Business context and reporting period
Marathon Petroleum Corporation (MPC) is an integrated downstream energy company with Refining & Marketing and Midstream segments; Midstream is primarily conducted through its consolidated partnership, MPLX. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, compared with the same 2022 periods. Management cautions that interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Sales and operating revenues | $36.34B | $53.80B | $71.21B | $91.85B |
| Income from operations | $3.31B | $8.33B | $7.37B | $10.04B |
| Net income attributable to MPC | $2.23B | $5.87B | $4.95B | $6.72B |
| Diluted EPS | $5.32 | $10.95 | $11.44 | $12.15 |
| Segment adjusted EBITDA (non-GAAP) | $4.70B | $9.22B | $10.08B | $11.99B |
Q2 Refining & Marketing adjusted EBITDA was $3.16B versus $7.76B; Midstream was $1.53B versus $1.46B. Refining & Marketing margin was $22.10 per barrel versus $37.54, and adjusted EBITDA was $11.88 per barrel versus $27.79. For the first half, Refining & Marketing margin was $24.08 per barrel versus $26.93. These segment measures are non-GAAP.
Operating cash flow was $8.04B for the first six months, down from $9.47B; capital expenditures were $956M and investments in equity-method affiliates were $296M. Financing used $7.63B, including $6.25B of common-stock repurchases, $653M of dividends and MPLX’s $600M preferred-unit redemption. Cash and cash equivalents were $7.35B at June 30, with $4.11B of short-term investments. Total debt was $27.65B, including $72M due within one year; debt fair value was approximately $24.5B.
Current assets were $32.21B and current liabilities $17.47B. MPC reported $15.70B of liquidity excluding MPLX; MPLX reported $4.26B. Neither entity had borrowings outstanding under its bank revolving facility. MPC and MPLX were in compliance with their credit covenants; reported leverage ratios were 0.03:1.00 for MPC and 3.5:1.0 for MPLX.
Material changes versus the prior comparable period
- Q2 MPC-attributable net income fell by $3.65B, primarily because of lower Refining & Marketing margins. Management estimated a roughly $5B unfavorable year-over-year market-indicator impact on Q2 segment margin, primarily from narrower crack spreads.
- For the first half, MPC-attributable net income declined $1.77B. Management attributed the decrease primarily to lower refining margins; average refined-product sales prices fell, while first-half sales volumes increased.
- Q2 refining throughput decreased 144 thousand barrels per day year over year; first-half throughput decreased 71 thousand barrels per day. Q2 refining planned turnaround costs rose $241M year over year.
- Midstream adjusted EBITDA increased $76M in Q2 and $203M in the first half, helped by lower purchased-product costs and higher equity-method income despite lower NGL prices.
- Debt increased from $27.08B at year-end 2022 to $27.65B at June 30, 2023. MPLX issued $1.6B of senior notes, redeemed $600M of preferred units and refinanced $1.0B of notes due in July 2023.
Outlook, management commentary, risks and unusual items
Management said demand remained strong, while supply was constrained, citing refinery closures and disruptions related to the Russia-Ukraine conflict. The company did not provide specific full-year earnings or operating guidance in the supplied filing text. Its 2023 capital investment plans were approximately $1.3B for MPC excluding MPLX and $950M for MPLX, excluding reimbursable capital.
Operational and strategic updates include completion of the STAR project at the Galveston Bay refinery, expected to add 40 thousand barrels per day of crude capacity and 17 thousand barrels per day of resid processing capacity. The Martinez Renewable Fuels facility reached Phase I capacity of 260 million gallons per year; pretreatment was expected in the second half of 2023, with capacity of 730 million gallons per year targeted by year-end. MPC also agreed to sell its 25% interest in South Texas Gateway Terminal as part of a transaction in which the buyer would pay $1.1B for all membership interests; closing was expected in Q3, subject to adjustments.
MPC announced additional $5B share-repurchase authorizations in January and May 2023. At June 30, $7.12B remained available; the timing and amount of future repurchases are discretionary. A quarterly dividend of $0.75 per share was declared in July for payment in September.
Key risks include volatile crude, product and renewable-fuel prices; refining margins and outages; environmental and other regulation; potential California gasoline-refining-margin fees under SBx1-2, whose implementation and effect were uncertain; and litigation. Climate-related lawsuits seek unspecified damages and abatement. A pipeline trespass dispute involving a subsidiary includes government counterclaims seeking disgorgement of profits, pipeline removal and remediation; MPC said it would defend the matter. The Dakota Access Pipeline remained operational while an environmental impact statement was being prepared; MPLX’s maximum potential undiscounted contribution under its contingent agreement was approximately $170M. Environmental remediation liabilities were $374M. The filing says some contingencies could be material, but certain potential losses cannot presently be estimated.
Other notable items include $1.16B of purchased RIN expense in the first half, versus $1.30B a year earlier; the reinstated Petroleum Superfund Tax increased other taxes. The 2022 comparison included a $238M benefit from retroactive renewable-volume-obligation changes, not repeated in 2023. Management stated that disclosure controls were effective and there were no material changes in internal control during the quarter.
Most important facts for investors to verify
- Whether refining margins, throughput and turnaround activity sustain or further change earnings and cash generation.
- Execution, timing and economics of Martinez Renewable Fuels and other capital projects, and the actual proceeds and closing terms for the South Texas Gateway sale.
- Future share repurchases and dividends relative to investment needs, cash flow and debt levels.
- Implementation and potential financial effects of California SBx1-2 and other environmental or renewable-fuel requirements.
- Developments and potential exposure in the pipeline, climate and other legal matters, including guarantees and contingent funding obligations.