographically diversified assets position us to lead in capital allocation and offer a compelling value proposition to our shareholders .
Speaker #2: Let me turn the call back to Christina . Thanks , Marianne .
Speaker #4: As we open your call for questions . As a courtesy to all participants , we ask that you limit yourself to one question and a follow up .
Speaker #4: If time permits , we will reprompt for additional questions . Shirley , could you please open the line for questions ?
Speaker #1: Thank you . We will now begin the question and answer session . If you have a question , please press star . Then one on your touch tone phone .
Speaker #1: If you wish to be removed from the queue , please press star then two . If you are using a speakerphone , you may need to pick up the handset first before pressing the numbers .
Speaker #1: Once again , if you have a question , please press star . Then one on your touch tone phone . Our first question comes from Neil Mehta with Goldman Sachs .
Speaker #1: Your line is open . You may ask your question .
Speaker #5: Yeah , good morning Marianne , and team and Marianne . Congrats on on the chairmanship as well . The question I had was really around capture rates in the quarter .
Speaker #5: We've we've gotten so used to you putting up north of 100% 96 felt a little softer . And I think you called out some stuff in the script a little bit about the Ru , but also some West Coast dynamics around diesel and jet .
Speaker #5: I was wondering if you could unpack that for us here .
Speaker #2: Yeah , certainly . And good morning , Neil . Thanks for your questions . So absolutely in the quarter we generated 96% capture sequentially down from the second capture .
Speaker #2: Second quarter capture . Excuse me , of 105 . I would say that the West Coast was the leading driver in the quarter .
Speaker #2: It accounted for more than 50% of the capture change . We actually saw clean product margins fall about 40% in the West Coast .
Speaker #2: The jet premium to diesel narrowed . In fact , it actually moved from a benefit to a negative . And then , of course , as you know , secondary product margins were clearly a headwind .
Speaker #2: So again , West Coast really the majority of the driver for the sequential change in capture second . And John , as you said , mentioned it in his remarks as well , the Ru and Mike shared with you sort of the status of that on our last earnings call .
Speaker #2: Obviously , it's downtime impacted the quarter . And then , you know , also the Jetta diesel there year to date , as I mentioned , our capture is at 102% through the third quarter .
Speaker #2: And that compares to 95 the prior year quarter . So what we're hoping that you see is the sustainable changes that we have been working on over the last few years .
Speaker #2: Will continue to serve us well . You know , our headwinds were certainly a challenge . Fourth quarter , as you know , is typically our strongest quarter for many reasons .
Speaker #2: And we'll we'll share a little bit more with you . There . But we certainly don't see the fourth quarter being any different than we have in prior quarters as well .
Speaker #2: So let me pass it to Rick and he'll give you some incremental color as well . Neil .
Speaker #6: Yeah . Hi , Neil . Just a couple of comments . Additional to Marianne . So we are off to a good start in the fourth quarter .
Speaker #6: We've seen the product margins go right back to normal levels, so that's quite encouraging. You know, we're one month through the quarter.
Speaker #6: But signals look promising . And the other item that I'd add on three Q specifically is we built butane inventory in three Q and we're heading into blending season .
Speaker #6: So as we go into four Q now the building of inventory hit that we took in three Q will be a tailwind in fourth .
Speaker #6: In the fourth quarter . So we we look to be in really good shape here Neil , heading into the fourth quarter .
Speaker #5: Yeah . Thanks , Marianne and Rick . And then the follow ups just on return of cash . Return of capital . It was a little bit lighter from a buyback perspective than again I think where the street was modeling .
Speaker #5: Can you just talk about how you're thinking about the share repurchase going forward?
Speaker #2: Yeah , certainly . Happy to do so , Neil . Thank you . No change in terms of the way that we view our primary return of capital using share buyback .
Speaker #2: You know , as you know essentially what we've said and you heard we've we've announced a 12.5% distribution increase at MPL . And that brings about $2.8 billion back on the MPC side .
Speaker #2: So our ability , as we said , given the differentiation with our midstream distribution , should allow us to lead in capital returns .
Speaker #2: And , you know , you can see that on a year to date basis . Share those statistics there with , you know , change , Neil , and our ability to continue to lead in share purchase .
Speaker #2: No change in the way we view it . And it will be , as you know , the primary return of capital going forward .
Speaker #5: Perfect . Thanks , Marianne .
Speaker #2: You're welcome Neal . Thank you .
Speaker #1: Thank you . Our next question comes from Manav Gupta with UPS . Your line is open . You may ask your question , so I .
Speaker #7: Will start with the West Coast . We understand capture can move around a bit . It should not matter that much . But when we look at the West Coast , one big refinery has closed in your backyard .
Speaker #7: Another one will most likely close in the next 3 to 4 months . And yes , there are some product pipelines that might show up , but they might not show up for three years .
Speaker #7: So I'm just trying to understand , given this setup and the upgrade , you are doing at your refinery , could we see you generate above midcycle margins on the West coast for next maybe eight or even 12 quarters ?
Speaker #7: Can you talk a little bit about that ?
