Marathon Petroleum Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Amounts are in U.S. dollars; financial statement amounts are in millions unless otherwise noted. MPC is an integrated downstream energy company with Refining & Marketing and Midstream segments; Speedway is reported as discontinued operations following the pending sale agreement.
Financial results and key metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Sales and other operating revenues | $22,711 | $22,204 |
| Income (loss) from continuing operations, before tax | $(136) | $(12,487) |
| Continuing operations, net of tax | $(170) | $(10,536) |
| Net income (loss) attributable to MPC | $(242) | $(9,234) |
| Diluted loss per share attributable to MPC | $(0.37) | $(14.25) |
| Operating cash flow, consolidated | $454 | $(768) |
| Capital expenditures, as reported | $256 | $831 |
- Consolidated net income was $64 million in Q1 2021, but MPC reported a $242 million attributable net loss, reflecting income attributable to noncontrolling interests.
- Operating cash flow included $265 million from continuing operations and $189 million from discontinued operations. Investing activities used $267 million; financing activities provided $16 million.
- At March 31, cash and cash equivalents were $624 million in continuing operations. Total debt was $32.9 billion, compared with $32.0 billion at December 31, 2020. MPC reported $4.47 billion of liquidity excluding MPLX; MPLX reported $4.19 billion.
- Current assets were $30.4 billion and current liabilities were $16.1 billion, including assets and liabilities held for sale. A $2.1 billion federal income tax receivable was expected in the second half of 2021.
- Refining & Marketing recorded a $598 million operating loss; Midstream operating income was $972 million. Refining & Marketing margin was $10.16 per barrel, down from $11.86, and refinery throughput was 2.565 million barrels per day, down from 2.994 million.
Material changes versus Q1 2020
- The attributable net loss narrowed by $8.99 billion, primarily because Q1 2020 included $9.14 billion of impairment charges and a $3.19 billion lower-of-cost-or-market inventory charge; neither was recorded in Q1 2021.
- Revenue rose $507 million. Higher average refined-product prices and higher equity-method investment income more than offset lower refined-product sales volumes. The equity-method comparison was materially affected by prior-year impairment charges.
- Refining & Marketing operating results worsened by $101 million, with lower crack spreads and reduced volumes partly offset by lower operating and turnaround costs. First-quarter winter storms added refinery costs.
- Midstream operating income increased $67 million, benefiting from lower operating expenses and higher natural gas prices, partly offset by lower gathered and processed volumes. Speedway discontinued-operations income fell to $234 million from $318 million, mainly on lower fuel volumes and margins.
- Operating cash flow improved by $1.22 billion, primarily due to a favorable year-over-year working-capital comparison. Capital spending was substantially lower than in Q1 2020.
Outlook, management commentary, and risks
- Management reported a gradual recovery in activity as vaccination availability increased and restrictions eased, but demand remained below historical levels. It said COVID-19’s ultimate economic effects and recovery timing remained uncertain.
- MPC planned approximately $1.4 billion of 2021 capital investment, excluding capitalized interest, potential acquisitions, and MPLX’s plan; MPLX’s plan was approximately $1.0 billion. MPC also targeted more than $200 million of 2021 capital-spending and investment reductions versus 2020, subject to stated exclusions. No specific earnings guidance was provided in the supplied filing text.
- The proposed Speedway sale to 7-Eleven was for $21 billion in cash, subject to adjustments; closing was expected in Q2 2021, subject to regulatory approvals and other conditions. Estimated after-tax proceeds were approximately $16.5 billion, intended to strengthen the balance sheet and return capital to shareholders. The parties were engaging with the FTC in its review. MPC expected to enter into 15-year fuel-supply agreements after closing.
- MPC’s renewable-fuels plans included repositioning the Martinez refinery to produce renewable diesel, with initial production targeted at approximately 260 million gallons annually in the second half of 2022 and potential capacity of approximately 730 million gallons annually by the end of 2023. The Dickinson facility was ramping up, with full production targeted by the end of Q2 2021 and expected capacity of 184 million gallons annually.
- Environmental remediation liabilities were $393 million. Climate-change lawsuits were pending in several jurisdictions. MPLX’s Dakota Access Pipeline exposure included potential contingent contributions of approximately $230 million; the pipeline remained operational while litigation and environmental review continued. The Tesoro High Plains Pipeline trespass matter remained subject to administrative and court proceedings.
- Management said it believed liquidity was adequate and reported compliance with MPC and MPLX credit-facility covenants. Rating agencies listed negative outlooks for MPC and MPLX at the filing’s stated rating date. The filing cautioned that ratings, commodity prices, demand, operating reliability, regulation, litigation, and transaction completion could affect results and liquidity.
Most important facts for investors to verify
- Whether the Speedway sale closed on the expected terms and timing, and how proceeds were ultimately allocated.
- Whether refining volumes, crack spreads, margins, and winter-storm-related costs improved as demand recovered.
- Actual operating cash flow and working-capital trends, including receipt of the anticipated $2.1 billion tax refund.
- Debt, liquidity, credit ratings, and covenant headroom at MPC and separately at MPLX.
- Progress, costs, and production timing for the Martinez and Dickinson renewable-diesel projects, and developments in the Dakota Access, pipeline-trespass, climate, and environmental matters.