Marathon Petroleum Corporation

All participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Press 1 on your touch-tone 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.

Welcome to Marathon Petroleum Corporation's first quarter 2025 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 Mary Ann Manin, CEO, John Quaid, CFO, and other members of the executive team. 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. With that, I'll turn the call over to Mary Ann.

Thanks, Christina, and good morning, everyone. Let me highlight a few elements of our performance that were most relevant to our results in the first quarter. Refining utilization of 89%, reflecting the safe and successful completion of the second highest amount of planned turnarounds in history focused heavily on our Gulf Coast region. We planned this turnaround activity to occur in the first quarter, a period of seasonally weaker demand. Capture was 104% as we delivered strong commercial performance in a period of low refining margins and volatility from regulatory uncertainty. Our midstream segment adjusted EBITDA grew 8% year over year. And MPLX announced over $1 billion of strategic acquisitions advancing our midstream natural gas and NGL growth strategies. Our longer-term fundamental view supports an enhanced mid-cycle environment for refining. Despite reductions to the 2025 demand outlook, forecasts still point to a global oil demand growth mainly driven by demand for the refined products we produce. U.S. refined product inventories have drawn for the ninth straight week and are below the five-year average. This, plus lower retail prices, should be supportive as we move into the summer driving season, a period of strong seasonal demand. Within our own domestic and export businesses, we are seeing steady year-over-year demand for gasoline and growth for diesel and jet fuel. And while light heavy differentials could remain narrow as Canadian producers increase maintenance in the second quarter, we believe that higher OPEC plus production could offset that near-term tightness. We believe underlying fundamentals support stronger margins, especially as announced refinery closures offset recent capacity additions. We anticipate around 800,000 barrels per day coming offline across several refineries in the U.S. and Europe this year. In the U.S., a Gulf Coast refinery completed its closure in the first quarter, and in California, two announced closures are expected over the next 12 months. We have been investing in our fully integrated West Coast value chain. California demand for our products is driven by the 28 million conventional fuel vehicles in the state, among other factors. And with nearly 8 million in Los Angeles, the L.A. region is one of the three largest refined product demand centers in the U.S. At our Los Angeles refinery, we are nearing completion of approximately $700 million in infrastructure improvements to integrate and modernize utility systems to improve reliability and increase energy efficiency while also complying with tighter emission reduction regulations. Following completion, expected at the end of this year, these improvements are intended to strengthen the competitiveness of our Los Angeles refinery and position us to be one of the most cost competitive players in the region for years to come. Our long-term positive fundamental view for the refining industry is unchanged, and we expect demand growth to exceed the net impact of capacity additions and rationalizations through the end of the decade. We believe the U.S. refining industry will remain structurally advantaged over the rest of the world. The U.S. has a locational advantage given the accessibility of nearby crude, which we believe will grow as the cost of transportation increases. The availability of low-cost natural gas, low-cost butane and the U.S. refining system's flexibility all increase its competitive advantage over international sources of supply. The flexibility of our refining assets and our domestic and international logistical and commercial capabilities further increase our global competitive advantage. Our commitment to commercial excellence, regardless of market conditions, remains core to our execution. We believe that the capabilities we are building provide a sustainable advantage versus our peers. We look to demonstrate that through our financial performance. We are progressing our $1.25 billion standalone capital plan for 2025 with 70% targeted on high-return projects, designed to create optionality and improve our ability to capitalize on market volatility. Underpinning our commitment to safe and reliable operations, maintenance capital is approximately 30% of that capital spend. In addition to the project at our LAR refinery, in our MidCon region, we are increasing our flexibility to optimize jet production at our Robinson Refinery to meet growing demand, with completion expected by year-end 2026. On the Gulf Coast, we are constructing a distillate hydrotreater at our Galveston Bay Refinery to produce higher-value, ultra-low sulfur diesel, with completion expected by year-end 2027. In addition to these multi-year projects, we are executing smaller, high-return, quick-hit projects targeted at enhancing refinery yields, improving energy efficiency, and lowering our cost. Leveraging our fully integrated refining system and geographic diversification across the Gulf Coast MidCon and West Coast regions, we are well-positioned to deliver peer-leading through cycle cash generation. In our midstream business, we've announced over a billion dollars of strategic acquisitions since the start of the year. First, within its NGL value chain, MPLX, will be acquiring the remaining 55% interest in the Bengal NGL pipeline. Full ownership of Bengal and its expansion opportunities enhance MPLX's Permian platform as we connect growing NGL production from the wellhead to our recently announced Gulf Coast fractionation facilities. The Bengal transaction is anticipated to close in July, subject to the satisfaction of closing conditions. Second, MPLX expanded its crude oil value chain by acquiring gathering businesses from Whiptail Midstream in March. The San Juan Basin assets in the Four Corners region enhances supply to our refining system. Third, within its natural gas value chain, MPLX has entered into an agreement to double its stake in the Matterhorn Express natural gas pipeline from 5% to 10%. The transaction is expected to close in the second quarter of 2025, subject to the satisfaction of closing conditions. These acquisitions are expected to be immediately accretive. We're all well aware of the volatility in the commodity markets. However, based on feedback from our producer customers, we continue to expect year-over-year growth across our Marcellus, Utica, and Permian operating regions. These basins have some of the lowest break-even prices in the U.S., offering economically advantaged development opportunities. We believe MPLX is well-positioned and has significant opportunities to support the development plans of its producer customers, especially as demand increases for natural gas-powered electricity. MPLX's financial flexibility places it in an excellent position to continue to significantly grow its distributions, further enhancing the value of its strategic relationship with MPC Given our highly advantaged refining business and the $2.5 billion annualized distribution from MPLX, we believe we can lead peers in capital returns through all parts of the cycle. Now I'll hand it over to John to discuss our financial performance.