Speaker #6: Yeah . Hi , Manav , this is Rick . So you point out some very , very dynamic items that are happening in the West Coast .
Speaker #6: Let's maybe walk through them one by one . So as we look today , I think you're well aware we're looking at a $40 crack today .
Speaker #6: And we've got one closure that's happened . One that appears that it may happen early next year . And this is just simply supply and demand market .
Speaker #6: The market is efficient and the market is responding and showing you that the market is efficient . So when we look at the overall market , there's a there's a couple of lenses I'd like you to view it from .
Speaker #6: Is we optimize not only the West Coast , but along with the Pacific Northwest . So when we look at our system , it's no different than what we look at when we look at our Mid-con region , which is , you know , as highly integrated .
Speaker #6: So is the West Coast and Pacific Northwest . What I mean by that is when you look at Anacortes and you look at Kenai and you look at LA , which we have invested in , and continue to invest in as the largest , most dynamic , complex , efficient refinery in the California region , we believe we have a competitive advantage that not only exists today , but will exist far into the future .
Speaker #6: And when you maybe back away even from La mancha , and you look at Anacortes and Kenai , we're able to optimize those two refineries to fill the short that is in the San Francisco region .
Speaker #6: So all three of those assets are complementary to one another in terms of the pipelines that are rumored to come into the region , I would say that's a big if .
Speaker #6: I would say those projects , I would say , are ambitious . And at earliest might be 2029 . But when we look at the overall structure of the market of the incremental barrel coming into the marketplace continues to be a water borne barrel .
Speaker #6: They have a timing and a transportation costs that we can and will beat all day long . And that does set the market .
Speaker #6: And that , therefore , is an incredible incremental advantage to Marathon Petroleum , not only for the West Coast , but for the Pacific Northwest .
Speaker #2: It's Marianne . The other thing that I might add to Rick's comprehensive response to your question would be , as you know , our LA project is coming online in the fourth quarter and intended to meet not only NOx reduction , emission requirements , but also greater efficiency and improvement in EBITDA .
Speaker #2: And that project will benefit us in 2026 as well . And that comes online in the in the fourth quarter . That's the West Coast , another West Coast benefit also .
Speaker #6: , maybe not to come over top of Marianne , but an item I meant to to bring out . And I just it slipped my mind is we have a significant feedstock advantage in the West coast .
Speaker #6: And if you look even six months ago versus where we're at today , when you look at the closure that just happened and the one that's about to happen in in 2026 , we are buying more local California crude today than we ever have .
Speaker #6: Actually , it's two times greater than we had in the past at a significant advantage . So while our advantages were great even before that happened , that just continues to stress why we're so committed to California and the feedstock advantage is real .
Speaker #6: And really helps us compete quite well with those waterborne imports .
Speaker #7: Perfect . My my quick follow up here is I'm going to focus a little bit on MPC dividend growth . Marianne , you provided a very detailed response to John McKay's question on the MPL call .
Speaker #7: And as you walked through the . Growth pipeline of projects in MPL , it's pretty clear that MPL could support distribution growth of 12.5% for two or maybe even three years .
Speaker #7: Now when we couple that with the buyback and how that lowers the dividend burden , would it be fair to say that at this point , if refining cracks hold even mid-cycle or maybe slightly below mid-cycle , MPC is in a very good position to raise its dividend by 10% for the next couple of years , at least , supported by distribution from MPL .
Speaker #7: And the buyback that lowered the dividend burden .
Speaker #2: One of well said the answer to that is yes . You know , as you know , over the last few years , you know , we've taken over 50% of the equity out through our share buyback initiative for the last three years .
Speaker #2: We've raised the MPC dividend 10% per year . And then prior to that , 30% . But as you clearly state and our commitment to continue to use our share buyback as a critical lever to return capital to our shareholders , that share count will continue to decline , making it obviously supported by our Midcycle environment , our belief there , making that dividend opportunity clearly possible for the next several years at MPC as well .
Speaker #2: And as I mentioned on the MPL call , you know , we see a couple more years of 12.5% as we continue to deliver that mid-single digit growth .
Speaker #2: So should both of those things should be extremely supportive .
Speaker #7: Thank you so much .
Speaker #2: You're welcome . Thank you .
Speaker #1: Thank you . Our next question comes from Doug Leggate with Wolfe Research . Your line is open . You may ask your question .
Speaker #8: Hi , everyone . Hi , Marianne , and congrats from me as well . Please pass our best regards on to Mr. Hennigan as he officially moves into retirement .
Speaker #8: I have two quick ones , hopefully . Can you address the CapEx specifically for refining relative to the guidance you gave at the beginning of the year ?
Speaker #8: It seems to be running a little hot. I'm just wondering if something is changing there or if it was cadence, or if there was some other explanation as to why we should or should not be paying attention to that.
Speaker #8: And my follow up is a simple one I want to hark back to the balance sheet and buybacks and just get your simple perspective .
Speaker #8: Obviously , we've had extraordinary share performance from MPC . One could argue , you know , elevated valuation certainly elevated margins for the time being .
