Marathon Petroleum Corporation

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Press star 1 on your touch-tone phone to enter the queue. Please note that this conference is being recorded. I would now turn the call over to Christina Kazarian. Christina, you may begin.

Welcome to Marathon Petroleum Corporation's fourth quarter 2024 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the investor tab. Joining me on the call today are Marianne Manin, CEO, John Quaid, CFO, and other members of the MPC and MPLX executive teams. We invite you to read the Safe Harbor Statements on slide two. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. I wanted to quickly highlight our new segment reporting, which includes a renewable diesel segment. We believe this expanded level of reporting will enhance our comparability with our peers and provide you with more insight into our financial performance and capital allocation decisions. Previously, the results of the renewable diesel business were included in our refining and marketing segment. For your reference, slides 24 and 25 provide illustrations of this reporting change. and we have provided recast historical financials in our investor packet available on our website. With that, I will turn the call over to Mary Ann.

Thanks, Christina, and good morning. Let me take a moment to highlight a few elements of our performance that were most relevant to our results. In 2024, we executed on our strategic commitments. First and foremost, we achieved our lowest company-wide OSHA recordable injury rate and strongest environmental performance in the last five years, demonstrating our commitment to safety and reliability. Over the full year, we delivered refining and marketing segment adjusted EBITDA per barrel of $5.33. Our commitment to operational excellence, commercial performance, and peer-leading profitability per barrel in each of the regions in which we operate drove our strong results. with refining utilization of 92% and commercial capture of 99%. Our midstream segment, which is where we report MPLX's results, grew adjusted EBITDA by 6% year over year. In 2024, MPLX increased its quarterly distribution by 12.5%, driving an annualized cash distribution to MPC of $2.5 billion. This was the third consecutive year of distribution growth of 10% or greater. This was the fourth consecutive year of MPLX generating mid single digit adjusted EBITDA growth. Since 2021, we've grown adjusted EBITDA at a compound annual rate of 7%. Our full year net cash from operations was $8.7 billion. This enabled peer leading capital return of $10.2 billion and a 23% capital return yield for our shareholders in a business where there is significant value in the ability to return capital to shareholders. The global macro environment continues to deliver refined product demand growth, and we expect 2025 will be another year of record refined product demand. In our domestic and export businesses, we have seen steady year-over-year demand for gasoline and diesel and growth in demand for jet fuel. Fourth quarter refining margins exhibited their typical season weakness. We expect margins will improve in the second half of this year as announced refinery closures offset recent capacity additions. Leveraging our fully integrated refining system and geographic diversification across the Gulf Coast, MidCon, and West Coast regions we are well positioned to perform in this dynamic market environment. Longer term, we believe fundamentals support an enhanced mid-cycle environment for refining as we expect demand growth to exceed the net impact of capacity additions and rationalizations through the end of the decade. We expect the U.S. refining industry to remain structurally advantaged over the rest of the world, mainly due to the availability of low-cost energy. We remain steadfast in our commitment to safely and reliably operate our assets and protect the health and safety of our employees, business partners, and the community in which we operate. Our high complexity refining assets and our domestic and international logistical and commercial capabilities further increase our global competitive advantage. We are committed to achieving peer leading profitability in every region in which we operate. And over the past several years, we have acted to advance on this commitment. We have made sustained structural changes to improve our cost competitiveness while maintaining safe and reliable operations. Throughout our commercial organization, we are improving value chain optimization with a more integrated and advanced approach to our execution. We made disciplined investments in our refining and marketing value chains targeted to enhance margins, reduce costs, and optimize systems. Across all three of our regions, we see the results of these actions. Along the U.S. Gulf Coast, where 42% of our capacity exists, we have more than 1.2 million barrels per day of refining capacity, which leverage feedstocks and logistics flexibility to provide a wide range of products to meet U.S. and export demand. Forty percent of our capacity is defined as our U.S. mid-con region. We have eight refineries with a total capacity of 1.2 million barrels per day, which capture market opportunities by leveraging our access to advantage feedstocks, logistics, and optimization of our large integrated value chain in the region. The remaining 18% of our