UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| |
x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 30, 20182019
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number001-35054
Marathon Petroleum Corporation
(Exact name of registrant as specified in its charter)
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| | |
Delaware | | 27-1284632 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
539 South Main Street, Findlay, Ohio | | 45840-3229 |
(Address of principal executive offices) | | (Zip code) |
(419) 539 South Main Street, Findlay, Ohio45840-3229
(Address of principal executive offices) (Zip code)
(419) 422-2121
(Registrant’s telephone number, including area code)
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| | |
Securities registered pursuant to Section 12(b) of the Act |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.01 | MPC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx☑ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yesx☑ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☑ Accelerated Filer ☐ Non-accelerated Filer ☐ Smaller reporting company ☐ |
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Large accelerated filer | | x | | Accelerated filer | | ¨ |
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Non-accelerated filer | | ¨ (Do not check if a smaller reporting company)
| | Smaller reporting company | | ¨ |
| | | | | | |
| | | | Emerging growth company | | ¨ |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨☐ No x☑
There were 451,004,632658,319,324 shares of Marathon Petroleum Corporation common stock outstanding as of August 1, 2018.
MARATHON PETROLEUM CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 20182019
TABLE OF CONTENTS
Unless otherwise stated or the context otherwise indicates, all references in this Form 10-Q to “MPC,” “us,” “our,” “we” or “the Company” mean Marathon Petroleum Corporation and its consolidated subsidiaries.
GLOSSARY OF TERMS
Throughout this report, the following company or industry specific terms and abbreviations are used:
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| |
ANS | Alaskan North Slope crude oil, an oil index benchmark price |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update |
ATB | Articulated tug barges |
barrel | One stock tank barrel, or 42 United States gallons liquid volume, used in reference to crude oil or other liquid hydrocarbons.hydrocarbons |
bcf/dCARB | One billion cubic feet per dayCalifornia Air Resources Board |
CARBOB | California Reformulated Gasoline Blendstock for Oxygenate Blending |
CBOB | Conventional Blending for Oxygenate Blending |
EBITDA (a non-GAAP financial measure) | Earnings Before Interest, Tax, Depreciation and Amortization a non-GAAP financial measure |
EPA | United States Environmental Protection Agency |
FASB | Financial Accounting Standards Board |
GAAP | Accounting principles generally accepted in the United States |
IDR | Incentive Distribution Right |
LCM | Lower of cost or market |
LIFO | Last in, first out, an inventory costing method |
LLS | Louisiana Light Sweet crude oil, an oil index benchmark price |
mbpd | Thousand barrels per day |
MMBtu | One million British thermal units, an energy measurement |
MMcf/d | One million cubic feet of natural gas per day |
NGL | Natural gas liquids, such as ethane, propane, butanes and natural gasoline |
NYMEX | New York Mercantile Exchange |
OPEC | Organization of Petroleum Exporting Countries |
OTC | Over-the-Counter |
ppm | Parts per million |
RIN | Renewable Identification Number |
SEC | United States Securities and Exchange Commission |
TCJA | Tax Cuts and Jobs Act |
ULSD | Ultra-low sulfur diesel |
USGC | U.S. Gulf Coast |
VIE | Variable interest entity |
WTI | West Texas Intermediate crude oil, an oil index benchmark price |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Millions, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Revenues and other income: | | | | | | | |
Sales and other operating revenues | $ | 33,547 |
| | $ | 22,317 |
| | $ | 61,814 |
| | $ | 41,183 |
|
Income from equity method investments | 107 |
| | 80 |
| | 206 |
| | 166 |
|
Net gain on disposal of assets | 4 |
| | 3 |
| | 218 |
| | 5 |
|
Other income | 30 |
| | 45 |
| | 65 |
| | 75 |
|
Total revenues and other income | 33,688 |
| | 22,445 |
| | 62,303 |
| | 41,429 |
|
Costs and expenses: | | | | | | | |
Cost of revenues (excludes items below) | 29,682 |
| | 19,655 |
| | 55,642 |
| | 37,166 |
|
Depreciation and amortization | 886 |
| | 533 |
| | 1,805 |
| | 1,061 |
|
Selling, general and administrative expenses | 904 |
| | 424 |
| | 1,785 |
| | 826 |
|
Other taxes | 174 |
| | 122 |
| | 360 |
| | 225 |
|
Total costs and expenses | 31,646 |
| | 20,734 |
| | 59,592 |
| | 39,278 |
|
Income from operations | 2,042 |
| | 1,711 |
| | 2,711 |
| | 2,151 |
|
Net interest and other financial costs | 322 |
| | 195 |
| | 628 |
| | 378 |
|
Income before income taxes | 1,720 |
| | 1,516 |
| | 2,083 |
| | 1,773 |
|
Provision for income taxes | 353 |
| | 281 |
| | 457 |
| | 303 |
|
Net income | 1,367 |
| | 1,235 |
| | 1,626 |
| | 1,470 |
|
Less net income attributable to: | | | | | | | |
Redeemable noncontrolling interest | 21 |
| | 20 |
| | 41 |
| | 36 |
|
Noncontrolling interests | 240 |
| | 160 |
| | 486 |
| | 342 |
|
Net income attributable to MPC | $ | 1,106 |
| | $ | 1,055 |
| | $ | 1,099 |
| | $ | 1,092 |
|
Per Share Data (See Note 7) | | | | | | | |
Basic: | | | | | | | |
Net income attributable to MPC per share | $ | 1.67 |
| | $ | 2.30 |
| | $ | 1.65 |
| | $ | 2.34 |
|
Weighted average shares outstanding | 662 |
| | 459 |
| | 667 |
| | 467 |
|
Diluted: | | | | | | | |
Net income attributable to MPC per share | $ | 1.66 |
| | $ | 2.27 |
| | $ | 1.63 |
| | $ | 2.31 |
|
Weighted average shares outstanding | 666 |
| | 464 |
| | 672 |
| | 472 |
|
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| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Revenues and other income: | | | | | | | |
Sales and other operating revenues(a) | $ | 22,118 |
| | $ | 18,033 |
| | $ | 40,812 |
| | $ | 34,167 |
|
Sales to related parties | 199 |
| | 147 |
| | 371 |
| | 301 |
|
Income from equity method investments | 80 |
| | 83 |
| | 166 |
| | 140 |
|
Net gain on disposal of assets | 3 |
| | 7 |
| | 5 |
| | 12 |
|
Other income | 45 |
| | 84 |
| | 75 |
| | 127 |
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Total revenues and other income | 22,445 |
| | 18,354 |
| | 41,429 |
| | 34,747 |
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Costs and expenses: | | | | | | | |
Cost of revenues (excludes items below)(a) | 19,517 |
| | 16,101 |
| | 36,887 |
| | 31,047 |
|
Purchases from related parties | 138 |
| | 150 |
| | 279 |
| | 272 |
|
Depreciation and amortization | 533 |
| | 521 |
| | 1,061 |
| | 1,057 |
|
Selling, general and administrative expenses | 424 |
| | 485 |
| | 826 |
| | 875 |
|
Other taxes | 122 |
| | 115 |
| | 225 |
| | 223 |
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Total costs and expenses | 20,734 |
| | 17,372 |
| | 39,278 |
| | 33,474 |
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Income from operations | 1,711 |
| | 982 |
| | 2,151 |
| | 1,273 |
|
Net interest and other financial costs | 195 |
| | 158 |
| | 378 |
| | 307 |
|
Income before income taxes | 1,516 |
| | 824 |
| | 1,773 |
| | 966 |
|
Provision for income taxes | 281 |
| | 250 |
| | 303 |
| | 291 |
|
Net income | 1,235 |
| | 574 |
| | 1,470 |
| | 675 |
|
Less net income attributable to: | | | | | | | |
Redeemable noncontrolling interest | 20 |
| | 17 |
| | 36 |
| | 33 |
|
Noncontrolling interests | 160 |
| | 74 |
| | 342 |
| | 129 |
|
Net income attributable to MPC | $ | 1,055 |
| | $ | 483 |
| | $ | 1,092 |
| | $ | 513 |
|
Per Share Data (See Note 8) | | | | | | | |
Basic: | | | | | | | |
Net income attributable to MPC per share | $ | 2.30 |
| | $ | 0.94 |
| | $ | 2.34 |
| | $ | 0.99 |
|
Weighted average shares outstanding | 459 |
| | 513 |
| | 467 |
| | 519 |
|
Diluted: | | | | | | | |
Net income attributable to MPC per share | $ | 2.27 |
| | $ | 0.93 |
| | $ | 2.31 |
| | $ | 0.98 |
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Weighted average shares outstanding | 464 |
| | 517 |
| | 472 |
| | 523 |
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Dividends paid | $ | 0.46 |
| | $ | 0.36 |
| | $ | 0.92 |
| | $ | 0.72 |
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(a)
| The 2018 period reflects an election to present certain taxes on a net basis. See Notes 2 and 3 for further information. |
The accompanying notes are an integral part of these consolidated financial statements.
MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 | |
(Millions of dollars) | | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 1,235 |
| | $ | 574 |
| | $ | 1,470 |
| | $ | 675 |
| $ | 1,367 |
| | $ | 1,235 |
| | $ | 1,626 |
| | $ | 1,470 |
|
Other comprehensive income (loss): | | | | | | | | | | | | | | |
Defined benefit postretirement and post-employment plans: | | | | | | | | |
Actuarial changes, net of tax of $2, $4, $5 and $7, respectively | 7 |
| | 7 |
| | 14 |
| | 11 |
| |
Prior service costs, net of tax of ($2), ($4), ($4) and ($8), respectively | (7 | ) | | (6 | ) | | (14 | ) | | (13 | ) | |
Other, net of tax of $0, $0, ($1) and $0, respectively | — |
| | — |
| | (2 | ) | | — |
| |
Defined benefit plans: | | | | | | | | |
Actuarial changes, net of tax of $0, $2, $6 and $5, respectively | | (1 | ) | | 7 |
| | (4 | ) | | 14 |
|
Prior service costs, net of tax of ($3), ($2), ($11) and ($4), respectively | | (8 | ) | | (7 | ) | | (11 | ) | | (14 | ) |
Other, net of tax of ($1), $0, ($1) and ($1), respectively | | (1 | ) | | — |
| | (2 | ) | | (2 | ) |
Other comprehensive income (loss) | — |
| | 1 |
| | (2 | ) | | (2 | ) | (10 | ) | | — |
| | (17 | ) | | (2 | ) |
Comprehensive income | 1,235 |
| | 575 |
| | 1,468 |
| | 673 |
| 1,357 |
| | 1,235 |
| | 1,609 |
| | 1,468 |
|
Less comprehensive income attributable to: | | | | | | | | | | | | | | |
Redeemable noncontrolling interest | 20 |
| | 17 |
| | 36 |
| | 33 |
| 21 |
| | 20 |
| | 41 |
| | 36 |
|
Noncontrolling interests | 160 |
| | 74 |
| | 342 |
| | 129 |
| 240 |
| | 160 |
| | 486 |
| | 342 |
|
Comprehensive income attributable to MPC | $ | 1,055 |
| | $ | 484 |
| | $ | 1,090 |
| | $ | 511 |
| $ | 1,096 |
| | $ | 1,055 |
| | $ | 1,082 |
| | $ | 1,090 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MARATHON PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | (In millions, except share data) | June 30, 2018 | | December 31, 2017 | |
| | | | |
(Millions of dollars, except share data) | | June 30, 2019 | | December 31, 2018 |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents (MPLX: $3 and $5, respectively) | $ | 4,999 |
| | $ | 3,011 |
| |
Receivables, less allowance for doubtful accounts of $10 and $11 (MPLX: $370 and $299, respectively) | 4,919 |
| | 4,695 |
| |
Inventories (MPLX: $73 and $65, respectively) | 5,485 |
| | 5,550 |
| |
Other current assets (MPLX: $36 and $29, respectively) | 145 |
| | 145 |
| |
Cash and cash equivalents | | $ | 1,247 |
| | $ | 1,687 |
|
Receivables, less allowance for doubtful accounts of $10 and $9, respectively | | 7,603 |
| | 5,853 |
|
Inventories | | 9,088 |
| | 9,837 |
|
Other current assets | | 458 |
| | 646 |
|
Total current assets | 15,548 |
| | 13,401 |
| 18,396 |
| | 18,023 |
|
Equity method investments (MPLX: $4,042 and $4,010, respectively) | 4,838 |
| | 4,787 |
| |
Property, plant and equipment, net (MPLX: $13,642 and $12,187, respectively) | 26,931 |
| | 26,443 |
| |
Goodwill (MPLX: $2,460 and $2,245, respectively) | 3,586 |
| | 3,586 |
| |
Other noncurrent assets (MPLX: $472 and $479, respectively) | 833 |
| | 830 |
| |
Equity method investments | | 6,729 |
| | 5,898 |
|
Property, plant and equipment, net | | 45,335 |
| | 45,058 |
|
Goodwill | | 20,277 |
| | 20,184 |
|
Right of use assets | | 2,588 |
| | — |
|
Other noncurrent assets | | 3,571 |
| | 3,777 |
|
Total assets | $ | 51,736 |
| | $ | 49,047 |
| $ | 96,896 |
| | $ | 92,940 |
|
Liabilities | | | | | | |
Current liabilities: | | | | | | |
Accounts payable (MPLX: $728 and $621, respectively) | $ | 8,113 |
| | $ | 8,297 |
| |
Payroll and benefits payable (MPLX: $2 and $1, respectively) | 432 |
| | 591 |
| |
Accrued taxes (MPLX: $46 and $38, respectively) | 713 |
| | 670 |
| |
Debt due within one year (MPLX: $1 and $1, respectively) | 26 |
| | 624 |
| |
Other current liabilities (MPLX: $222 and $130, respectively) | 431 |
| | 296 |
| |
Accounts payable | | $ | 10,905 |
| | $ | 9,366 |
|
Payroll and benefits payable | | 778 |
| | 1,152 |
|
Accrued taxes | | 1,223 |
| | 1,446 |
|
Debt due within one year | | 554 |
| | 544 |
|
Operating lease liabilities | | 615 |
| | — |
|
Other current liabilities | | 815 |
| | 708 |
|
Total current liabilities | 9,715 |
| | 10,478 |
| 14,890 |
| | 13,216 |
|
Long-term debt (MPLX: $11,874 and $6,945, respectively) | 17,241 |
| | 12,322 |
| |
Deferred income taxes (MPLX: $11 and $5, respectively) | 3,144 |
| | 2,654 |
| |
Long-term debt | | 27,853 |
| | 26,980 |
|
Deferred income taxes | | 5,235 |
| | 4,864 |
|
Defined benefit postretirement plan obligations | 1,156 |
| | 1,099 |
| 1,610 |
| | 1,509 |
|
Deferred credits and other liabilities (MPLX: $246 and $230, respectively) | 659 |
| | 666 |
| |
Long-term operating lease liabilities | | 2,068 |
| | — |
|
Deferred credits and other liabilities | | 1,174 |
| | 1,318 |
|
Total liabilities | 31,915 |
| | 27,219 |
| 52,830 |
| | 47,887 |
|
Commitments and contingencies (see Note 22) |
| |
| |
Commitments and contingencies (see Note 23) | |
| |
|
Redeemable noncontrolling interest | 1,003 |
| | 1,000 |
| 1,005 |
| | 1,004 |
|
Equity | | | | | | |
MPC stockholders’ equity: | | | | | | |
Preferred stock, no shares issued and outstanding (par value $0.01 per share, 30 million shares authorized) | — |
| | — |
| — |
| | — |
|
Common stock: | | | | | | |
Issued – 735 million and 734 million shares (par value $0.01 per share, 1 billion shares authorized) | 7 |
| | 7 |
| |
Held in treasury, at cost – 279 million and 248 million shares | (12,093 | ) | | (9,869 | ) | |
Issued – 978 million and 975 million shares (par value $0.01 per share, 2 billion shares authorized) | | 10 |
| | 10 |
|
Held in treasury, at cost – 318 million and 295 million shares | | (14,573 | ) | | (13,175 | ) |
Additional paid-in capital | 13,688 |
| | 11,262 |
| 33,785 |
| | 33,729 |
|
Retained earnings | 13,589 |
| | 12,864 |
| 15,146 |
| | 14,755 |
|
Accumulated other comprehensive loss | (233 | ) | | (231 | ) | (161 | ) | | (144 | ) |
Total MPC stockholders’ equity | 14,958 |
| | 14,033 |
| 34,207 |
| | 35,175 |
|
Noncontrolling interests | 3,860 |
| | 6,795 |
| 8,854 |
| | 8,874 |
|
Total equity | 18,818 |
| | 20,828 |
| 43,061 |
| | 44,049 |
|
Total liabilities, redeemable noncontrolling interest and equity | $ | 51,736 |
| | $ | 49,047 |
| $ | 96,896 |
| | $ | 92,940 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | Six Months Ended June 30, | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | |
(Millions of dollars) | | 2019 | | 2018 |
Operating activities: | | | | | | |
Net income | $ | 1,470 |
| | $ | 675 |
| $ | 1,626 |
| | $ | 1,470 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Amortization of deferred financing costs and debt discount | 35 |
| | 30 |
| 9 |
| | 35 |
|
Depreciation and amortization | 1,061 |
| | 1,057 |
| 1,805 |
| | 1,061 |
|
Pension and other postretirement benefits, net | 65 |
| | (59 | ) | 86 |
| | 65 |
|
Deferred income taxes | 2 |
| | 23 |
| 360 |
| | 2 |
|
Net gain on disposal of assets | (5 | ) | | (12 | ) | (218 | ) | | (5 | ) |
Income from equity method investments | (166 | ) | | (140 | ) | (206 | ) | | (166 | ) |
Distributions from equity method investments | 217 |
| | 136 |
| 310 |
| | 217 |
|
Changes in the fair value of derivative instruments | 1 |
| | 59 |
| (27 | ) | | 1 |
|
Changes in: | | | | |
Changes in operating assets and liabilities, net of effects of businesses acquired: | | | | |
Current receivables | (225 | ) | | 344 |
| (1,750 | ) | | (225 | ) |
Inventories | 66 |
| | 107 |
| 740 |
| | 66 |
|
Current accounts payable and accrued liabilities | (231 | ) | | (208 | ) | 1,297 |
| | (231 | ) |
Right of use assets and operating lease liabilities, net | | 9 |
| | — |
|
All other, net | (41 | ) | | (51 | ) | 204 |
| | (41 | ) |
Net cash provided by operating activities | 2,249 |
| | 1,961 |
| 4,245 |
| | 2,249 |
|
Investing activities: | | | | | | |
Additions to property, plant and equipment | (1,466 | ) | | (1,265 | ) | (2,419 | ) | | (1,466 | ) |
Acquisitions, net of cash acquired | — |
| | (220 | ) | 6 |
| | — |
|
Disposal of assets | 14 |
| | 37 |
| 33 |
| | 14 |
|
Investments – acquisitions, loans and contributions | (118 | ) | | (677 | ) | (595 | ) | | (118 | ) |
– redemptions, repayments and return of capital | 15 |
| | 24 |
| 58 |
| | 15 |
|
All other, net | 37 |
| | 89 |
| 37 |
| | 37 |
|
Net cash used in investing activities | (1,518 | ) | | (2,012 | ) | (2,880 | ) | | (1,518 | ) |
Financing activities: | | | | | | |
Commercial paper – issued | — |
| | 300 |
| |
– repayments | — |
| | (300 | ) | |
Long-term debt – borrowings | 9,610 |
| | 2,241 |
| 7,964 |
| | 9,610 |
|
– repayments | (5,270 | ) | | (213 | ) | (7,116 | ) | | (5,270 | ) |
Debt issuance costs | (53 | ) | | (21 | ) | — |
| | (53 | ) |
Issuance of common stock | 21 |
| | 20 |
| 3 |
| | 21 |
|
Common stock repurchased | (2,212 | ) | | (1,170 | ) | (1,385 | ) | | (2,212 | ) |
Dividends paid | (430 | ) | | (376 | ) | (706 | ) | | (430 | ) |
Issuance of MPLX LP common units | — |
| | 434 |
| |
Distributions to noncontrolling interests | (394 | ) | | (324 | ) | (640 | ) | | (394 | ) |
Contributions from noncontrolling interests | 5 |
| | 128 |
| 95 |
| | 5 |
|
Contingent consideration payment | — |
| | (89 | ) | |
All other, net | (19 | ) | | (17 | ) | (56 | ) | | (19 | ) |
Net cash provided by financing activities | 1,258 |
| | 613 |
| |
Net increase in cash, cash equivalents and restricted cash | 1,989 |
| | 562 |
| |
Net cash provided by (used in) financing activities | | (1,841 | ) | | 1,258 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | | (476 | ) | | 1,989 |
|
Cash, cash equivalents and restricted cash at beginning of period | 3,015 |
| | 892 |
| 1,725 |
| | 3,015 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 5,004 |
| | $ | 1,454 |
| $ | 1,249 |
| | $ | 5,004 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMBALE NONCONTROLLING INTEREST
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MPC Stockholders’ Equity | | | | | | |
(In millions) | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Non-controlling Interests | | Total Equity | | Redeemable Non-controlling Interest |
Balance as of December 31, 2016 | $ | 7 |
| | $ | (7,482 | ) | | $ | 11,060 |
| | $ | 10,206 |
| | $ | (234 | ) | | $ | 6,646 |
| | $ | 20,203 |
| | $ | 1,000 |
|
Net income | — |
| | — |
| | — |
| | 513 |
| | — |
| | 129 |
| | 642 |
| | 33 |
|
Dividends declared | — |
| | — |
| | — |
| | (375 | ) | | — |
| | — |
| | (375 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (291 | ) | | (291 | ) | | (33 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | 128 |
| | 128 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
|
Shares repurchased | — |
| | (1,170 | ) | | — |
| | — |
| | — |
| | — |
| | (1,170 | ) | | — |
|
Stock-based compensation | — |
| | (12 | ) | | 47 |
| | — |
| | — |
| | 1 |
| | 36 |
| | — |
|
Impact from equity transactions of MPLX LP | — |
| | — |
| | 78 |
| | — |
| | — |
| | 315 |
| | 393 |
| | — |
|
Balance as of June 30, 2017 | $ | 7 |
| | $ | (8,664 | ) | | $ | 11,185 |
| | $ | 10,344 |
| | $ | (236 | ) | | $ | 6,928 |
| | $ | 19,564 |
| | $ | 1,000 |
|
Balance as of December 31, 2017 | $ | 7 |
| | $ | (9,869 | ) | | $ | 11,262 |
| | $ | 12,864 |
| | $ | (231 | ) | | $ | 6,795 |
| | $ | 20,828 |
| | $ | 1,000 |
|
Cumulative effect of adopting new accounting standards | — |
| | — |
| | — |
| | 63 |
| | — |
| | 1 |
| | 64 |
| | — |
|
Net income | — |
| | — |
| | — |
| | 1,092 |
| | — |
| | 342 |
| | 1,434 |
| | 36 |
|
Dividends declared | — |
| | — |
| | — |
| | (430 | ) | | — |
| | — |
| | (430 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | (361 | ) | | (361 | ) | | (33 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | 5 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
|
Shares repurchased | — |
| | (2,212 | ) | | — |
| | — |
| | — |
| | — |
| | (2,212 | ) | | — |
|
Stock-based compensation | — |
| | (12 | ) | | 45 |
| | — |
| | — |
| | 5 |
| | 38 |
| | — |
|
Impact from equity transactions of MPLX LP | — |
| | — |
| | 2,381 |
| | — |
| | — |
| | (2,927 | ) | | (546 | ) | | — |
|
Balance as of June 30, 2018 | $ | 7 |
| | $ | (12,093 | ) | | $ | 13,688 |
| | $ | 13,589 |
| | $ | (233 | ) | | $ | 3,860 |