Speaker #8: And a slowdown in the buyback , I believe the slowest the fourth quarter of 2021 , I think might be weighing on your shares today .
Speaker #8: So my question is simply: Are you prepared to lean on your balance sheet to buy back your shares?
Speaker #2: So , Doug , let me let me try to address some of those . And then I'll pass it to John to give you a little more color .
Speaker #2: I think we've probably said this before , but at the risk of maybe repeating , you know , no one quarter or for that matter , any one given month is meant to be indicative of the way that we view share buyback .
Speaker #2: And frankly , if you look consistent with what we've shared , you know , we are comfortable with roughly $1 billion on our balance sheet .
Speaker #2: Last quarter , you know , for a lot of reasons , we ended lower than that . And , you know , we delivered strong share buyback performance .
Speaker #2: So again , no one quarter should be indicative of how we view that we remain committed to using share buyback as the element of return of capital .
Speaker #2: And will consistently do that . You know , as I as I shared earlier , the benefit of that growing distribution from MPL two years now at 12.5% and and growing should also be supportive for us to be able to lead in the return of capital .
Speaker #2: I think the other part of your question was , would we use our balance sheet ? In other words , would we take on debt and we don't see taking on debt at MPC to buy back stock as , as something that we would do .
Speaker #2: Having said that , we do believe that our margin delivery will allow us to continue to lead in share repurchases . I'm going to pass the question back to John , and he can give you some color on capital , and then I'll follow up .
Speaker #8: Thank you .
Speaker #3: Hey . Morning , Doug . So yeah , certainly looking at capital , I think what you're seeing there is as we're looking across our value chains and where we're positioned , we're finding really good opportunities to drive investments , whether it's operationally or commercially to drive reliability , drive mix and yields .
Speaker #3: And really drive margin and capture . So I think that's partly what you're seeing in the numbers . This year . And maybe I'll turn it back to to Marianne , because I know she had a comment to follow up there as well .
Speaker #2: Yeah . Thanks and thanks , John . You know , the one thing that I wanted to be clear , we have not given guidance yet for 2026 .
Speaker #2: And as you know , consistent with the way that we always have , will provide you full year guidance . But I think as you're thinking about planning , you should assume that 2026 capital will be below 2025 .
Speaker #2: And we'll give you incremental color on the next quarter call. But you should assume capital will be below $2.025 billion.
Speaker #8: Thanks so much , guys .
Speaker #2: Thank you .
Speaker #1: Thank you. Next question comes from Sam Margolin with Wells Fargo. Your line is open. You may ask your question.
Speaker #9: Hi . Good morning . Thanks for taking the question .
Speaker #2: Good morning Sam .
Speaker #9: Maybe we could drill into this just to diesel dynamic because it seems like it was pretty influential . And you said it's normalized now , but if you just look at the shape of sort of what underlying crack spreads did for the quarter , it was it was volatile , right ?
Speaker #9: There were a few like sort of big pulses higher . And then it came in . I mean , how much of the , you know , I guess abnormal jet to diesel relationship in the quarter , would you attribute to kind of unusual volatility across the array of , of commodities versus , you know , something , you know , more structural or , or any other macro factor you want to call out .
Speaker #6: Yeah . Hi , Sam . It's Rick . So we have not seen a volatility between the jet diesel differential to this extent .
Speaker #6: I can tell you throughout the length of my career , Sam , it was unprecedented . And I really think it was it was a combo of inventory and supply driven .
Speaker #6: We we did have some inventory switches in on the diesel side and then jet took the opposite position and it just caused an imbalance for the better part of a month , month and a half .
Speaker #6: And it's certainly corrected itself. But we do not see it structural whatsoever.
Speaker #9: Okay . Thanks . That's helpful . And then , you know , maybe taking a step back just to the macro because nobody's asked about demand yet .
Speaker #9: You know, given all the moving parts of the quarter. But you know, what's interesting about this environment is that a lot of indicators that normally correlate to demand don't look that strong.
Speaker #9: You know , consumer sentiment is very low . PMIs are basically below 50 . You know , everywhere . And yet refining margins are still , you know , very high .
Speaker #9: And so I guess this is a question about kind of the conditions you're seeing today and what that means for kind of what a real mid-cycle margin environment looks like .
Speaker #9: It looks very much like the mid-cycle might be lifting higher based on kind of long term capacity trends . And indicators today , but we'd love your perspective on that .
Speaker #9: Thank you .
Speaker #6: Yeah , Sam . So let me start by saying we tend to believe we have some of the best indicators in the United States with the breadth and depth of of our refining and marketing business throughout the United States .
Speaker #6: Every day we're getting demand signals . So while there are a lot of surveys out there , I would tell you we have what we would call hard facts , and we feel very good about what we're seeing today and going forward .
Speaker #6: But if I were to take a step back just for a moment , I mean , as you know , global demand continues to grow , whether it's the IEA or OPEC or almost any institution , everyone continues to upgrade their global demand views by several hundred thousand barrels a day .
Speaker #6: But more so closer to home. Here, Sam, when we look at diesel and jet fuel, we continue to see modest growth and saw that in the third quarter.
