Marathon Petroleum Corporation (MPC) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. MPC is an integrated downstream energy company operating a large U.S. refining system; its Midstream segment primarily reflects its majority-owned MPLX partnership. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales and operating revenue | $45.787 billion | $32.321 billion | $137.640 billion | $84.647 billion |
| Income from continuing operations, net of tax | $5.020 billion | $1.030 billion | $12.409 billion | $1.448 billion |
| Net income attributable to MPC | $4.477 billion | $694 million | $11.195 billion | $8.964 billion |
| Diluted EPS attributable to MPC | $9.06 | $1.09 | $21.04 | $13.81 |
| Segment adjusted EBITDA | $6.994 billion | $2.570 billion | $18.987 billion | $5.974 billion |
Refining & Marketing generated adjusted EBITDA of $5.496 billion in Q3 and $14.630 billion for the first nine months; Midstream generated $1.498 billion and $4.357 billion, respectively. Refining & Marketing margin was $30.21 per barrel in Q3 and $28.05 for the nine-month period, versus $14.51 and $12.46 a year earlier. Q3 refinery throughput averaged 3.007 million barrels per day, up from 2.836 million.
For the nine months, operating cash flow was $11.979 billion, including $12.023 billion from continuing operations. Investing activities provided $1.121 billion, while financing activities used $11.011 billion. Additions to property, plant and equipment were $1.694 billion; capital expenditures and investments totaled $1.939 billion. Cash and cash equivalents were $7.376 billion and short-term investments were $3.759 billion at September 30.
Total borrowings were $27.101 billion before unamortized issuance costs and discounts; balance-sheet debt included $1.064 billion due within one year and $25.638 billion of long-term debt. MPC reported $16.013 billion of liquidity excluding MPLX, and MPLX reported $3.621 billion. Both had no borrowings under their revolving credit facilities at quarter-end. MPC’s current ratio was approximately 1.66, based on reported current assets and liabilities.
Changes and drivers versus prior periods
- Q3 net income attributable to MPC rose $3.783 billion year over year, principally reflecting higher refined-product prices and volumes, partly offset by higher costs. Management cited Q3 average refined-product prices up $0.90 per gallon and sales volumes up 48 thousand barrels per day.
- For the first nine months, net income attributable to MPC rose $2.231 billion. Higher prices and volumes were partly offset by higher operating costs and the absence of Speedway earnings recorded in 2021. The 2021 nine-month comparison included $8.448 billion of after-tax discontinued-operations income from Speedway’s sale.
- Management attributed stronger refining results primarily to wider crack spreads and higher throughput. Higher natural gas and electricity costs, turnaround work and renewable-fuel compliance costs were offsets. RIN expenses were $1.83 billion for the nine months, compared with $1.12 billion a year earlier, net of specified regulatory benefits.
- Midstream adjusted EBITDA increased $123 million in Q3 and $352 million for the nine-month period, with higher volumes, terminal activity and equity-affiliate income among the drivers.
Outlook, commentary, risks and unusual items
- The filing gives no specific consolidated earnings or revenue guidance. Management said demand recovery and constrained commodity supply had supported product prices, refining margins and Midstream throughput, but could not predict the duration or severity of those conditions. It also cited inflation, higher input costs, rising interest rates and recession concerns as uncertainties.
- MPC and Neste formed a 50/50 Martinez renewable-fuels joint venture in September. MPC recorded a $549 million non-cash gain on contributed assets and received a $500 million special distribution. The filing expects first-phase mechanical completion by year-end 2022, pretreatment capabilities in the second half of 2023 and capacity of 730 million gallons per year by year-end 2023. It also states initial capacity is “260 million gallons per day”; this unit appears inconsistent with the annual capacity figure and should be verified.
- A separate $509 million non-cash gain resulted from reclassifying a lease as a sales-type lease. Together, these transactions account for most of the $1.058 billion gain on asset disposals reported in Q3 and the first nine months.
- MPC repurchased $10.085 billion of its shares in the first nine months and had $5.11 billion remaining under repurchase authorizations at September 30. The board declared a $0.75-per-share dividend on November 1, payable in December.
- Environmental remediation liabilities were $383 million at quarter-end. Climate-related lawsuits seek unspecified damages; outcomes could not be determined. Other notable exposures include the Tesoro High Plains Pipeline trespass dispute and potential DAPL-related contributions; DAPL remained operational, with a draft environmental impact statement then expected in the first half of 2023.
- Management identified risks including commodity-price and refining-margin volatility, supply and demand changes, operational interruptions, regulation and environmental compliance, inflation, interest rates, credit-market conditions, litigation and geopolitical disruption. The filing reported no material change to previously disclosed risk factors and said disclosure controls were effective.
Investor verification priorities
- Confirm the Martinez project capacity units and construction/commissioning milestones, given the filing’s “260 million gallons per day” wording versus 730 million gallons per year.
- Separate recurring operating performance from the $1.058 billion of largely non-cash gains and account for Speedway’s discontinued-operations contribution in the prior-year comparison.
- Assess whether refining margins and cash generation are sustainable amid energy, crude, product-price and RIN-cost volatility, and review the effects of turnaround activity and working-capital needs.
- Review capital returns against investment needs: share repurchases used $10.085 billion of cash in nine months, while MPC’s remaining authorization was $5.11 billion.
- Track environmental, pipeline and climate-litigation developments, including potential costs that the company said could not yet be reliably estimated.