| | $ | 18,818 |
| | $ | 1,003 |
|
| | | | | | | | | | | | | | | |
(Shares in millions) | Common Stock | | Treasury Stock | | | | | | | | | | | | |
Balance as of December 31, 2016 | 731 |
| | (203 | ) | | | | | | | | | | | | |
Shares repurchased | — |
| | (23 | ) | | | | | | | | | | | | |
Shares issued – stock-based compensation | 1 |
| | — |
| | | | | | | | | | | | |
Balance as of June 30, 2017 | 732 |
| | (226 | ) | | | | | | | | | | | | |
Balance as of December 31, 2017 | 734 |
| | (248 | ) | | | | | | | | | | | | |
Shares repurchased | — |
| | (31 | ) | | | | | | | | | | | | |
Shares issued – stock-based compensation | 1 |
| | — |
| | | | | | | | | | | | |
Balance as of June 30, 2018 | 735 |
| | (279 | ) | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MPC Stockholders’ Equity | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Equity | | Redeemable Non-controlling Interest |
(In millions) | Shares | | Amount | | Shares | | Amount | | | | | | |
Balance as of December 31, 2018 | 975 |
| | $ | 10 |
| | (295 | ) | | $ | (13,175 | ) | | $ | 33,729 |
| | $ | 14,755 |
| | $ | (144 | ) | | $ | 8,874 |
| | $ | 44,049 |
| | $ | 1,004 |
|
Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | — |
| | 246 |
| | 239 |
| | 20 |
|
Dividends declared on common stock ($0.53 per share) | — |
| | — |
| | — |
| | — |
| | — |
| | (357 | ) | | — |
| | — |
| | (357 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (305 | ) | | (305 | ) | | (20 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95 |
| | 95 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | — |
| | (7 | ) | | — |
|
Shares repurchased | — |
| | — |
| | (14 | ) | | (885 | ) | | — |
| | — |
| | — |
| | — |
| | (885 | ) | | — |
|
Stock based compensation | 1 |
| | — |
| | — |
| | (3 | ) | | 32 |
| | — |
| | — |
| | (1 | ) | | 28 |
| | — |
|
Impact from equity transactions of MPLX & ANDX | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | (1 | ) | | 2 |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
|
Balance as of March 31, 2019 | 976 |
| | $ | 10 |
| | (309 | ) | | $ | (14,063 | ) | | $ | 33,764 |
| | $ | 14,391 |
| | $ | (151 | ) | | $ | 8,907 |
| | $ | 42,858 |
| | $ | 1,004 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,106 |
| | — |
| | 240 |
| | 1,346 |
| | 21 |
|
Dividends declared on common stock ($0.53 per share) | — |
| | — |
| | — |
| | — |
| | — |
| | (351 | ) | | — |
| | — |
| | (351 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (295 | ) | | (295 | ) | | (20 | ) |
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) | | — |
|
Shares repurchased | — |
| | — |
| | (9 | ) | | (500 | ) | | — |
| | — |
| | — |
| | — |
| | (500 | ) | | — |
|
Stock based compensation | 2 |
| | — |
| | — |
| | (10 | ) | | 19 |
| | — |
| | — |
| | 2 |
| | 11 |
| | — |
|
Impact from equity transactions of MPLX & ANDX | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Balance as of June 30, 2019 | 978 |
| | $ | 10 |
| | (318 | ) | | $ | (14,573 | ) | | $ | 33,785 |
| | $ | 15,146 |
| | $ | (161 | ) | | $ | 8,854 |
| | $ | 43,061 |
| | $ | 1,005 |
|
The accompanying notes are an integral part of these consolidated financial statements.
MARATHON PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMBALE NONCONTROLLING INTEREST
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MPC Stockholders’ Equity | | | | | | |
| Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Equity | | Redeemable Non-controlling Interest |
(Shares in millions; amounts in millions of dollars) | Shares | | Amount | | Shares | | Amount | | | | | | |
Balance as of December 31, 2017 | 734 |
| | $ | 7 |
| | (248 | ) | | $ | (9,869 | ) | | $ | 11,262 |
| | $ | 12,864 |
| | $ | (231 | ) | | $ | 6,795 |
| | $ | 20,828 |
| | $ | 1,000 |
|
Cumulative effect of adopting new accounting standards | — |
| | — |
| | — |
| | — |
| | — |
| | 63 |
| | — |
| | 1 |
| | 64 |
| | — |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 37 |
| | — |
| | 182 |
| | 219 |
| | 16 |
|
Dividends declared on common stock ($0.46 per share) | — |
| | — |
| | — |
| | — |
| | — |
| | (219 | ) | | — |
| | — |
| | (219 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (179 | ) | | (179 | ) | | (16 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 1 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | — |
|
Shares repurchased | — |
| | — |
| | (19 | ) | | (1,327 | ) | | — |
| | — |
| | — |
| | — |
| | (1,327 | ) | | — |
|
Stock based compensation | — |
| | — |
| | — |
| | (4 | ) | | 27 |
| | — |
| | — |
| | 1 |
| | 24 |
| | — |
|
Impact from equity transactions of MPLX & ANDX | — |
| | — |
| | — |
| | — |
| | 2,380 |
| | — |
| | — |
| | (2,926 | ) | | (546 | ) | | — |
|
Balance as of March 31, 2018 | 734 |
| | $ | 7 |
| | (267 | ) | | $ | (11,200 | ) | | $ | 13,669 |
| | $ | 12,745 |
| | $ | (233 | ) | | $ | 3,875 |
| | $ | 18,863 |
| | $ | 1,000 |
|
Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 1,055 |
| | — |
| | 160 |
| | 1,215 |
| | 20 |
|
Dividends declared on common stock ($0.46 per share) | — |
| | — |
| | — |
| | — |
| | — |
| | (211 | ) | | — |
| | — |
| | (211 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (182 | ) | | (182 | ) | | (17 | ) |
Contributions from noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
|
Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares repurchased | — |
| | — |
| | (12 | ) | | (885 | ) | | — |
| | — |
| | — |
| | — |
| | (885 | ) | | — |
|
Stock based compensation | 1 |
| | — |
| | — |
| | (8 | ) | | 18 |
| | — |
| | — |
| | 4 |
| | 14 |
| | — |
|
Impact from equity transactions of MPLX & ANDX | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
|
Balance as of June 30, 2018 | 735 |
| | $ | 7 |
| | (279 | ) | | $ | (12,093 | ) | | $ | 13,688 |
| | $ | 13,589 |
| | $ | (233 | ) | | $ | 3,860 |
| | $ | 18,818 |
| | $ | 1,003 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
We are a leading, integrated, downstream energy company headquartered in Findlay, Ohio. We operate the nation's largest refining system with more than 3 million barrels per day of crude oil capacity across 16 refineries. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to consumers through our Retail business segment and to independent entrepreneurs who operate approximately 7,000 branded outlets. Our business consists of refiningretail operations own and marketing,operate approximately 3,910 retail transportation fuel and midstream services conducted primarily in the Midwest, Gulf Coast, East Coast, Northeast and Southeast regions ofconvenience stores across the United States and also sell transportation fuel to consumers through subsidiaries, including Marathon Petroleum Companyapproximately 1,060 direct dealer locations under long-term supply contracts. MPC’s midstream operations are primarily conducted through MPLX LP (“MPC LP”), Speedway LLC and its subsidiaries (“Speedway”MPLX”) and MPLXAndeavor Logistics LP (“ANDX”), which own and its subsidiaries (“MPLX”).operate crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets. We own the general partner and majority limited partner interests in these two midstream companies.
SeeRefer to Note 104 for further information on the Andeavor acquisition, which closed on October 1, 2018, and to Notes 3 and 9 for additional information about our operations.
Basis of Presentation
All significant intercompany transactions and accounts have been eliminated.
These interim consolidated financial statements are unaudited; however, in the opinion of our management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by GAAP for complete financial statements.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.2018. The results of operations for the three and six months ended June 30, 20182019 are not necessarily indicative of the results to be expected for the full year.
Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
Revenue Recognition
As described in Note 3, we adopted ASU 2014-09, Revenue from Contracts with Customers (“ASC 606”) effective January 1, 2018. We recognize revenue based on consideration specified in contracts or agreements with customers when we satisfy our performance obligations by transferring control over products or services to a customer. Concurrent with our adoption of ASC 606, we made an accounting policy election that all taxes assessed by a governmental authority that are both imposed on and concurrent with a revenue-producing transaction and collected from our customers will be recognized on a net basis within “Sales and other operating revenues.”
The adoption of ASC 606 did not materially change our revenue recognition patterns, which are described below by reportable segment:
Refining & Marketing - The vast majority of our Refining & Marketing contracts contain pricing that is based on the market price for the product at the time of delivery. Our obligations to deliver product volumes are typically satisfied and revenue is recognized when control of the product transfers to our customers. Concurrent with the transfer of control, we typically receive the right to payment for the delivered product, the customer accepts the product and the customer has significant risks and rewards of ownership of the product. Payment terms require customers to pay shortly after delivery and do not contain significant financing components.
Speedway - Revenue is recognized when our customers receive control of the transportation fuels or merchandise. Payments from customers are received at the time sales occur in cash or by credit or debit card. Speedway offers a loyalty rewards program to its customers. We defer a minor portion of revenue on sales to the loyalty program participants until the participants redeem their rewards. The related contract liability, as defined in the standard, is not material to our financial statements.
Midstream - Midstream revenue transactions typically are defined by contracts under which we sell a product or provide a service. Revenues from sales of product are recognized when control of the product transfers to the customer. Revenues from sales of services are recognized over time when the performance obligation is satisfied as services are provided in a series. We have elected to use the output measure of progress to recognize revenue based on the units delivered, processed or transported. The transaction price in our Midstream contracts often has both fixed components, related to minimum volume commitments, and variable components which are primarily dependent on volumes. Variable consideration will generally not be estimated at contract inception as the transaction price is specifically allocable to the services provided at each period end.
Refer to Note 10 for disclosure of our revenue disaggregated by segment and product line, as well as a description of our reportable segment operations.
3. ACCOUNTING STANDARDS
Recently Adopted
ASU 2014-09, Revenue - Revenue from Contracts with Customers (ASC 606)2016-02, Leases
On January 1, 2018, weWe adopted the new revenue standard, applying the modified retrospective method, whereby a cumulative effect is recorded to opening retained earnings and ASU No. 2016-02, Leases (“ASC 606 is applied prospectively. We recorded a net increase of $1 million to our retained earnings balance842”), as of January 1, 2018 due2019, electing the transition method which permits entities to adopt the provisions of the standard using the modified retrospective approach without adjusting comparative periods. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to grandfather the historical accounting conclusions until a reassessment event is present. We have also elected the practical expedient to not recognize short-term leases on the balance sheet, the practical expedient related to right of way permits and land easements which allows us to carry forward our accounting treatment for those existing agreements, and the practical expedient to combine lease and non-lease components for the majority of our underlying classes of assets except for our third-party contractor service and equipment agreements and boat and barge equipment agreements in which we are the lessee. We did not elect the practical expedient to combine lease and non-lease components for arrangements in which we are the lessor. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.
Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year. Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations. In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the cumulative effectduration of applyingthe lease, as our leases do not provide implicit rates. Operating lease expense is recognized on a straight-line basis over the lease term.
Adoption of the new revenue standard.
Impactstandard resulted in the recording of Adoption
The adoptionROU assets and lease liabilities of ASC 606 did not materially change our revenue recognition patterns. The most significant impacts of adopting ASC 606 for the period ended June 30, 2018 are as follows:
a reduction of “Sales and other operating revenues” of $1.36 billion for the three months ended June 30, 2018 and $2.61 billion for the six months ended June 30, 2018 due to our accounting policy election to present taxes incurred concurrently with revenue producing transactions and collected on behalf of our customers on a net basis. For the three and six months ended June 30, 2017, taxes are reflected on a gross basis in “Sales and other operating revenues” and “Cost of revenues”, and include $1.27approximately $2.81 billion and $2.47$2.90 billion, respectively, of taxes that are now subject to our net basis accounting policy election.
an increase to both “Sales and other operating revenues” and “Cost of revenues” of $124 million for the three months ended June 30, 2018 and $240 million for the six months ended June 30, 2018 related to certain Midstream contract provisions for third-party reimbursements, non-cash consideration and imbalances that require gross presentation under ASC 606. Comparative information continues to be reported under the accounting standards in effect for those periods.
Practical Expedients
We elected the completed contract practical expedient and only applied ASC 606 to contracts that were not completed as of January 1, 2018.2019. The standard did not materially impact our consolidated statements of income, cash flows or equity as a result of adoption.
We do not disclose information onAs a lessor under ASC 842, MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the future performance obligations for any contract with expected duration of one year or less at inception. As of June 30, 2018, we do not have future performance obligations that are materialleases. If such a modification were to future periods.
Receivables
On the accompanying consolidated balance sheets, “Receivables, less allowance for doubtful accounts” primarily consists of customer receivables. Significant, non-customer balances included in our receivables at June 30, 2018 include matching buy/sell receivables of $1.50 billion and income tax receivables of $117 million.
ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
We adopted this accounting standards updateoccur, it may result in the first quarterde-recognition of 2018existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by MPLX under the lease, and recordedrecognition of a $61 million cumulative-effect adjustmentcorresponding gain or loss in the period of change. MPLX will evaluate the impact of a lease reassessment as an increase to retained earnings as of January 1, 2018 with the offset recorded as a reduction to “Deferred Income Taxes.”modifications occur.
We also adopted the following standardsASUs during the first six months of 2018,2019, none of which had a material impact to our financial statements or financial statement disclosures:
|
| | | |
ASU | | | Effective Date |
2017-092018-02 | Stock CompensationReporting Comprehensive Income - ScopeReclassification of Modification AccountingCertain Tax Effects from Accumulated Other Comprehensive Income | | January 1, 20182019 |
2017-072017-12 | Retirement BenefitsDerivatives and Hedging - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement CostTargeted Improvements to Accounting for Hedging Activities | | January 1, 2018 |
2017-05 | Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Asset Derecognition Guidance | | January 1, 2018 |
2017-01 | Business Combinations - Clarifying the Definition of a Business | | January 1, 2018 |
2016-18 | Statement of Cash Flows - Restricted Cash | | January 1, 2018 |
2016-15 | Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments | | January 1, 2018 |
2016-01 | Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities | | January 1, 20182019 |
Not Yet Adopted
ASU 2018-02, Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an accounting standards update allowing an entity the choice to reclassify to retained earnings the tax effects related to the TCJA that are stranded in accumulated other comprehensive income. We do not expect adoption of this standard to have a material impact on our financial statements. The amendment is effective beginning in 2019 with early adoption permitted.
ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued an accounting standards update to amend the hedge accounting rules to simplify the application of hedge accounting guidance and better portray the economic results of risk management activities in the financial statements. The guidance expands the ability to hedge nonfinancial and financial risk components, reduces complexity in fair value hedges of interest rate risk, eliminates the requirement to separately measure and report hedge ineffectiveness and eases certain hedge effectiveness assessment requirements. The guidance is effective beginning in 2019 with early adoption permitted. We are currently evaluating the impact of this guidance, including transition elections and required disclosures, on our financial statements and the timing of adoption. However, since we have not historically designated our commodity derivatives as hedges, we do not expect the adoption of this accounting standards update to have a material impact on our consolidated financial statements.
ASU 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued an accounting standards updateASU which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value, which could be different from the amount calculated under the current method using the implied fair value of the goodwill; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.
ASU 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued an accounting standards updateASU related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this accounting standards updateASU to have a material impact on our consolidated financial statements.
ASU 2016-02, Leases
In February 2016, the FASB issued an accounting standards update requiring lessees to record virtually all leases on their balance sheets. The accounting standards update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We continue to evaluate the impact of this standard on our financial statements and disclosures, internal controls and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path of implementing changes to existing processes and controls. We are implementing a third-party supported lease accounting information system to account for our lease population in accordance with this new standard and establishing internal controls over the new system. We believe the adoption of the standard will have a material impact on our consolidated financial statements as virtually all leases will be recognized as a right of use asset and lease obligation.
4.We own the general partner and majority limited partner interests in two midstream companies, MPLX LP
MPLX is a diversified, growth-oriented publicly traded master limited partnership formed by us toand ANDX, which own operate, develop and acquire midstream energy infrastructure assets. MPLX is engaged in theoperate gathering, processing, and transportation of natural gas; the gathering, transportation, fractionation storage and marketing of NGLs; and the transportation, storage, distribution and marketing ofassets, as well as crude oil and refined petroleum products.
light product transportation and logistics infrastructure. As of June 30, 2018,2019, we owned 63.664 percent of the outstanding MPLX common units of both MPLX and ANDX. We control both MPLX and ANDX through our ownership of the general partner interestinterest.
As described in MPLX.Notes 4 and 5, we have consolidated ANDX since October 1, 2018 in accordance with ASC 810 and previously recorded ANDX’s assets and liabilities to our balance sheet at preliminary fair values as of the Andeavor acquisition date of October 1, 2018.