Speaker #6: And we're seeing that here again to start the fourth quarter and gasoline , you know , it depends on the region within gasoline .
Speaker #6: But gasoline is flat ish to slightly lower to prior year , which to us is a very strong signal . And as you know , we're in max diesel mode everywhere , driven by the diesel crack .
Speaker #6: And we are seeing strong signals not only on over the road , but container business as well , harvest season . So we're getting a lot of positive signals today .
Speaker #6: Sam , that would lead us to be very bullish . Looking forward here into the near term . And then if I even zoom out a little bit further , Sam , you continue to see the slightest bit of disruption in a region that is causing cracks to blow out greater than what they have in the past .
Speaker #6: A good example is the West Coast today . You know , there's operating issues out on the West Coast as well as a closure .
Speaker #6: But then even go to the Mid-con where we're seeing outsized cracks for this time of year because of a disruption . To me as an if an outsider looking in , I would say this is a primary example of how tight this market is from a US perspective .
Speaker #6: And then globally , when you look at , you know , drone attacks , I woke up and read another article . Yet this morning on a Russian refinery getting hit with another drone that's sending the market in turmoil , especially from a diesel perspective .
Speaker #6: We're having good success, Sam. Taking diesel to Europe because the whole Russian product export portfolio has been turned upside down. So that is advantaging us refiners like us who have a really strong appetite to export on the Gulf Coast.
Speaker #9: Thanks so much .
Speaker #2: You're welcome Sam . Thank you .
Speaker #1: Thank you . Our next question comes from Paul Cheng with Scotiabank . Your line is open . You may ask your question .
Speaker #10: Hey guys . Good morning .
Speaker #2: Good morning .
Speaker #10: Marianne . Or maybe this is for John . You guys have mentioned that the third quarter , one of the impact on the on the margin capture is on butane inventory build .
Speaker #10: Can you give us some idea that how big is that impact , whether it's in the dollar per barrel or percent of capture rate .
Speaker #10: Secondly , I want to go back into California with the new pipeline proposal and all that . We know that , I mean , not all of them probably will be materialized , but I suppose that at least one , maybe materialized .
Speaker #10: And so how do you guys will position yourself ? And also that I think Rick have said that you believe the main import avenue is going to be waterborne , will MPC be an active and aggressive player in that market ?
Speaker #10: And already organized a import coming in ? Given your logistics that you will be able to easily bring import . So trying to understand that how you are positioned yourself .
Speaker #3: Hey . Morning Paul , it's John . I'll start with the inventory question you had on capture . You know , Rick mentioned earlier , you know , there were a few different inventory changes .
Speaker #3: I would say , that affected capture . One that Rick mentioned earlier . You would expect every season , right . As we're building Lpgs to get ready for for blending season , we also had some we built ahead of some FCC turnarounds .
Speaker #3: That kind of bridged the quarter , and then probably some other pieces as well . Paul . But I mean , it was if you add all those up , it's , you know , it gets you to a pretty good effect on capture , quarter to quarter .
Speaker #10: John , do you can you quantify is it say 3% , 4% , 1% . And any kind of colors ?
Speaker #3: Yeah , it's probably closer to 3 to 5 . Paul .
Speaker #10: Thank you .
Speaker #6: Hey , Paul , it's Rick . So let me start with the pipeline question . So you know there are , as you mentioned , several announcements out there .
Speaker #6: And if one of them goes through, I would say that's if one does, and it comes up, the origin comes out of the mid-cont.
Speaker #6: I would say , Paul , that's extremely positive for us . Most pundits on the one coming out of the con would say that about 100 to 200,000 barrels per day could come out of the mid-con and as you know , Paul , we've got about 800,000 barrels per day through our four plants that come out of the mid-con .
Speaker #6: So we feel like we would benefit significantly with that draw coming out of the Mid-con . Now , I will pause , though , and say , that's a big if , because when you look at a tariff that's yet to be set on , if a line comes out of the mid-con as best we can tell , it's about a thousand mile pipe that would need to be laid .
Speaker #6: Across several states . It's it's long haul and it would most likely or potentially cross governmental administrations . So there's a wild card there .
Speaker #6: So there are a lot of lot of ifs on the cost . And the likelihood of it happening . But if one would come out of mid-con , we see it as quite bullish for us .
Speaker #6: On the second part of your question on the waterborne market from a commercial perspective , we absolutely have a significant advantage with our LA asset and our Pacific Northwest assets .
Speaker #6: However , Paul , if we see a trading opportunity in the waterborne market , we will look at it just like we look at every other market .
Speaker #6: But I would tell you at this 10s that would not be a primary focus of ours . Our focus is , is to really wring the value out of our fully integrated value chain between the West Coast and Pacific Northwest .
Speaker #10: Okay , so if I interpret it correctly , it means that you do not have planned to be a consistent and active importer of products into California market .
Speaker #6: Paul , I wouldn't tell you if I was or wasn't , but it's a nice try . Paul . But I won't tell you that we look at every opportunity to make money .