Thanks, Mary Ann. Moving to first quarter highlights, slide four provides a summary of our financial results. This morning we reported a first quarter net loss of 24 cents per share. During the quarter, we returned over $1.3 billion to shareholders through dividends and repurchases. Slide 5 shows the sequential change in adjusted EBITDA from fourth quarter 2024 to first quarter 2025 and the reconciliation between adjusted EBITDA and our net results for the quarter. Adjusted EBITDA for the quarter was approximately $2 billion. lower sequentially by $145 million due to decreased results in our refining and marketing and renewable diesel segments. In addition to effects from the mix of pre-tax earnings between our R&M and midstream businesses, our tax rate was further lowered by discrete tax benefits recognized in the quarter. Moving to our refining and marketing first quarter segment results on slide six, Our refineries ran at 89% utilization, processing 2.6 million barrels of crude per day. We completed significant planned turnaround activity in the quarter, particularly in our Gulf Coast region where utilization decreased from 97% in the fourth quarter of last year to 82% in the first quarter. As compared to fourth quarter of last year, the effects of lower Gulf Coast volumes were partially offset by higher margins in the mid-con and the West Coast. R&M segment adjusted EBITDA was $1.91 per barrel for the quarter. Turning to slide seven, first quarter capture of 104% was driven by solid commercial execution as well as seasonally strong clean product tailwinds. We leveraged the scale of our fully integrated system across all three regions to capture margin opportunities across our entire value chain from feedstocks to products. Slide eight shows our midstream segment performance for the quarter. Our midstream segment continues to deliver cash flow growth with an 8% year-over-year increase in quarterly segment adjusted EBITDA. And in the first quarter, MPC received $619 million of distributions from MPLX, a 12.5% increase compared to the 550 million received in the first quarter of 2024. MPLX remains a source of durable growth as it progresses its mid-single-digit adjusted EBITDA growth strategy. Slide 9 shows our renewable diesel segment performance for the quarter and what was a challenging environment. Our renewable diesel facilities ran at 70% utilization, mainly as a result of unplanned downtime at both facilities. As compared to last year's fourth quarter, the segment's largest headwind was changes in regulatory credits, which reduced margins across the industry. As we look forward, based on the latest guidance, we have already taken actions we expect will allow us to realize incremental 45Z credits starting at the beginning of the second quarter, and we will continue to pursue value for the 45Z credits we were unable to recognize in the first quarter. That said, we're focused on what we can control. At our Martinez joint venture facility, one of the most competitive renewable diesel operations in the U.S., we are optimizing the renewable refinery to its nameplate capacity, leveraging flexible logistics and pretreatment capabilities to enable a diverse slate and margin. We have addressed the operational items that limited production in the first quarter, and following some planned downtime at our Dickinson refinery in April, Both our renewable refineries are positioned to run in the second quarter. Slide 10 presents the elements of change in our consolidated cash position for the first quarter. Operating cash flow excluding changes in working capital was $1 billion for the quarter, driven by the strength and growth of our midstream business. Working capital was a $1.1 billion use of cash for the quarter, primarily driven by inventory builds, mostly in our Gulf Coast region. Crude and product inventory builds related to planned turnarounds here in the first and second quarters, as well as product builds related to in-transit export shipments. In the second quarter, we expect some, but maybe not all of this inventory build will reverse as turnarounds are completed and inventory is drawn to normal operating levels. First quarter capital expenditures and investments were $795 million. And MPLX completed the acquisition of a gathering business from Whiptail Midstream for $237 million. In the quarter, MPC issued $2 billion in senior notes. And this issuance was intended to replace the $750 million of senior notes that matured in September of last year. as well as refinance the $1.25 billion of senior notes that matured on May 1st. MPLX repaid $500 million of maturing debt in February and also issued $2 billion of senior notes. MPLX used a portion of the proceeds to retire $1.2 billion of senior notes scheduled to mature in June. At the end of the quarter, MPC had approximately $3.8 billion in consolidated cash including MPC cash of $1.3 billion and MPLX cash of $2.5 billion. We continue to manage our balance sheet to an investment grade credit profile. We remain comfortable with our minimum target of about $1 billion of cash on the balance sheet being sufficient to run the business. And this is supported by the $2.5 billion and growing annual distribution from MPLX, as well as our undrawn credit facilities of $5 billion. all positioning us to have ample liquidity to endure market fluctuations. Turning to guidance on slide 11, we provide our second quarter outlook. With major planned turnaround activity behind us, we are ready to run to meet increasing seasonal demand. We're projecting throughput volumes of 2.8 million barrels per day, representing utilization of 94%. Turnaround expense is projected to be approximately $265 million in the second quarter, with activity mainly focused in the MidCon and West Coast regions. For the full year, turnaround expenses are expected to be similar to last year at around $1.4 billion. Operating costs are projected to be $5.30 per barrel in the second quarter. Distribution costs are expected to be approximately $1.5 billion. Corporate costs are expected to be $220 million. With that, let me pass it back to Marianne.

