The operator introduces the Marathon Petroleum Corporation third quarter 2023 earnings call and turns it over to CEO Mike Hennigan. Hennigan discusses the strong demand and tight supply in the refining market, particularly in diesel and distillates. He also mentions the global increase in demand for energy and steady demand for gasoline, diesel, and jet fuel in their system. Global supply remains constrained and capacity additions have been slow. Seasonal blending has increased gasoline supply in their regions.

The article discusses how seasonal turnarounds and OPEC+ production cuts are expected to support gasoline cracks. The company has seen a drawdown in gasoline inventory and is strategically positioned to run heavy Canadian crude at its refineries. In the third quarter, the company generated strong cash flow and its Midstream segment saw durable and growing earnings. The company's Midstream segment is expected to continue growing and supporting MPC's dividend and capital program. The company has returned $3.1 billion to shareholders in the third quarter through dividends and share repurchases.

Last week, MPC announced a $5 billion share repurchase authorization and a 10% increase to its quarterly dividend. The company has consistently grown its dividend at a compound annual rate of 12% over the past five years. MPC's capital allocation framework remains consistent, with a focus on investing in sustaining assets, paying a competitive dividend, and growing earnings. The company is also making progress on its low carbon initiatives, including the construction of a renewable fuel facility in Martinez and the operation of a renewable diesel facility in Dickinson. MPC is also exploring other low carbon investments, with the goal of reducing the carbon intensity of its operations and products.

In the third quarter, the company reported adjusted earnings per share of $8.14, excluding a gain on sale and response costs. Adjusted EBITDA was $5.7 billion, and cash flow from operations was over $4.3 billion. The company returned $297 million to shareholders and repurchased $2.8 billion of shares. Net income was reconciled to adjusted EBITDA, which increased by $1.2 billion sequentially due to higher R&M margins. The tax rate was 22%, resulting in a provision of $1 billion. The Refining & Marketing segment ran at 94% utilization, processing 2.8 million barrels of crude per day. Per barrel margins were higher across all regions, with a capture rate of 93%. Refining operating costs were flat at $5.14 per barrel.

The company experienced unplanned downtime at two of its largest refineries during the quarter, resulting in lost crude throughput and a headwind to overall capture. Repairs have progressed as planned and turnaround work was pulled forward. Despite weak secondary product pricing and refinery downtime, the Refining & Marketing segment had a margin capture of 93%. The Midstream segment had strong third quarter results with flat sequential and 3% higher year-over-year adjusted EBITDA. MPLX has increased its quarterly distribution and MPC expects to receive $2.2 billion in cash annually. The Midstream business is growing and generating strong cash flows with high-return growth projects in the Marcellus and Permian basins.

In summary, Slide 10 shows that our consolidated cash position for the quarter was over $4.3 billion, with working capital contributing $609 million. We spent $486 million on capital expenditures and investments, and returned $3.1 billion to shareholders through share repurchases and dividends. We have $8.3 billion remaining for share repurchases and $13.1 billion in consolidated cash and investments. Slide 11 provides our fourth quarter outlook, with expected crude throughput volumes of 2.6 million barrels per day and lower utilization due to turnaround activity. The Galveston Bay reformer is expected to resume operations in mid-November and return to full operating rates by mid-December, with additional turnaround work planned during the outage.

The company's planned turnaround expense is projected to be $300 million in the fourth quarter, with operating costs per barrel expected to be $5.60 due to higher energy costs and project-related expenses. Distribution costs are estimated at $1.4 billion and corporate costs at $175 million. The company will prioritize capital investments for safety and reliability, and expects to continue benefiting from the mid-cycle environment. MPLX remains a source of growth, with expected annual distributions of over $2.2 billion to MPC. The company is positioned as the refiner investment of choice and is committed to returning capital to shareholders.

The speaker thanks the caller for acknowledging their strong performance in EBITDA margin per barrel and credits their team's focus on this metric. They have made structural improvements throughout their commercial value chain and are taking calculated risks to uncover potential value. They approach everything with the assumption that they are doing it wrong, leading to a more thorough analysis and potential for creating value.

The Midwest region has a fully integrated system with four great refineries that ran well in the third quarter. They have access to advantaged feedstocks and exceptional product placement options. The company's main focus is on generating cash and providing flexibility for shareholder returns. Despite some unplanned incidents in the third quarter, the company still delivered a strong performance.

In the paragraph, the speaker discusses two major impacts that affected the company's capture, resulting in a 6% decrease in reported capture. These impacts were related to operational challenges at two facilities, Galveston Bay and Garyville, which caused a loss of 4.7 million barrels and a reduction in operating rate by half for a week, respectively. The speaker also mentions that it took about three months to begin repairs at Galveston Bay and that demand for exports has been stable and steady, with about two-thirds of exports being distillate and the rest being gasoline. The demand center in Latin America and the Caribbean has been particularly strong and growing.

The company has seen growth in European imports from the US, but the one weak spot is distillate demand in Europe. The team expects a pickup in demand during the colder weather season. When asked about speculation about Marathon potentially bidding for Citgo assets, the company's representatives stated that they are more focused on building out their competencies and increasing their competitive advantages along their existing value chains. They do not anticipate participating in the current auction process for Citgo assets.