capacity resides along the U.S. West Coast, anchored by our 365,000 barrel per day Los Angeles refinery and its fully integrated value chain, which benefits from feedstock and product optionality and a highly competitive marketing business. Our commitment to safe and reliable operations, operational excellence, and commercial performance position us to deliver peer-leading financial performance irrespective of the market environment. Our disciplined capital investments have also strengthened our competitiveness in each of the regions in which we operate. Looking into 2025, we believe our planned capital investments will further enhance MPC's position well into the future. MPC's capital outlook for 2025 Excluding MPLX totals 1.25 billion dollars. Underpinning our commitment to safety performance and environmental stewardship sustaining capital is approximately 30 percent of capital spend. Investments in our refining and marketing segment are focused on value enhancing and cost reduction opportunities with expected returns averaging around 30 percent. Renewable diesel capital spend in 2025 is limited and will be focused on sustaining current operations. I'll provide some details on three of our major multi-year projects that meet our criteria for investment. We are progressing the distillate hydrotreater project at Galveston Bay, where we are investing to construct a 90,000-barrel-per-day high-pressure distillate hydrotreater. Once in service, the new distillate hydrotreater will upgrade high-sulfur distillate to ultra-low-sulfur diesel. allowing us to place product in this higher value market. This project is expected to be completed by year-end 2027 and generate a return of over 20%. The Los Angeles refinery is a core asset in our West Coast value chain and one of the most competitive refineries in the region. This low-carbon refining investment, once completed, is expected to further enhance its competitiveness by integrating and modernizing utility systems to improve reliability and increase energy efficiency. Additionally, a portion of the improvements address a regulation mandating emissions reductions for all Southern California refineries. The improvements are expected to be completed by the end of this year. We expect to generate a return on our investments of approximately 20%. The Robinson Product Flexibility Project is expected to further extend the competitive position of our mid-con value chain by shifting yields to higher value products. This investment will increase the Robinson refinery's flexibility to maximize jet production to meet growing demand. We expect the project to be completed by the end of 2026 and generate a return of approximately 25%. The strategic investments at our Galveston Bay, Los Angeles, and Robinson refineries ensure we provide the clean burning fuels the world demands and further strengthen the competitive positions of our U.S. Gulf Coast, West Coast, and MidCon value chains. This morning, MPLX also announced its 2025 capital outlook of $2 billion, including $1.7 billion of growth capital and $300 million of maintenance capital. Approximately 85% of its growth capital will be allocated to investments to grow MPLX's natural gas and NGL businesses in support of expected increased producer activity. MPLX is investing to expand its Permian to Gulf Coast integrated NGL value chain, progressing long-haul pipeline projects and grow Permian and Marcellus processing capacity. MPLX anticipates mid-teen returns on its growth capital outlook, which will extend the durability of its mid-single-digit growth profile. Over the last four years, on average, we have grown our midstream segment adjusted EBITDA by almost 7% per year. The growth of MPLX's cash flows, combined with its strong distribution coverage and low leverage, provides MPLX considerable financial flexibility. We believe MPLX is positioned for additional distribution increases like the 12.5% announced in 2024 in the future. MPLX reached a significant milestone in its NGL wellhead to water value chain strategy with the announcement of a project to construct a Gulf Coast fractionation complex and export terminal. MPLX's fully integrated NGL value chain connects the Permian to the Gulf Coast, and will supply growing global demand for LPGs. The multi-year $2.5 billion investment in the Fractionation Complex and Export Terminal complements MPLX's existing asset base and leverages existing infrastructure. MPLX will build and operate the Gulf Coast Fractionation Complex, consisting of two 150,000-barrel-per-day Fractionation Facilities and a 400,000 barrel per day LPG export terminal, all of which will be located adjacent to MPC's Galveston Bay refinery. MPLX has entered into joint venture agreements with One Oak for the export terminal and a bi-directional purity pipeline between Mount Bellevue and Texas City. One Oak will market its 200,000 barrels per day and provide connectivity to Mount Bellevue storage. enhancing the competitiveness of the terminal. We also believe this strategic partnership with One Oak will create additional optionality and value for our customers. We also see it as a platform for future collaboration and growth across our Gulf Coast assets. NPLX plans to market methane production from the fracks to both existing and new customers. Leveraging our strategic relationship with NPLX MPC plans to contract with MPLX to purchase the