Thanks, John. We are unwavering in our commitment to safe and reliable operations. Operational excellence, commercial execution, and our cost competitiveness yield sustainable structural benefits and position us to deliver peer-leading financial performance in each of the regions in which we operate. To deliver this, we will optimize our portfolio to deliver out performance now and in the future. We'll leverage our value chain advantages and ensure the competitiveness of our assets while we continue to invest in our people. Our execution of these commitments positions us to deliver the strongest through cycle cash generation. Durable midstream growth is expected to deliver cash flow uplift and to deliver distribution increase going forward, a differentiator from our peers. Investing capital where we believe there are attractive returns will enhance our competitiveness now and for the future. We are committed to leading in capital allocation and will return excess capital through share repurchases. MPC is positioned to create exceptional value through peer-leading performance, execution of our strategic commitments, and its compelling value proposition. Let me turn the call back to Christina.

Thanks, Marianne. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and we'll follow up. If time permits, we will reprompt for additional questions. Operator, please open the call for questions. Operator, we're ready for questions.

Thank you. We will now begin our question and answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press star then two. Our first question comes from Neil Mehta with Goldman Sachs. Your line is open.

Yeah, good morning, Mary Ann and team. You know, a lot to talk about here, but maybe we start on what you're seeing real-time from a demand perspective as we get deeper here in the second quarter. Are you seeing any physical evidence of an economic slowdown? And just maybe give you some real-time color of what you're seeing in your system here.

Yeah, good morning, Neil, and thanks for the question. You know, look, I think we've seen refined cracks improve. You know, you look, we're about $4 better the second quarter than we were in the first. You know, it's showing the typical seasonal improvement into the second quarter. You know, you've seen our guidance when we look at overall utilization, you know, 94%, particularly when you look at the Gulf Coast, 96% for us as we get out of, you know, our second largest turnaround season. And, you know, if you will, ready to run in the second quarter. You know, we think we are well positioned to meet this seasonal uptick in demand. And certainly when you look at the fundamentals, the inventories that I refer to, you know, the five-year average, et cetera, and certainly sort of the overall outlook. But I'm going to ask Rick to give you some specifics as he's looking at our system and demand to address your question.

Yeah, Neil, to bolt on to Mary Ann's comments, so real-time, we're very optimistic on what we're seeing. Within the domestic business, we're seeing steady year-over-year demand for gas, and we're seeing growth in diesel and jet fuel. And then additionally, when we look at our exports, Neil, when you go year-on-year, quarter-on-quarter, we're seeing increases in export demand as well. So All the way across our system, we are seeing positive signs and aren't really seeing a slowdown whatsoever. Closer to home to what Marianne mentioned, on the inventories, I want to double tap on that for a moment because those signals are really important to us and a great indication of how the market is setting up as we head into our summer driving season. As you know, we did a lot of turnaround work in Q1. We are ready to run in Q2. And with the lower street prices year on year, we see this as another strong demand signal that the consumers will have to continue this demand strength that we're seeing. And lastly, you know, Mary Ann mentioned the $4 a barrel increase versus Q1. Just a few specifics on that. To break down for you by region, in the mid-con, we're seeing a $6 a barrel increase of where we stand today versus the Q1 results. In the Gulf Coast, a $3 a barrel increase. And in the West Coast, a $5 a barrel increase. So strength across the system, Neil.

Yeah. Okay. You're seeing the margins for now. And so it's definitely notable. in some of the hard data here. So, okay, then the follow-up is just on the West Coast specifically. We've seen a lot of developments here, most notably Benicia. But how are you guys thinking about the multi-year outlook for the West Coast? How do you position yourself? And do you think that the political environment is such that if you go into a period of strong margins, you'll be able to to capitalize that.