Speaker #10: Sure understand . Thank you .
Speaker #2: You're welcome . Paul . Maybe just one last wrap on the capture question . Just to be sure , as you know , over the last several quarters , one of the things that we've been trying to do is continue to provide color on the things that are sustainable , that which Rick and his team are working on to provide that sustainable excellence .
Speaker #2: In terms of our commercial performance and the lion's share of that change that we talked about , this particular quarter was really market driven .
Speaker #2: That's the volatility I talked about the jet versus diesel , the clean product margins , etc. and then as you know , as a result of that volatility , then the secondary product headwinds can be significant for us .
Speaker #2: And you know that they are obviously , you know , largely not within our control as well . The one that was and that's where we've , you know , shared with you the progress was the Gulf Coast part of that .
Speaker #2: And that was the , you know , the downtime that we experienced on our Ru and Mike shared with you . You know , the intent to bring that back up .
Speaker #2: And obviously expect to have that operational for much of the fourth quarter . That would be the piece that I would tell you was sort of , you know , ours .
Speaker #2: But largely when you when you look at the change quarter over quarter , it was largely market driven for all of the reasons that that I shared .
Speaker #2: I hope that's helpful for you as well .
Speaker #10: Thanks very much . Thank you .
Speaker #1: Thank you . Our next question comes from Teresa Chen with Barclays . Your line is open . You may ask your question .
Speaker #11: Hi there . A building off of Rick's comments about how Mid-con product margins would likely improve if Kinder and Pipeline gets built is the same true for pad for if Dino project , the Dino project goes through .
Speaker #11: Considering that you do also have a salt lake facility and given the relatively low CapEx and minimal looping that that would require , would that also improve Netbacks for you in that region ?
Speaker #6: That one's a little tougher to call Tresa . This is Rick , by the way . But I would tell you where we see our significant advantage in Salt Lake City is , is we are the largest refiner in Salt Lake , and we have a significant feedstock advantage with the amount of black and yellow wax we run in that region .
Speaker #6: And so regardless if something comes in and or out of that region , the project that you're referencing is of a such de minimis volumes , we don't see it affecting us really negatively .
Speaker #6: And so we really like where our assets at because of the reasons I've mentioned and our ability to clear our product to other areas of the country .
Speaker #6: I.e., Vegas, Arizona, etc.
Speaker #11: Understood . And on the light heavy outlook , what are your expectations on how those differentials evolve from here ? What do you think are the key drivers and keeping the geopolitical instability and general macro volatility in mind ?
Speaker #6: Yeah , up until now , Teresa , I would tell you that TMX has been the key driver . I would say most have been projecting the differentials to get wider , but increased Far East demand through TMX pipeline is really kept Canadian inventories low and differentials tighter than expected .
Speaker #6: However , as far east demand appears to be waning , we believe this could provide some relief to those differentials . So we expect sour differentials to widen slightly in on incremental OPEC production and incremental Canadian production , especially as we enter the diluent blending season and production grows .
Speaker #6: The one area that I would like to point Q1 , both within the US and China . So we believe this is extremely positive .
Speaker #6: As you know , we're a big player in the Ascii market . We have a ton of exposure of our barrels priced against an Ascii benchmark .
Speaker #6: And just as a reference , Ascii prices are $2 weaker than earlier in the year . And the forward curve is one of the weaker for Q1 cu Ascii curves that I've seen , and we've seen in the last five years as offshore production continues to be quite bullish .
Speaker #6: The latest number I looked at is it looks like it's slightly above 2 million barrels a day . For the first time since 2020 .
Speaker #6: A lot of big exploration projects are coming online, so we're quite bullish on the ASCII as we're seeing that not only in current ASCII markets, but in the future.
Speaker #6: Forward curve . I hope that helps answer your question .
Speaker #11: That's very helpful . Thank you . Rick .
Speaker #6: Thank you Theresa .
Speaker #2: Thank you Teresa .
Speaker #1: Thank you . Our next question comes from Jason Gabelman with TD Cowan . Your line is open . You may ask your question .
Speaker #12: Yeah . Hey . Morning . Thanks for taking my questions .
Speaker #2: Good morning Jason .
Speaker #12: I wanted to start on the West Coast. It's been a heavier turnaround year in that region, and it seems like that's going to continue into Q4.
Speaker #12: Q so just wondering what's driving that . And then more broadly , it looks like turnaround spend is going to be a bit higher than what you had previously guided to .
Speaker #12: So wondering if that's related to what specifically going on in the West Coast . And then I have a follow up . Thanks .
Speaker #6: Good morning . Jason , this is Mike on the West Coast primarily . We're we're running the refinery currently , but we do have our FCC and our Alki down .
Speaker #6: We started .
Speaker #13: That turnaround in the third quarter . And then we're coming up with the project that Marianne talked about , our Intertie project will come up here in the next few weeks .
Speaker #13: So we should be in a good position to capture , capture that in the West Coast . So at this point , we'll be we'll be able to run hard on the LAA refinery from the turnaround cost side .