On July 30, 2019, MPLX iscompleted its acquisition of ANDX. At the effective time of the ANDX acquisition, each common unit held by ANDX’s public unitholders was converted into the right to receive 1.135 MPLX common units. ANDX common units held by MPC were converted into the right to receive 1.0328 MPLX common units. ANDX common unitholders will not receive any future distributions from ANDX, but instead will receive a VIE becausesecond quarter 2019 distribution as and when declared by the limited partnersBoard of Directors of MPLX dowith respect to the MPLX common units issued in connection with the acquisition. Additionally, the ANDX Series A Preferred unitholders will not have substantive kick-out or substantive participating rights overreceive any future distributions from ANDX, but instead will receive the general partner. We aresemi-annual distributions payable August 15, 2019 on MPLX Series B Preferred units issued in connection with the primary beneficiaryacquisition. As of MPLX becauseJuly 30, 2019, MPC will account for this transaction as a common control transaction, as defined by ASC 805, which will result in additionadjustments to our significant economic interest, we also have the power, through our 100 percent ownership of the general partner, to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a noncontrolling interest for the 36.4 percent interest owned by the public. We also record a redeemable noncontrolling interest related to MPLX’s preferred units.and additional paid-in capital balances.
The creditors
Dropdowns to MPLX and GP/IDR Exchange
On February 1, 2018, we contributed our refining logistics assets and fuels distribution services to MPLX in exchange for $4.1 billion in cash and approximately 112 million common units and 2 million general partner units from MPLX. MPLX financed the cash portion of the transaction with its $4.1 billion 364-day term loan facility, which was entered into on January 2, 2018. We agreed to waive approximately one-third of the first quarter 2018 distributions on the common units issued in connection with this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.
Immediately following the February 1, 2018 dropdown to MPLX, our IDRs were cancelled and our economic general partner interest was converted into a non-economic general partner interest, all in exchange for 275 million newly issued MPLX common units (“GP/IDR Exchange”). As a result of this transaction, the general partner units and IDRs were eliminated, are no longer outstanding and no longer participate in distributions of cash from MPLX.
On September 1, 2017, we contributedAgreements
We have various long-term, fee-based commercial agreements with MPLX and ANDX. Under these agreements, MPLX and ANDX provide transportation, storage, distribution and marketing services to us. With certain exceptions, these agreements generally contain minimum volume commitments. These transactions are eliminated in consolidation but are reflected as intersegment transactions between our joint-interest ownership inRefining & Marketing and Midstream segments. We also have agreements with MPLX and ANDX that establish fees for operational and management services provided between us and MPLX and ANDX and for executive management services and certain pipelinesgeneral and storage facilitiesadministrative services provided by us to MPLX and ANDX. These transactions are eliminated in exchange for $420 million in cash and approximately 19 million common units and 378 thousand general partner units from MPLX. We also agreed to waive approximately two-thirds of the third quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted forconsolidation but are reflected as intersegment transactions between entities under common controlour Corporate and we did not record a gain or loss.
On March 1, 2017, we contributed certain terminal, pipeline and storage assets to MPLX in exchange for $1.5 billion in cash and approximately 13 million common units and 264 thousand general partner units from MPLX. We also agreed to waive two-thirds of the first quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.Midstream segments.
Noncontrolling Interest in MPLX
As a result of equity transactions of MPLX and ANDX, we are required to adjust non-controlling interest and additional paid-in capital. Changes in MPC’s additional paid-in capital resulting from changes in its ownership interests in MPLX and ANDX were as follows:
|
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2019 | | 2018 |
Increase due to the issuance of MPLX common units and general partner units to MPC | $ | — |
| | $ | 1,114 |
|
Increase due to GP/IDR Exchange | — |
| | 1,808 |
|
Increase due to the issuance of MPLX & ANDX common units | 7 |
| | 5 |
|
Increase in MPC's additional paid-in capital | 7 |
| | 2,927 |
|
Tax impact | (2 | ) | | (546 | ) |
Increase in MPC's additional paid-in capital, net of tax | $ | 5 |
| | $ | 2,381 |
|
|
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2018 | | 2017 |
Increase due to the issuance of MPLX LP common units to the public | $ | 5 |
| | $ | 25 |
|
Increase due to the issuance of MPLX LP common units and general partner units to MPC | 1,114 |
| | 94 |
|
Increase due to GP/IDR Exchange | 1,808 |
| | — |
|
Increase in MPC's additional paid-in capital | 2,927 |
| | 119 |
|
Tax impact | (546 | ) | | (41 | ) |
Increase in MPC's additional paid-in capital, net of tax | $ | 2,381 |
| | $ | 78 |
|
4. ACQUISITIONS
Acquisition of Andeavor
On October 1, 2018, we acquired Andeavor. The total value of consideration transferred was $23.46 billion, consisting of $19.97 billion in equity and $3.49 billion in cash. The cash portion of the purchase price was funded using cash on hand. Our financial results reflect the results of Andeavor from the date of the acquisition.
We accounted for the Andeavor acquisition using the acquisition method of accounting, which requires Andeavor assets and liabilities to be recorded to our balance sheet at fair value as of the acquisition date. We will complete a final determination of the fair value of certain assets and liabilities within the one year measurement period from the date of the acquisition as required by ASC 805. Due to the level of effort required to develop fair value measurements, the valuation studies necessary to determine the fair value of assets acquired and liabilities assumed are preliminary, including the underlying cash flows used to determine the fair value of identified intangible assets and economic obsolescence adjustments to property, plant and equipment. The size and the breadth of the Andeavor acquisition necessitates the use of the one year measurement period to fully analyze all the factors used in establishing the asset and liability fair values as of the acquisition date, including, but not limited to, property, plant and equipment, intangible assets, real property, leases, environmental and asset retirement obligations and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values.
Agreements
We have various long-term, fee-based commercial agreements with MPLX. Under these agreements, MPLX provides transportation, storage, distribution and marketing services to us. Under certain agreements, we commit to provide MPLX with minimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil, refined products and butane. Under certain other agreements, we commit to pay for 100 percent of available capacity for certain marine transportation and refining logistics assets. We also have agreements with MPLX that establish fees for operational and management services provided between us and MPLX and for executive management services and certain general and administrative services provided by us to MPLX. These transactions are eliminated in consolidation, but are reflected as intersegment transactions between our Refining & Marketing and Midstream segments.
5. ACQUISITIONS AND INVESTMENTS
Pending Merger with Andeavor
On April 29, 2018, MPC and Andeavor (“ANDV”) entered into a definitive merger agreement under which MPC has agreed to acquire all of ANDV’s outstanding shares. UnderDuring the terms of the agreement, ANDV shareholders will have the option to choose 1.87 shares of MPC stock or $152.27 in cash per share of ANDV common stock. The merger agreement includes election proration provisions that will result in approximately 22.9 million Andeavor shares being converted into cash consideration and the remaining Andeavor shares of approximately 128.2 million being converted into stock consideration. The aggregate cash consideration will be approximately $3.5 billion. The transaction was unanimously approved by the boards of directors of both companies, and MPC’s joint proxy statement/prospectus with ANDV has been declared effective by the Securities and Exchange Commission. The closing of the transaction remains subject to, among other things, customary closing conditions, including receipt of the approval of shareholders at the special meetings of both MPC and ANDV, which are scheduled for September 24, 2018.
We recognized transaction costs related to the pending merger of $10 million, which are reflected in selling, general and administrative expenses for the three and six months ended June 30, 2018.2019, we recorded adjustments to the preliminary fair value estimates of assets acquired and liabilities assumed as of the acquisition date as noted in the table below.
|
| | | | | | | | | | | |
(In millions) | As originally reported | | Adjustments | | As adjusted |
Cash and cash equivalents | $ | 382 |
| | $ | — |
| | $ | 382 |
|
Receivables | 2,744 |
| | (2 | ) | | 2,742 |
|
Inventories | 5,204 |
| | (9 | ) | | 5,195 |
|
Other current assets | 378 |
| | — |
| | 378 |
|
Equity method investments | 865 |
| | 37 |
| | 902 |
|
Property, plant and equipment, net | 16,545 |
| | (78 | ) | | 16,467 |
|
Other noncurrent assets(a) | 3,086 |
| | (1 | ) | | 3,085 |
|
Total assets acquired | 29,204 |
| | (53 | ) | | 29,151 |
|
Accounts payable | 4,003 |
| | (4 | ) | | 3,999 |
|
Payroll and benefits payable | 348 |
| | — |
| | 348 |
|
Accrued taxes | 590 |
| | — |
| | 590 |
|
Debt due within one year | 34 |
| | — |
| | 34 |
|
Other current liabilities | 392 |
| | 30 |
| | 422 |
|
Long-term debt | 8,875 |
| | 1 |
| | 8,876 |
|
Deferred income taxes | 1,609 |
| | 16 |
| | 1,625 |
|
Defined benefit postretirement plan obligations | 432 |
| | — |
| | 432 |
|
Deferred credit and other liabilities | 714 |
| | 15 |
| | 729 |
|
Noncontrolling interests | 5,059 |
| | 3 |
| | 5,062 |
|
Total liabilities and noncontrolling interest assumed | 22,056 |
| | 61 |
| | 22,117 |
|
Net assets acquired excluding goodwill | 7,148 |
| | (114 | ) | | 7,034 |
|
Goodwill | 16,314 |
| | 114 |
| | 16,428 |
|
Net assets acquired | $ | 23,462 |
| | $ | — |
| | $ | 23,462 |
|
| |
(a) | Includes intangible assets. |
The preliminary purchase consideration allocation resulted in the recognition of $16.43 billion in goodwill, of which $893 million is tax deductible due to a carryover basis from Andeavor. Our Refining & Marketing, Midstream and Retail segments recognized $4.82 billion, $7.72 billion and $3.89 billion of preliminary goodwill, respectively. The recognized goodwill represents the value expected to be created by further optimization of crude supply, a nationwide retail and marketing platform, diversification of our refining and midstream footprints and optimization of information systems and business processes.
Pro Forma Financial Information
The following unaudited pro forma financial information presents consolidated results assuming the Andeavor acquisition occurred on January 1, 2017. The unaudited pro forma information does not give effect to potential synergies that could result from the transaction and is not necessarily indicative of the results of future operations.
|
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2018 | | 2018 |
Sales and other operating revenues | | $ | 34,959 |
| | $ | 64,338 |
|
Net income attributable to MPC | | 1,452 |
| | 1,478 |
|
The pro forma information includes adjustments to align accounting policies, including our policy to expense refinery turnarounds when they occur, an adjustment to depreciation expense to reflect the increased fair value of property, plant and equipment, increased amortization expense related to identifiable intangible assets and the related income tax effects.
Acquisition of Ozark PipelineExpress Mart
On March 1, 2017, MPLXDuring the fourth quarter of 2018, Speedway acquired the Ozark pipeline78 transportation fuel and convenience store locations from Enbridge Pipelines (Ozark) LLCPetr-All Petroleum Consulting Corporation for approximately $219 million, including purchase price adjustments madetotal consideration of $266 million. These stores are located primarily in the second quarter of 2017. Syracuse, Rochester and Buffalo markets in New York and had been operated under the Express Mart brand.
Based on the final fair value estimates of assets acquired and liabilities assumed at the acquisition date, $97 million of the final purchase price was primarily allocated to property, plant and equipment.equipment, $9 million to inventory, $2 million to intangibles and $158 million to goodwill. Goodwill is tax deductible and represents the value expected to be created by geographically expanding our retail platform and the assembled workforce. These operations are accounted for within the Retail segment.
Acquisition of Mt. Airy Terminal
On September 26, 2018, MPLX acquired an eastern U.S. Gulf Coast export terminal (“Mt. Airy Terminal”) from Pin Oak Holdings, LLC for total consideration of $451 million. At the time of the acquisition, the terminal included tanks with 4 million barrels of third-party leased storage capacity and a dock with 120 mbpd of capacity. The Ozark pipelineMt. Airy Terminal is a 433-mile, 22-inch crude oil pipeline originating in Cushing, Oklahoma,located on the Mississippi River between New Orleans and terminating in Wood River, Illinois, capable of transporting approximately 230 mbpd. We accountBaton Rouge, near several Gulf Coast refineries, including our Garyville Refinery, and numerous rail lines and pipelines. The Mt. Airy Terminal is accounted for the Ozark pipeline within the Midstream segment. In the first quarter of 2019, an adjustment to the initial purchase price was made for approximately $5 million related to the final settlement of the acquisition. This reduced the total purchase price to $446 million and resulted in $336 million of property, plant and equipment, $121 million of goodwill and the remainder being attributable to net liabilities assumed.
Goodwill represents the significant growth potential of the terminal due to the multiple pipelines and rail lines which cross the property, the terminal’s position as an aggregation point for liquids growth in the region for both ocean-going vessels and inland barges, the proximity of the terminal to MPC’s Garyville refinery and other refineries in the region as well as the opportunity to construct an additional dock at the site. All of the goodwill recognized related to this transaction is tax deductible.
Assuming the acquisitionacquisitions of the Ozark pipelineExpress Mart and Mt. Airy Terminal had occurred on January 1, 2016,2017, the consolidated pro forma results would not have been materially different from the reported results.
Investment in Pipeline CompanyOn February 15, 2017,5. VARIABLE INTEREST ENTITIES
Consolidated VIEs
We control MPLX acquired a partial, indirect equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system,ANDX through a joint venture with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”). The Bakken Pipeline system is capable of transporting more than 520 mbpd of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf Coast. MPLX contributed $500 millionour ownership of the $2 billion purchase price paid by the joint venture, MarEn Bakken Company LLC (“MarEn Bakken”), to acquire a 36.75 percent indirect equity interest in the Bakken Pipeline system from Energy Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”). MPLX holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system. We account for the investment in MarEn Bakken as partgeneral partner of our Midstream segment using the equity method of accounting.
Formation of Gathering and Processing Joint Venture
Effective January 1, 2017,both entities. MPLX and Antero Midstream formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to supportANDX are VIEs because the developmentlimited partners do not have substantive kick-out or substantive participating rights over the general partners. We are the primary beneficiary of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MPLX has a 50 percent ownership interest in Sherwood Midstream. In connection with this transaction, MPLX contributed assets then under construction at the Sherwood Complex with a fair value of approximately $134 million and cash of approximately $20 million. Antero Midstream made an initial capital contribution of approximately $154 million.
Also effective January 1, 2017, MPLX converted all of its ownership interests in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), a previously wholly-owned subsidiary, to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream for $126 million in cash. The Class B-3 Interests provide
Sherwood Midstream with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator.
Effective January 1, 2017,both MPLX and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), forANDX because in addition to our significant economic interest, we also have the purpose of owning, operating and maintaining allability, through our ownership of the shared assets forgeneral partners, to control the benefit ofdecisions that most significantly impact MPLX and use in the operation of the gas plantsANDX. We therefore consolidate MPLX and other assets owned by Sherwood MidstreamANDX and the gas plants and deethanization facilities owned by MPLX. MPLX contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. Sherwood Midstream contributed cash of approximately $44 million to Sherwood Midstream Holdings in exchange for a 21 percent ownership interest. The net book value of the contributed assets was approximately $203 million. The contribution was determined to be an in-substance sale of real estate. During the six months ended June 30, 2018, MPLX sold to Sherwood Midstream six percent of its equity ownership in Sherwood Midstream Holdings for $15 million.
We account for our direct interests in Sherwood Midstream and Sherwood Midstream Holdings as part of our Midstream segment using the equity method of accounting. We continue to consolidate Ohio Fractionation and have recognizedrecord a noncontrolling interest for Sherwood Midstream’sthe interest in that entity.
See Note 6 for additional informationowned by the public. We also record a redeemable noncontrolling interest related to the investments in Sherwood Midstream, Ohio FractionationMPLX’s preferred units.
The creditors of MPLX and Sherwood Midstream Holdings.
6. VARIABLE INTEREST ENTITIES
In addition to MPLX, as described in Note 4, the following entities are also VIEs.
Crowley Coastal Partners
In May 2016, Crowley Coastal Partners was formed to own an interest in both Crowley Ocean Partners and Crowley Blue Water Partners. We have determined that Crowley Coastal Partners is a VIE based on the terms of the existing financing arrangements for Crowley Blue Water Partners and Crowley Ocean Partners and the associated debt guarantees by MPC and Crowley. Our maximum exposure to loss at June 30, 2018 was $483 million, which includes our equity method investment in Crowley Coastal Partners and the debt guarantees provided to each of the lenders to Crowley Blue Water Partners and Crowley Ocean Partners. We are not the primary beneficiary of this VIE because weANDX do not have the powerrecourse to control the activities that significantly influence the economic outcomesMPC’s general credit through guarantees or other financial arrangements, except as noted. MPC has effectively guaranteed certain indebtedness of the entityLOOP LLC (“LOOP”) and therefore, do not consolidate the entity.
MarkWest Utica EMG
On January 1, 2012, MarkWest Utica Operating Company,LOCAP LLC (“Utica Operating”LOCAP”), in which MPLX holds an interest. See Note 23 for more information. Western Refining Southwest, Inc., a wholly-owned and consolidated subsidiary of MarkWest,MPC and EMG Utica, LLC ("EMG Utica") (togetherunitholder of ANDX, has guaranteed certain outstanding borrowings under the "Members"), executed agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”), to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructureANDX dropdown credit facility that were made in eastern Ohio.connection with the August 2018 dropdown transaction.
As of June 30, 2018, MarkWest had a 56 percent ownership interest in MarkWest Utica EMG. MarkWest Utica EMG's inability to fund its planned activities without subordinated financial support qualify it as a VIE. Utica Operating is not deemed to be the primary beneficiary due to EMG Utica’s voting rights on significant matters. We account for our ownership interest in MarkWest Utica EMG as an equity method investment. Our maximum exposure to loss as a result of our involvement with MarkWest Utica EMG includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in MarkWest Utica EMG at June 30, 2018 was $2.1 billion.
Ohio Gathering
Ohio Gathering Company, L.L.C. (“Ohio Gathering”) is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of June 30, 2018, we had a 34 percent indirect ownership interest in Ohio Gathering. As this entity is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG.
Sherwood Midstream
As described in Note 5, MPLX and Antero Midstream formed a joint venture, Sherwood Midstream, to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. As of June 30, 2018, MPLX had a 50 percent ownership interest in Sherwood Midstream. Sherwood Midstream’s inability to fund its planned activities without additional subordinated financial support qualify it as a VIE. MPLX is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. We account for our ownership interest in Sherwood Midstream using the
equity methodThe assets of accounting. Our maximum exposureMPLX and ANDX can only be used to losssettle their own obligations and their creditors have no recourse to our assets, except as a result of our involvement with Sherwood Midstream includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation receivednoted above. The following table presents balance sheet information for the performanceassets and liabilities of the operating services. Our equity investment in Sherwood Midstream at June 30, 2018 was $291 million.
Ohio Fractionation
As described in Note 5, MPLX converted all of its ownership interests in Ohio Fractionation to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream, providing it with the right to fractionation revenue and the obligation to pay expenses related to 20 mbpd of capacity in the Hopedale 3 fractionator. Ohio Fractionation’s inability to fund its operations without additional subordinated financial support qualify it as a VIE. MPLX has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation.
Sherwood Midstream Holdings
As described in Note 5, MPLX and Sherwood Midstream entered into a joint venture, Sherwood Midstream Holdings, for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and useANDX, which are included in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MPLX. MPLX had an initial 79 percent direct ownership in Sherwood Midstream Holdings, in addition to a 10.5 percent indirect interest through its ownership in Sherwood Midstream. Sherwood Midstream Holdings’ inability to fund its operations without additional subordinated financial support qualify it as a VIE. We account for our ownership interest in Sherwood Midstream Holdings using the equity method of accounting as Sherwood Midstream is considered to be the general partner and controls all decisions related to Sherwood Midstream Holdings. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream Holdings includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in Sherwood Midstream Holdings at June 30, 2018 was $155 million.balance sheets.