Yeah, thanks, Neil. Maybe a few things around the West Coast and our views sort of longer term. You know, first, as you know, we've been investing, I mentioned it on some of my prepared remarks there, we've been investing in our LA asset. We believe its flexibility, the integrated nature of that asset, its ability to process different types of crudes, etc., gives us a long-term competitive advantage. You know, in the case of this capital that we're putting to work, you know, gives us efficiency, improves performance, while at the same time, we are complying with regulatory requirements around NOx emissions. So overall, we think that's been a good investment. Just when we think about demand in the West Coast, right, 28 million conventional fuel vehicles, as I like to say in the state, You know, a lot of that demand is centered in the Los Angeles region, so speaks well for our asset also. And then you speak about the regulatory environment. You know, we've spent a lot of time, as you know, go back really to, you know, 2018, 2019, frankly, as we began our assessment of our profitability and the competitive nature of our assets in that region when we made the decision, frankly, to close Martinez as a fossil fuel refinery, I'll bet, right, continued as a renewable diesel. We're watching the regulatory environment very closely, right? We've got minimum inventory law went into place in the beginning of the year, but frankly, the rulemaking isn't done. I think right now, the state and the officials there are focused on resupply as maintenance and turnaround activity happens to ensure that we can provide, they can provide requirements for consumers there. You know, there's also been conversation around whether or not the state would own or operate refineries. We certainly don't think that that's plausible, but we'll watch it closely. And last, what I would say is we are spending time with the regulatory agencies through our Washington office, et cetera, to ensure that there is an understanding of sort of the longer term view of and the decisions that they are trying to make there. So we're comfortable as we sit here today recognizing that a challenging environment. We think we've got, you know, one of the most competitive assets in the region, and hopefully I've done a reasonably good job of telling you why that's the case. I'm going to ask Rick, excuse me, to give you a little bit of color on what we're seeing maybe long-term with demand there.

Yeah, so, Neil, we continue to see pretty positive signals also on the West Coast. But I want to maybe take a step back and give some color to our positioning as well to add on to Mary Ann's comments. So we have the largest refinery in California. It is complex. It is fully integrated. And we will beat what we call high-cost alternative of imports into the region all day long. With that being said, the closures that we have seen certainly are a tailwind to not only our LAR facility, but also to our Pacific Northwest facilities. So if you look, they will also be the beneficiary of product placement. And as you know, the West Coast is structurally short gasoline and jet, so we will be leaning into these markets as others close. And lastly, I want to leave you with a nugget that not a lot of people talk about. It's on the feedstock side. If these closures happen that have been announced, Neil, we will be the beneficiary as well. We have a large TMX position taking advantage barrels from Canada. But above and beyond that, we're a big ANS and a big SJV buyer, and we will be the beneficiary of those closures that if they happen, That'll put incremental pressure on those differentials, and we have a large appetite for those grades. So I'll leave it there, Neil. Great color. Thanks, Tim. Thank you.

Thank you, Neil.

Thank you. Our next question comes from Doug Leggett with Wolf Research. Your line is open.

Oh, good morning, everyone. Thanks for taking my questions. Marianne, I want to come back to a topic that I feel like we used to bring it up relatively frequently and then it kind of fell into the background a little bit, and it's the issue of capture rates. You had one of the heaviest turnaround seasons in, I guess, in your history this quarter, but yet your capture rate kind of knocked it out of the park. And I know this is related to the commercial organization that you built up over the last several years. And I'm just wondering, as you get back into, you know, normal utilization rates into the, you know, when you don't have a lot of downtime, Should we be thinking that your capture rate has shifted up as a matter of course, or I'm just curious how you would respond to that comment?

Good morning, Doug, and thanks for your question. So, as you know, one of the things that we've been really leaning in for some time is our ability to improve our commercial performance. We think it is one of the most important elements when we think about our value propositions. and our peer-leading performance. And over the last few years, as you said, we've been building what we think are sustainable benefits across the system organization-wise, other capabilities. We've talked about our London office, our Singapore office, our Houston office, in addition to our Finley office as well. So some of these capabilities, you know, will transcend. We've also said that approaching 100% is clearly an objective of ours. And we think some of the sustainable advantages that we've really put in place are being demonstrated through our financial performance. And as you know, some of these things, regardless of whether it's a high crack environment or a low crack environment, may not be in our control. But the ones that are, are that what we are trying to focus on quarter after quarter, We think, right, looking at our fully integrated system and trying to leverage those capabilities, you hear us talk about value chain integration, the strategic importance of the relationship between MPC and MPLX. We believe all of these will continue to deliver capture rates approaching 100%. And I'll look at Rick and see if there was anything else that Rick wanted to add, particularly as we think about what happened in the quarter.

Yeah, thank you, Mary Ann. Doug, I have to chuckle for a moment. I'm guessing Mary Ann thinks I paid you to ask that question because we are quite proud of our results. Not only has it been this quarter, but I think you've seen it the last several quarters. And I do want to reiterate that it is structurally sustainable. We believe we built the system and have the value chain to continue to garner more value than our competition. And three areas of particularly strong performance that I want to highlight in our specific teams, specialty products, asphalt, and product margins. And sometimes we mention product margins and they're specific to a region. This past quarter, I would tell you it's all three regions. It's Gulf Coast, MidCon, and West Coast. So very proud of the team's performance and wringing value out of the entire value chain, as Mary Ann referenced.

Okay. Well, I was thinking 100% might now be a little conservative, but we'll see. We'll see where we go.

Please don't do that to me. But, you know, we're confident in our ability to outperform in this area, Doug.

Good stuff. Thanks for the answer. Marianne, a completely unrelated question. Again, it's something that's come up periodically. You've talked about you want to hold a billion dollars of cash in the balance sheet, but you did admittedly have some working capital moves and you lent into the balance sheet this quarter, it seems, for share buybacks. What is the net debt level at the MPC level? Try that again. The net debt MPC level that you're comfortable with as opposed to the cash level at the MPC level?

