Marathon Petroleum Corp annual report, FY2022

Business context and reporting period

Marathon Petroleum Corporation (MPC) filed this Form 10-K for the fiscal year ended December 31, 2022. MPC operates an integrated downstream energy business through Refining & Marketing and Midstream; Midstream primarily comprises MPLX. MPC reported approximately 2.9 million barrels per calendar day of refining capacity and owned approximately 65% of MPLX’s common units at year-end.

Key financial and operating metrics

Metric20222021
Sales and other operating revenues$177.5 billion$120.0 billion
Income from continuing operations, net of tax$16.0 billion$2.6 billion
Net income attributable to MPC$14.5 billion$9.7 billion
Segment adjusted EBITDA (non-GAAP)$25.0 billion$8.9 billion
Operating cash flow from continuing operations$16.3 billion$8.4 billion
Capital expenditures and investments$2.8 billion$1.8 billion
Cash and cash equivalents$8.6 billion$5.3 billion
Total debt, including finance leases$27.1 billion$25.9 billion

Refining & Marketing adjusted EBITDA was $19.3 billion, versus $3.5 billion in 2021; Midstream adjusted EBITDA was $5.8 billion, versus $5.4 billion. Refining & Marketing margin was $28.24 per barrel, including a $148 million LIFO inventory credit, compared with $13.36 per barrel in 2021. Net refinery throughput rose to 2.951 million barrels per day from 2.799 million, and crude capacity utilization increased to 96% from 91%.

MPC’s reported liquidity, excluding MPLX, was $16.5 billion, including cash, short-term investments and available facility capacity. MPLX separately reported $3.7 billion of liquidity. MPC had $1.0 billion of debt principal due within 12 months; management stated liquidity was adequate for operating, investment and capital-return needs. MPC’s revolving credit facility had no borrowings outstanding at year-end.

Material changes versus 2021

  • Revenue increased $57.5 billion, primarily due to a 47% increase in average refined-product selling prices and a 2% increase in sales volumes, reflecting stronger demand and market prices.
  • Net income attributable to MPC increased $4.8 billion. Higher refining results and asset-disposal gains were partly offset by higher operating costs and the absence of the 2021 Speedway sale gain and related partial-year discontinued-operation income.
  • Operating cash flow from continuing operations increased $7.9 billion, despite a $2.3 billion unfavorable year-over-year working-capital change. Working capital was a $1.3 billion use of cash in 2022.
  • MPC repurchased 131 million shares for $11.9 billion, compared with 76 million shares for $4.7 billion in 2021. Cash dividends paid were $1.3 billion; dividends per share were $2.49.
  • Refining & Marketing purchased RINs at a cost of $2.40 billion, up from $1.49 billion in 2021. Refining operating costs increased, primarily from higher natural gas and electricity prices.

Outlook, management commentary, risks and unusual items

Management attributed 2022’s improved results to recovering refined-product demand and constrained supply, while noting uncertainty around inflation, higher interest rates, recession concerns, COVID-19 developments and the Russia-Ukraine conflict. MPC did not provide earnings guidance in the supplied filing text. Its 2023 capital investment plan was approximately $1.3 billion for MPC excluding MPLX, plus MPLX’s separate $950 million plan. MPC expects about $350 million of its Refining & Marketing plan to support low-carbon projects, primarily the Martinez conversion and a Los Angeles refinery emissions project.

The 50/50 Martinez renewable-fuels joint venture with Neste closed in September 2022. MPC contributed assets valued at $1.47 billion and recorded a $549 million non-cash gain; the joint venture made a $500 million distribution to MPC. The facility was expected to ramp up toward 730 million gallons of annual production by year-end 2023, with pretreatment capabilities expected to come online in 2023. MPC also reported a $509 million non-cash gain from a lease reclassification.

Key risks include volatile refining margins and commodity prices; changing fuel, emissions and renewable-fuel rules and related RIN costs; inflation and supply-chain constraints; refinery, pipeline, severe-weather and cybersecurity disruptions; and MPLX throughput and customer risks. Environmental expenditures were $1.23 billion in 2022, and environmental remediation liabilities were $387 million at year-end.

Notable contingencies include climate-related litigation with unspecified damages; a dispute over the Tesoro High Plains Pipeline on Fort Berthold Reservation, where government counterclaims seek disgorgement of profits, pipeline removal and remediation; and the Dakota Access Pipeline permitting litigation. MPC disclosed maximum potential payments of approximately $170 million under its Dakota Access contingent equity agreement. A March 2022 pipeline release near Edwardsville, Illinois, is subject to state claims; MPC said it could not estimate the penalty or resolution timing. Management stated it did not expect the matters discussed to have a material adverse effect, while noting outcomes remain uncertain for certain proceedings.

Important facts for investors to verify

  • Whether elevated refining margins, throughput and demand persisted after 2022, and how sensitive results remain to crack spreads and crude differentials.
  • Progress, completion costs, production ramp and economics of the Martinez renewable-fuels conversion and the 2023 capital plans.
  • Cash generation, working-capital needs, debt maturities, interest costs and the sustainability of dividends and share repurchases.
  • RIN and other environmental compliance costs, remediation liabilities, and developments in the Tesoro High Plains, Dakota Access and Edwardsville matters.
  • That adjusted EBITDA and per-barrel refining margins are non-GAAP measures; reconcile them with GAAP results when comparing periods or companies.