Marathon Petroleum Corporation

Welcome to the MPC second quarter 2019 earnings call. My name is Amber, and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. Press 1 on your touchtone phone to enter the queue. Please note that this conference is being recorded. I will now turn the call over to Christina Kazarian. Christina, you may begin.

Sounds great. Welcome to Marathon Petroleum's second quarter 2019 earnings conference call. The slides that accompany the call can be found on our website at marathonpetroleum.com under the Investors tab. On the call today are Gary Heminger, Chairman and CEO, Greg Goff, Executive Vice Chairman, Don Templin, CFO, Mike Hennigan, President of MPLX, as well as other members of the executive team. We invite you to read the Safe Harbor Statements on slide two. It's a reminder that we will be making forward-looking statements during the call and during the question and answer session. Actual results may differ materially from what we expect today. Factors that could cause results to differ are included there as well as in our filings with the SEC. Now, I will turn the call over to Gary Heminger for some opening remarks and highlights on slide three.

Thanks, Christina. Good morning and thank you for joining our call. Earlier today, we reported adjusted net income of $1.1 billion or $1.73 per diluted share. This quarter, we executed across all aspects of our integrated business and delivered solid results, generating $2.8 billion of cash from operations. Our impressive cash generation allowed us to return roughly $850 million to our shareholders this quarter, while also funding many key strategic investments, which we expect will continue to enhance our long-term earnings profile. Our team's execution this quarter led to strong synergy capture. Combined with our first quarter results, we have realized $403 million of synergies year-to-date. Our progress gives us great confidence in achieving our target of up to $600 million of annual gross run rate synergies by year-end 2019 and $1.4 billion by the end of 2021. Don will provide a detailed update around synergy capture later on the call. Our retail business had an exceptional quarter. and demonstrated its ability to capture value. Strong results this quarter reflect the tremendous focus by our team in managing the day-to-day business in conjunction with the integration of the new stores. We have converted over 400 stores since the combination, putting us well on track to achieve our goal of 700 stores by the end of this year. In midstream, we simplified our structure into one public company to high-grade commercial opportunities and progressed an impressive slate of high return projects that are expected to enhance integration across our system. Mike will speak to our execution around new projects as well as provide an update on our overall midstream strategy shortly. In refining, we achieved strong 97% utilization, executed planned turnaround activity at our Los Angeles and Martinez refineries ahead of schedule and under budget, and advanced strategic initiatives to prepare our system for upcoming IMO 2020 regulations. During the quarter, we progress the completion of the Garyville crude revamp and Coker drum replacement projects. Coker project expected to increase unit capacity by approximately 14% and remains on track to be completed in two phases, the fourth quarter of 2019 and first quarter of 2020. We also finalized plans to optimize our Coker feed and reset processing capabilities between refineries ensure readiness of our blending and storage capabilities near our key coastal export facilities. As we look to the second half of the year, global gasoline and diesel inventories are below their five-year averages. Gasoline demand remains close to last year's levels, and we expect demand to remain flat throughout the remainder of the year given the strong U.S. economy and low unemployment levels. On differentials, medium and heavy crude remain compressed from supply constraints and Iranian and Venezuelan sanctions, but we believe that refiners with operational flexibility, like ours, are best suited to manage these dynamics. Investors often ask about the timeframe for the expected pricing uplift from IMO regulations. We continue to believe impacts will emerge in the second half of the year and are starting to see some early indications in the market. First, Low sulfur fuel oil markets are showing signs of significant strengthening. Low sulfur to high sulfur spreads are currently at $16 per barrel, and forward pricing indicators are moving towards $30 per barrel as we approach year end. This is corroborated by the low sulfur fuel oil retail bunker agreements we have contracted in the Pacific Northwest and are negotiating at Long Beach for the fourth quarter. Additionally, we are obtaining significant upgrades for our low sulfur slurry volumes contracted for the third quarter. Second, high sulfur fuel oil values are weakening, and the market is highly backwardated through year-end, with U.S. Gulf Coast down $11 per barrel and Singapore indicating down $18 per barrel. While this is not necessarily a bullish factor for the market, it does show that IMO impacts are becoming more imminent. We continue to anticipate 1 to 2 million barrels per day of increased distillate demand globally for the IMO spec change, even considering recent global economic data, which we believe will support an expansion in diesel cracks by $2 to $5 per barrel, and coca margins improving roughly $10 per barrel as the industry prepares for low sulfur bunker regulations. After nearly a year as a combined business, we have identified opportunities to streamline our business and potentially divest assets to enhance the strength of our overall integrated portfolio and remain disciplined stewards of capital. Proceeds from any divestitures will be used for general purposes, such as investments in high-return projects as well as debt reduction. As this process develops, we intend to provide updates to the market, but much of it will be contingent upon market demand and appropriate pricing for these potential divestitures. Putting this all together, as we look forward to the remainder of 2019, we expect improving industry dynamics and the benefits of our past investments to support our growing cash flow outlook. And our team remains focused on operational excellence, achieving synergies, and creating long-term shareholder value. Now let me turn the call over to Mike Hennigan, will provide a strategy update for our midstream segment. Mike?