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(In millions) | MPLX | | ANDX(a) | | MPLX | | ANDX(a) |
Assets | | | | | | | |
Cash and cash equivalents | $ | 7 |
| | $ | 25 |
| | $ | 68 |
| | $ | 10 |
|
Receivables, less allowance for doubtful accounts | 345 |
| | 202 |
| | 425 |
| | 199 |
|
Inventories | 77 |
| | 22 |
| | 77 |
| | 22 |
|
Other current assets | 34 |
| | 42 |
| | 45 |
| | 57 |
|
Equity method investments | 4,409 |
| | 605 |
| | 4,174 |
| | 602 |
|
Property, plant and equipment, net | 15,021 |
| | 6,929 |
| | 14,639 |
| | 6,845 |
|
Goodwill | 2,581 |
| | 1,052 |
| | 2,586 |
| | 1,051 |
|
Right of use assets | 255 |
| | 121 |
| | — |
| | — |
|
Other noncurrent assets | 441 |
| | 1,234 |
| | 458 |
| | 1,242 |
|
Liabilities | | | | | | | |
Accounts payable | $ | 532 |
| | $ | 290 |
| | $ | 776 |
| | $ | 215 |
|
Payroll and benefits payable | 5 |
| | 1 |
| | 2 |
| | 10 |
|
Accrued taxes | 57 |
| | 19 |
| | 48 |
| | 23 |
|
Debt due within one year | 6 |
| | 503 |
| | 1 |
| | 504 |
|
Operating lease liabilities | 47 |
| | 12 |
| | — |
| | — |
|
Other current liabilities | 204 |
| | 88 |
| | 177 |
| | 77 |
|
Long-term debt | 14,030 |
| | 4,726 |
| | 13,392 |
| | 4,469 |
|
Deferred income taxes | 11 |
| | 1 |
| | 13 |
| | 1 |
|
Long-term operating lease liabilities | 209 |
| | 108 |
| | — |
| | — |
|
Deferred credits and other liabilities | 303 |
| | 78 |
| | 276 |
| | 68 |
|
| |
(a) | The balances reflected here are ANDX’s historical balances as the preliminary purchase accounting adjustments related to ANDX’s assets and liabilities in connection with the Andeavor acquisition and reflected on our consolidated balance sheets as of June 30, 2019 and December 31, 2018 have not yet been pushed down to this subsidiary. |
7.6. RELATED PARTY TRANSACTIONS
Our related parties include:
Crowley Blue Water Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Blue Water Partners owns and operates three Jones Act ATB vessels.
Crowley Ocean Partners, in which we have a 50 percent indirect noncontrolling interest. Crowley Ocean Partners owns and operates Jones Act product tankers.
Illinois Extension Pipeline Company, L.L.C. (“Illinois Extension Pipeline”), in which we have a 35 percent noncontrolling interest. Illinois Extension Pipeline owns and operates the Southern Access Extension (“SAX”) crude oil pipeline.
LOCAP, in which we have a 59 percent noncontrolling interest. LOCAP owns and operates a crude oil pipeline.
LOOP, in which we have a 51 percent noncontrolling interest. LOOP owns and operates the only U.S. deepwater crude oil port.
MarkWest Utica EMG, in which we have a 56 percent noncontrolling interest. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
Ohio Gathering, in which we have a 34 percent indirect noncontrolling interest. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
PFJ Southeast, in which we have a 29 percent noncontrolling interest. PFJ Southeast owns and operates travel plazas primarily in the Southeast region of the United States.
Sherwood Midstream, in which we have a 50 percent noncontrolling interest. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia.
Sherwood Midstream Holdings, in which we have an 81 percent direct and indirect noncontrolling interest. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and deethanization facilities.
The Andersons Albion Ethanol LLC (“TAAE”), in which we have a 45 percent noncontrolling interest, The Andersons Clymers Ethanol LLC (“TACE”), in which we have a 61 percent noncontrolling interest and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a 67 percent noncontrolling interest. These companies each own and operate an ethanol production facility.
Other equity method investees.
We believe that transactionsTransactions with related parties were conducted on terms comparable to those with unaffiliated parties.
Sales to related parties were as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Sales to related parties(a) | $ | 186 |
| | $ | 199 |
| | $ | 372 |
| | $ | 371 |
|
Purchases from related parties(b) | 183 |
| | 138 |
| | 387 |
| | 279 |
|
| |
(a) | Sales to related parties, which are included in sales and other operating revenues, consist primarily of sales of refined products to PFJ Southeast, an equity affiliate which owns and operates travel plazas primarily in the Southeast region of the United States. |
| |
(b) | Purchases from related parties are included in cost of revenues. We obtain utilities, transportation services and purchase ethanol from certain of our equity affiliates. |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
PFJ Southeast | $ | 196 |
| | $ | 145 |
| | $ | 365 |
| | $ | 296 |
|
Other equity method investees | 3 |
| | 2 |
| | 6 |
| | 5 |
|
Total | $ | 199 |
| | $ | 147 |
| | $ | 371 |
| | $ | 301 |
|
Sales to related parties consists primarily of sales of refined products.
Other income from related parties, which is included in “Other income” on the accompanying consolidated statements of income, was as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
MarkWest Utica EMG | $ | 4 |
| | $ | 4 |
| | $ | 8 |
| | $ | 8 |
|
Ohio Gathering | 4 |
| | 4 |
| | 8 |
| | 8 |
|
Sherwood Midstream | 2 |
| | 3 |
| | 5 |
| | 4 |
|
Other equity method investees | 4 |
| | 4 |
| | 6 |
| | 6 |
|
Total | $ | 14 |
| | $ | 15 |
| | $ | 27 |
| | $ | 26 |
|
Other income from related parties consists primarily of fees received for operating transportation assets for our related parties.
Purchases from related parties were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Crowley Blue Water Partners | $ | 14 |
| | $ | 14 |
| | $ | 30 |
| | $ | 28 |
|
Crowley Ocean Partners | 20 |
| | 20 |
| | 40 |
| | 39 |
|
Illinois Extension Pipeline | 23 |
| | 24 |
| | 47 |
| | 49 |
|
LOCAP | 3 |
| | 6 |
| | 7 |
| | 11 |
|
LOOP | 14 |
| | 26 |
| | 31 |
| | 39 |
|
TAAE | 22 |
| | 23 |
| | 41 |
| | 31 |
|
TACE | 10 |
| | 9 |
| | 18 |
| | 25 |
|
TAME | 25 |
| | 21 |
| | 45 |
| | 38 |
|
Other equity method investees | 7 |
| | 7 |
| | 20 |
| | 12 |
|
Total | $ | 138 |
| | $ | 150 |
| | $ | 279 |
| | $ | 272 |
|
Related party purchases from Crowley Blue Water Partners and Crowley Ocean Partners consist of leasing marine equipment primarily used to transport refined products. Related party purchases from Illinois Extension Pipeline, LOCAP, LOOP and other equity method investees consist primarily of crude oil transportation costs. Related party purchases from TAAE, TACE and TAME consist of ethanol purchases.
Receivables from related parties, which are included in “Receivables, less allowance for doubtful accounts” on the accompanying consolidated balance sheets, were as follows:
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
PFJ Southeast | $ | 30 |
| | $ | 28 |
|
Other equity method investees | 8 |
| | 8 |
|
Total | $ | 38 |
| | $ | 36 |
|
Payables to related parties, which are included in “Accounts payable” on the accompanying consolidated balance sheets, were as follows:
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
Illinois Extension Pipeline | $ | 8 |
| | $ | 8 |
|
LOOP | 4 |
| | 3 |
|
MarkWest Utica EMG | 26 |
| | 29 |
|
Ohio Gathering | — |
| | 9 |
|
Sherwood Midstream | 8 |
| | 8 |
|
Other equity method investees | 10 |
| | 12 |
|
Total | $ | 56 |
| | $ | 69 |
|
8. INCOME7. EARNINGS PER COMMON SHARE
We compute basic earnings per share by dividing net income attributable to MPC less income allocated to participating securities by the weighted average number of shares of common stock outstanding. Since MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities, we have calculated our earnings per share using the two-class method. Diluted income per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Basic earnings per share: | | | | | | | |
Allocation of earnings: | | | | | | | |
Net income attributable to MPC | $ | 1,055 |
| | $ | 483 |
| | $ | 1,092 |
| | $ | 513 |
|
Income allocated to participating securities | 1 |
| | — |
| | 1 |
| | — |
|
Income available to common stockholders – basic | $ | 1,054 |
| | $ | 483 |
| | $ | 1,091 |
| | $ | 513 |
|
Weighted average common shares outstanding | 459 |
| | 513 |
| | 467 |
| | 519 |
|
Basic earnings per share | $ | 2.30 |
| | $ | 0.94 |
| | $ | 2.34 |
| | $ | 0.99 |
|
Diluted earnings per share: | | | | | | | |
Allocation of earnings: | | | | | | | |
Net income attributable to MPC | $ | 1,055 |
| | $ | 483 |
| | $ | 1,092 |
| | $ | 513 |
|
Income allocated to participating securities | 1 |
| | — |
| | 1 |
| | — |
|
Income available to common stockholders – diluted | $ | 1,054 |
| | $ | 483 |
| | $ | 1,091 |
| | $ | 513 |
|
Weighted average common shares outstanding | 459 |
| | 513 |
| | 467 |
| | 519 |
|
Effect of dilutive securities | 5 |
| | 4 |
| | 5 |
| | 4 |
|
Weighted average common shares, including dilutive effect | 464 |
| | 517 |
| | 472 |
| | 523 |
|
Diluted earnings per share | $ | 2.27 |
| | $ | 0.93 |
| | $ | 2.31 |
| | $ | 0.98 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Basic earnings per share: | | | | | | | |
Allocation of earnings: | | | | | | | |
Net income attributable to MPC | $ | 1,106 |
| | $ | 1,055 |
| | $ | 1,099 |
| | $ | 1,092 |
|
Income allocated to participating securities | — |
| | 1 |
| | 1 |
| | 1 |
|
Income available to common stockholders – basic | $ | 1,106 |
| | $ | 1,054 |
| | $ | 1,098 |
| | $ | 1,091 |
|
Weighted average common shares outstanding | 662 |
| | 459 |
| | 667 |
| | 467 |
|
Basic earnings per share | $ | 1.67 |
| | $ | 2.30 |
| | $ | 1.65 |
| | $ | 2.34 |
|
Diluted earnings per share: | | | | | | | |
Allocation of earnings: | | | | | | | |
Net income attributable to MPC | $ | 1,106 |
| | $ | 1,055 |
| | $ | 1,099 |
| | $ | 1,092 |
|
Income allocated to participating securities | — |
| | 1 |
| | 1 |
| | 1 |
|
Income available to common stockholders – diluted | $ | 1,106 |
| | $ | 1,054 |
| | $ | 1,098 |
| | $ | 1,091 |
|
Weighted average common shares outstanding | 662 |
| | 459 |
| | 667 |
| | 467 |
|
Effect of dilutive securities | 4 |
| | 5 |
| | 5 |
| | 5 |
|
Weighted average common shares, including dilutive effect | 666 |
| | 464 |
| | 672 |
| | 472 |
|
Diluted earnings per share | $ | 1.66 |
| | $ | 2.27 |
| | $ | 1.63 |
| | $ | 2.31 |
|
The following table summarizes the shares that were anti-dilutive and, therefore, were excluded from the diluted share calculation.
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Shares issuable under stock-based compensation plans | 4 |
| | 1 |
| | 3 |
| | 1 |
|
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Shares issued under stock-based compensation plans | 1 |
| | — |
| | 1 |
| | 2 |
|
9.8. EQUITY
As of June 30, 2018,2019, we had $5.98$3.52 billion of share repurchase authorization remaining under authorizations from our board of directors. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.
Total share repurchases were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | 2019 | | 2018 | | 2019 | | 2018 |
Number of shares repurchased | 9 |
| | 12 |
| | 23 |
| | 31 |
|
Cash paid for shares repurchased | $ | 500 |
| | $ | 885 |
| | $ | 1,385 |
| | $ | 2,212 |
|
Average cost per share | $ | 57.18 |
| | $ | 76.30 |
| | $ | 60.75 |
| | $ | 71.58 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | 2018 | | 2017 | | 2018 | | 2017 |
Number of shares repurchased | 12 |
| | 14 |
| | 31 |
| | 23 |
|
Cash paid for shares repurchased | $ | 885 |
| | $ | 750 |
| | $ | 2,212 |
| | $ | 1,170 |
|
Average cost per share | $ | 76.30 |
| | $ | 52.35 |
| | $ | 71.58 |
| | $ | 51.53 |
|
As of June 30, 2018,2019, we had agreements to acquire 495,702109,200 common shares for $35$6 million, which were settled in early July 2018.2019.
9. SEGMENT INFORMATION
We have three reportable segments: Refining & Marketing; Speedway;Retail; and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.
| |
• | Refining & Marketing – refines crude oil and other feedstocks at our six16 refineries in the Gulf Coast, Mid-Continent and MidwestWest Coast regions of the United States, purchases refined products and ethanol for resale and distributes refined products through transportation, storage, distribution and marketing services provided largely by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our SpeedwayRetail business segment and to independent entrepreneurs who operate primarily Marathon® retail branded outlets. |
Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest, East Coast, Southeast and Gulf Coast regions of the United States. | |
• | Retail – sells transportation fuels and convenience products in the retail market across the United States through company-owned and operated convenience stores, primarily under the Speedway® brand, and long-term fuel supply contracts with direct dealers who operate locations primarily under the ARCO® brand. |
Midstream – gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs; and transports, stores, distributes and markets crude oil and refined products principally for the Refining & Marketing segment via refining logistics assets, pipelines, terminals, towboats and barges.barges; gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs. The Midstream segment primarily reflects the results of MPLX our sponsored master limited partnership.
As discussed in Note 4, on February 1, 2018, we contributed certain refining logistics assets and fuels distribution services to MPLX. The results of these new businesses are reported in the Midstream segment prospectively from February 1, 2018, resulting in a net reduction of $232 million and $413 million to Refining & Marketing segment results and a net increase to Midstream segment results of the same amount for the three and six months ended June 30, 2018, respectively. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018.ANDX.
Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX and ANDX, and costs related to certain non-operating assets are not allocated to the reportableRefining & Marketing and Retail segments. In addition, certain items that affect comparability (as determined by the chief operating decision maker) are not allocated to the reportable segments.
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Retail | | Midstream | | Total |
Three Months Ended June 30, 2019 | | | | | | | |
Revenues: | | | | | | | |
Third party(a) | $ | 23,672 |
| | $ | 8,944 |
| | $ | 931 |
| | $ | 33,547 |
|
Intersegment | 5,482 |
| | 2 |
| | 1,218 |
| | 6,702 |
|
Segment revenues | $ | 29,154 |
| | $ | 8,946 |
| | $ | 2,149 |
| | $ | 40,249 |
|
Segment income from operations | $ | 906 |
| | $ | 493 |
| | $ | 878 |
| | $ | 2,277 |
|
| | | | | | | |
Supplemental Data | | | | | | | |
Depreciation and amortization(b) | $ | 411 |
| | $ | 130 |
| | $ | 318 |
| | $ | 859 |
|
Capital expenditures and investments(c) | 430 |
| | 120 |
| | 814 |
| | 1,364 |
|
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Retail | | Midstream | | Total |
Three Months Ended June 30, 2018 | | | | | | | |
Revenues: | | | | | | | |
Third party(a) | $ | 16,302 |
| | $ | 5,265 |
| | $ | 750 |
| | $ | 22,317 |
|
Intersegment | 2,871 |
| | 2 |
| | 762 |
| | 3,635 |
|
Segment revenues | $ | 19,173 |
| | $ | 5,267 |
| | $ | 1,512 |
| | $ | 25,952 |
|
Segment income from operations | $ | 1,025 |
| | $ | 159 |
| | $ | 617 |
| | $ | 1,801 |
|
| | | | | | | |
Supplemental Data | | | | | | | |
Depreciation and amortization(b) | $ | 252 |
| | $ | 73 |
| | $ | 191 |
| | $ | 516 |
|
Capital expenditures and investments(c) | 196 |
| | 88 |
| | 601 |
| | 885 |
|
| | (In millions) | Refining & Marketing | | Speedway | | Midstream | | Total | Refining & Marketing | | Retail | | Midstream | | Total |
Three Months Ended June 30, 2018 | | | | | | | | |
Six Months Ended June 30, 2019 | | | | | | | | |
Revenues: | | | | | | | | | | | | | | |
Third party(a) | $ | 16,105 |
| | $ | 5,263 |
| | $ | 750 |
| | $ | 22,118 |
| $ | 43,606 |
| | $ | 16,320 |
| | $ | 1,888 |
| | $ | 61,814 |
|
Intersegment | 2,871 |
| | 2 |
| | 762 |
| | 3,635 |
| 9,911 |
| | 4 |
| | 2,450 |
| | 12,365 |
|
Related party | 197 |
| | 2 |
| | — |
| | 199 |
| |
Segment revenues | $ | 19,173 |
| | $ | 5,267 |
| | $ | 1,512 |
| | $ | 25,952 |
| $ | 53,517 |
| | $ | 16,324 |
| | $ | 4,338 |
| | $ | 74,179 |
|
Segment income from operations | $ | 1,025 |
| | $ | 159 |
| | $ | 617 |
| | $ | 1,801 |
| $ | 572 |
| | $ | 663 |
| | $ | 1,786 |
| | $ | 3,021 |
|
Income from equity method investments(b) | 4 |
| | 19 |
| | 56 |
| | 79 |
| |
| | | | | | | | |
Supplemental Data | | | | | | | | |
Depreciation and amortization(b) | 252 |
| | 73 |
| | 191 |
| | 516 |
| $ | 838 |
| | $ | 256 |
| | $ | 625 |
| | $ | 1,719 |
|
Capital expenditures and investments(c) | 196 |
| | 88 |
| | 601 |
| | 885 |
| 824 |
| | 193 |
| | 1,637 |
| | 2,654 |
|
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Retail | | Midstream | | Total |
Six Months Ended June 30, 2018 | | | | | | | |
Revenues: | | | | | | | |
Third party(a) | $ | 29,884 |
| | $ | 9,836 |
| | $ | 1,463 |
| | $ | 41,183 |
|
Intersegment | 5,250 |
| | 3 |
| | 1,393 |
| | 6,646 |
|
Segment revenues | $ | 35,134 |
| | $ | 9,839 |
| | $ | 2,856 |
| | $ | 47,829 |
|
Segment income from operations | $ | 892 |
| | $ | 254 |
| | $ | 1,184 |
| | $ | 2,330 |
|
| | | | | | | |
Supplemental Data | | | | | | | |
Depreciation and amortization(b) | $ | 504 |
| | $ | 152 |
| | $ | 372 |
| | $ | 1,028 |
|
Capital expenditures and investments(c) | 387 |
| | 127 |
| | 1,083 |
| | 1,597 |
|
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Speedway | | Midstream | | Total |
Three Months Ended June 30, 2017 | | | | | | | |
Revenues: | | | | | | | |
Third party | $ | 12,691 |
| | $ | 4,794 |
| | $ | 548 |
| | $ | 18,033 |
|
Intersegment(a) | 2,808 |
| | 1 |
| | 363 |
| | 3,172 |
|
Related party | 145 |
| | 2 |
| | — |
| | 147 |
|
Segment revenues | $ | 15,644 |
| | $ | 4,797 |
| | $ | 911 |
| | $ | 21,352 |
|
Segment income from operations | $ | 562 |
| | $ | 238 |
| | $ | 332 |
| | $ | 1,132 |
|
Income from equity method investments(b) | 2 |
| | 21 |
| | 40 |
| | 63 |
|
Depreciation and amortization(b) | 272 |
| | 65 |
| | 168 |
| | 505 |
|
Capital expenditures and investments(c) | 180 |
| | 78 |
| | 494 |
| | 752 |
|
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Speedway | | Midstream | | Total |
Six Months Ended June 30, 2018 | | | | | | | |
Revenues: | | | | | | | |
Third party | $ | 29,517 |
| | $ | 9,832 |
| | $ | 1,463 |
| | $ | 40,812 |
|
Intersegment | 5,250 |
| | 3 |
| | 1,393 |
| | 6,646 |
|
Related party | 367 |
| | 4 |
| | — |
| | 371 |
|
Segment revenues | $ | 35,134 |
| | $ | 9,839 |
| | $ | 2,856 |
| | $ | 47,829 |
|
Segment income from operations | $ | 892 |
| | $ | 254 |
| | $ | 1,184 |
| | $ | 2,330 |
|
Income from equity method investments(b) | 7 |
| | 33 |
| | 125 |
| | 165 |
|
Depreciation and amortization(b) | 504 |
| | 152 |
| | 372 |
| | 1,028 |
|
Capital expenditures and investments(c) | 387 |
| | 127 |
| | 1,083 |
| | 1,597 |
|
|
| | | | | | | | | | | | | | | |
(In millions) | Refining & Marketing | | Speedway | | Midstream | | Total |
Six Months Ended June 30, 2017 | | | | | | | |
Revenues: | | | | | | | |
Third party | $ | 23,912 |
| | $ | 9,175 |
| | $ | 1,080 |
| | $ | 34,167 |
|
Intersegment(a) | 5,398 |
| | 2 |
| | 707 |
| | 6,107 |
|
Related party | 297 |
| | 4 |
| | — |
| | 301 |
|
Segment revenues | $ | 29,607 |
| | $ | 9,181 |
| | $ | 1,787 |
| | $ | 40,575 |
|
Segment income from operations | $ | 492 |
| | $ | 373 |
| | $ | 641 |
| | $ | 1,506 |
|
Income from equity method investments(b) | 4 |
