Marathon Petroleum Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. MPC is an integrated refining, retail and midstream company, with midstream operations primarily conducted through its majority-owned MPLX partnership.
Key financial results
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Sales and other operating revenues | $25.215 billion | $28.253 billion |
| Operating income (loss) | $(11.817) billion | $669 million |
| Net loss attributable to MPC | $(9.234) billion; $(14.25) per diluted share | $(7) million; $(0.01) per diluted share |
| Cash from operating activities | $(768) million | $1.623 billion |
| Cash used in investing activities | $1.088 billion | $1.520 billion |
| Cash from financing activities | $2.021 billion | Cash used: $920 million |
| Cash and cash equivalents at quarter-end | $1.690 billion | $1.527 billion at Dec. 31, 2019 |
| Total debt, before unamortized costs and discounts | $32.040 billion | $29.282 billion at Dec. 31, 2019 |
Consolidated operating and net margins are not clearly presented as standalone measures in the filing. Segment operating results were: Refining & Marketing loss of $622 million, Retail income of $519 million, and Midstream income of $905 million. Refining & Marketing margin was $11.30 per barrel versus $11.17; Retail fuel margin rose to 32.91 cents per gallon from 17.15 cents; Midstream operating income was broadly steady at $905 million versus $908 million. Consolidated EBITDA is not provided as a clear value in the supplied filing text.
Material changes and unusual items
- Results were heavily affected by COVID-19-related demand declines, lower crude and product prices, and market volatility. Refined product sales volumes in Refining & Marketing fell 81 thousand barrels per day; refinery throughput fell to 2.994 million barrels per day from 3.084 million.
- MPC recorded $9.137 billion of total impairments: $7.330 billion of goodwill, $1.315 billion of equity-method investments and $492 million of long-lived assets. The Refining & Marketing and MPLX Eastern G&P goodwill balances were fully impaired. The filing notes substantial estimation uncertainty and possible further impairments.
- A $3.220 billion lower-of-cost-or-market inventory charge reflected falling prices; the filing says future price recoveries may reverse some or all of this charge.
- The impairment and inventory charges drove the sharp year-over-year deterioration in earnings. The filing also reports a $1.937 billion income-tax benefit, including $411 million attributed to expected CARES Act NOL carrybacks, and a $1.3 billion tax receivable estimate.
- Operating cash flow declined by $2.391 billion year over year, principally reflecting a $2.52 billion unfavorable working-capital change, including lower accounts payable as commodity prices fell.
Liquidity, debt and capital actions
- At March 31, MPC, excluding MPLX, reported $6.382 billion of liquidity, including $1.633 billion cash and $4.749 billion available under credit and receivables facilities. MPLX reported $4.307 billion of liquidity, including $57 million cash.
- MPC borrowed $2 billion under its revolving facility in March; MPLX had $750 million of net revolving-facility borrowings during the quarter. MPC’s debt covenant ratio was 0.31 to 1.00 against a maximum of 0.65; MPLX’s debt-to-EBITDA covenant ratio was 3.80 to 1.00 against a maximum of 5.0.
- After quarter-end, MPC added a $1 billion 364-day credit facility and issued $2.5 billion of senior notes due 2023 and 2025, using proceeds to repay revolving-credit borrowings. As of May 5, reported available capacity excluding MPLX was $6.766 billion.
- Management reduced the 2020 consolidated capital plan by $1.35 billion to $3.0 billion and targeted approximately $950 million of annual operating-expense reductions. Refinery throughput was reduced and some capacity temporarily idled. Share repurchases were suspended; the board approved a $0.58-per-share dividend payable in June.
Outlook, risks and contingencies
- Management said COVID-19’s duration, demand recovery and broader economic effects were uncertain and that adverse impacts had been and would likely continue to be significant. No earnings or revenue guidance is provided in the supplied text.
- The planned tax-free separation of the Speedway retail business was targeted for Q4 2020, but timing could change due to COVID-19, capital-market access and other conditions. MPC planned to retain its direct-dealer business. The board decided to retain MPC’s existing midstream structure and remain MPLX’s general partner.
- Lower commodity prices can pressure working capital and liquidity; availability under the receivables facility may fall if refined-product prices remain low. MPC and MPLX debt ratings were investment grade but carried negative outlooks from Moody’s, S&P and Fitch.
- Potential exposures include environmental remediation liabilities of $418 million, climate-related lawsuits seeking unspecified damages, and guarantees and contingent funding commitments. The Bakken Pipeline system faced a court-ordered environmental impact statement and possible permit vacatur; reported maximum potential payments under MPLX’s related contribution agreement were approximately $230 million.
Important facts for investors to verify
- Whether product demand, refinery throughput and margins recovered, and whether management achieved its expense-reduction and revised capital-spending targets.
- Whether inventory values and impairment assumptions changed, particularly for remaining goodwill, refinery assets and midstream investments.
- Updated liquidity, debt, covenant headroom, credit ratings and eligible receivables-facility capacity under continued commodity-price volatility.
- Progress, regulatory and tax conditions, financing, and timing for the proposed Speedway separation.
- Developments in the Bakken Pipeline permit litigation, climate-related lawsuits, environmental matters and other guarantees or contingencies.