Speaker #13: Some of it has went up specifically at La GBR . That was primarily around opportunities on growth projects and air projects , mainly around some reliability , which allows us put us in a position for a better capture , both on the West Coast and the Gulf Coast .
Speaker #13: .
Speaker #3: Okay , Jason , it's John . I might just kind of add on to Mike's comment . So , you know , certainly you're seeing the number .
Speaker #3: You can add the fourth quarter to get to a number for the year . But as we look to 26 , that's the number we see coming down .
Speaker #3: And after 26 we see that trend continuing as well . Just to give you a little bit of a forward look .
Speaker #12: Great . Thanks for that . And my my follow up is maybe just on margin capture . And you know your in don't include some regions that were really strong in two Q and three Q .
Speaker #12: The Pacific Northwest and and the Rockies . And I suppose some had thought , you know , that strength would would offset some of the headwinds that that you had mentioned .
Speaker #12: So, can you just talk about your ability the past couple of quarters to capture the strength in the Pacific Northwest and the Rockies?
Speaker #12: Has that driven the distribution cost number higher? Which came in above estimates, or do you feel like your system is kind of well situated at this point to capture those dislocations in the market?
Speaker #12: Thanks .
Speaker #3: Hey Jason , it's John . I'll start with distribution costs and then turn it over to Rick to talk about kind of those regional cracks , as you noted .
Speaker #3: So , you know , again , just to take a step back . Right . This is our cost that we look at to kind of get our product to markets across all our refinery systems .
Speaker #3: Again , a little bit of a different convention for us . Certainly , like you said , the numbers a little bit higher than our guidance , but that really reflects commercial decisions .
Speaker #3: Rick's team's making every day about products , which markets we go to and where we see the most margin opportunities . Some of those might have higher distribution costs , if you will , but we're going after relatively higher margin .
Speaker #3: And the only other thing I would offer , again , that can move quarter to quarter based on those decisions , but if you look at it on a barrel , sold basis versus our normal throughput basis , you look year to date this year , year to date , last year , it's pretty much the same number .
Speaker #3: But but it can move quarter to quarter . But it reflects those commercial decisions . Rick and his team are making . And I'll turn it over to Rick to talk about kind of your regional question .
Speaker #6: Yeah . Jason , the regional question is a dynamic one , because as we look and I'll just talk about California for a moment .
Speaker #6: So in California , especially in three . Q you know , you had the dynamic between the cracks between San Fran and LA .
Speaker #6: Now , we would we will and can take some of our Anacortes product and take it and back it in San Francisco and backfill the San Francisco market .
Speaker #6: But the swings that we have seen between the PNW and the California market , which I always break into two San Francisco and LA , are quite significant .
Speaker #6: So in any one given quarter , there are times when one region is is out clipping , the other . But it's a tough call to make consistently throughout the quarter .
Speaker #6: And and a lot of cases in three . Q I would tell you , the PNW actually trailed parts of California for a negative for our our margin pull through .
Speaker #6: So it's quite dynamic, and we do all we can to move around and optimize it to take advantage of the highest margin areas within that region.
Speaker #12: Great . Thanks for those answers .
Speaker #6: Thank you .
Speaker #2: You're welcome . Jason .
Speaker #1: Thank you . Our next question comes from Matthew Blair with TPH . Your line is open . You may ask your question .
Speaker #14: Great . Thank you and good morning , everyone . Could you give your thoughts on the RV market going forward given these losses ?
Speaker #14: Are you considering shutting your your California asset and do you have any explanation on on why D4 Rins aren't at stronger levels now ?
Speaker #14: On on our supply demand , it looks like D4 is in shortage this year . We see a lot of a lot of companies operating at pretty low utilization , implementing economic run cuts .
Speaker #14: And yet, the D4 market still seems pretty depressed. So, if you have any thoughts on that, that'd be great. Thank you.
Speaker #2: Yeah . Good morning . So maybe just a couple of comments and then I'll pass it to John to give you some of the specifics to your questions with respect to our renewable diesel segment , you know , as you know , in the very beginning of the year , one of the things that we said was in terms of operation , the the only investment that we were considering was anything to ensure reliability and that really hasn't changed .
Speaker #2: As you know , there's been a tremendous amount of backdrop as we think about the regulatory environment that , you know , continues to ebb and flow still , decisions that are pending with respect to how resolution will happen .
Speaker #2: Etc. . So it is a place where we are ensuring that our operations are running as efficiently as possible , but they're are some headwinds .
Speaker #2: When we look at margins , feedstock , etc. and , you know , as we went out to work on this project , we felt like we had some very favorable , I'll call it , metrics with respect to this project .
Speaker #2: When we look at its location , we look at the center of demand , logistics , etc. feedstock was a place where we felt strongly that we wanted to further optimize as well .
Speaker #2: So, a very small part of the portfolio. We're ensuring that we can run it as efficiently as possible. But you don't really see us, you know, putting capital to work in this space.
Speaker #2: But let me pass it to John . And he can answer some of the specifics for you .
Speaker #3: Yeah . Hey . Morning , Matthew . It's John , maybe just building off some of Maryann's comments . And I'm sure you've heard similar comments from some of our peers on some of those regulatory items .