Yeah, thanks for the question, Doug. Maybe just a couple of other comments as well before I get to your specific answer. But, you know, one of the things that we think is important as we've tried to lean in with respect to our capital allocation priorities, and they haven't changed. You talk about the $1 billion, as you know, from quarter to quarter, some of those things just depending on commodity prices, etc., you know, that'll ebb and flow. But the billion dollars continues to be something that we have stress tested and remain comfortable in part because we had a realized situation, you know, many years ago called COVID that helped us understand that. The second part of that, as you know, and I think you've been asking me this question for a couple of quarters now, right, if not longer than that, you know, the distribution that MPC receives from MPLX at $2.5 billion today covers the MPC dividend to its shareholders as well as the 2025 capital plan that MPC has announced. And hopefully you can see that we are supporting that mid-single-digit growth in MPLX and the distribution increase of 12.5%, which means the cash coming back to MPC should continue to increase as that growth in MPLX happens. These are all factors that give us confidence when we talk about a billion dollars on the balance sheet, that that continues to be, if you will, a durable basis. I'm going to pass it to John, and he can talk a bit about the debt to specifically answer that question, Doug.

Yeah. Hey, morning, Doug. Thanks for the question. So maybe, again, to take it back, as you know, we'd like to kind of think about the two balance sheets a little bit separately. So if I think about MPC standalone, I'll come back to MPLX in the midstream business. You know, look, we've said absolute gross debt. We're comfortable in and around plus or minus $7 billion, right? So $7 billion absolute debt, the billion dollar of minimum cash target. Again, I commented and Marianne did why we continue to be really, really comfortable with that. and comfortable with our investment grade profile. MPLX is a little interesting, right? Their debt has stayed relatively flat, but we've really grown the EBITDA, four-year keggers of 7%. So leverage has really come down. And there we look at kind of a gross debt to EBITDA, and we're sitting at the end of this quarter at about 3.3 times And we've said, look, given that business, the durability and stable cash flows it generates, we're comfortable up to four. So we see a lot of capacity there as MPLX looks at its growth opportunities to leverage that balance sheet. Again, on the MPC side, absolute debt about $7 billion. As I think you know, there we talk again about a gross debt-to-cap ratio. And I think we've got some of that in our materials as well, what you would typically see more with an investment-grade approach. It's a little bit interesting there because if we did something like we did this quarter where we're leaning into buybacks and maybe a lower profitability market, you're going to impact that ratio. But over time, you know, we're really comfortable with that $7 billion. So hopefully that helps, Doug.

It does. Thanks very much indeed, guys.

You're welcome, Doug. Thank you.

Thank you. Our next question comes from Manav Gupta with UBS. Your line is open.

Okay. Morning. Congrats on a strong quarter. I wanted to ask you about the crude quality discounts. Looks like OPEC would be raising volumes faster than most of us expected. So help us understand your near to medium-term outlook for crude quality discounts and how MPC can benefit from it.

Yeah. Hi, Manav. This is Rick. Good to hear from you. I will say this is very positive for us given the amount of heavy crude we run in all three regions, West Coast, Gulf Coast, and MidCon. So we are arguably the largest heavy refiner in the country. And so we will benefit significantly as we see the acceleration of OPEC's volume with their recent announcement this weekend, certainly as a tailwind for the light heavy spreads. Additionally, though, I'd like to give you some color on Canadian because Canadian has recently been depressed, but we see upside there, Manav, as well when you look at not only the OPEC announcement of accelerating their barrels into the market, but as you look forward on their forward curve, and I don't even think the OPEC piece is baked in yet, in the fourth quarter, Manav, we're seeing $3 to $4 a barrel discounts greater than what we see today. So Certainly, that's a benefit to us as we run a lot of heavy Canadian, as you know. I hope that helps, Manav.

Perfect. I actually also wanted to follow up a little bit on the midstream side. You know, 7% year-on-year growth on the MPLX side. But when you look at year-to-date, almost a billion dollars of acquisitions, some of which have not even closed, right? And so if you think about it, how should we – look at the distributions from MPLX growing over a period of time, given you already had an attractive lineup of project growths with track one, track two, and now you're adding a billion dollars of additional assets. So can we think about that 12%, 4.5% growth from distribution could be sustainable for the next three to four years? And then you're already covering your capex and dividend through that distribution. So Does Bivax can also be supported through that distribution? If you could talk about that. Thank you.

