Market Overview

Marathon Petroleum Corp. Reports Third-Quarter Results

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FINDLAY, Ohio, Oct. 31, 2019 /PRNewswire/ --

  • Reported income of $1.1 billion, or $1.66 per diluted share; adjusted income of $1.1 billion, or $1.63 per diluted share
  • Generated $2.8 billion of operating cash flow
  • Returned $848 million to shareholders through dividends and share repurchases
  • Realized synergies of $283 million
  • Strong 98% refining utilization, and significant operational improvements on the West Coast
  • Record retail merchandise sales; 33 consecutive quarters of same-store merchandise growth
  • Announces intent to separate Speedway and formation of Midstream Special Committee

Marathon Petroleum Corp. (NYSE:MPC) today reported net income of $1.1 billion, or $1.66 per diluted share, for the third quarter 2019 compared to $737 million, or $1.62 per diluted share, for the third quarter of 2018. Excluding adjustments shown in the accompanying earnings release tables, third quarter 2019 adjusted net income was $1.1 billion, or $1.63 per diluted share, compared to $774 million, or $1.70 per diluted share, for the third quarter of 2018.

MPC returned $848 million of capital to shareholders during the third quarter of 2019, including $500 million in share repurchases.

"Our third-quarter results showcased our operational and commercial excellence," said Gary R. Heminger, chairman and chief executive officer. "Refining system utilization was 98% and leveraging our commercial expertise drove strong capture of 94% vs. market indicators. The retail segment delivered solid fuel margins and exceptional merchandise sales growth across our nationwide footprint, marking the 33rd consecutive quarter of same-store merchandise sales growth.

"The focus of the first year of our combination was execution to unlock unrealized value. We have made significant, observable progress improving mechanical availability and operational integrity, expanding our commercial capabilities, and reducing costs. We have converted roughly 550 of our targeted 700 retail stores and our synergy capture across the company is significantly ahead-of-schedule and on-track to exceed the targeted $600 million by year end."

"Our company has a history of bold strategic actions. Creating value for our shareholders has always been and remains a top priority. Today we announced our next step to unlocking future value: our intent to separate Speedway into an independent company. Additionally, we are forming a special committee of the Board of Directors to continue evaluating alternatives to enhance value across our midstream business."

Synergies

MPC realized $283 million of synergies in the third quarter. Some examples of realized synergies include: approximately $55 million from supply and distribution optimization, approximately $40 million from catalyst reformulation, and approximately $24 million from marketing-related enhancements. The company has realized $686 million of total synergies through the first nine months of the year, and is on track to exceed the $600 million of annual gross run-rate synergies targeted for the end of 2019.

Segment Results

In the third quarter of 2019, total income from operations was $2.0 billion compared to $1.4 billion for the third quarter of 2018. Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $3.1 billion in the third quarter of 2019 compared to $2.2 billion for the same quarter last year. Adjusted EBITDA excludes refining planned turnaround costs of $164 million in the third quarter of 2019 and $197 million in the third quarter of 2018.


Three Months Ended
September 30,

(In millions)

2019


2018

Income from Operations by Segment






Refining & Marketing

$

883


$

666

Retail


442



161

Midstream


919



679

Items not allocated to segments:






    Corporate and other unallocated items


(198)



(99)

    Transaction-related costs


(22)



(4)

        Income from operations

$

2,024


$

1,403

Midstream

Midstream segment income from operations, which primarily reflects the results of MPLX LP (NYSE:MPLX), was $919 million in the third quarter of 2019, compared with $679 million for the third quarter of 2018. The increase was due to growth across MPLX's businesses as well as contributions from legacy Andeavor Logistics. Segment EBITDA was $1.2 billion in the third quarter 2019 versus $884 million for the same quarter last year.

Retail

Retail segment income from operations was $442 million in the third quarter of 2019, compared with $161 million in the third quarter of 2018. The increase in earnings was largely related to the addition of the legacy Andeavor retail operations and higher fuel and merchandise margin contributions across the legacy Speedway system. Segment EBITDA was $555 million in the third quarter 2019 versus $237 million for the same quarter last year.

Retail fuel margin increased to 24.5 cents per gallon in the third quarter of 2019 from 16.5 cents per gallon in the third quarter of 2018. Same-store merchandise sales increased by 5.2 percent year-over-year and same-store gasoline sales volume decreased by 2.8 percent year-over-year.

Refining & Marketing (R&M)

R&M segment income from operations was $883 million in the third quarter of 2019 compared with $666 million in the same quarter of 2018. The year-over-year increase was primarily due to higher throughputs as a result of the Andeavor combination. R&M margin was $14.66 per barrel for the quarter with a clean product yield of 83 percent.

Segment adjusted EBITDA was $1.4 billion in the third quarter of 2019 versus $1.1 billion for the same quarter last year. Segment adjusted EBITDA excludes refinery planned turnaround costs which totaled $164 million in the third quarter of 2019. This compares to $197 million of turnaround-related costs in the third quarter of 2018.