Speaker #3: There's probably more unknowns than knowns right now . Lots of things need need to play out there . We're looking at that D4 in just like you are , as well as maybe Lcfs credits , and you could kind of go down the stack there certainly seeing margins improve some in the fourth quarter , but it really feels like we got to get into 2026 before we're going to get some clarity there .
Speaker #3: As Marianne noted , we're going to we're going to work on , you know , driving the most value out of the assets we have given .
Speaker #3: You know , where we are in Martinez and what we can do there . So we'll keep focused on that . But I think there's just a lot of uncertainty you're seeing other players come out of the market , and we'll just have to keep an eye on it .
Speaker #3: As we go into 2026.
Speaker #14: Great . Thank you . And then maybe just to expand the conversation on crude , you talked about favorable dynamics on WCS and we're also seeing wider moves in areas like Ans Falcon and Syncrude so far in the fourth quarter .
Speaker #14: So I guess fair to say that this would be an additional tailwind on capture this quarter . And do you have any sort of any other insights on on what's pushing these other grades wider as well ?
Speaker #6: Yeah . Hi , Matthew , it's Rick , so I'll start with ans that is the one that is the most logical to explain because when you look at the TMX barrels that have entered the market , they're and the closures , the demand for Ans has gone down significantly .
Speaker #6: So the differential has had to widen out to compete . And then we're seeing stronger than what we would have expected . Bakken production and Syncrude production .
Speaker #6: So, we have quite nice tailwinds, both from a production perspective in those two fields. That is driving those differentials wider for us.
Speaker #3: And hey Matthew , it's John . Just to add on one more thing , kind of when you think about from modeling purposes , the way we do our blended crack numbers and our market metrics , we include those diffs in those numbers .
Speaker #3: So when we do capture , it's above and beyond what's going on here . It would certainly , you know , drive margin .
Speaker #3: But it's not going to be a capture tailwind. I just, you know, we're a little different than what some of our peers do around their indicators.
Speaker #3: So I just wanted to remind you .
Speaker #14: Sounds good . Thanks for your comments .
Speaker #2: Thank you .
Speaker #1: Thank you . Our next question comes from Phillip Jungwirth with BMO . You may ask your question . Your line is open .
Speaker #15: Thanks. Good morning. The Gulf Coast and Mid-Con are expecting to run a higher percentage of sweet crude in the fourth quarter than they have in prior quarters.
Speaker #15: Just given what should be increased availability of crude . Was hoping you could talk through the planned crude slate . And also just what you're seeing in the market as far as sourcing more advantaged barrels .
Speaker #6: Yeah . Hi , Philip , it's Rick , so from a sweet perspective , you know , GBR really sits right at the mouth of incredible amounts of sweet discounted crude .
Speaker #6: So we're highly advantaged to run it at GBR . And then at Garyville . Specifically , we will toggle between sweet and sour depending on on the price and the economics .
Speaker #6: I will tell you, we're starting to see a few more looks at what we see as Iraqi barrels that are becoming more promising and getting a slight hint that we might lean into those a little bit more.
Speaker #6: So . But generally the the increased sweet and the amount of sweet you're seeing is just because of where we're logistically set up and the toolkit for Garyville is really , well , well positioned to run a lot of sweet barrels .
Speaker #6: In addition to that , we do run , I think , as you know , a lot of Canadian heavy barrels that we feed into the Ru that are highly discounted as well , and we see that discount becoming slightly larger in the coming quarter .
Speaker #6: I hope that helps you , Philip .
Speaker #15: Yeah . No , that's helpful . And then when you look at the need for waterborne refined product imports into California , can you touch on available dock space just to bring volumes in ?
Speaker #15: I know you're utilizing some of this through your other refineries , but from an industry perspective , how much of dock space do you view is utilized ?
Speaker #15: And is that at all bottleneck to future supply as additional refineries close ?
Speaker #6: Philip , you've identified something that certainly is a deterrent and headwind for waterborne imports . You know , even prior to imports needing to go up significantly because of the recent announced closures and one to come , the docks have always been the wild card on the West Coast .
Speaker #6: And the reason is , is you have fog , you have delays , you have unexpected waterborne incidents that are far less readable than having a refinery in the state .
Speaker #6: So when we look at not only the docks , but when we look at whether concerns , when we look at high freight rates today , which is also causing the ARB to be where it's at and cracks be where it's at , we see all of these as significant tailwinds for us .
Speaker #15: Great . Thanks .
Speaker #6: Thank you .
Speaker #2: Thank you .
Speaker #1: Thank you. Our final question comes from Ryan Todd with Piper Sandler. Your line is open; you may ask your question.
Speaker #16: Great . Thanks . Maybe a couple follow ups on earlier ones on the on the renewable diesel side , the you mentioned a lot of the uncertainty that which there's still a ton of uncertainty out there regarding various policies , one of which is the treatment of foreign feedstocks .
Speaker #16: What sort of impact could this have on your access to or approach to feedstock at Martinez? If you continue to see penalties there?
