Marathon Petroleum Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. MPC is an integrated downstream energy company operating a large U.S. refining system; its Midstream segment is primarily conducted through MPLX. Amounts below are in U.S. dollars unless noted.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales and operating revenues | $40.9B | $45.8B | $112.1B | $137.6B |
| Income from operations | $4.75B | $6.69B | $12.12B | $16.73B |
| Net income attributable to MPC | $3.28B | $4.48B | $8.23B | $11.20B |
| Diluted EPS | $8.28 | $9.06 | $19.57 | $21.04 |
| Reportable-segment adjusted EBITDA | $5.91B | $6.99B | $15.99B | $18.99B |
Refining & Marketing adjusted EBITDA was $4.37B in Q3 and $11.39B for the first nine months, down from $5.50B and $14.63B, respectively. Midstream adjusted EBITDA rose to $1.54B in Q3 from $1.50B and to $4.60B for nine months from $4.36B.
Refining & Marketing margin was $26.16 per barrel in Q3 and $24.80 for nine months, versus $30.21 and $28.05, respectively, in 2022. Net refinery throughput was 2.959 million barrels per day (mbpd) in Q3 and 2.908 mbpd for nine months, down 48,000 and 62,000 barrels per day, respectively, year over year. Q3 segment adjusted EBITDA was $16.06 per barrel, compared with $19.87.
Cash flow, liquidity and debt
- Operating cash flow: $12.99B for the first nine months, compared with $11.98B in 2022. Management attributed the increase mainly to a favorable working-capital change, partly offset by lower operating results.
- Investing and financing: Investing used $2.13B; financing used $11.04B. Cash and cash equivalents were $8.45B at September 30, and short-term investments were $4.60B.
- Capital returns: MPC repurchased $9.07B of shares and paid $950M in dividends during the nine months. The quarterly dividend declared in October was $0.825 per share. A further $5.0B share-repurchase authorization was announced October 25; $4.31B remained under prior authorizations at quarter-end.
- Debt: Consolidated debt was $27.63B, including $26.46B of long-term debt, versus $27.08B total debt at year-end 2022. MPC’s September 30 carrying and fair values of debt were approximately $26.9B and $23.7B, respectively.
- Liquidity and covenants: MPC excluding MPLX reported $17.20B of liquidity, including $12.10B in cash and short-term investments and $5.10B in available facilities. MPLX reported $4.46B of liquidity. Both were in covenant compliance; MPC’s consolidated net debt-to-total-capitalization covenant ratio was 0.00:1.00 and MPLX’s debt-to-EBITDA ratio was 3.4:1.0.
Material changes and management commentary
- Lower refined-product prices and narrower refining margins were the primary drivers of lower revenue and MPC earnings. Management estimated the market-indicator impact on Refining & Marketing margin was negative approximately $1B in Q3 and $3B for the first nine months versus 2022. Higher sales volumes partly offset lower prices.
- The prior-year comparison included $1.06B of asset-sale and lease-related gains; 2023 included a $106M gain on the sale of MPC’s 25% interest in South Texas Gateway. The transaction generated $270M of proceeds to MPC.
- Midstream earnings increased despite lower NGL prices, supported by lower purchased-product costs, higher throughput and equity-method income.
- Management said the demand environment remained strong and that refined-product markets continued to be affected by refinery closures and Russia-Ukraine-related disruptions. The filing provides no specific consolidated earnings or revenue guidance.
- Martinez Renewables reached Phase I production capacity of 260 million gallons per year in Q1; MPC expected capacity to reach 730 million gallons per year by year-end 2023. MPC also acquired a 49.9% interest in LF Bioenergy and expects to fund its share of project capital as milestones are achieved.
Unusual items, risks and contingencies
- Garyville: An August tank-farm release and fire destroyed four storage tanks. MPC recorded $63M of response costs and is pursuing insurance recovery, with no assurance of the amount recoverable.
- Galveston Bay: A May fire left a catalytic reformer unit out of service, reducing crude throughput and affecting product-yield optimization; insurance claims were ongoing.
- California regulation: California SBx1-2 authorizes the state to set a maximum gasoline-refining margin and related fees. Whether and when the regulator will establish a cap remained uncertain.
- Legal and environmental exposure: Environmental remediation liabilities were $373M. The Army Corps’ draft environmental review of the Dakota Access Pipeline offered several possible easement outcomes; the pipeline remained operational. MPLX’s potential contribution under the related agreement was approximately $170M. Other disclosed guarantees included up to $171M for LOOP/LOCAP debt and $94M related to Crowley Blue Water Partners.
- Other risks: Commodity prices and refining margins, regulatory and environmental costs, refinery outages, geopolitical disruption, market demand, interest rates and litigation may affect results. The filing reports no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether refining margins, throughput and product prices sustain or recover, and the resulting effect on Refining & Marketing earnings.
- Garyville and Galveston Bay repair, operating, and insurance-recovery developments.
- Implementation and potential financial impact of California SBx1-2 and the outcome of the Dakota Access easement review.
- Execution of the Martinez Renewables production ramp and funding needs for LF Bioenergy projects.
- Use of the additional $5B repurchase authorization, dividend payments, and the effect of capital returns on liquidity and debt.