Crude capacity utilization was 98 percent, resulting in total throughputs of 3.2 million barrels per day for the third quarter of 2019, which was 1.1 million barrels per day higher than the throughput for the third quarter of last year. The increase was primarily due to the addition of the Andeavor refineries.

Items Not Allocated to Segments and Other

Items not allocated to segments totaled $220 million of expenses in the third quarter of 2019 compared to $103 million in the third quarter of 2018. Third quarter 2019 results include $22 million of transaction-related expenses and the inclusion of legacy Andeavor corporate costs.

Strong Financial Position and Liquidity

As of Sept. 30, 2019, the company had $1.5 billion in cash and cash equivalents (excluding MPLX's cash and cash equivalents of $41 million), $5 billion available under a five-year bank revolving credit facility, $1 billion available under a 364-day bank revolving credit facility, and $750 million available under its trade receivables securitization facility.

Strategic Update

In a separate release this morning, MPC announced several strategic actions to enhance shareholder value. The company plans to separate its Speedway business into an independent company and also form a special committee of MPC's board to continue to evaluate alternatives to enhance value across the midstream business. Among other aspects, the special committee will analyze the strategic fit of assets with MPC, the ability to realize full valuation credit for midstream earnings and cash flow, balance sheet impacts including liquidity and credit ratings, transaction tax impacts, separation costs, and overall complexity.

During the quarter, the Gray Oak Pipeline project progressed and is expected to be placed in service by the end of 2019. The pipeline will provide crude oil transportation from the Permian and Eagle Ford Basins to the Texas Gulf Coast region, including Corpus Christi. The Gray Oak pipeline will connect to multiple terminals including the South Texas Gateway Terminal, which is expected to start up by mid-2020. The terminal is designed to have two deepwater docks, with initial storage capacity of approximately 7 million barrels and up to 800 mbpd of throughput capacity. MPC owns a 25 percent interest in both the Gray Oak Pipeline and the South Texas Gateway Terminal.

The Wink-to-Webster crude oil pipeline, in which MPLX has an equity interest, remains on schedule to be competed in the first half of 2021. The 36-inch diameter pipeline will originate in the Permian Basin and have destination points in the Houston market, including MPC's Galveston Bay refinery.

Also in the Permian, the Whistler Pipeline is being designed to transport approximately 2 billion cubic feet per day of natural gas from Waha, Texas to the Agua Dulce market in South Texas, ultimately reaching MPC's Galveston Bay refinery. MPLX has an equity interest in Whistler, which is expected to be placed in service in the second half of 2021.

The company also continues to progress the reversal of the Capline pipeline, with a purge of the mainline initiated in the fourth quarter. Once reversed, Capline will be capable of supplying discounted mid-continent and Canadian crude to St. James, Louisiana, which has a direct connection to MPC's Garyville refinery. Capline, which is partially owned by MPC and operated by MPLX, is expected to begin light crude service in the first half of 2021, with heavy crude service expected in 2022.

In the retail segment, Speedway continues to expand its brand through store conversions of the acquired Andeavor sites. As of September 30, 2019, Speedway had completed 379 store conversions in 2019, bringing the total number of conversions since the combination with Andeavor to 549. The company remains on track to complete 700 total cumulative store conversions by the end of 2019, including locations on the West Coast and in the Southwest.

MPC also continues to expand its presence in Mexico. In addition to significant exports from the Gulf Coast and investments in refined product distribution, the company is now supplying over 215 retail sites, including 171 that are branded ARCO as of September 30, 2019. The entire network of sites in Mexico provides additional product outlets for and enhanced integration with the refining business.

In preparation for the IMO fuel specification change, the company has completed infrastructure enhancements at multiple refineries to decrease on-purpose high sulfur fuel oil production and receive outside feedstocks into resid destruction units. The company progressed the completion of its Garyville crude revamp and coker drum replacement projects. The crude project is expected to be completed by the end of 2019. The coker project is expected to increase unit capacity by approximately 14 percent and remains on track to be completed in two phases, fourth quarter of 2019 and first quarter of 2020.

Construction continues on the Dickinson Renewable Diesel project, which remains on-track for planned completion in late 2020. The project will convert the Dickinson refinery into a 12 mbpd biorefinery that will process corn and soybean oil to produce renewable diesel. MPC intends to sell the renewable diesel into the California market to comply with the California Low Carbon Fuel Standard.

The Los Angeles Refinery Integration and Compliance (LARIC) project to physically connect the adjacent Carson and Wilmington facilities for cleaner and more efficient operations is nearing completion. The expansion of the Wilmington hydrocracker is on track to be completed in the first half of 2020.

Fourth Quarter 2019 Outlook



Refining & Marketing Segment:



Refining operating costs per barrel(a)

$

6.10

Distribution costs (in millions)

$

1,300

Refining planned turnaround costs (in millions)

$

185

Depreciation and amortization (in millions)

$

425

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