Speaker #16: And maybe on the on the DX side as well . Are you at a rate run rate at this point in terms of kind of monetization or booking of PTC credits , or is there still movement one way or the other ?
Speaker #16: There ?
Speaker #2: Yeah . Ryan , thanks for the question . So really on foreign you know , that is still being debated . But as we know right now , there is a potential for a 50% limitation on that from foreign feedstocks .
Speaker #2: As I mentioned earlier , you know , one of the things that we were really focused on was ensuring that we could optimize our feedstock when we feedstock , ran our initial economics on the Martinez project , we were looking at largely a soybean only feedstock .
Speaker #2: And then, as we did our transaction with Neste and had access to other foreign feedstocks as well as other local advantaged feedstocks, we saw that as a benefit and actually improved the economics of the project.
Speaker #2: Today, I think we can largely source and have, with our partner Neste and our access, so we don't see this as necessarily being significantly limiting to us.
Speaker #2: I think the question longer term is what does the administration do ? And whether or not that 50% stays in place and would have obviously broader market impact , or whether or not they are able to delay the implementation of that as they are resolving the rvo issue .
Speaker #2: And and also other elements associated with go forward as well as the historical review of that . So for us , less of an impact , but it will be obviously a market driven decision as they decide how they're going to implement that 50% foreign feedstock .
Speaker #2: .
Speaker #3: And then , Ryan , it's John , just to add on to that , as Marianne said , we've got really strong logistics , not just water for international , but actually rail offload for domestic coming in at Martinez .
Speaker #3: That puts us in a good spot to pivot wherever the market goes. And then on your I figured we couldn't get off the call without a 45Z question.
Speaker #3: You know , again , as a reminder , we , you know , made some changes to our structures there back in April .
Speaker #3: And that really got us a big chunk of those credits . There's some little pieces here and there . We're still pursuing . There's a piece back in Q1 .
Speaker #3: We haven't given up on kind of getting, but I think you're largely seeing the production tax credit in the numbers right now.
Speaker #16: Great , thanks . Maybe one CapEx or question overall on the overall business . I appreciate the provided details and the and the release on many of the projects you have going on , either on the refining or the midstream side .
Speaker #16: Can you talk about some of the macro opportunity set that has you leaning in a little more here in the near term ? And to some of the projects , and particularly on the midstream side , and then should we see that trend back towards a more normal level as we look out a couple of years ?
Speaker #2: Yeah . Ryan . Sure . Thank you . So , you know , when we look at the midstream , our our growth opportunities are focused in the Permian , Permian .
Speaker #2: Excuse me . As you see really trying to build out our nat gas and our NGL value chains . So most recently we put some capital to work to acquire a sour gas treating set of assets .
Speaker #2: And the reason why we think that's so important is we believe that this is some of the best rock in the Permian in this Delaware basin , Lee County , the challenge with that is producers move into that region is it is a sour gas high H2O , CO2 , and requires a certain level of treatment to blend it down , to be able to further process .
Speaker #2: But in this area , this is very close adjacent and complementary to the assets that we are currently operating . And fit very nicely with the producer customers that we are currently supporting .
Speaker #2: That EBITDA will improve in 2026 as the second follow on amine treating plant comes online , bringing our EBITDA to its projected run rate by the end of 2026 .
Speaker #2: So contributing in 2026 . Frankly , and beyond to incremental EBITDA . Additionally , we talked about some other projects . First of all , Bengal , we took the remaining ownership and incremental 55% .
Speaker #2: And so that ownership will be another EBITDA growth into 2026 . Similarly , you know , the full year benefit of our Preakness , two plant and then Secretariat and processing plant in the Permian , bringing our processing capability to 1.4 , will come online at the end of this year .
Speaker #2: And therefore it will be incremental. If we look at even longer term, we talked about our fractionation and LPG export dock.
Speaker #2: So two Fracs coming online , one each in 2028 and 2029 as along with our export dock . And that will add incremental EBITDA in both of those years .
Speaker #2: You know , as we look . At nat gas and NGL demand , frankly , you know , you look at the growth of NGL , you look at gas , oil ratios .
Speaker #2: We see demand for the LPG pool, and the strength of the producer customers in that region is really very supportive long-term to that growth as well.
Speaker #2: And then that growth allows us the ability to increase the MPL distribution, bringing back at least this year about $2.8 billion, which supports MPC's ability to lead in capital return.
Speaker #2: Again , as we as we bring that back , our goal , as we've always said , is to lead in in the return of capital through all parts of this cycle .
Speaker #2: And that is extremely supportive of what we think , extremely supportive of our ability to do . So . Let me pause there and see if I've answered your question .
Speaker #17: Yeah , that's great . Thank you very much .
Speaker #2: You're welcome .
Speaker #4: All right . With that , thank you for your interest in MPC . Should you have more questions or want clarifications on topics discussed this morning , please contact us .
Speaker #4: Our team will be available to take your calls . Thank you for joining us this morning .
Speaker #1: Thank you . This does conclude today's conference . We thank you for your participation at this time . You may disconnect your lines .