| | 34 |
| | 82 |
| | 120 |
|
Depreciation and amortization(b) | 539 |
| | 129 |
| | 359 |
| | 1,027 |
|
Capital expenditures and investments(c)(d) | 372 |
| | 113 |
| | 1,564 |
| | 2,049 |
|
| |
(a) | Management believes intersegment transactions were conducted under terms comparable to those with unaffiliated parties.Includes related party sales. See Note 6 for additional information. |
| |
(b) | Differences between segment totals and MPC consolidated totals represent amounts related to corporate and other unallocated items and are included in “Itemsitems not allocated to segments”segments in the reconciliation below. |
| |
(c) | Capital expenditures include changes in capital accruals acquisitions and investments in affiliates. See reconciliation from segment totals to MPC consolidated total capital expenditures below. |
| |
(d)
| The Midstream segment includes $220 million for the acquisition of the Ozark pipeline and an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system for the six months ended June 30, 2017. |
The following reconciles segment income from operations to income before income taxes as reported in the consolidated statements of income:
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Segment income from operations | $ | 1,801 |
| | $ | 1,132 |
| | $ | 2,330 |
| | $ | 1,506 |
| $ | 2,277 |
| | $ | 1,801 |
| | $ | 3,021 |
| | $ | 2,330 |
|
Items not allocated to segments: | | | | | | | | | | | | | | |
Corporate and other unallocated items(a) | (91 | ) | | (83 | ) | | (180 | ) | | (166 | ) | (179 | ) | | (81 | ) | | (370 | ) | | (170 | ) |
Capline restructuring gain(b) | | — |
| | �� |
| | 207 |
| | — |
|
Transaction-related costs(c) | | (34 | ) | | (10 | ) | | (125 | ) | | (10 | ) |
Litigation | — |
| | (86 | ) | | — |
| | (86 | ) | (22 | ) | | — |
| | (22 | ) | | — |
|
Impairments(b) | 1 |
| | 19 |
| | 1 |
| | 19 |
| |
Impairments | | — |
| | 1 |
| | — |
| | 1 |
|
Income from operations | 1,711 |
| | 982 |
| | 2,151 |
| | 1,273 |
| 2,042 |
| | 1,711 |
| | 2,711 |
| | 2,151 |
|
Net interest and other financial costs | 195 |
| | 158 |
| | 378 |
| | 307 |
| 322 |
| | 195 |
| | 628 |
| | 378 |
|
Income before income taxes | $ | 1,516 |
| | $ | 824 |
| | $ | 1,773 |
| | $ | 966 |
| $ | 1,720 |
| | $ | 1,516 |
| | $ | 2,083 |
| | $ | 1,773 |
|
| |
(a) | Corporate and other unallocated items consistsconsist primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX and ANDX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and SpeedwayRetail segments. |
| |
(b) | Includes MPC’s shareSee Note 13. |
| |
(c) | The transaction-related costs recognized in the 2019 year-to-date period include the recognition of gains from the sale of assets remaining from the canceled Sandpiper pipeline project.an obligation for employee benefits provided to former Andeavor employees. |
The following reconciles segment capital expenditures and investments to total capital expenditures:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Segment capital expenditures and investments | $ | 1,364 |
| | $ | 885 |
| | $ | 2,654 |
| | $ | 1,597 |
|
Less investments in equity method investees | 270 |
| | 77 |
| | 595 |
| | 118 |
|
Plus items not allocated to segments: | | | | | | | |
Corporate | 4 |
| | 17 |
| | 14 |
| | 35 |
|
Capitalized interest | 34 |
| | 16 |
| | 65 |
| | 34 |
|
Total capital expenditures(a) | $ | 1,132 |
| | $ | 841 |
| | $ | 2,138 |
| | $ | 1,548 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Segment capital expenditures and investments | $ | 885 |
| | $ | 752 |
| | $ | 1,597 |
| | $ | 2,049 |
|
Less investments in equity method investees(a) | 77 |
| | 111 |
| | 118 |
| | 677 |
|
Plus items not allocated to segments: | | | | | | | |
Corporate | 17 |
| | 18 |
| | 35 |
| | 34 |
|
Capitalized interest | 16 |
| | 14 |
| | 34 |
| | 26 |
|
Total capital expenditures(b) | $ | 841 |
| | $ | 673 |
| | $ | 1,548 |
| | $ | 1,432 |
|
| |
(a) | The six months ended June 30, 2017 includes an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system. |
| |
(b)
| Capital expenditures include changes in capital accruals. See Note 1819 for a reconciliation of total capital expenditures to additions to property, plant and equipment for the six months ended June 30, 2019 and 2018 as reported in the consolidated statements of cash flows. |
Revenues by product line were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Refined products | $ | 19,292 |
| | $ | 15,439 |
| | $ | 35,450 |
| | $ | 29,315 |
|
Merchandise | 1,286 |
| | 1,343 |
| | 2,416 |
| | 2,535 |
|
Crude oil and refinery feedstocks | 978 |
| | 824 |
| | 1,861 |
| | 1,511 |
|
Midstream services, transportation and other | 562 |
| | 427 |
| | 1,085 |
| | 806 |
|
Sales and other operating revenues | $ | 22,118 |
| | $ | 18,033 |
| | $ | 40,812 |
| | $ | 34,167 |
|
11.10. NET INTEREST AND OTHER ITEMSFINANCIAL COSTS
Net interest and other financial costs were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Interest income | $ | (9 | ) | | $ | (25 | ) | | $ | (18 | ) | | $ | (45 | ) |
Interest expense | 350 |
| | 229 |
| | 690 |
| | 442 |
|
Interest capitalized | (35 | ) | | (16 | ) | | (67 | ) | | (34 | ) |
Pension and other postretirement non-service costs(a) | 3 |
| | 2 |
| | — |
| | 2 |
|
Loss on extinguishment of debt | — |
| | — |
| | — |
| | 4 |
|
Other financial costs | 13 |
| | 5 |
| | 23 |
| | 9 |
|
Net interest and other financial costs | $ | 322 |
| | $ | 195 |
| | $ | 628 |
| | $ | 378 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Interest income | $ | (25 | ) | | $ | (4 | ) | | $ | (45 | ) | | $ | (9 | ) |
Interest expense | 229 |
| | 173 |
| | 442 |
| | 336 |
|
Interest capitalized | (16 | ) | | (18 | ) | | (34 | ) | | (33 | ) |
Loss on extinguishment of debt | — |
| | — |
| | 4 |
| | — |
|
Other financial costs | 7 |
| | 7 |
| | 11 |
| | 13 |
|
Net interest and other financial costs | $ | 195 |
| | $ | 158 |
| | $ | 378 |
| | $ | 307 |
|
11. INCOME TAXES
The combined federal, state and foreign income tax rate was 1921 percent and 3019 percent for the three months ended June 30, 20182019 and 2017,2018, respectively, and 1722 percent and 3017 percent for the six months ended June 30, 2019 and 2018, respectively. The effective tax rate for the three months ended June 30, 2019 was equal to the U.S. statutory rate of 21 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interests offset by equity compensation and 2017, respectively.state and local tax expense. The effective tax rate for the six months ended June 30, 2019 was greater than the U.S. statutory rate of 21 percent primarily due to $36 million of state deferred tax expense recorded as an out of period adjustment, partially offset by permanent tax differences related to net income attributable to noncontrolling interests. The effective tax rate for the three and six months ended June 30, 2018 was less than the U.S. statutory rate of 21 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interestinterests and equity compensation offset by state and local tax expense. The effective
During the first quarter of 2019, MPC’s deferred tax rateliabilities increased $68 million with an offsetting increase to goodwill and the provision for income taxes of $32 million and $36 million, respectively for an out of period adjustment to correct the three and six months ended June 30, 2017 was less than the then applicable U.S. statutory rate of 35 percent primarily due to certain permanent tax differenceseffects recorded in 2018 related to net income attributablethe Andeavor acquisition. The impact of the adjustment was not material to noncontrolling interest, the domestic manufacturing deduction and equity compensation offset by state and local tax expense.any previous period.
We are continuously undergoing examination of our income tax returns, which have been completed through the 20072006 tax year for state returns and the 20092008 tax year for our U.S. federal return. As of June 30, 2018,2019, we had $21$202 million of unrecognized tax benefits.
Prior to its spin-offspinoff on June 30, 2011, Marathon Petroleum Corporation was included in the Marathon Oil Corporation (“Marathon Oil”) U.S. federal income tax returns for all applicable years. During the third quarter of 2017, Marathon Oil received a notice of Final Partnership Administrative Adjustment (“FPAA”) from the IRSU.S. Internal Revenue Service for taxable year 2010, relating to certain pre-spinoffpartnership transactions. Marathon Oil filed a U.S. Tax Court petition disputing these adjustments during the fourth quarter of 2017. We received an FPAA for taxable years 2011-2014 for items resulting from this matter and filed a U.S. Tax Court petition for tax years 2011-2014 to dispute these corollary adjustments in the fourth quarter of 2017. We continue to believe that the issue in dispute is more likely than not to be fully sustained and, therefore, no liability has been accrued for this matter.
Pursuant to our tax sharing agreement with Marathon Oil, the unrecognized tax benefits related to pre-spinoff operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and we have indemnified Marathon Oil accordingly. See Note 2223 for indemnification information.
13.12. INVENTORIES
|
| | | | | | | |
(In millions) | June 30, 2019 | | December 31, 2018 |
Crude oil and refinery feedstocks | $ | 3,468 |
| | $ | 3,655 |
|
Refined products | 4,601 |
| | 5,234 |
|
Materials and supplies | 801 |
| | 720 |
|
Merchandise | 218 |
| | 228 |
|
Total | $ | 9,088 |
| | $ | 9,837 |
|
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
Crude oil and refinery feedstocks | $ | 2,059 |
| | $ | 2,056 |
|
Refined products | 2,811 |
| | 2,839 |
|
Materials and supplies | 455 |
| | 494 |
|
Merchandise | 160 |
| | 161 |
|
Total | $ | 5,485 |
| | $ | 5,550 |
|
Inventories are carried at the lower of cost or market value. The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined primarily under the LIFO method. There were no materialLIFO inventory liquidations of LIFO inventoriesrecognized for the six months ended June 30, 2018.2019.
13. EQUITY METHOD INVESTMENTS
During the three months ended March 31, 2019, we executed agreements with Capline Pipeline Company LLC (“Capline LLC”) to contribute our 33 percent undivided interest in Capline pipeline system in exchange for a 33 percent ownership interest in Capline LLC. Concurrent with our execution of these agreements, Capline LLC initiated a binding open season for southbound service from Patoka, IL to St. James, LA or Liberty, MS, with an additional origination point at Cushing, OK. Service from Cushing, OK is part of a joint tariff with Diamond pipeline. Crude oil service is expected to begin in the third quarter of 2020.
In accordance with ASC 810, we derecognized our undivided interest amounting to $143 million of net assets and recognized the Capline LLC ownership interest we received at fair value. We used an income approach to determine the fair value of our ownership interest under a Monte Carlo simulation method. We estimated the fair value of our ownership interest to be $350 million as of January 30, 2019. This is a nonrecurring fair value measurement and is categorized in level 3 of the fair value hierarchy. The Monte Carlo simulation inputs include ranges of tariff rates, operating volumes, operating cost and capital expenditure assumptions. The estimated cash flows were discounted using a Monte Carlo market participant weighted average cost of capital estimate. None of the inputs to the Monte Carlo simulation are individually significant. The excess of the estimated fair value of our ownership interest over the carrying value of the derecognized net assets resulted in a $207 million non-cash net gain recorded as a net gain on disposal of assets in the accompanying consolidated statements of income.
As the Capline system is currently idled, Capline LLC is unable to fund its operations without financial support from its equity owners and is a VIE. MPC is not deemed to be the primary beneficiary, due to our inability to unilaterally control significant decision-making rights. Our maximum exposure to loss as a result of our involvement with Capline LLC includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by Capline LLC in excess of compensation received for performance of the operating services.
14. PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | | |
(In millions) | June 30, 2019 | | December 31, 2018 |
Refining & Marketing | $ | 28,429 |
| | $ | 27,590 |
|
Retail | 6,767 |
| | 6,637 |
|
Midstream | 26,472 |
| | 25,692 |
|
Corporate and Other | 1,234 |
| | 1,294 |
|
Total | 62,902 |
| | 61,213 |
|
Less accumulated depreciation | 17,567 |
| | 16,155 |
|
Property, plant and equipment, net | $ | 45,335 |
| | $ | 45,058 |
|
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
Refining & Marketing(a) | $ | 18,314 |
| | $ | 19,490 |
|
Speedway | 5,433 |
| | 5,358 |
|
Midstream(a) | 17,411 |
| | 14,898 |
|
Corporate and Other | 827 |
| | 792 |
|
Total | 41,985 |
| | 40,538 |
|
Less accumulated depreciation | 15,054 |
| | 14,095 |
|
Property, plant and equipment, net | $ | 26,931 |
| | $ | 26,443 |
|
| |
(a)
| On February 1, 2018, we contributed certain refining logistics assets and fuels distribution services to MPLX. In connection with this transaction, approximately $830 million of net property, plant and equipment was recorded to the Midstream segment with an offsetting reduction to the Refining & Marketing segment.
|
We own a 33 percent undivided joint interest in the Capline Pipeline System (“Capline”), a crude oil pipeline that runs from St. James, LA to Patoka, IL. We account for this undivided joint interest by recognizing our proportionate share of Capline’s assets on our balance sheet, which are primarily classified as property, plant and equipment. Capline experienced a significant reduction in shipment volumes in the second quarter of 2018 primarily due to recently completed competing pipelines. The pipeline`s owners are proceeding with planning for the reversal of the pipeline to support southbound movements of crude oil as supported by shipper interest indicated during a non-binding open season conducted in 2017. Pending agreement among the owners, southbound service is estimated to commence by the second half of 2022. In the second quarter of 2018, we evaluated our share of Capline assets for impairment in accordance with ASC 360, and determined no impairment existed due to the probability of continuing future cash flows associated with a reversed Capline. As of June 30, 2018, our carrying value was $155 million.
15. FAIR VALUE MEASUREMENTS
Fair Values—Recurring
The following tables present assets and liabilities accounted for at fair value on a recurring basis as of June 30, 20182019 and December 31, 20172018 by fair value hierarchy level. We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty, including any related cash collateral as shown below; however, fair value amounts by hierarchy level are presented on a gross basis in the following tables.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2018 |
| Fair Value Hierarchy | | | | | | |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral(a) | | Net Carrying Value on Balance Sheet(b) | | Collateral Pledged Not Offset |
Commodity derivative instruments, assets | $ | 134 |
| | $ | — |
| | $ | — |
| | $ | (134 | ) | | $ | — |
| | $ | 16 |
|
Other assets | 3 |
| | — |
| | — |
| | N/A |
| | 3 |
| | — |
|
Total assets at fair value | $ | 137 |
| | $ | — |
| | $ | — |
| | $ | (134 | ) | | $ | 3 |
| | $ | 16 |
|
| | | | | | | | | | | |
Commodity derivative instruments, liabilities | $ | 171 |
| | $ | — |
| | $ | 2 |
| | $ | (171 | ) | | $ | 2 |
| | $ | — |
|
Embedded derivatives in commodity contracts(c) | — |
| | — |
| | 66 |
| | — |
| | 66 |
| | — |
|
Total liabilities at fair value | $ | 171 |
| | $ | — |
| | $ | 68 |
| | $ | (171 | ) | | $ | 68 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 |
| Fair Value Hierarchy | | | | | | |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral(a) | | Net Carrying Value on Balance Sheet(b) | | Collateral Pledged Not Offset |
Assets: | | | | | | | | | | | |
Commodity contracts | $ | 227 |
| | $ | 12 |
| | $ | — |
| | $ | (200 | ) | | $ | 39 |
| | $ | 68 |
|
Liabilities: | | | | | | | | | | | |
Commodity contracts | $ | 193 |
| | $ | 12 |
| | $ | — |
| | $ | (203 | ) | | $ | 2 |
| | $ | — |
|
Embedded derivatives in commodity contracts | — |
| | — |
| | 65 |
| | — |
| | 65 |
| | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 |
| Fair Value Hierarchy | | | | | | |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral(a) | | Net Carrying Value on Balance Sheet(b) | | Collateral Pledged Not Offset |
Commodity derivative instruments, assets | $ | 127 |
| | $ | — |
| | $ | — |
| | $ | (118 | ) | | $ | 9 |
| | $ | 8 |
|
Other assets | 3 |
| | — |
| | — |
| | N/A |
| | 3 |
| | — |
|
Total assets at fair value | $ | 130 |
| | $ | — |
| | $ | — |
| | $ | (118 | ) | | $ | 12 |
| | $ | 8 |
|
| | | | | | | | | | | |
Commodity derivative instruments, liabilities | $ | 126 |
| | $ | — |
| | $ | 2 |
| | $ | (126 | ) | | $ | 2 |
| | $ | — |
|
Embedded derivatives in commodity contracts(c) | — |
| | — |
| | 64 |
| | — |
| | 64 |
| | — |
|
Total liabilities at fair value | $ | 126 |
| | $ | — |
| | $ | 66 |
| | $ | (126 | ) | | $ | 66 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 |
| Fair Value Hierarchy | | | | | | |
(In millions) | Level 1 | | Level 2 | | Level 3 | | Netting and Collateral(a) | | Net Carrying Value on Balance Sheet(b) | | Collateral Pledged Not Offset |
Assets: | | | | | | | | | | | |
Commodity contracts | $ | 370 |
| | $ | 31 |
| | $ | — |
| | $ | (323 | ) | | $ | 78 |
| | $ | 2 |
|
Liabilities: | | | | | | | | | | | |
Commodity contracts | $ | 255 |
| | $ | 37 |
| | $ | — |
| | $ | (284 | ) | | $ | 8 |
| | $ | — |
|
Embedded derivatives in commodity contracts | — |
| | — |
| | 61 |
| | — |
| | 61 |
| | — |
|
| |
(a) | Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of June 30, 2018,2019, cash collateral of $37$3 million was netted with the mark-to-market derivative liabilities. As of December 31, 2017, $82018, cash collateral of $52 million was netted with mark-to-market derivative assets and $13 million was netted with mark-to-market derivative liabilities. |
| |
(b) | We have no derivative contracts that are subject to master netting arrangements reflected gross on the balance sheet. |
| |
(c)
| Level 3 includes $12 million classified as current at both June 30, 2018 and December 31, 2017. |
Commodity derivatives in Level 1 are exchange-traded contracts for crude oil and refined products measured at fair value with a market approach using the close-of-day settlement prices for the market. Commodity derivatives are covered under master netting agreements with an unconditional right to offset. Collateral deposits in futures commission merchant accounts covered by master netting agreements related to Level 1 commodity derivatives are classified as Level 1 in the fair value hierarchy.
Level 2 instruments are valued based on quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices, such as liquidity, that are observable for the asset or liability. Commodity derivatives in Level 2 are OTC contracts, which are valued using market quotations from independent price reporting agencies, third-party brokers and commodity exchange price curves that are corroborated with market data.