Manav, thank you, and good morning. Appreciate your question. So first of all, you know, when you look at the MPLX, the midstream business, you know, we talk about a compound annual growth rate both on EBITDA and DCF in and about 7% for four years. We think, as you have heard us talk about as well, that we have projects and opportunities to be able to continue that mid-single-digit growth. I'll bet I say it might not be perfectly linear as we move out. The point of that 12.5 distribution increase last year was to say, when you look at the growth opportunities, when you look at these mid-teen returns projects, using that strict capital discipline lens, we felt very good about suggesting that that 12.5% was clearly doable for the next few years, to your point, because of the durability of those earnings and the opportunities that we see. This quarter, we put about a billion dollars to work. You are absolutely correct. Some of that has not closed yet. Bangle will give us 100% ownership. Very critical when we think about the ability to support our producer customers. Important to the integration of our well head to water strategy. Second, we talked about Whiptail. It's a gathering, it's natural gas, crude oil, and water gathering system. We talk a lot about the value chain importance and the strategic relationship between MPC and MPLX. It's in the four corners. Critically important on the opportunity for our El Paso refinery. So, you know, two examples, as you say. Plus, as you know, we talked about $1.7 billion of capital in MPLX that is growth-oriented, of which 85% was natural gas and NGL-focused. Secretariat, seventh processing plant in the Permian area. bringing our processing capability when it comes online at the end of the year to about 1.4 BCF. So really making the connections and the integrated value chains. So we believe that 12.5% is durable for multi-years. As we bring it back to MPC, to your point, we are already covering the MPC dividend. And as you know, we are continuing to lean in delivering, right, excess cash via buyback on the MPC side, and then we are still covering the cost, or excuse me, the capital cost with that distribution. So certainly as it grows, it will continue to give us even greater flexibility on the MPC side of the house. I hope that addressed your question, Manav.

Thank you so much.

You are welcome.

Thank you. Our next question comes from Paul Chang with Scotiabank. Your line is open.

Hey, guys. How are you doing? Good morning, Paul. We're well. How are you? Very good. Good morning. Marianne just wanted to ask that. It seems like you and a lot of your peers, everyone is looking at the NGL value chain and have a lot of opportunity. And so that seems a very consensus view and everyone is pursuing a well head to water strategy. So can you try to help us understand that how your strategy may be different than your peers? And there's also in a commodity business, there's always some fear. If everyone is pursuing the same strategy and everyone see that is such a great thing, it turn out that the result may not be as good as everyone hope. So maybe that you can help us that too. better say understand that what is the risk in terms of everyone is doing this?

Certainly, Paul. Thanks for the question. So we think, and we've talked about our wellhead to water strategy, our completion two fracks in the export terminal, 2028 and 2029. You know, we are very confident in our ability to fill these two fracks. You know, as I mentioned just earlier, We've got the seventh processing plant in the Permian that's going to be complete. That'll give us 1.4. And frankly, our current customer commitments really support this project. Also keep in mind today, we, meaning, you know, as we're thinking about this fractionation, we are using third-party fracs, which we will not need to use in the future. We think it has a very solid cost position, as we shared with you, the total cost of the project. We think when we look at both C3 and ethane, ethane will be a domestic sale, but we know the strengths of C3 when we look at its requirements in Asia, Japan, et cetera. So we think that export market will be there, and we think we're very good at executing projects, and certainly our commercial prowess will give us the ability to market that in the future. They would be a few of the things, Paul, that I would tell you will differentiate this project from our peers. And, you know, as I mentioned, we're not looking, we're not done. We are really trying to adapt as these markets are changing and completing these value chains, particularly when we're looking at that wellhead-to-water strategy. I hope that addresses your question, Paul.

Okay, great. The same question is on the renewable diesel businesses. I mean that it does look like that the wind price is going higher and hopefully the LCFS price will get, the amendment will go through and then we will see them higher later this year or next year. But in addition to the market condition, I mean what else are you doing internally trying to improve the profitability of that business? I was a little bit surprised that we have say the untrained downtime in the first quarter after, or, I mean, that we have the fire and subsequently that you guys have rebuilt the unit or that repaired the unit. So can you help us understand that? I mean, what is the root cause of the outages in the first quarter? And more importantly, Dan, what are the initiatives that you are doing to help to improve the operation and reliability of that business?

Hey, morning, Paul. It's John. I'll start here, and if we have any other questions, I'll look to some of my peers as well. And some of this I tried to have in our prepared remarks as well. As you noted, there's a portion of this business that's supported by regulations, whether it's RENs, LCF, et cetera, but we're really focused on the things that we can control. And as I mentioned in my remarks, we did have some opportunities here in the first quarter uh, to address utilization. I will tell you, uh, again, we're taking a turnaround, uh, some doing some work at Dickinson. It's ready to run and quarter to date Martinez is running as we expect it to be. So without getting into details of what those things are, I think it's maybe more important to tell you the plant, the plant is running as we expect. And that's then what we're focused on. If we take our Martinez position, really looking with our partner to optimize the feedstock into the facility, really leverage that pre-treat, which is a competitive advantage for the facility and obviously where it's located in California, the key market. So those are the things we're really focused on. As you note, as now we get to kind of hit the ground running and really run that plant and see what we can do. So, you know, those are the big things that we can control. Again, we'll continue to work with government affairs, et cetera, for the respective agencies to understand the impact of their decisions. And I guess I wanted to maybe add too, Paul, you didn't ask it, but you might. You know, obviously there's a lot of change in the industry going from the lenders tax credit to the production tax credit. We, like others, were reacting to guidance that came out during the quarter. As I mentioned, we had very limited recognition in the first quarter, but we've already taken action that's going to drive that. And let me be clear, too, we're also going to continue to push on the regulations, et cetera, to get back the value we weren't able to recognize in Q1 as well. So that's another action we're taking. So hopefully that gives you a little bit of the play of the land.

