Marathon Petroleum Corporation (MPC) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. MPC operates refining and marketing businesses and controls midstream partnership MPLX. Speedway is presented as discontinued operations following its sale to 7-Eleven on May 14, 2021.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Sales and other operating revenues | $29.615B | $12.195B | $52.326B | $34.399B |
| Income (loss) from continuing operations, net of tax | $588M | $84M | $418M | $(10.452)B |
| Net income attributable to MPC | $8.512B | $9M | $8.270B | $(9.225)B |
| Diluted EPS | $13.00 | $0.01 | $12.71 | $(14.21) |
| Operating cash flow | Not stated separately for the quarter | $1.834B | $(230)M |
Reported earnings were dominated by the Speedway disposal: MPC recorded an $11.682B pretax gain, or $8.02B after tax, within discontinued operations. Q2 discontinued-operations income was $8.214B; continuing-operations income attributable to common shareholders was $298M. The filing does not provide a company-wide operating margin measure.
Segments and material comparisons
- Refining & Marketing: Q2 segment operating income was $224M, versus a $1.544B loss a year earlier; six-month operating loss narrowed to $374M from $2.041B. Q2 refining margin was $12.45 per barrel versus $7.64, while net refinery throughput increased to 2.854 million barrels per day from 2.276 million. Recovery in product prices, volumes and crack spreads, plus lower operating and turnaround costs, supported improvement.
- Midstream: Q2 operating income increased to $977M from $869M; six-month income rose to $1.949B from $1.774B. The filing cites higher pipeline and terminal throughputs, higher natural gas prices and lower operating expenses.
- Continuing operations improved substantially from 2020, which included $9.162B of impairment charges and a $1.715B LCM inventory charge for the first six months. In 2021, impairments were $56M for the six-month period.
- Q2 sales growth also reflected higher refined-product prices and volumes; average refined-product sales prices increased $1.06 per gallon and volumes increased 611,000 barrels per day versus Q2 2020.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $11.839B and short-term investments were $5.418B, compared with $415M cash at December 31, 2020. Total debt was $28.761B, including $70M due within one year; long-term debt carrying value was $28.250B.
- MPC liquidity excluding MPLX was $22.348B, including cash and short-term investments and available facilities. MPLX reported separate liquidity of $4.515B. These amounts should not be treated as fully interchangeable: MPLX creditors generally have no recourse to MPC assets.
- Six-month investing cash flow was $15.403B, principally reflecting Speedway sale proceeds of about $21.38B, partly offset by $5.417B of short-term investment purchases. Financing used $5.954B; operating activities provided $1.834B.
- MPC repaid debt and redeemed notes during the period. The company completed a $981M share tender offer and reported $9.02B remaining under its share repurchase authorizations. It paid $760M in dividends in the first half and declared a further $0.58-per-share dividend in July.
Outlook, commentary and risks
- Management described demand and operating conditions as recovering but still below historical levels, and said the impact of any COVID-19 resurgence remained uncertain. No earnings guidance was provided in the supplied filing text.
- MPC’s 2021 capital investment plan was approximately $1.4B, excluding capitalized interest, potential acquisitions and MPLX’s plan; MPLX’s plan was $1.0B. MPC expected 2021 capital expenditures and investments to be more than $200M below 2020, with specified exclusions.
- MPC said the Martinez refinery conversion was expected to produce about 260 million gallons of renewable diesel annually in the second half of 2022, with potential capacity of about 730 million gallons annually by the end of 2023. Dickinson reached full design capacity in Q2 2021, at 184 million gallons annually.
- Management identified asset competitiveness, commercial performance and cost reduction as priorities. The company cited refinery-market volatility, commodity prices, demand, COVID-19, operational disruptions, regulation, environmental obligations, credit conditions and litigation among key risks.
- The company recorded $397M of environmental remediation liabilities. Climate-related lawsuits in several states remained unresolved, with outcome and potential liability undetermined. Dakota Access remained operational, but the easement and environmental review litigation continued; MPLX’s maximum potential undiscounted contribution under its agreement was about $230M.
- A CARES Act tax refund receivable of approximately $2.1B was recorded; nearly all was expected in the second half of 2021, but timing depended on the IRS. The filing also notes that working-capital and other sale-agreement adjustments could change Speedway sale proceeds or gain.
Investor verification checklist
- Separate recurring continuing-operations performance from the Speedway sale gain and discontinued-operations results.
- Confirm the extent to which refining recovery, crack spreads, throughput and cost reductions persist beyond the quarter.
- Track use of sale proceeds, debt reduction, planned repurchases and dividends, while distinguishing MPC liquidity from MPLX liquidity.
- Monitor receipt of the estimated $2.1B tax refund and any final purchase-agreement adjustments to the Speedway transaction.
- Follow Martinez conversion costs, construction and production milestones, as well as regulatory, environmental, climate-litigation and Dakota Access developments.