Level 3 instruments are OTC NGL contracts and embedded derivatives in commodity contracts. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep‑whole processing agreement. The fair value calculation for these Level 3 instruments at June 30, 2019 used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from $0.70$0.46 to $1.58$1.14 per gallon and (2) the probability of renewal of 6592 percent for the first five-year termfive-term and 8482 percent for the second five-year termfive-term of the natural gas purchase agreement and the related keep-whole processing agreement. For these contracts, increases in forward NGL prices result in a decrease in the fair value of the derivative assets and an increase in the fair value of the derivative liabilities. The forward prices for the individual NGL products generally increase or decrease in a positive correlation with one another. Increases or decreases in forward NGL pricesthe fractionation spread result in an increase or decrease in the fair value of the embedded derivative liability. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.
The following is a reconciliation of the beginning and ending balances recorded for net liabilities classified as Level 3 in the fair value hierarchy.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Beginning balance | $ | 65 |
| | $ | 60 |
| | $ | 61 |
| | $ | 66 |
|
Unrealized and realized losses included in net income | 1 |
| | 12 |
| | 7 |
| | 9 |
|
Settlements of derivative instruments | (1 | ) | | (4 | ) | | (3 | ) | | (7 | ) |
Ending balance | $ | 65 |
| | $ | 68 |
| | $ | 65 |
| | $ | 68 |
|
| | | | | | | |
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at the end of period: | $ | 2 |
| | $ | 11 |
| | $ | 5 |
| | $ | 5 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Beginning balance | $ | 60 |
| | $ | 175 |
| | $ | 66 |
| | $ | 190 |
|
Contingent consideration payment | — |
| | (131 | ) | | — |
| | (131 | ) |
Unrealized and realized (gains) losses included in net income | 12 |
| | (2 | ) | | 9 |
| | (14 | ) |
Settlements of derivative instruments | (4 | ) | | (1 | ) | | (7 | ) | | (4 | ) |
Ending balance | $ | 68 |
| | $ | 41 |
| | $ | 68 |
| | $ | 41 |
|
| | | | | | | |
The amount of total losses for the period included in earnings attributable to the change in unrealized losses relating to assets still held at the end of period: | | | | | | | |
Derivative instruments | $ | 11 |
| | $ | (1 | ) | | $ | 5 |
| | $ | (12 | ) |
Contingent consideration agreement | — |
| | — |
| | — |
| | 1 |
|
Total | $ | 11 |
| | $ | (1 | ) | | $ | 5 |
| | $ | (11 | ) |
Fair Values – Reported
The following table summarizesWe believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities, approximate fair value. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and the expected insignificance of bad debt expense, which includes an evaluation of counterparty credit risk. The borrowings under our revolving credit facilities, which include variable interest rates, approximate fair value. The fair value of our fixed rate long-term debt is based on prices from recent trade activity and is categorized in level 3 of the basisfair value hierarchy. The carrying and fair values of their nature, characteristicsour debt were approximately $27.9 billion and risk$29.4 billion at June 30, 20182019, respectively, and approximately $27.0 billion and $26.5 billion at
December 31, 2017, excluding the derivative financial instruments2018, respectively. These carrying and contingent consideration reported above.
|
| | | | | | | | | | | | | | | |
| June 30, 2018 | | December 31, 2017 |
(In millions) | Fair Value | | Carrying Value | | Fair Value | | Carrying Value |
Financial assets: | | | | | | | |
Environmental receivables and misc. deposits | 30 |
| | 30 |
| | 17 |
| | 17 |
|
Total financial assets | $ | 30 |
| | $ | 30 |
| | $ | 17 |
| | $ | 17 |
|
Financial liabilities: | | | | | | | |
Long-term debt(a) | $ | 17,321 |
| | $ | 17,023 |
| | $ | 13,893 |
| | $ | 12,642 |
|
Deferred credits and other liabilities | 116 |
| | 107 |
| | 122 |
| | 109 |
|
Total financial liabilities | $ | 17,437 |
| | $ | 17,130 |
| | $ | 14,015 |
| | $ | 12,751 |
|
| |
(a)
| Excludes capital leases and debt issuance costs; includes amount classified as debt due within one year. |
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivable and payables.
Fairfair values of our financial assets and ofdebt exclude the unamortized issuance costs which are netted against our financial liabilities included in deferred credits and other liabilities are measured primarily using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain the fair value. Deferred credits and other liabilities primarily consist of a liability resulting from a financing arrangement for the construction of MPLX’s steam methane reformer at the Javelina gas processing and fractionation complex in Corpus Christi, Texas, insurance liabilities and environmental remediation liabilities.
Fair value of fixed-rate long-term debt is measured using Level 3 inputs. Fair value of variable-rate long-term debt approximates the carrying value.total debt.
16. DERIVATIVES
For further information regarding the fair value measurement of derivative instruments, including any effect of master netting agreements or collateral, see Note 15. We do not designate any of our commodity derivative instruments as hedges for accounting purposes.
Derivatives that are not designated as accounting hedges may include commodity derivatives used to hedge price risk on (1) inventories, (2) fixed price sales of refined products, (3) the acquisition of foreign-sourced crude oil, (4) the acquisition of ethanol for blending with refined products, (5) the sale of NGLs and (6) the purchase of natural gas.
The following table presents the gross fair valuesvalue of derivative instruments excluding cash collateral, and where they appear on the consolidated balance sheets as of June 30, 20182019 and December 31, 2017:2018 and the line items in the balance sheets in which the fair values are reflected. The fair value amounts below are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements including cash collateral on deposit with, or received from, brokers. We offset the recognized fair value amounts for multiple derivative instruments executed with the same counterparty in our financial statements when a legal right of offset exists. As a result, the asset and liability amounts below will not agree with the amounts presented in our consolidated balance sheets.
| | (In millions) | June 30, 2018 | June 30, 2019 |
Balance Sheet Location | Asset | | Liability | Asset | | Liability |
Commodity derivatives | | | | | | |
Other current assets | $ | 134 |
| | $ | 171 |
| $ | 237 |
| | $ | 201 |
|
Other current liabilities(a) | — |
| | 14 |
| 2 |
| | 11 |
|
Deferred credits and other liabilities(a) | — |
| | 54 |
| — |
| | 58 |
|
| | (In millions) | December 31, 2017 | December 31, 2018 |
Balance Sheet Location | Asset | | Liability | Asset | | Liability |
Commodity derivatives | | | | | | |
Other current assets | $ | 127 |
| | $ | 126 |
| $ | 400 |
| | $ | 283 |
|
Other current liabilities(a) | — |
| | 14 |
| 1 |
| | 16 |
|
Deferred credits and other liabilities(a) | — |
| | 52 |
| — |
| | 54 |
|
| |
(a) | Includes embedded derivatives. |
The tablestable below summarizesummarizes open commodity derivative contracts for crude oil, refined products and refinedblending products as of June 30, 2018.2019.
|
| | | | |
| Position | | Total Barrels (In thousands)
|
Crude Oil(a)
| | | |
Exchange-traded | Long | | 31,732 |
|
Exchange-traded | Short | | (33,530 | ) |
|
| | | | | | | |
| Percentage of contracts that expire next quarter | | Position |
(Units in thousands of barrels) | | Long | | Short |
Exchange-traded(a) | | | | | |
Crude oil | 77.3% | | 44,617 |
| | 54,420 |
|
Refined products | 91.4% | | 20,300 |
| | 8,703 |
|
Blending products | 74.1% | | 1,521 |
| | 4,416 |
|
OTC | | | | | |
Crude oil | —% | | 400 |
| | — |
|
Blending products | 4.5% | | 1,156 |
| | 1,156 |
|
| |
(a )(a)
| 98.6 percentIncluded in exchange-traded are spread contracts in thousands of the exchange-traded contracts expire in the third quarter of 2018.barrels: Crude oil - 2,910 long and 2,310 short; Refined products - 1,450 long and 275 short; Blending products - 961 long and 831 short |
|
| | | | |
| Position | | Total Gallons
(In thousands)
|
Refined Products(a)
| | | |
Exchange-traded | Long | | 111,762 |
|
Exchange-traded | Short | | (228,396 | ) |
| |
(a )
| 92.5 percent of the exchange-traded contracts expire in the third quarter of 2018. |
The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income:
|
| | | | | | | | | | | | | | | |
(In millions) | Three Months Ended June 30, | | Six Months Ended June 30, |
Income Statement Location | 2019 | | 2018 | | 2019 | | 2018 |
Sales and other operating revenues | $ | 3 |
| | $ | (1 | ) | | $ | (17 | ) | | $ | (2 | ) |
Cost of revenues | 15 |
| | (56 | ) | | (65 | ) | | (83 | ) |
Total | $ | 18 |
| | $ | (57 | ) | | $ | (82 | ) | | $ | (85 | ) |
|
| | | | | | | | | | | | | | | |
| Gain (Loss) | | Gain (Loss) |
(In millions) | Three Months Ended June 30, | | Six Months Ended June 30, |
Income Statement Location | 2018 | | 2017 | | 2018 | | 2017 |
Sales and other operating revenues | $ | (1 | ) | | $ | 2 |
| | $ | (2 | ) | | $ | 18 |
|
Cost of revenues | (56 | ) | | (7 | ) | | (83 | ) | | (31 | ) |
Total | $ | (57 | ) | | $ | (5 | ) | | $ | (85 | ) | | $ | (13 | ) |
17. DEBT
Our outstanding borrowings at June 30, 20182019 and December 31, 20172018 consisted of the following:
|
| | | | | | | |
(In millions) | June 30, 2019 | | December 31, 2018 |
Marathon Petroleum Corporation | $ | 9,119 |
| | $ | 9,114 |
|
MPLX LP | 14,473 |
| | 13,856 |
|
ANDX LP | 5,263 |
| | 5,010 |
|
Total debt | $ | 28,855 |
| | $ | 27,980 |
|
Unamortized debt issuance costs | (124 | ) | | (128 | ) |
Unamortized discount | (324 | ) | | (328 | ) |
Amounts due within one year | (554 | ) | | (544 | ) |
Total long-term debt due after one year | $ | 27,853 |
| | $ | 26,980 |
|
Available Capacity under our Facilities
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
Marathon Petroleum Corporation: | | | |
Commercial paper | $ | — |
| | $ | — |
|
364-day bank revolving credit facility due July 2018(a) | — |
| | — |
|
Trade receivables securitization facility due July 2019 | — |
| | — |
|
Bank revolving credit facility due 2022 | — |
| | — |
|
Senior notes, 2.700% due December 2018 | — |
| | 600 |
|
Senior notes, 3.400% due December 2020 | 650 |
| | 650 |
|
Senior notes, 5.125% due March 2021 | 1,000 |
| | 1,000 |
|
Senior notes, 3.625%, due September 2024 | 750 |
| | 750 |
|
Senior notes, 6.500%, due March 2041 | 1,250 |
| | 1,250 |
|
Senior notes, 4.750%, due September 2044 | 800 |
| | 800 |
|
Senior notes, 5.850% due December 2045 | 250 |
| | 250 |
|
Senior notes, 5.000%, due September 2054 | 400 |
| | 400 |
|
Capital lease obligations due 2018-2033 | 344 |
| | 356 |
|
MPLX LP: | | | |
MPLX bank revolving credit facility due 2022 | — |
| | 505 |
|
MPLX senior notes, 5.500%, due February 2023 | 710 |
| | 710 |
|
MPLX senior notes, 3.375%, due March 2023 | 500 |
| | — |
|
MPLX senior notes, 4.500%, due July 2023 | 989 |
| | 989 |
|
MPLX senior notes, 4.875%, due December 2024 | 1,149 |
| | 1,149 |
|
MPLX senior notes, 4.000%, due February 2025 | 500 |
| | 500 |
|
MPLX senior notes, 4.875%, due June 2025 | 1,189 |
| | 1,189 |
|
MarkWest senior notes, 4.500% - 5.500%, due 2023 - 2025 | 63 |
| | 63 |
|
MPLX senior notes, 4.125%, due March 2027 | 1,250 |
| | 1,250 |
|
MPLX senior notes, 4.000%, due March 2028 | 1,250 |
| | — |
|
MPLX senior notes, 4.500%, due April 2038 | 1,750 |
| | — |
|
MPLX senior notes, 5.200%, due March 2047 | 1,000 |
| | 1,000 |
|
MPLX senior notes, 4.700%, due April 2048 | 1,500 |
| | — |
|
MPLX senior notes, 4.900%, due April 2058 | 500 |
| | — |
|
MPLX capital lease obligations due 2020 | 7 |
| | 7 |
|
Total | 17,801 |
| | 13,418 |
|
Unamortized debt issuance costs | (107 | ) | | (59 | ) |
Unamortized discount(b) | (427 | ) | | (413 | ) |
Amounts due within one year | (26 | ) | | (624 | ) |
Total long-term debt due after one year | $ | 17,241 |
| | $ | 12,322 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in millions) | | Total Capacity | | Outstanding Borrowings | | Outstanding Letters of Credit | | Available Capacity | | Weighted Average Interest Rate | | Expiration |
MPC 364-day bank revolving credit facility | | $ | 1,000 |
| | $ | — |
| | $ | — |
| | $ | 1,000 |
| | — |
| | September 2019 |
MPC bank revolving credit facility | | 5,000 |
| | — |
| | 32 |
| | 4,968 |
| | — |
| | October 2023 |
MPC trade receivables securitization facility | | 750 |
| | — |
| | — |
| | 750 |
| | — |
| | July 2019 |
MPLX bank revolving credit facility | | 2,250 |
| | 615 |
| | 3 |
| | 1,632 |
| | 3.80 | % | | July 2022 |
ANDX revolving & dropdown credit facilities(a) | | 2,100 |
| | 1,500 |
| | — |
| | 600 |
| | 3.90 | % | | January 2021 |
| | $ | 11,100 |
| | $ | 2,115 |
| | $ | 35 |
| | $ | 8,950 |
| | | | |
| |
(a) | The 364-dayWestern Refining Southwest, Inc., a wholly-owned subsidiary of MPC and unitholder of ANDX, has guaranteed certain outstanding borrowings under the ANDX dropdown credit facility expired on July 20, 2018. that were made in connection with the August 2018 dropdown transaction. |
MPC 364-Day Bank Revolving Credit Facility
On July 26, 2019, we entered into a new $1 billion 364-day revolving credit facility with a syndicate of banks that will, subject to the satisfaction of customary conditions, become effective upon the expiration of our existing $1 billion 364-day revolving credit facility in September 2019. The new 364-day revolving credit facility contains substantially the same terms and conditions as our existing 364-day revolving credit facility and will expire in September 2020.
MPC Trade Receivables Securitization Facility
On July 19, 2019, we amended our $750 million trade receivables securitization facility to extend the maturity date to July 16, 2021.
MPLX Credit Agreement
Upon the completion of the merger of MPLX and ANDX on July 30, 2019, the MPLX bank revolving credit facility was amended and restated to increase the borrowing capacity to $3.5 billion and to extend the maturity date to July 30, 2024. The ANDX revolving and dropdown credit facilities were terminated and all outstanding balances were repaid and funded with the new $3.5 billion bank revolving credit facility.
18. REVENUE
The following table presents our revenues disaggregated by product line. |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Refined products | $ | 29,668 |
| | $ | 19,489 |
| | $ | 54,504 |
| | $ | 35,816 |
|
Merchandise | 1,601 |
| | 1,286 |
| | 3,065 |
| | 2,416 |
|
Crude oil and refinery feedstocks | 1,669 |
| | 978 |
| | 3,036 |
| | 1,861 |
|
Midstream services, transportation and other | 609 |
| | 564 |
| | 1,209 |
| | 1,090 |
|
Sales and other operating revenues | $ | 33,547 |
| | $ | 22,317 |
| | $ | 61,814 |
| | $ | 41,183 |
|
We do not disclose information on the future performance obligations for any contract with expected duration of one year or less at inception. As of June 30, 2019, we do not have future performance obligations that are material to future periods.
Receivables
On the accompanying consolidated balance sheets, receivables, less allowance for doubtful accounts primarily consists of customer receivables. Significant, non-customer balances included in our receivables at June 30, 2019 include matching buy/sell receivables of $2.21 billion.
19. SUPPLEMENTAL CASH FLOW INFORMATION |
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2019 | | 2018 |
Net cash provided by operating activities included: | | | |
Interest paid (net of amounts capitalized) | $ | 579 |
| | $ | 279 |
|
Net income taxes paid to taxing authorities | 362 |
| | 40 |
|
Cash paid for amounts included in the measurement of lease liabilities | | | |
Payments on operating leases(a) | 380 |
| | — |
|
Interest payments under finance lease obligations(a) | 15 |
| | — |
|
Net cash provided by financing activities included: | | | |
Principal payments under finance lease obligations(a) | 21 |
| | — |
|
Non-cash investing and financing activities: | | | |
Right of use assets obtained in exchange for new operating lease obligations(a) | 114 |
| | — |
|
Right of use assets obtained in exchange for new finance lease obligations(a) | 22 |
| | — |
|
Contribution of net assets to Capline LLC(b) | 143 |
| | — |
|
Recognition of Capline LLC equity method investment(b) | 350 |
| | — |
|
| |
(a) | Disclosure added in 2019 following the adoption of ASC 842. |
| |
(b) | Includes $349 million and $374 million of unamortized discount as of June 30, 2018 and December 31, 2017, respectively, related to the difference between the fair value and the principal amount of assumed MarkWest debt.See Note 13. |
Commercial Paper
During the six months ended June 30, 2018, we had no borrowings or repayments under the commercial paper program. At June 30, 2018, we had no amounts outstanding under the commercial paper program.
Trade Receivables Securitization Facility
At June 30, 2018, we had no amounts outstanding under our trade receivables securitization facility.
MPC Bank Revolving Credit Facilities
There were no borrowings or letters of credit outstanding under the MPC bank revolving credit facility at June 30, 2018.
MPC Senior Notes
On March 15, 2018, we redeemed all of the $600 million outstanding aggregate principal amount of our 2.700 percent senior notes due December 2018. The 2018 senior notes were redeemed at a price equal to par plus a make whole premium, plus accrued and unpaid interest. The make whole premium of $2.5 million was calculated based on the market yield of the applicable treasury issue as of the redemption date as determined in accordance with the indenture governing the 2018 senior notes.
MPLX Credit Agreement
During the six months ended June 30, 2018, MPLX borrowed $50 million under the MPLX bank revolving credit facility, at an average interest rate of 3.0 percent, and repaid $555 million. At June 30, 2018, MPLX had no outstanding borrowings and $3 million letters of credit outstanding under the MPLX bank revolving credit facility, resulting in total availability of approximately $2.25 billion.
MPLX 364-Day Term Loan
On January 2, 2018, MPLX entered into a term loan agreement with a syndicate of lenders providing for a $4.1 billion, 364-day term loan facility. MPLX drew the entire amount of the term loan facility in a single borrowing to fund the cash portion of the consideration for the February 1, 2018 dropdown. On February 8, 2018, MPLX used $4.1 billion of the net proceeds from the issuance of MPLX senior notes to repay the 364-day term-loan facility.
MPLX Senior Notes
On February 8, 2018, MPLX issued $5.5 billion in aggregate principal amount of senior notes in a public offering, consisting of $500 million aggregate principal amount of 3.375 percent unsecured senior notes due March 2023, $1.25 billion aggregate principal amount of 4.000 percent unsecured senior notes due March 2028, $1.75 billion aggregate principal amount of 4.500 percent unsecured senior notes due April 2038, $1.5 billion aggregate principal amount of 4.700 percent unsecured senior notes due April 2048, and $500 million aggregate principal amount of 4.900 percent unsecured senior notes due April 2058. MPLX used $4.1 billion of the net proceeds of the offering to repay the 364-day term-loan facility. The remaining proceeds were used to repay outstanding borrowings under MPLX’s revolving credit facility and intercompany loan agreement with us and for general partnership purposes.