Sean, can you tell us that what is the average duration before you have to change your catalyst and .

Yeah, that might be a detailed question, Paul, that we'll work with the team with you offline.

Okay, we'll do it. Thank you.

Thank you.

Thank you, Paul.

Thank you. Our next question comes from Teresa Chen with Barclays. Your line is open.

Good morning. Thank you for taking my questions. I'd like to double-click on the West Coast outlook one more time. Just on the profitability and the idea that the supply of California is products coming from Asia by means of a regular way production of Carbob in Asia versus opportunistic and the regularity and cadence of imports on an ongoing basis, even if in-state facilities can produce cheaper, do you think the regularity of imports will cap benchmark cracks over time?

Hi, Theresa. This is Rick. So generally, I would say, you know, we're tracking imports as everyone else is very closely. What imports are doing is creating a lot of volatility. And what I mean by that is, is when imports come in, they do have an impact on the marketplace. But when that inventory is run through, we then see a spike within the marketplace. So it's It's somewhat of a feast or famine because to bring imports in is challenging because you have a 40-plus day transit time, so it's a big bet on where the market will be by the time they get into the West Coast system. So we continue to see imports just wreaking, you know, a lot of havoc on volatility within the industry and continue to see our advantage increase. really overplaying any imports that would be sustainable because we don't believe they're going to be consistently sustainable long-term, month in, month out. And that's what you've seen here as of recent.

Understood. And on the midstream side, with what seems to be an increasingly visible near to medium-term slowdown in associate gas growth from liquid displays and a relatively unchanged long-term natural gas demand outlook. What is your view on pursuing infrastructure growth opportunities in dry gas production areas and further diversify the growth opportunity set within your footprint?

Yeah, Teresa, it's Marianne. I appreciate the question. You know, if you go back and you look at the things that we have been focused on last year, we did the Utica Transaction Summit We think that made sense for a lot of reasons and continues to. One of the opportunities that we were looking for was increasing utilization, frankly. We put a lot of capital to work in the Utica a few years ago, and as we watched that dry to liquids move change. So we'll continue to evaluate that. But as you've seen from the things that we are looking at right now, you see where The majority of our priorities are, you know, are focused. But, you know, again, we'll look for those through our lens of how do we deliver mid-single-digit growth consistently, ensure that we got mid-teens returned through that, that support the, you know, 12 1⁄2 distribution. So we'll continue to evaluate.

Thank you.

You're welcome.

Thank you. Our next question comes from John Royal with JP Morgan. Your line is open.

Hi, good morning. Thanks for taking my question. So my first question is a follow-up on the LA Refinery project. I know you had it as a year-end startup, and it sounded like from Marianne's comments in the opener that that project is getting maybe close to completion. So any more granular target on the startup timing would be helpful, and then It seems like the project is more geared towards reliability and costs as well as compliance. So should we think of the 20% IRR target as not being highly exposed to the commodity and margin environment, therefore maybe somewhat lower risk than your other two big projects?

Yeah, thanks for the question, John. Yeah, we're looking at, you're right, we remain committed to that project and expect it to be complete, I'd say, closer to the end of the third, early fourth quarter. The 20% return is not subject to commodity price. One of the things that we tried to do with this project, you may remember a while ago, there was a NOx reduction emission requirement. I think it's Rule 1109 to be specific, which no longer allowed paper credits. It had to be absolute. So given what we believe to be one of the most competitive assets in the region— we said we would work to ensure that we had compliance. Then once we made that decision, we looked at how else we could optimize. So there were other changes that add efficiency and reduce overall cost. That's what's driving the 20%, certainly not commodity price driven.

Great. Thank you. And then we're at the end of the call, so maybe I can sneak in a little bit more of a housekeeping question and happy to take it offline if it's too detailed. But we noticed a big step up in interest expense in 1Q. And obviously, there was some net issuance of debt at both the parent and the MPLX level. Is there anything one time in that line this quarter? Or should we think about that as kind of a similar level going forward?

Yeah, probably similar. Hey, morning, John. It's John Quaid. Sorry, I jumped right in. Probably the biggest thing, if you're looking at that over time, would be as our cash balance has moved lower, you're seeing a little bit less of an offset from an interest income standpoint. You can see those details when we file our 10-Q later today. But outside of that, no one-time items here in the quarter.

Thank you.

You're welcome, John. Thank you.

Thank you. Our next question comes from Matthew Blair with TPH. Your line is open.

Thank you, and good morning. I have two questions on the RD side. One, are you still finding it economic to run vegetable oil-based feeds, or have you shifted entirely to low-CI feeds? And then two, do you think that your RD segment is on track for an EBITDA-positive quarter In Q2, as you were off some of the challenges from Q1, it sounded like, you know, the feedstocks weren't quite optimized and you didn't capture all the 45Zs. So putting that behind you, is RD on track to be EBITDA positive in Q2?

