Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marathon Petroleum Corp (MPC, Financial) achieved a high refining utilization rate of 97% in Q2 2024, outperforming peers.
- MPC returned $3.2 billion to shareholders in Q2 2024, demonstrating strong capital return capabilities.
- The company’s midstream segment, MPLX, continues to provide significant cash flows, contributing $550 million in Q2 2024.
- MPC's strategic investments in high-return projects and geographic diversification provide a competitive advantage.
- The company has reduced its share count by nearly 50% since May 2021, enhancing shareholder value.
Negative Points
- MPC's refining operating costs were $4.97 per barrel in Q2 2024, which, while lower sequentially, still represent a significant expense.
- The company faces potential short-term volatility due to global supply and demand fluctuations, including decisions by OPEC and demand changes in China.
- MPC's Q3 2024 crude throughput volume is projected to be lower at 2.6 million barrels per day, representing a 90% utilization rate.
- The company anticipates significant turnaround expenses of approximately $1.4 billion for the full year 2024.
- MPC's net debt has increased by $1.5 billion over the past couple of quarters, indicating a potential risk in balance sheet management.
Q & A Highlights
Q: Good morning. And congratulations on a very strong start. Looking at all these very attractive projects that you're doing in midstream like Bangle, Whistler, and now Blackcomb, and looking at the way the distribution is growing at MPLX, is the thought process somewhere here that trying to grow the distribution at MPLX for 10% and even if you can do it for two more years that distribution to MPC jump to like 2.7-plus at that point is covering your full CapEx and full dividend. So technically, you are a recession-proof refiner?
A: Thanks, Manav. The strategy we are trying to execute in MPLX involves targeting mid-single-digit growth. Over the last three years, we've achieved almost 8% in distributable cash flows. Our investments in Bangle, our JV in the Utica, Whistler, and the recent FID of Blackcomb support our ability to deliver mid-single-digit growth. This strategic relationship creates incremental value between MPC and MPLX, fully covering MPC's dividend and largely the capital that MPC has been putting to work.
Q: Looking at the Gulf Coast OpEx, I think $3.72, the lowest in the business. Help us understand what's been the drivers of this because probably three or four years ago you were not the lowest cost Gulf Coast operator. Can this be sustained here?
A: One of our key initiatives has been profitability per barrel, which includes cost competitiveness in each region. The work we've been doing over the last few years is sustainable. Ultimately, we aim to deliver the best EBITDA per barrel in each region. Our utilization and cost competitiveness in the Gulf Coast are expected to remain strong.
Q: Maryann, as you take on the reins of the business 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?
A: First and foremost, continuing to create exceptional value. We aim to deliver the strongest EBITDA per barrel and cash flow per share. Our focus will be on safe and reliable operations, operational excellence, and commercial performance. We will also leverage our value chain, ensure the competitiveness of our assets, and invest in our people. Our goal is to deliver the strongest through-cycle cash generation and durable midstream growth.
Q: Over the last couple of years, the business and the value have been created largely organically. There are some questions about whether you pursue M&A in the renewable diesel space. Can you comment on that?
A: The rumor about a buyout with Neste is not factual. We see value within our portfolio and will continue to focus on our commercial performance and delivering the strongest EBITDA per barrel. We see opportunities to grow organically and will evaluate long-term opportunities to deliver value.
Q: Rick, for TMX has 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 that more is to come?
A: The startup of TMX has largely happened as anticipated. The incremental Canadian barrels have put pressure on the ANS barrel, which is positive for us. We have the ability to run these advantaged barrels at Anacortes and LA. The export to Asia is not surprising and will depend on differentials and transportation costs.
Q: On your page 18, there's an auto margin, say $108 million. Can you share a little more detail on what's inside there?
A: The other margin change primarily relates to finalizing our insurance claim for the Galveston Bay reformer. We recognized that income in the first quarter and received the cash proceeds in Q2. This is the final recognition, so there's nothing to offset in Q2.
Q: As we think about the better-than-mid-cycle market, how are you looking at the structure of the market and higher utilization throughout the industry?
A: Over the long haul, we believe in an enhanced mid-cycle in the US. Short-term volatility may occur due to supply, demand, and geopolitical factors, but long-term demand growth supports an enhanced mid-cycle. Our integrated asset portfolio and competitive advantage position us well.
Q: Looking at your 90% utilization guide for 3Q, is there any economic downtime or pulling forward of turnaround activity in response to the weaker crack environment?
A: The 90% utilization guide is largely due to turnaround activity in the Mid-Con and Gulf Coast. We will continue to run our assets optimally to meet market demand.
Q: How is Martinez running and ramping towards the target of getting to full capacity by year-end? Do you have any concerns about the price of feedstocks?
A: Martinez is a highly competitive facility. In the second quarter, we brought a second unit back online, allowing us to run at 75% of nameplate capacity. We expect to bring the last production unit online by year-end, reaching 100% capacity. We are monitoring feedstock prices but remain confident in our strategy.
Q: On shareholder returns and the pace of buybacks moving forward, do you become more cautious in the near term with potential market dislocations?
A: We continue to see share buybacks as an appropriate return of capital, particularly given the current equity price of MPC. We will use cash to buy back stock and believe in the long-term growth and opportunity in MPC's equity. We do not plan to re-lever the balance sheet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
