Marathon Petroleum Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. MPC is an integrated downstream energy company with Refining & Marketing and Midstream segments; Midstream is primarily conducted through consolidated MPLX.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Sales and other operating revenues | $34.864 billion | $38.058 billion |
| Income from operations | $4.061 billion | $1.716 billion |
| Net income attributable to MPC | $2.724 billion | $845 million |
| Diluted earnings per share | $6.09 | $1.49 |
| Net cash provided by operating activities | $4.057 billion | $2.513 billion |
| Segment adjusted EBITDA | $5.383 billion | $2.777 billion |
- Revenue fell about 8%, primarily as lower average refined-product prices outweighed higher sales volumes. MPC attributed the large earnings increase mainly to stronger Refining & Marketing margins.
- Refining & Marketing adjusted EBITDA rose to $3.853 billion from $1.374 billion; Midstream adjusted EBITDA increased to $1.530 billion from $1.403 billion. Refining & Marketing margin was $26.15 per barrel versus $15.31, and segment adjusted EBITDA was $15.09 per barrel versus $5.39.
- Net refinery throughput was 2.837 million barrels per day, broadly level with the prior-year quarter. Planned turnaround costs increased to $357 million from $145 million. RIN expenses were $467 million, down from $574 million.
- Operating cash flow improved by $1.544 billion. Working-capital changes were a net $98 million use of cash in Q1 2023, versus a $598 million source in Q1 2022.
- At March 31, cash and cash equivalents were $7.960 billion and short-term investments were $3.492 billion. Total debt was $27.659 billion, including $20.707 billion at MPLX; the balance-sheet carrying amount of debt was $27.280 billion, including current debt.
- Available liquidity was reported separately as $16.058 billion for MPC excluding MPLX and $3.893 billion for MPLX. Both entities reported covenant compliance; MPC reported a 0.00:1 net-debt-to-capitalization ratio and MPLX a 3.52:1 debt-to-EBITDA ratio.
- Financing activities used $3.907 billion, including $3.180 billion for MPC share repurchases, $337 million of dividends paid and MPLX’s $600 million redemption of Series B preferred units. MPC repurchased 25 million shares. A $0.75-per-share dividend was declared for payment in June.
Changes, outlook and management commentary
- Management said stronger demand and constrained global supply supported refined-product prices, refining margins and Midstream throughputs. It cited refinery closures and disruptions associated with the Russia-Ukraine conflict as contributing supply factors, while noting the duration and effects remain uncertain.
- The 2023 capital investment plan was approximately $1.3 billion for MPC, excluding MPLX, acquisitions and capitalized interest; MPLX’s plan was $950 million, excluding reimbursable capital. No specific earnings guidance was provided. Management stated it believes liquidity is adequate for operations, investment, capital returns and obligations.
- 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 targeted to reach 730 million gallons per year by year-end. The STAR refinery project was completed, with start-up underway and utilization expected to increase during Q2.
- MPC acquired a 49.9% interest in LF Bioenergy for approximately $56 million to support renewable natural gas projects. Future project development is expected to require additional capital funding as milestones are met.
- MPC had $5.13 billion remaining under share-repurchase authorizations at March 31. On May 2, after quarter-end, the board authorized an additional $5.0 billion. Repurchases remain subject to market conditions and business priorities.
- MPLX issued $1.6 billion of senior notes, redeemed $600 million of preferred units and used remaining proceeds to redeem $1.0 billion of notes due July 2023. Debt refinancing resulted in a $9 million extinguishment loss.
Risks, contingencies and unusual items
- Environmental remediation liabilities were $383 million at March 31. Climate-related lawsuits in several states seek unspecified damages and abatement; the company said outcomes and potential liability cannot presently be determined.
- A pipeline dispute involving the Fort Berthold Reservation includes U.S. Government counterclaims seeking pipeline-profit disgorgement, removal and remediation. The company said it intends to defend itself.
- After quarter-end, MPC agreed to a $27.5 million penalty plus interest under a modified Martinez refinery consent decree, subject to court approval. MPLX also entered an EPA consent decree providing for a $2 million penalty and additional remedial and emissions-mitigation measures.
- Other disclosed exposures include maximum potential payments of approximately $170 million under a Dakota Access contingent equity agreement, $171 million under LOOP/LOCAP arrangements, and $97 million under a conditional guarantee for Crowley Blue Water Partners. These are contingent maximum amounts, not stated expected losses.
- Key business risks include volatile commodity prices and refining margins, operating outages and maintenance, regulatory and environmental requirements, market and geopolitical disruptions, and the availability of capital and cash flow for investment and returns to shareholders.
Most important facts for investors to verify
- Whether elevated refining margins and strong segment earnings persist as supply, demand and crude differentials change.
- Actual ramp-up, capacity and economics of the Martinez renewable fuels facility and STAR project, plus funding needs for LF Bioenergy.
- Cash generation and debt levels after substantial repurchases, dividends, capital spending and MPLX financing transactions.
- Developments in climate litigation, the Fort Berthold pipeline dispute, environmental remediation and consent-decree approvals or obligations.
- That MPC and MPLX liquidity figures are separate, and that consolidated debt includes MPLX debt whose creditors generally have no recourse to MPC, subject to disclosed exceptions.