Yeah. Hey, morning, Matt. It's John. Let me try and take that maybe at a higher level. As I said, we're focused on the things we can control. What gets interesting with the feedstocks, again, a lot of effects from 45Zs. you know, kind of saying that imported UCO doesn't qualify. So that's affected some of the domestic feedstocks. And we've got teams that, as you would expect, are every day optimizing the best feedstocks we can push through that facility in Martinez and leverage its pretreatment unit. You know, look, it's a regulatory supported business. So I'm not going to go out on a limb and talk about profitability for Q2. We're going to focus on the things we can control and That's going to be driving the operational performance of the unit, getting the right slate through the pre-treat and through the facility, and meeting the demands of our customers. Mary, I don't know if you want to.

Yeah, Matt, thanks. And I think John's done a nice job of giving you some color there. A few things that I would also comment on, you know, remember that our decision to have a JV with Nestae gives us a level of competitiveness. We think now that the PTU unit is up and running as of the end of 2024, remember the requirements with nest day was their ability to bring advantage feedstock. We certainly have that advantage as well. So different sources of optimizing now around the PTU unit. And as you've heard us say, We continue to believe we are the most competitive relative, right, notwithstanding what the regulatory environment is going to do, and we'll ensure that we have cost efficiency in that asset as we do in all of our assets. It is certainly, you know, one of our core principles when we think about operational performance and commercial excellence there. We'll continue to optimize, as John said, but it is something that we think is an opportunity for us now that the PTU is operating.

Sounds good. Thanks for your comments. And I guess speaking of the regulatory picture, do you have any views on the upcoming RVO? It sounds like there might be a good chance that the D4 category gets moved up quite a bit. Would you expect D6s to decouple from D4s? Regarding the new California LCFS targets, do you think they'll be implemented in 2025, or are we looking more like a 2026 start-up date for that? Thank you.

Hey, Matt. Thank you. Thanks for your question. I'm going to ask Jim to provide as much color as we possibly can to many of your questions. As you know, the regulatory environment ebbing and flowing there, and some of those things we just don't have control over. We can certainly give you our views, but let me pass it to Jim, and he'll provide some of the color that he can on where the specifics are.

Hey, Matt. Still a lot of uncertainties on the LCFS timeline, but we anticipate CARB will issue that revised package to the Office of Administrative Law by the end of May. That will allow the Office of Administrative Law to make their final decision by the end of June, so there will be a lot more clarity by the end of June. CARB's been pretty quiet in the public regarding the effective date if the administrative law approves the package. It could be anywhere from the beginning of the second quarter or push all the way into 2026, as you suggest. They just have not been open about that.

Hope that's somewhat helpful and responsive there, Matt. Great, thank you. You're welcome.

Thank you. And our last question will come from Jason Gabelman with TD Cowan. Your line is open.

Yeah, hey, morning. Thanks for squeezing me into the call. I wanted to go back to the $7 billion debt target that you mentioned, and I guess it's kind of two parts. Given decline in prices, I think you could see another working capital heaven in the quarter. I know you suggested some of the 1Q working capital will unwind. But given that and potential for some volatility in the stock, given the macro environment, how willing are you, if at all, to go above the $7 billion debt target, either to absorb working capital volatility and or support buybacks if the stock gets further dislocated?

Hey, Jason, it's John. Thanks for the question. I'll start and see if there's some other comments as well. I said, let me take the tail end of that. And I think I'll circle back to some of Mary Ann's comments. We're focused on driving our performance and driving our cash flow and having that then drive our capital return, right? So we're in a nice position with midstream business, MPLX, growing that business, that cash flow, covering our capital, covering our dividend up at the MPC side. So if we're performing, we're running our assets safely and reliably, we're getting all the value and then some that the market's providing, that's the cash we're going to look to use to return capital and do repurchases. Not really looking to... you know, increased debt to do repurchases. That's not on my radar right now. You know, again, we'll manage the business with our revolvers, et cetera, as working capital moves. That's what those are for. But really, really comfortable with that $7 billion of debt long term.

Great. Thanks for that. My follow-up is just on midstream growth again. I know we've touched it quite a bit on the call, but I'm wondering if you could characterize the appetite to do larger deals as the market weakens here. You seem pretty bullish on the midstream growth outlook. You've done small deals that are enhancing the earnings growth of that business. So do you feel like it's more favorable to continue to do those smaller deals, or would you be open to a larger deal if the right one came across? Thanks.

Yeah, thanks, Jason, and appreciate your comments on midstream growth. I would say as we continue to look at those opportunities, we're going to do it through the lens of strict capital discipline. We want to ensure that they have the ability to deliver mid-teens returns, that they are supportive of our mid-single-digit growth objective, and we certainly have the ability to execute We hopefully have demonstrated to you over the last several quarters our ability to lean in both organically and inorganically to drive the wellhead-to-water strategy. I mentioned earlier the strengths in the Utica and what we tried to do there. We just announced a smaller one gathering crude oil, water, and that gas. So hopefully we've demonstrated to you the opportunities that we see and the ability to support it. but they will be through that strict capital discipline lens regardless of their size, Jason.

Okay, great. Thanks for the answers.

You're welcome. Thank you.

All right. If there are no further questions, thank you for your interest in Marathon. Should you have additional questions or want clarifications on topics discussed this morning, please contact us, and our team will be available to help with your calls. Thank you for joining us today.

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