18. SUPPLEMENTAL CASH FLOW INFORMATION |
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2018 | | 2017 |
Net cash provided by operating activities included: | | | |
Interest paid (net of amounts capitalized) | $ | 279 |
| | $ | 231 |
|
Income taxes paid to taxing authorities | 40 |
| | 198 |
|
Non-cash investing and financing activities: | | | |
Contribution of assets to joint venture(a) | — |
| | 337 |
|
|
| | | | | | | |
(In millions) | June 30, 2019 | | December 31, 2018 |
Cash and cash equivalents | $ | 1,247 |
| | $ | 1,687 |
|
Restricted cash(a) | 2 |
| | 38 |
|
Cash, cash equivalents and restricted cash | $ | 1,249 |
| | $ | 1,725 |
|
| |
(a) | MarkWest’s contribution of assets to Sherwood Midstream and Sherwood Midstream Holdings. See Note 5. |
|
| | | | | | | |
(In millions) | June 30, 2018 | | December 31, 2017 |
Cash and cash equivalents | $ | 4,999 |
| | $ | 3,011 |
|
Restricted cash(a) | 5 |
| | 4 |
|
Cash, cash equivalents and restricted cash(b) | $ | 5,004 |
| | $ | 3,015 |
|
| |
(a)
| The restricted cash balance is included within “Otherother current assets”assets on the consolidated balance sheets. |
| |
(b)
| As a result of the adoption of ASU 2016-18, the consolidated statements of cash flows now explain the change during the period of both “Cash and cash equivalents” and “Restricted cash.” |
The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. The following is a reconciliation of additions to property, plant and equipment per the consolidated statements of cash flows to total capital expenditures:
|
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2019 | | 2018 |
Additions to property, plant and equipment per the consolidated statements of cash flows | $ | 2,419 |
| | $ | 1,466 |
|
Asset retirement expenditures | — |
| | 5 |
|
Increase (decrease) in capital accruals | (281 | ) | | 77 |
|
Total capital expenditures | $ | 2,138 |
| | $ | 1,548 |
|
|
| | | | | | | |
| Six Months Ended June 30, |
(In millions) | 2018 | | 2017 |
Additions to property, plant and equipment per the consolidated statements of cash flows | $ | 1,466 |
| | $ | 1,265 |
|
Asset retirement expenditures | 5 |
| | 1 |
|
Increase (decrease) in capital accruals | 77 |
| | (54 | ) |
Total capital expenditures before acquisitions | 1,548 |
| | 1,212 |
|
Acquisitions(a) | — |
| | 220 |
|
Total capital expenditures | $ | 1,548 |
| | $ | 1,432 |
|
| |
(a)
| The six months ended June 30, 2017 reflects the acquisition of the Ozark pipeline. |
19.20. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table shows the changes in accumulated other comprehensive loss by component. Amounts in parentheses indicate debits.
| | (In millions) | Pension Benefits | | Other Benefits | | Gain on Cash Flow Hedge | | Workers Compensation | | Total | Pension Benefits | | Other Benefits | | Gain on Cash Flow Hedge | | Workers Compensation | | Total |
Balance as of December 31, 2016 | $ | (233 | ) | | $ | (7 | ) | | $ | 4 |
| | $ | 2 |
| | $ | (234 | ) | |
Other comprehensive income before reclassifications | 1 |
| | — |
| | — |
| | — |
| | 1 |
| |
Balance as of December 31, 2017 | | $ | (190 | ) | | $ | (48 | ) | | $ | 4 |
| | $ | 3 |
| | $ | (231 | ) |
Other comprehensive income (loss) before reclassifications | | 2 |
| | (1 | ) | | (2 | ) | | — |
| | (1 | ) |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | | | | | | | | |
Amortization – prior service credit(a) | (19 | ) | | (2 | ) | | — |
| | — |
| | (21 | ) | (16 | ) | | (2 | ) | | — |
| | — |
| | (18 | ) |
– actuarial loss/(gain)(a) | 18 |
| | (1 | ) | | — |
| | — |
| | 17 |
| |
– actuarial loss(a) | | 17 |
| | — |
| | — |
| | — |
| | 17 |
|
– settlement loss(a) | 1 |
| | — |
| | — |
| | — |
| | 1 |
| 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Other(b) | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Tax effect | (1 | ) | | 2 |
| | — |
| | — |
| | 1 |
| (1 | ) | | 1 |
| | — |
| | — |
| | — |
|
Other comprehensive loss | — |
| | (1 | ) | | — |
| | (1 | ) | | (2 | ) | |
Balance as of June 30, 2017 | $ | (233 | ) | | $ | (8 | ) | | $ | 4 |
| | $ | 1 |
| | $ | (236 | ) | |
Other comprehensive income (loss) | | 4 |
| | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) |
Balance as of June 30, 2018 | | $ | (186 | ) | | $ | (50 | ) | | $ | 2 |
| | $ | 1 |
| | $ | (233 | ) |
| | (In millions) | Pension Benefits | | Other Benefits | | Gain on Cash Flow Hedge | | Workers Compensation | | Total | Pension Benefits | | Other Benefits | | Gain on Cash Flow Hedge | | Workers Compensation | | Total |
Balance as of December 31, 2017 | $ | (190 | ) | | $ | (48 | ) | | $ | 4 |
| | $ | 3 |
| | $ | (231 | ) | |
Balance as of December 31, 2018 | | $ | (132 | ) | | $ | (23 | ) | | $ | 2 |
| | $ | 9 |
| | $ | (144 | ) |
Other comprehensive income (loss) before reclassifications | 2 |
| | (1 | ) | | (2 | ) | | — |
| | (1 | ) | (7 | ) | | 1 |
| | — |
| | — |
| | (6 | ) |
Amounts reclassified from accumulated other comprehensive loss: | | | | | | | | | | | | | | | | | | |
Amortization – prior service credit(a) | (16 | ) | | (2 | ) | | — |
| | — |
| | (18 | ) | (23 | ) | | — |
| | — |
| | — |
| | (23 | ) |
– actuarial loss(a) | 17 |
| | — |
| | — |
| | — |
| | 17 |
| 11 |
| | (1 | ) | | — |
| | — |
| | 10 |
|
– settlement loss(a) | 2 |
| | — |
| | — |
| | — |
| | 2 |
| 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Other(b) | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) | — |
| | — |
| | — |
| | (2 | ) | | (2 | ) |
Tax effect | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| 2 |
| | — |
| | — |
| | — |
| | 2 |
|
Other comprehensive income (loss) | 4 |
| | (2 | ) | | (2 | ) | | (2 | ) | | (2 | ) | |
Balance as of June 30, 2018 | $ | (186 | ) | | $ | (50 | ) | | $ | 2 |
| | $ | 1 |
| | $ | (233 | ) | |
Other comprehensive loss | | (15 | ) | | — |
| | — |
| | (2 | ) | | (17 | ) |
Balance as of June 30, 2019 | | $ | (147 | ) | | $ | (23 | ) | | $ | 2 |
| | $ | 7 |
| | $ | (161 | ) |
| |
(a) | These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 20. |
| |
(b)
| This amount was reclassified out of accumulated other comprehensive loss and is included in selling, general and administrative on the consolidated statements of income.21. |
20. DEFINED BENEFIT21. PENSION AND OTHER POSTRETIREMENT PLANSBENEFITS
The following summarizes the components of net periodic benefit costs:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| Pension Benefits | | Other Benefits |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Components of net periodic benefit cost: | | | | | | | |
Service cost | $ | 60 |
| | $ | 35 |
| | $ | 8 |
| | $ | 8 |
|
Interest cost | 27 |
| | 18 |
| | 10 |
| | 8 |
|
Expected return on plan assets | (31 | ) | | (24 | ) | | — |
| | — |
|
Amortization – prior service credit | (12 | ) | | (8 | ) | | — |
| | (1 | ) |
– actuarial loss | 7 |
| | 8 |
| | (1 | ) | | — |
|
– settlement loss | 2 |
| | 1 |
| | — |
| | — |
|
Net periodic benefit cost | $ | 53 |
| | $ | 30 |
| | $ | 17 |
| | $ | 15 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| Pension Benefits | | Other Benefits |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Components of net periodic benefit cost: | | | | | | | |
Service cost | $ | 35 |
| | $ | 35 |
| | $ | 8 |
| | $ | 6 |
|
Interest cost | 18 |
| | 18 |
| | 8 |
| | 7 |
|
Expected return on plan assets | (24 | ) | | (24 | ) | | — |
| | — |
|
Amortization – prior service credit | (8 | ) | | (9 | ) | | (1 | ) | | (1 | ) |
– actuarial loss (gain) | 8 |
| | 9 |
| | — |
| | (1 | ) |
– settlement loss | 1 |
| | 1 |
| | — |
| | — |
|
Net periodic benefit cost | $ | 30 |
| | $ | 30 |
| | $ | 15 |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| Pension Benefits | | Other Benefits |
(In millions) | 2019 | | 2018 | | 2019 | | 2018 |
Components of net periodic benefit cost: | | | | | | | |
Service cost | $ | 118 |
| | $ | 71 |
| | $ | 16 |
| | $ | 15 |
|
Interest cost | 55 |
| | 36 |
| | 19 |
| | 15 |
|
Expected return on plan assets | (63 | ) | | (50 | ) | | — |
| | — |
|
Amortization – prior service credit | (23 | ) | | (16 | ) | | — |
| | (2 | ) |
– actuarial loss | 11 |
| | 17 |
| | (1 | ) | | — |
|
– settlement loss | 2 |
| | 2 |
| | — |
| | — |
|
Net periodic benefit cost | $ | 100 |
| | $ | 60 |
| | $ | 34 |
| | $ | 28 |
|
|
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| Pension Benefits | | Other Benefits |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Components of net periodic benefit cost: | | | | | | | |
Service cost | $ | 71 |
| | $ | 66 |
| | $ | 15 |
| | $ | 13 |
|
Interest cost | 36 |
| | 37 |
| | 15 |
| | 15 |
|
Expected return on plan assets | (50 | ) | | (50 | ) | | — |
| | — |
|
Amortization – prior service credit | (16 | ) | | (19 | ) | | (2 | ) | | (2 | ) |
– actuarial loss (gain) | 17 |
| | 18 |
| | — |
| | (1 | ) |
– settlement loss | 2 |
| | 1 |
| | — |
| | — |
|
Net periodic benefit cost | $ | 60 |
| | $ | 53 |
| | $ | 28 |
| | $ | 25 |
|
The components of net periodic benefit cost other than the service cost component are included in the line item “Netnet interest and other financial costs” incosts on the income statement.consolidated statements of income.
During the six months ended June 30, 2018,2019, we made no contributionsa $16 million contribution to our funded pension plans. Benefit payments related to unfunded pension and other postretirement benefit plans were $7$9 million and $16$23 million, respectively, during the six months ended June 30, 2018.2019.
21. STOCK-BASED COMPENSATION PLANS22. LEASES
Stock Option AwardsFor further information regarding the adoption of ASC 842, including the method of adoption and practical expedients elected, see Note 2.
Lessee
We lease a wide variety of facilities and equipment including land and building space, office and field equipment, storage facilities and transportation equipment. Our remaining lease terms range from less than one year to 60 years. Most long-term leases include renewal options ranging from less than one year to 49 years and, in certain leases, also include purchase options. The following table presentslease term included in the measurement of right of use assets and lease liabilities includes options to extend or terminate our leases that we are reasonably certain to exercise. Options were included in the lease term primarily for retail store sites where we constructed property, plant and equipment on leased land that is expected to exist beyond the initial lease term.
Under ASC 842, the components of lease cost were as follows:
|
| | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2019 | | 2019 |
Finance lease cost: | | | |
Amortization of right of use assets | $ | 15 |
| | $ | 29 |
|
Interest on lease liabilities | 9 |
| | 20 |
|
Operating lease cost | 198 |
| | 388 |
|
Variable lease cost | 29 |
| | 43 |
|
Short-term lease cost | 162 |
| | 314 |
|
Total lease cost | $ | 413 |
| | $ | 794 |
|
Supplemental balance sheet data related to leases were as follows:
|
| | | |
(In millions) | June 30, 2019 |
Operating leases | |
Assets | |
Right of use assets | $ | 2,588 |
|
Liabilities | |
Operating lease liabilities | $ | 615 |
|
Long-term operating lease liabilities | 2,068 |
|
Total operating lease liabilities | $ | 2,683 |
|
Weighted average remaining lease term (in years) | 6.4 |
|
Weighted average discount rate | 4.12 | % |
| |
Finance leases | |
Assets | |
Property, plant and equipment, gross | $ | 786 |
|
Accumulated depreciation | 243 |
|
Property, plant and equipment, net | $ | 543 |
|
Liabilities | |
Debt due within one year | $ | 51 |
|
Long-term debt | 604 |
|
Total finance lease liabilities | $ | 655 |
|
Weighted average remaining lease term (in years) | 12.8 |
|
Weighted average discount rate | 6.04 | % |
As of June 30, 2019, maturities of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining non-cancellable lease terms in excess of one year are as follows:
|
| | | | | | | |
(In millions) | Operating | | Finance |
2019 | $ | 381 |
| | $ | 39 |
|
2020 | 650 |
| | 78 |
|
2021 | 562 |
| | 70 |
|
2022 | 383 |
| | 77 |
|
2023 | 273 |
| | 83 |
|
2024 and thereafter | 837 |
| | 600 |
|
Gross lease payments | 3,086 |
| | 947 |
|
Less: imputed interest | 403 |
| | 292 |
|
Total lease liabilities | $ | 2,683 |
| | $ | 655 |
|
Presented in accordance with ASC 840, future minimum commitments as of December 31, 2018 for operating lease obligations and capital lease obligations having initial or remaining non-cancellable lease terms in excess of one year were as follows:
|
| | | | | | | |
(In millions) | Operating | | Capital |
2019 | $ | 709 |
| | $ | 70 |
|
2020 | 619 |
| | 71 |
|
2021 | 553 |
| | 66 |
|
2022 | 389 |
| | 75 |
|
2023 | 295 |
| | 82 |
|
2024 and thereafter | 858 |
| | 586 |
|
Total minimum lease payments | $ | 3,423 |
| | 950 |
|
Less: imputed interest costs | | | 301 |
|
Present value of net minimum lease payments | | | $ | 649 |
|
Lessor
MPLX has certain natural gas gathering, transportation and processing agreements in which it is considered to be the lessor under several implicit operating lease arrangements in accordance with GAAP. MPLX’s primary implicit lease operations relate to a summarynatural gas gathering agreement in the Marcellus region for which it earns a fixed-fee for providing gathering services to a single producer using a dedicated gathering system. As the gathering system is expanded, the fixed-fee charged to the producer is adjusted to include the additional gathering assets in the lease. The primary term of our stock option award activitythe natural gas gathering arrangement expires in 2038 and will continue thereafter on a year-to-year basis until terminated by either party. Other implicit leases relate to a natural gas processing agreement in the Marcellus region and a natural gas processing agreement in the Southern Appalachia region for which MPLX earns minimum monthly fees for providing processing services to a single producer using a dedicated processing plant. The primary term of these natural gas processing agreements expire during 2023 and 2033.
MPLX did not elect to use the practical expedient to combine lease and non-lease components for lessor arrangements. The tables below represent the portion of the contract allocated to the lease component based on relative standalone selling price. Lessor agreements are currently deemed operating, as we elected the practical expedient to grandfather in historical ASC 840 lease classifications. MPLX may be required to re-classify existing operating leases to sales-type leases upon modification and related reassessment of the leases.
Our revenue from implicit lease arrangements, excluding executory costs, totaled approximately $63 million and $123 million for the three and six months ended June 30, 2018:
|
| | | | | | |
| Number of Shares | | Weighted Average Exercise Price |
Outstanding at December 31, 2017 | 8,465,398 |
| | $ | 33.74 |
|
Granted | 903,797 |
| | 67.71 |
|
Exercised | (796,571 | ) | | 25.89 |
|
Forfeited or expired | (11,219 | ) | | 51.67 |
|
Outstanding at June 30, 2018 | 8,561,405 |
| | 38.03 |
|
2019, respectively. The grant date fair value of stock option awards granted duringimplicit lease arrangements related to the processing facilities contain contingent rental provisions whereby we receive additional fees if the producer customer exceeds the monthly minimum processed volumes. During the three and six months ended June 30, 2018 was $17.21 per share.2019, MPLX did not receive any material contingent lease payments. The fair valuefollowing is a schedule of stock options granted to our employees is estimatedminimum future rentals on the datenon‑cancellable operating leases as of the grant using the Black Scholes option-pricing model, which employs various assumptions.June 30, 2019:
Restricted Stock Awards |
| | | |
(In millions) | |
2019 | $ | 90 |
|
2020 | 178 |
|
2021 | 169 |
|
2022 | 166 |
|
2023 | 161 |
|
2024 and thereafter | 1,264 |
|
Total minimum future rentals | $ | 2,028 |
|
The following table presents a summaryschedule summarizes our investment in assets held for operating lease by major classes as of restricted stock award activity for the six months ended June 30, 2018:2019:
|
| | | |
(In millions) | June 30, 2019 |
Natural gas gathering and NGL transportation pipelines and facilities | $ | 1,039 |
|
Natural gas processing facilities | 633 |
|
Terminal and related assets | 111 |
|
Land, building, office equipment and other | 44 |
|
Property, plant and equipment | 1,827 |
|
Less accumulated depreciation | 284 |
|
Property, plant and equipment, net | $ | 1,543 |
|
|
| | | | | | | | | | | | | |
| Shares of Restricted Stock (“RS”) | | Restricted Stock Units (“RSU”) |
| Number of Shares | | Weighted Average Grant Date Fair Value | | Number of Units | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2017 | 1,188,662 |
| | $ | 45.07 |
| | 285,164 |
| | $ | 29.95 |
|
Granted | 432,792 |
| | 70.31 |
| | 14,019 |
| | 70.54 |
|
RS Vested/RSUs Issued | (544,900 | ) | | 44.83 |
| | (1,829 | ) | | 43.28 |
|
Forfeited | (31,280 | ) | | 47.13 |
| | — |
| | — |
|
Outstanding at June 30, 2018 | 1,045,274 |
| | 55.58 |
| | 297,354 |
| | 31.78 |
|
Performance Unit Awards
The following table presents a summary of the activity for performance unit awards to be settled in shares for the six months ended June 30, 2018:
|
| | | | | | |
| Number of Units | | Weighted Average Grant Date Fair Value |
Outstanding at December 31, 2017 | 6,851,542 |
| | $ | 0.81 |
|
Granted | 3,830,000 |
| | 0.83 |
|
Vested | (2,052,959 | ) | | 0.95 |
|
Forfeited | (10,000 | ) | | 0.92 |
|
Outstanding at June 30, 2018 | 8,618,583 |
| | 0.79 |
|
The performance unit awards granted during the six months ended June 30, 2018 have a grant date fair value of $0.83 per unit, as calculated using a Monte Carlo valuation model.
MPLX Awards
During the six months ended June 30, 2018, MPLX granted equity-based compensation awards under the MPLX LP 2018 and MPLX LP 2012 Incentive Compensation Plans. The compensation expense for these awards is not material to our consolidated financial statements.
22.23. COMMITMENTS AND CONTINGENCIES
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Some of these matters are discussed below. For matters for which we have not recorded a liability, we are unable to estimate a range of possible loss because the issues involved have not been fully developed through pleadings, discovery or court proceedings. However, the ultimate resolution of some of these contingencies could, individually or in the aggregate, be material.
Environmental Matters
We are subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites and certain other locations including presently or formerly owned or operated retail marketing sites. Penalties may be imposed for noncompliance.
At June 30, 20182019 and December 31, 2017,2018, accrued liabilities for remediation totaled $108$449 million and $114$455 million, respectively. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties, if any, that may be imposed. Receivables for recoverable costs from certain states, under programs to assist companies in clean-up efforts related to underground storage tanks at presently or formerly owned or operated retail marketing sites, were $48$35 million and $45$35 million at June 30, 20182019 and December 31, 2017,2018, respectively.
climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions. At this early stage, the ultimate outcome of these matters remains uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined.
We are involved in a number of environmental enforcement matters arising in the ordinary course of business. While the outcome and impact on us cannot be predicted with certainty, management believes the resolution of these environmental matters will not, individually or collectively, have a material adverse effect on our consolidated results of operations, financial position or cash flows.
MarkWest Environmental Proceeding
MarkWest Liberty Midstream & Resources, L.L.C., a wholly owned subsidiary of MPLX (“MarkWest Liberty Midstream”), and its affiliates agreed in principle to pay a cash penalty of approximately $0.6 million and to undertake certain supplemental environmental projects with an estimated cost of approximately $2.4 million, related to civil enforcement allegations associated with permitting and other regulatory obligations for launcher/receiver and compressor station facilities in southeastern Ohio and western Pennsylvania. On April 24, 2018, MarkWest Liberty Midstream and its affiliates entered into a Consent Decree with the EPA and the Pennsylvania Department of Environmental Protection (“PADEP”) resolving these issues, pursuant to which MarkWest Liberty Midstream will pay a penalty of $0.6 million and undertake certain supplemental environmental projects with an estimated cost of approximately $2.4 million, in addition to other related projects that are substantially complete. The Consent Decree was approved by the court on July 9, 2018 and the penalty has been paid.
