Marathon Petroleum Corporation (MPC) — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results; the company operates Refining & Marketing and Midstream businesses, with Midstream primarily conducted through MPLX.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Sales and operating revenues | $53.8B | $29.6B | $91.9B | $52.3B |
| Income from continuing operations, net of tax | $6.2B | $588M | $7.4B | $418M |
| Net income attributable to MPC | $5.9B | $8.5B | $6.7B | $8.3B |
| Diluted earnings per share | $10.95 | $13.00 | $12.15 | $12.71 |
| Segment adjusted EBITDA | $9.2B | $2.1B | $12.0B | $3.4B |
Revenue and operating profit benefited from higher refined-product prices and volumes, stronger refining margins, and market recovery. Q2 Refining & Marketing adjusted EBITDA was $7.76B versus $751M; Midstream was $1.46B versus $1.31B. Q2 refining margin was $37.54 per barrel versus $12.45, and refinery throughput was 3.069 million barrels per day versus 2.854 million.
For the six months, operating cash flow was $9.47B ($9.51B from continuing operations), investing cash flow was $620M, and financing cash outflow was $6.30B. Cash and equivalents were $9.08B at June 30; short-term investments were $4.24B. The operating cash increase reflected stronger results and a favorable working-capital contribution, including the effects of higher commodity prices and volumes.
At June 30, total debt was $27.18B before unamortized issuance costs and discounts; balance-sheet current and long-term debt totaled $26.77B. MPC liquidity excluding MPLX was reported at $18.02B; MPLX separately reported $5.30B. Current assets were $42.41B and current liabilities $28.44B. MPC and MPLX reported investment-grade ratings with stable outlooks and compliance with their credit covenants.
Material changes and unusual items
- MPC’s attributable net income declined year over year despite sharply higher continuing-operations earnings, principally because Q2 and first-half 2021 included income from the Speedway sale, completed in May 2021. The sale generated an $8.02B after-tax gain in 2021.
- Higher crude oil and purchased-product costs increased cost of revenue. Refining energy costs also rose, and first-half RIN compliance expense increased to $1.07B from $633M.
- A $238M benefit in 2022 reflected retroactive EPA changes to renewable volume obligation requirements for 2020 and 2021. MPC also recorded a $37M non-cash gain when it acquired the remaining interest in Watson Cogeneration and began consolidating it.
- MPC repurchased $6.18B of its shares in the first half and paid $643M in dividends. It had $4.17B remaining under repurchase authorizations at June 30. The board subsequently authorized another $5B of buybacks; MPLX also authorized an additional $1B of unit repurchases.
Outlook, management commentary, and risks
- Management cited recovering refined-product demand and commodity supply constraints as supportive of refining margins and Midstream throughput. The filing provides no specific company-wide earnings or margin guidance.
- 2022 capital plans were approximately $1.7B for MPC, excluding MPLX, acquisitions, and capitalized interest, and $900M for MPLX. Management emphasized capital discipline, operational efficiency, and investment in renewable fuels and lower-carbon technologies.
- The Martinez renewable fuels project joint venture with Neste is structured 50/50, with Neste expected to contribute $1B, including half of projected development costs. The first phase was targeted for mechanical completion late in Q4 2022; planned production milestones depend on obtaining the operating air-quality permit. The filing states initial capacity as “260 million gallons per day”; investors should verify this unit against the filed document. The filing also targets 730 million gallons per year by year-end 2023.
- Management identified inflation and higher feedstock, labor, and materials costs; Russia-Ukraine conflict and sanctions; possible COVID-19 effects; commodity-price and demand volatility; outages, regulation, and credit-market disruption as risks.
- Environmental remediation liabilities were $396M. Climate-related lawsuits seek unspecified damages. In the Fort Berthold Reservation pipeline matter, government counterclaims seek disgorgement of profits, pipeline removal, and remediation; the amount is not clear from the filing. MPLX’s contingent equity contribution exposure for the Bakken Pipeline system was approximately $170M.
- After quarter-end, MPC and MPLX replaced revolving facilities with agreements maturing in July 2027: $5B for MPC and $2B for MPLX. MPC reported no borrowings under its commercial paper program at June 30.
Important facts for investors to verify
- How much of the exceptional 2022 refining margin and earnings is sustainable if crack spreads, crude differentials, or product demand weaken.
- The Martinez project’s stated initial-capacity unit, permit timing, project costs, and production milestones.
- Buyback pace and funding relative to capital spending, dividends, debt maturities, and working-capital volatility.
- Potential exposure and developments in the Fort Berthold pipeline dispute, climate litigation, environmental remediation, and pipeline guarantees.
- How the $238M retroactive renewable-obligation benefit and Watson Cogeneration gain affect comparisons with future periods.