remaining LPG production from the FRAC, which MPC will market globally through its existing market businesses via the new export terminal. The fractionation facilities are expected to be in service in 2028 and 2029, and the export terminal is expected to be in service in early 2028. We anticipate mid-teen returns on the project, which is expected to begin generating EBITDA when placed in service in 2028 and will ramp through the end of 2030. Additionally, we believe the expansion of our Gulf Coast NGL value chain will create a platform for optimization and incremental growth opportunities. Our capital allocation priorities remain consistent. Our number one priority is sustaining capital. We remain steadfast in our commitment to safely operate our assets and protect the health and safety of our employees and the communities in which we operate. We are committed to paying a secure, competitive, and growing dividend. We will invest where we believe there are attractive returns, which will enhance our competitiveness and position MPC well into the future. Beyond these three objectives, we will return all excess capital through share repurchases. As of the end of the year, we had $7.8 billion remaining under our share repurchase authorization, highlighting our commitment to superior shareholder returns. The durable and growing cash flow of MPLX differentiates MPC from peers. MPLX is strategic to MPC's portfolio and therefore its value proposition. We expect distributions from MPLX in 2025 will cover MPC's dividends and standalone capital outlook. Operating cash flow generated by our refining and marketing and renewable diesel segments are expected to be available for capital return through share repurchases. With our highly advantaged refining business and the $2.5 billion annualized distribution from MPLX, we are positioned to lead peers in capital returns through all market cycles. Let me turn the call over to John.

Thanks, Marianne. Moving to the fourth quarter and full year highlights, slide 14 provides a summary of our financial results. This morning we reported adjusted earnings per share of 77 cents for the fourth quarter and $9.51 for the full year. Adjusted EBITDA was approximately $2.1 billion for the quarter and $11.3 billion for the year. Refining and marking segment adjusted EBITDA per barrel was $2.03 for the quarter and $5.33 for the year. Cashflow from operations excluding working capital changes was $1.7 billion for the quarter and nearly $8.2 billion for the year. And during the quarter, we returned $292 million to shareholders through dividends and repurchased nearly $1.3 billion of our shares. Slide 15 shows the sequential change in adjusted EBITDA from third to fourth quarter 2024 and the reconciliation between net income and adjusted EBITDA for the quarter. Adjusted EBITDA was lower sequentially by approximately $400 million, driven by decreased results in our refining and marketing segment, slightly offset by improved results for our midstream and renewable diesel segments. The tax rate for the quarter was 12%, largely reflecting the earnings mix between our R&M and midstream businesses. Moving to our refining and marketing segment results for the fourth quarter on slide 16, lower crack spreads, mainly in the MidCon region, were the primary driver for lower R&M margins in the fourth quarter. Our refineries ran at 94% utilization, processing nearly 2.8 million barrels of crude per day, and refining operating costs were $5.26 per barrel in the fourth quarter. Turning to slide 17, solid commercial execution as well as typical seasonal tailwinds drove fourth quarter capture of 119%. We leveraged the scale of our fully integrated system in all three regions to capture margin opportunities across our entire value chain from feedstocks to products. We are committed to improving our commercial performance and believe we are building capabilities that will provide sustained incremental value and will produce results that can be seen in our financials. Slide 18 shows our midstream segment performance for the quarter. Our midstream segment continues to deliver cash flow growth. As segment adjusted EBITDA for the quarter was up nearly 5% sequentially. MPLX, which is the largest portion of our midstream segment, remains a source of durable growth as it progresses its mid-single digit adjusted EBITDA growth strategy. Slide 19 presents the elements of change in our consolidated cash position for the fourth quarter. Operating cash flow, excluding changes in working capital, was $1.7 billion in the quarter, driven by both our refining and midstream businesses. Working capital was a $497 million source of cash for the quarter, primarily driven by benefits from inventory reductions and a decrease in refined product prices. Capital expenditures, investments, and acquisitions were $935 million for the quarter. Cash was utilized to repay $1.15 billion of MPLX senior notes that matured in December. And MPC returned almost $1.3 billion through share repurchases, exclusive of excise tax payments, and $292 million in dividends during the quarter. At the end of the year, MPC had approximately $3.2 billion in consolidated cash, including MPC cash of $1.7 billion and MPLX cash of $1.5 billion. Turning to guidance, On slide 20, we provide our first quarter outlook. We are projecting crude throughput volumes of just over 2.5 million barrels per day