In response to a question about the West Coast marketing margins, Brian Partee from the company stated that there was limited impact from the marketing business in the third quarter. However, they are actively engaged in growing their network and expect to see some margin expansion in the fourth quarter. They are focused on value growth rather than station growth and do not want to forecast a specific number.

Paul asks about the CapEx outlook for the next few years and whether it will be steady or if there are plans for growth in refining and reducing energy through MPLX. Maryann emphasizes the company's focus on strict capital discipline and mentions that CapEx has decreased from $3.5 billion to $2.1 billion. She also mentions evaluating cost reduction and margin enhancement projects. Mike adds that MPLX is expected to continue growing cash flows, which will benefit MPC through distribution.

Maryann and Mike discuss their optimistic outlook for their refining projects, which will increase reliability and margins. They plan to invest $2-3 billion and generate sufficient free cash flow to return capital to shareholders through dividends and buybacks. Sam Margolin asks about their methodology for analyzing MPC shares and their price sensitivity in buybacks. Maryann mentions looking at intrinsic value through different approaches such as discounted cash flows.

The company evaluates its EBITDA multiples and discounted cash flows when making decisions about buybacks. They consider various factors such as market conditions, cash flows, and cash balances. They aim to outperform the market and have reduced their share count by 40% while beating the market by $4.

In this paragraph, the speaker discusses how the company has reduced shares and created value through execution. They also mention the impact of the TMX project on the West Coast and how it will benefit their assets there. The speaker also acknowledges potential start-up issues with TMX and the competitive advantage of their assets on the West Coast. The next speaker asks about permit issues related to renewable diesel.

Jim Wilkins, speaking on behalf of the company, stated that there is one issue related to their land use permit that they are working on with the county, but it will not affect their ability to construct or operate the facility. This issue is related to their odor mitigation plan, which has already been approved by the Air Quality Division. There are no other regulatory hurdles that need to be cleared for the startup. John Royall asked about the company's buyback plans, given their strong cash balance and a worsening environment in the fourth quarter. Mike, the company's representative, mentioned constraints to doing more on the buyback and stated that they would like to bring their cash balance down to $1 billion in the long term.

Maryann Mannen and John Royall discuss the company's cash balance and share buyback plans. Maryann mentions that $1 billion of the $13 billion belongs to MPLX and there may be some working capital changes in the coming quarters. She also mentions that the company is generating $0.5 billion in interest income from the cash on hand. John expresses his support for share buybacks and Maryann explains that they will consider all factors and be opportunistic in their approach. They also discuss some turnaround work being pulled in from next year to the second half of this year.

The speaker, Maryann Mannen, responds to a question about the potential for a below average year in 2024 due to the company's recent catch-up work and COVID-19 impact. She explains that the company's turnaround activity is generally consistent over time, with some adjustments due to unplanned downtime and COVID-19. She also mentions upcoming turnaround activity in the fourth quarter and a 10% dividend raise. The questioner, Jason Gabelman, asks about the reasoning behind the dividend raise, which is lower than the previous year and not in line with the increased cash from MPLX's distribution.

The speaker, Mike Hennigan, discusses the company's approach to increasing dividends and how they want to show the market their commitment to growing earnings and investing capital. He also mentions that they will focus more on share repurchases as a way to return capital. Maryann Mannen adds that the dividend increase is peer-leading. The analyst, Jason Gabelman, asks for more information on the hydrogen hub project and its potential benefits for the company.

Dave Heppner, a representative from MPC, discusses the company's involvement in 7 hubs that were approved for funding by the DOE. MPC and MPLX are involved in two of the hubs, with MPLX focusing on hydrogen and CO2 transportation and MPC focusing on lowering carbon intensity through hydrogen production. The projects are still in the early stages and are expected to come online in late 2024 or 2025. Theresa Chen follows up on a previous question about MPC's commitment to TMX.

Theresa Chen asks for an update on the toll and WCS differentials for the Mid-Con assets. Rick Hessling declines to comment on the toll and states that the forward curve for WCS is currently at a $15 to $18 discount. Theresa also asks for an update on the LF Bioenergy assets and if there are plans for additional RNG investments. Dave Heppner responds that the joint venture is progressing as planned and they plan to build 13 RNG facilities and use the RNG in their renewable diesel facilities to lower the CI of their product.

The speaker is pleased with their investment in renewable energy and is considering future opportunities. They are interested in investing in projects that are still in the early stages rather than paying for an already built-out system. They acknowledge the potential for their facilities to produce sustainable aviation fuel (SAF), but are hesitant due to uncertainties surrounding incentives and profitability.

The company is aware of the low-carbon trend and is considering investments in RNG and SAF, but is not looking for major investments. They are also unable to predict refining margin capture for the fourth quarter, but expect some positive factors such as the reformer coming back online in mid-November.

The Martinez conversion project is going well and is expected to be completed on time and on budget. The pretreatment unit has been operating well and will be ramped up to handle the production of RD. The project is expected to be completed by the end of the year, increasing annual production to 730 million gallons.

The speaker concludes the discussion by stating that the company is making progress and will be ready by the end of the year. She thanks the audience for their interest and invites them to reach out for further questions or clarification. The operator then ends the conference.

This summary was generated with AI and may contain some inaccuracies.