Marathon Petroleum Corporation: FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 28, 2020. This is an annual report, not a standalone fourth-quarter filing. MPC operates Refining & Marketing, Retail and Midstream businesses; 2018 comparisons include Andeavor only from its October 1, 2018 acquisition date.
Financial performance
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Sales and operating revenue | $123.949 billion | $96.504 billion | Up $27.445 billion, largely reflecting the expanded business after Andeavor; average refined-product selling prices were lower. |
| Income from operations | $5.576 billion | $5.571 billion | Essentially flat; 2019 included $1.197 billion of impairment expense. |
| Net income attributable to MPC | $2.637 billion | $2.780 billion | Down $143 million. |
| Diluted EPS | $3.97 | $5.28 | Down; weighted-average diluted shares rose to 664 million from 526 million, principally reflecting shares issued for Andeavor. |
| Operating cash flow | $9.441 billion | $6.158 billion | Up $3.283 billion, including improved operating results and working-capital effects. |
| Capital expenditures | $5.069 billion | $3.895 billion | Does not include equity-method investments; total capital expenditures and investments were $6.133 billion. |
| Dividends per share | $2.12 | $1.84 | Annual dividend increased. |
| Total debt, including finance leases | $29.282 billion | $27.980 billion | Includes $20.119 billion of MPLX debt and finance lease obligations at year-end. |
At year-end, assets were $98.556 billion, cash and cash equivalents were $1.527 billion, and total equity was $42.139 billion. Debt due within one year was $711 million. Reported consolidated current assets were $20.170 billion and current liabilities were $16.147 billion.
Segments and operating trends
- Refining & Marketing: Segment operating income was $2.367 billion versus $2.481 billion. Refining margin was $14.23 per barrel, nearly unchanged from $14.25; refinery throughput increased to 3.112 million barrels per day, mainly due to Andeavor. Refinery capacity utilization was 96%.
- Retail: Segment operating income increased to $1.582 billion from $1.028 billion, primarily on acquired operations and higher margins. Same-store gasoline volume fell 3.3%, while same-store merchandise sales rose 5.4%.
- Midstream: Segment operating income increased to $3.594 billion from $2.752 billion, reflecting ANDX and growth across MPLX. MPLX completed its acquisition of ANDX on July 30, 2019.
Fourth-quarter 2019 results included $31.092 billion of revenue, $841 million of operating income, $443 million of net income attributable to MPC and diluted EPS of $0.68. The filing attributes the major 2019 impairment primarily to weaker growth expectations for MPLX’s Western Gathering & Processing business.
Liquidity, capital allocation and outlook
- MPC liquidity, excluding MPLX, was $8.261 billion: $1.512 billion cash and $6.749 billion available under credit and receivables facilities. MPLX reported $4.421 billion of liquidity, including $3.5 billion available on its revolver.
- MPC reported compliance with its credit facility covenants; its net debt-to-total-capitalization covenant ratio was 0.21 to 1.00. MPLX reported a debt-to-EBITDA covenant ratio of 3.9 to 1.0, against a 5.0-to-1.0 limit in ordinary circumstances.
- MPC repurchased 34 million shares for $1.950 billion in 2019; approximately $3.0 billion of authorization remained. Dividends paid were $1.398 billion.
- The 2020 capital investment plan was approximately $2.6 billion for MPC excluding MPLX, plus $1.75 billion for MPLX. The plans are subject to change as conditions warrant.
- MPLX targeted positive free cash flow after capital investments and distributions in 2021. MPC was converting its Dickinson refinery into a renewable diesel facility designed for approximately 180 million gallons annually, targeted for completion by the end of 2020.
- MPC announced a proposed tax-free separation of Speedway targeted for the fourth quarter of 2020, subject to approvals and other conditions. The board also initiated a review of Midstream strategic alternatives; no transaction was assured.
Risks, contingencies and unusual items
- Results remain exposed to volatile refining margins, crude/product price differentials, commodity prices, seasonal demand, refinery outages, transportation interruptions and competition.
- Material strategic and financial risks include execution and tax qualification of the proposed Speedway separation, outcomes of the Midstream review, integration and synergy realization from Andeavor, debt and credit ratings, and producer activity affecting MPLX volumes. Moody’s had a negative outlook on MPC and MPLX ratings; S&P and Fitch outlooks were stable as of the filing’s cited date.
- Environmental and regulatory exposures include renewable-fuel/RIN compliance costs, emissions rules, remediation, climate-related regulation and litigation. Environmental remediation liabilities were $433 million at year-end; the filing says ultimate costs and some potential losses cannot be reliably estimated.
- Pending matters include the Kentucky antitrust case, climate-related suits and refinery environmental enforcement matters. MPC said the outcomes of certain proceedings could not be predicted or losses estimated; it did not expect other ordinary-course matters, individually or collectively, to materially adversely affect consolidated results.
- The SEC was investigating historical Andeavor and MPC share repurchases; staff indicated an intention to recommend an action regarding Andeavor activity. MPC said it could not predict the outcome or impact.
- The auditor issued an unqualified opinion on the financial statements and internal control. Goodwill impairment testing for certain Midstream reporting units was identified as a critical audit matter; the $1.197 billion impairment was a significant non-cash charge.
Important facts for investors to verify
- How much 2019 cash-flow and segment improvement is sustainable versus attributable to acquisition timing, working capital or other nonrecurring items.
- Progress and final terms of the Speedway separation, including tax treatment, separation costs and the resulting balance-sheet and earnings profile.
- Outcomes of the Midstream strategic review and MPLX’s progress toward its 2021 free-cash-flow target, leverage objectives and planned capital spending.
- Whether producer activity, commodity prices and updated forecasts create further goodwill or equity-investment impairments.
- Developments in SEC, antitrust, climate and refinery environmental proceedings, and any changes to remediation or compliance costs.
- Debt maturities, refinancing costs and credit-rating outlooks, particularly for MPLX and its floating-rate obligations.