Marathon Petroleum Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
MPC is an integrated downstream energy company with Refining & Marketing and Midstream segments; Midstream principally reflects its majority-owned MPLX partnership. MPC completed the sale of Speedway to 7-Eleven on May 14, 2021. Speedway is reported as discontinued operations, and MPC continues to supply it under long-term fuel agreements.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales and other operating revenues | $32.321B | $17.408B | $84.647B | $51.807B |
| Continuing-operations net income (loss) | $1.030B | $(980)M | $1.448B | $(11.432)B |
| Net income (loss) attributable to MPC | $694M | $(886)M | $8.964B | $(10.111)B |
| Diluted EPS attributable to MPC | $1.09 | $(1.36) | $13.81 | $(15.58) |
| Refining & Marketing segment income (loss) | $509M | $(1.569)B | $135M | $(3.610)B |
| Midstream segment income | $1.042B | $960M | $2.991B | $2.734B |
- Refining: Q3 net refinery throughput was 2.836 million barrels per day, versus 2.536 million a year earlier. Refining & Marketing margin was $14.51 per barrel, compared with $7.18 including the prior-year LIFO liquidation charge (or $8.28 excluding it). Higher product prices, volumes and crack spreads supported results.
- Cash flow: For the first nine months, operating cash flow was $686M overall, comprising $3.546B from continuing operations and $(2.860)B from discontinued operations. Investing activities provided $13.349B, including Speedway sale proceeds; financing activities used $8.716B. Continuing-operations capital expenditures were $983M of PP&E additions; reported total capital expenditures were $1.014B.
- Liquidity and debt: At September 30, MPC reported $5.874B cash and $7.352B short-term investments. MPC liquidity excluding MPLX was $18.286B; MPLX reported $3.669B. Total debt was $27.765B before unamortized issuance costs and discounts; balance-sheet long-term debt was $27.270B, with $73M due within one year. MPC and MPLX reported covenant compliance.
- Capital returns: MPC repurchased $1.912B of shares during the first nine months, including $928M in Q3, and declared a $0.58-per-share dividend. MPLX repurchased $465M of units; its Q3 distribution, declared after quarter-end, included a special distribution.
Material changes versus prior periods
- Q3 2021 returned to continuing-operations profitability from a substantial prior-year loss, reflecting improved refining prices, volumes and margins and the absence of 2020 impairment and restructuring charges. The prior-year quarter also included a $530M LIFO inventory benefit, which did not recur.
- Nine-month 2021 MPC-attributable income includes the Speedway sale gain: the transaction generated a pretax gain of $11.682B and an after-tax gain of about $8.02B. The $8.448B of nine-month discontinued-operations net income also includes Speedway operating results through the sale date. Thus, reported nine-month EPS is not representative of continuing operations alone; diluted continuing-operations EPS was $0.79.
- Comparisons also reflect the absence of major 2020 impairment charges, including $8.280B in the income statement and $1.315B of equity-method investment impairments, as well as the prior-year $1.185B LIFO charge and restructuring expenses.
- Cash and investments increased substantially following the Speedway transaction, while MPC and MPLX repaid or redeemed debt. Refining throughput and segment earnings improved from pandemic-affected 2020 levels.
Outlook, management commentary and risks
- Management described demand as recovering but still below historical levels, with uneven conditions by market and region. It said the effects of potential COVID-19 resurgences remained uncertain and continued to prioritize asset competitiveness, commercial performance and lower costs.
- MPC’s 2021 capital investment plan was approximately $1.4B, excluding capitalized interest, potential acquisitions and MPLX’s plan. MPC’s plan was estimated at about $650M, down from an initial $1.0B; management said it would continue to adjust spending as conditions warrant.
- MPC plans to convert the Martinez refinery to renewable diesel production, targeting approximately 260 million gallons annually in the second half of 2022 and approximately 730 million gallons annually by the end of 2023. The Dickinson renewable fuels facility reached full design capacity in Q2 2021, with stated capacity of 184 million gallons annually. An announced ADM joint venture is expected to supply soybean oil from a facility planned for completion in 2023.
- Management stated that liquidity was adequate for anticipated funding needs. It expected to redeem $2.1B of MPC notes due in 2023 on December 2, 2021, using cash on hand; this was a planned post-quarter-end action, not yet completed as of the filing date.
- Key exposures include volatile crude, refined-product, natural gas and NGL prices; refining margins and demand; COVID-19; operational disruptions; environmental regulation and remediation; and litigation. The Dakota Access Pipeline remains operational, but its easement is under review; MPLX disclosed maximum potential undiscounted contingent contributions of about $230M. MPC also reported $389M in accrued environmental remediation liabilities and climate-related lawsuits with uncertain outcomes.
- No material changes to the previously disclosed risk factors were reported. Management said disclosure controls were effective and no material change in internal control over financial reporting occurred during the quarter.
Most important facts for investors to verify
- Separate continuing-operations earnings from the Speedway sale gain and discontinued operations when assessing recurring profitability.
- Track refining margins, throughput, product demand and the extent to which improved 2021 results persist beyond the recovery comparison with 2020.
- Confirm completion and funding of the planned $2.1B note redemption, and monitor debt, cash, short-term investments and capital returns.
- Assess delivery, costs and production ramp-up for the Martinez renewable diesel conversion and the ADM feedstock venture.
- Monitor COVID-19 and market conditions, environmental and climate litigation, and Dakota Access Pipeline permitting and contingent funding exposure.