Litigation Relating to the Pending Merger with Andeavor
Between June 20 and July 11, 2018, six putative class actions were filed against some or all of Andeavor, the directors of Andeavor, and MPC Mahi Inc. (“Merger Sub 1”) and Mahi LLC (“Merger Sub 2” and, together with MPC and Merger Sub 1, the “MPC Defendants”), relating to the merger. Two complaints, Malka Raul v. Andeavor, et al., and Stephen Bushansky v. Andeavor, et al., were filed in the U.S. District Court for the Western District of Texas. Four complaints, captioned The Vladimir Gusinsky Rev. Trust v. Andeavor, et al., Lawrence Zucker v. Andeavor, et al., Mel Gross v. Andeavor, et al., and Hudson v. Andeavor, et al. were filed in the U.S. District Court for the District of Delaware. The complaints generally allege that Andeavor, the directors of Andeavor and the MPC Defendants disseminated a false or misleading registration statement regarding the proposed merger in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Specifically, the complaints allege that the registration statement filed by MPC misstated or omitted material information regarding the parties’ financial projections and the analyses performed by Andeavor’s and MPC’s respective financial advisors, and that disclosure of material information is necessary in light of preclusive deal protection provisions in the merger agreement, the financial interests of Andeavor’s officers and directors in completing the deal, and the financial interests of Andeavor’s and MPC’s respective financial advisors. The complaints further allege that the directors of Andeavor and/or the MPC Defendants are liable for these violations as “controlling persons” of Andeavor under Section 20(a) of the Exchange Act. The complaints seek injunctive relief, including to enjoin and/or rescind the merger, damages in the event the merger is consummated, and an award of attorneys’ fees, in addition to other relief. Additional lawsuits arising out of the proposed merger may be filed in the future. We believe that the lawsuits are without merit and intend to defend vigorously against them and any other lawsuits challenging the merger. Therefore, at this time, we do not believe the ultimate resolution of these lawsuits will have a material adverse effect.
Other Lawsuits
MPLX, MarkWest, MarkWest Liberty Midstream, MarkWest Liberty Bluestone, L.L.C., Ohio Fractionation and MarkWest Utica EMG (collectively, the “MPLX Parties”) are parties to various lawsuits with Bilfinger Westcon, Inc. (“Westcon”) that were instituted in 2016 and 2017 in the Court of Common Pleas in Butler County, Pennsylvania, the Circuit Court in Wetzel County, West Virginia, and the Court of Common Pleas in Harrison County, Ohio. The lawsuits relate to disputes regarding construction work performed by Westcon at the Bluestone, Mobley and Cadiz processing complexes in Pennsylvania, West Virginia and Ohio, respectively, and the Hopedale fractionation complex in Ohio. With respect to work performed by Westcon at the Mobley and Bluestone processing complexes, one or more of the MPLX Parties have asserted breach of contract, fraud, and with respect to work performed at the Mobley processing complex, MarkWest Liberty Midstream has also asserted negligent misrepresentation claims against Westcon. Westcon has also asserted claims against one or more of the MPLX Parties regarding these construction projects for breach of contract, unjust enrichment, promissory estoppel, fraud and constructive fraud, tortious interference with contractual relations, and civil conspiracy. Collectively, in the several cases, the MPLX Parties seek in excess of $10 million, plus an unspecified amount of punitive damages. Collectively, in the several cases, Westcon seeks in excess of $40 million, plus an unspecified amount of punitive damages. While the ultimate outcome and impact cannot be predicted with certainty, and management is not able to estimate a reasonably possible loss (or range of loss), if any, for these matters, we believe the resolution of these claims will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Lawsuits
In May 2015, the Kentucky attorney general filed a lawsuit against our wholly-owned subsidiary, Marathon Petroleum Company LP (“MPC LP,LP”), in the United States District Court for the Western District of Kentucky asserting claims under federal and state antitrust statutes, the Kentucky Consumer Protection Act, and state common law. The complaint, as amended in July 2015, alleges that MPC LP used deed restrictions, supply agreements with customers and exchange agreements with competitors to unreasonably restrain trade in areas within Kentucky and seeks declaratory relief, unspecified damages, civil penalties, restitution and disgorgement of profits. At this stage, the ultimate outcome of this litigation remains uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined, and we are unable to estimate a reasonably possible loss (or range of loss) for this matter. We intend to vigorously defend ourselves in this matter.
In May 2007, the Kentucky attorney general filed a lawsuit against us and Marathon Oil in state court in Franklin County, Kentucky for alleged violations of Kentucky’s emergency pricing and consumer protection laws following Hurricanes Katrina and Rita in 2005. The lawsuit allegesalleged that we overcharged customers by $89 million during September and October 2005. The complaint seekssought disgorgement of these sums, as well as penalties, under Kentucky’s emergency pricing and consumer protection laws. We are vigorously defending this litigation. We believe that this is the first lawsuit for damages and injunctive relief under the Kentucky emergency pricing laws to progress this far and it contains many novel issues. In May 2011, the Kentucky attorney general amended his complaint to include a request for immediate injunctive relief as well as unspecified damages and penalties related to our wholesale gasoline pricing in April and May 2011 under statewide price controls that were activated by the Kentucky governor on April 26, 2011 and which have since expired. The court denied the attorney general’s request for immediate injunctive relief,relief. In July 2019, MPC and the remainder of the 2011 claims likelyattorney general reached a settlement to resolve this litigation. This resolution will be resolved along with those dating from 2005. If the lawsuit is resolved unfavorably in its entirety, it could materially impact our consolidated results of operations, financial position or cash flows. However, management does not believe the ultimate resolution of this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
We are also a party to a number of other lawsuits and other proceedings arising in the ordinary course of business. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe that the resolution of these other lawsuits and proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Guarantees
We have provided certain guarantees, direct and indirect, of the indebtedness of other companies. Under the terms of most of these guarantee arrangements, we would be required to perform should the guaranteed party fail to fulfill its obligations under the specified arrangements. In addition to these financial guarantees, we also have various performance guarantees related to specific agreements.
Guarantees related to indebtedness of equity method investees—MPC and MPLX hold interests in an offshore oil port, LOOP, and MPLX holds an interest in a crude oil pipeline system, LOCAP. Both LOOP and LOCAP have secured various project financings with throughput and deficiency agreements. Under the agreements, MPC, as a shipper, is required to advance funds if the investees are unable to service their debt. Any such advances are considered prepayments of future transportation charges. The duration of the agreements vary but tend to follow the terms of the underlying debt, which extend through 2037. Our maximum potential undiscounted payments under these agreements for the debt principal totaled $160$171 million as of June 30, 2018.2019.
We hold anIn connection with our 25 percent interest in Gray Oak Pipeline, LLC (“Gray Oak Pipeline”), we have entered into an Equity Contribution Agreement obligating us to make certain equity contributions to Gray Oak Pipeline to support its obligations under a refined productsconstruction loan facility. Gray Oak Pipeline is constructing the Gray Oak oil pipeline, through our investmenta crude oil transportation system from West Texas and the Eagle Ford formation to destinations in Centennial,the Ingleside, Corpus Christi and have guaranteed ourSweeney, Texas markets. Gray Oak Pipeline has entered into the construction loan facility with a syndicate of banks to finance a portion of the construction costs of the pipeline project.
The Equity Contribution Agreement requires us to contribute our pro rata share of any amounts necessary to allow Gary Oak Pipeline to cure any payment defaults under the construction loan facility or to repay all amounts outstanding under the facility, including principal, accrued interest, fees and expenses, in certain circumstances, including the abandonment of Centennial’s principal, interest and prepayment costs, if applicable,the Gray Oak pipeline project prior to completion or the failure of Gray Oak Pipeline to repay or refinance the construction loan facility prior to its scheduled maturity date of June 3, 2022. Gray Oak may borrow up to $1.43 billion under a Master Shelf Agreement, which is scheduledthe construction loan facility (after giving effect to expire in 2024. The guarantee arose in order for Centennialthe exercise of all options to obtain adequate financing. Ourincrease its borrowing capacity). As of June 30, 2019, our maximum potential undiscounted payments under this agreementthe Equity Contribution Agreement for the debt principal totaled $23 million$138 million.
In connection with MPLX’s approximate nine percent indirect interest in a joint venture that owns and operates the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects, collectively referred to as the Bakken Pipeline system, MPLX has entered into a Contingent Equity Contribution Agreement. MPLX, along with the other joint venture owners in the Bakken Pipeline system, have agreed to make equity contributions to the joint venture upon certain events occurring to allow the entities that own and operate the Bakken Pipeline system to satisfy their senior note payment obligations. The senior notes were issued to repay amounts owed by the pipeline companies to fund the cost of construction of the Bakken Pipeline system.
As of June 30, 2018.2019, our maximum potential undiscounted payments under the Contingent Equity Contribution Agreement was approximately $230 million.
In connection with our 50 percent indirect interest in Crowley Ocean Partners LLC, we have agreed to conditionally guarantee our portion of the obligations of the joint venture and its subsidiaries under a senior secured term loan agreement. The term loan agreement provides for loans of up to $325 million to finance the acquisition of four product tankers. MPC’s liability under the guarantee for each vessel is conditioned upon the occurrence of certain events, including if we cease to maintain an investment grade credit rating or the charter for the relevant product tanker ceases to be in effect and is not replaced by a charter with an investment grade company on certain defined commercial terms. As of June 30, 2018,2019, our maximum potential undiscounted payments under this agreement for debt principal totaled $163$125 million.
In connection with our 50 percent indirect interest in Crowley Blue Water Partners LLC, we have agreed to provide a conditional guarantee of up to 50 percent of its outstanding debt balance in the event there is no charter agreement in place with an investment grade customer for the entity’s three vessels as well as other financial support in certain circumstances. The maximum exposure under these arrangements is 50 percent of the amount of the debt, which was $132 million asAs of June 30, 2018.2019, our maximum potential undiscounted payments under this arrangement was $125 million.
Marathon Oil indemnifications—In conjunction with our spinoff from Marathon Oil, we have entered into arrangements with Marathon Oil providing indemnities and guarantees with recorded values of $2$1 million as of June 30, 2018,2019, which consist of unrecognized tax benefits related to MPC, its consolidated subsidiaries and the refining, marketing and transportation business operations prior to our spinoff which are not already reflected in the unrecognized tax benefits described in Note 12,11, and other contingent liabilities Marathon Oil may incur related to taxes. Furthermore, the separation and distribution agreement and other agreements with Marathon Oil to effect our spinoff provide for cross-indemnities between Marathon Oil and us. In general, Marathon Oil is required to indemnify us for any liabilities relating to Marathon Oil’s historical oil and gas exploration and production operations, oil sands mining operations and integrated gas operations, and we are required to indemnify Marathon Oil for any liabilities relating to Marathon Oil’s historical refining, marketing and transportation operations. The terms of these indemnifications are indefinite and the amounts are not capped.
Other guarantees—We have entered into other guarantees with maximum potential undiscounted payments totaling $92$123 million as of June 30, 2018,2019, which primarily consist of a commitment to contribute cash to an equity method investee for certain catastrophic events, up to $50 million per event, in lieu of procuring insurance coverage, a commitment to fund a share of the bonds issued by a government entity for construction of public utilities in the event that other industrial users of the facility default on their utility payments and leases of assets containing general lease indemnities and guaranteed residual values. See Note 5 for information regarding our guarantee of certain borrowings under the ANDX dropdown credit facility.
General guarantees associated with dispositions—Over the years, we have sold various assets in the normal course of our business. Certain of the related agreements contain performance and general guarantees, including guarantees regarding inaccuracies in representations, warranties, covenants and agreements, and environmental and general indemnifications that require us to perform upon the occurrence of a triggering event or condition. These guarantees and indemnifications are part of the normal course of selling assets. We are typically not able to calculate the maximum potential amount of future payments that could be made under such contractual provisions because of the variability inherent in the guarantees and indemnities. Most often, the nature of the guarantees and indemnities is such that there is no appropriate method for quantifying the exposure because the underlying triggering event has little or no past experience upon which a reasonable prediction of the outcome can be based.
Contractual Commitments and Contingencies
At June 30, 2018,2019, our contractual commitments to acquire property, plant and equipment and advance funds to equity method investees totaled $901 million.$1.15 billion.
Certain natural gas processing and gathering arrangements require us to construct natural gas processing plants, natural gas gathering pipelines and NGL pipelines and contain certain fees and charges if specified construction milestones are not achieved for reasons other than force majeure. In certain cases, certain producer customers may have the right to cancel the processing arrangements with us if there are significant delays that are not due to force majeure.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of OperationsThis section should also be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Management’s Discussion and AnalysisAll statements in this section, other than statements of Financial Condition and Results of Operations includes varioushistorical fact, are forward-looking statements concerning trends or events potentially affecting our business.that are inherently uncertain. You can identify our forward-looking statements by words such as “anticipate,” “believe,” “could,” “design,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “imply,” “intend,” “may,” “objective,” “opportunity,” “outlook,” “plan,” “position,” “potential,” “predict,” “project,” “prospective,” “pursue,” “seek,” “should,” “strategy,” “target,” “could,” “may,” “should,” “will,” “would,”“would” or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, whichthat could cause future outcomes to differ materially from those set forth in the forward-looking statements. For additional
Forward-looking statements include, but are not limited to, statements that relate to, or statements that are subject to risks, contingencies or uncertainties that relate to:
the risk that the cost savings and any other synergies from the Andeavor acquisition may not be fully realized or may take longer to realize than expected;
disruption from the Andeavor acquisition making it more difficult to maintain relationships with customers, employees or suppliers;
risks relating to any unforeseen liabilities of Andeavor;
the transaction between MPLX LP and Andeavor Logistics LP, including the risk that anticipated opportunities and any other synergies from or anticipated benefits of the transaction may not be fully realized or may take longer to realize than expected, including whether the transaction will be accretive within the expected timeframe or at all, or disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers;
the ability to complete any divestitures on commercially reasonable terms and/or within the expected timeframe;
future levels of revenues, refining and marketing margins, operating costs, retail gasoline and distillate margins, merchandise margins, income from operations, net income or earnings per share;
the regional, national and worldwide availability and pricing of refined products, crude oil, natural gas, NGLs and other feedstocks;
consumer demand for refined products;
our ability to manage disruptions in credit markets or changes to our credit rating;
future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses;
the success or timing of completion of ongoing or anticipated capital or maintenance projects;
the reliability of processing units and other equipment;
business strategies, growth opportunities and expected investments;
share repurchase authorizations, including the timing and amounts of any common stock repurchases;
the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan and to effect any share repurchases or dividend increases, including within the expected timeframe;
the effect of restructuring or reorganization of business components;
the potential effects of judicial or other proceedings on our business, financial condition, results of operations and cash flows;
continued or further volatility in and/or degradation of general economic, market, industry or business conditions;
compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard, and/or enforcement actions initiated thereunder; and
the anticipated effects of actions of third parties such as competitors, activist investors or federal, foreign, state or local regulatory authorities or plaintiffs in litigation.
Our forward-looking statements are not guarantees of future performance, and you should not rely unduly on them, as they involve risks, uncertainties and assumptions that we cannot predict. Material differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following:
volatility or degradation in general economic, market, industry or business conditions;
availability and pricing of domestic and foreign supplies of natural gas, NGLs and crude oil and other feedstocks;
the ability of the members of the OPEC to agree on and to influence crude oil price and production controls;
availability and pricing of domestic and foreign supplies of refined products such as gasoline, diesel fuel, jet fuel, home heating oil and petrochemicals;
foreign imports and exports of crude oil, refined products, natural gas and NGLs;
refining industry overcapacity or under capacity;
changes in producer customers’ drilling plans or in volumes of throughput of crude oil, natural gas, NGLs, refined products or other hydrocarbon-based products;
changes in the cost or availability of third-party vessels, pipelines, railcars and other means of transportation for crude oil, natural gas, NGLs, feedstocks and refined products;
changes to our capital budget, expected construction costs and timing of projects;
the price, availability and acceptance of alternative fuels and alternative-fuel vehicles and laws mandating such fuels or vehicles;
fluctuations in consumer demand for refined products, natural gas and NGLs, including seasonal fluctuations;
political and economic conditions in nations that consume refined products, natural gas and NGLs, including the United States, and in crude oil producing regions, including the Middle East, Africa, Canada and South America;
actions taken by our competitors, including pricing adjustments, expansion of retail activities, the expansion and retirement of refining capacity and the expansion and retirement of pipeline capacity, processing, fractionation and treating facilities in response to market conditions;
completion of pipeline projects within the United States;
changes in fuel and utility costs for our facilities;
failure to realize the benefits projected for capital projects, or cost overruns associated with such projects;
modifications to MPLX earnings and distribution growth objectives;
the ability to successfully implement growth opportunities, including strategic initiatives and actions;
risks and uncertainties associated with intangible assets, including any future goodwill or intangible assets impairment charges;
the ability to realize the strategic benefits of joint venture opportunities;
accidents or other unscheduled shutdowns affecting our refineries, machinery, pipelines, processing, fractionation and treating facilities or equipment, or those of our suppliers or customers;
unusual weather conditions and natural disasters, which can unforeseeably affect the price or availability of crude oil and other feedstocks and refined products;
acts of war, terrorism or civil unrest that could impair our ability to produce refined products, receive feedstocks or to gather, process, fractionate or transport crude oil, natural gas, NGLs or refined products;
state and federal environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the renewable fuel standard program;
adverse changes in laws including with respect to tax and regulatory matters;
rulings, judgments or settlements and related expenses in litigation or other legal, tax or regulatory matters, including unexpected environmental remediation costs, in excess of any reserves or insurance coverage;
political pressure and influence of environmental groups upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and marketing of crude oil or other feedstocks, refined products, natural gas, NGLs or other hydrocarbon-based products;
labor and material shortages;
the maintenance of satisfactory relationships with labor unions and joint venture partners;
the ability and willingness of parties with whom we have material relationships to perform their obligations to us;
the market price of our common stock and its impact on our share repurchase authorizations;
changes in the credit ratings assigned to our debt securities and trade credit, changes in the availability of unsecured credit, changes affecting the credit markets generally and our ability to manage such changes;
capital market conditions and our ability to raise adequate capital to execute our business see”Risk Factors” below, togetherplan;
the costs, disruption and diversion of management’s attention associated with campaigns commenced by activist investors; and
the other factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.2018.
We undertake no obligation to update any forward-looking statements except to the extent required by applicable law.
CORPORATE OVERVIEW
We are an independent petroleum refining and marketing, retail and midstream servicesa leading, integrated, downstream energy company. We currently own and operate six refineries, all located in the United States,nation’s largest refining system with an aggregate crude oil refining capacity of approximately 1.9more than 3 million barrels per calendar day.day of crude oil capacity across 16 refineries, located in the Gulf Coast, Mid-Continent and West Coast regions of the United States. Our refineries supply refined products to resellerswholesale marketing customers domestically and internationally, to buyers on the spot market, to consumers withinthrough our market areas, including the Midwest, Gulf Coast, Northeast, East CoastRetail business segment and Southeast regions of the United States.to independent entrepreneurs who operate branded outlets. We distribute refined products to our customers through transportation, storage, distribution and marketing services provided by our Midstream segment. Webelieve we are one of the largest wholesale suppliers of gasoline and distillates to resellers within our market area.in the United States.
We have twothree strong retail brands: SpeedwayMarathon®, Speedway® and MarathonARCO®. Approximately 7,000 branded outlets, primarily carrying the Marathon brand name, are operated by independent entrepreneurs in 35 states, the District of Columbia and Mexico. We believe that Speedway LLC, a wholly-owned subsidiary,our Retail segment operates the second largest chain of company-owned and operated retail gasolinetransportation fuel and convenience stores in the United States, with approximately 2,7403,910 convenience stores in 22 states throughout the Midwest, East Coast, Southeast and Gulf Coast. The Marathon brand is an establishedstores. Our Retail segment also sells transportation fuel brand in the Midwest and Southeast regions of the United States, and is availableto consumers through approximately 5,600 retail outlets1,060 direct dealer locations. Our company-owned and operated by independent entrepreneurs in 20 stateslocations primarily carry the Speedway® brand name and the District of Columbia.direct dealer locations carry primarily the ARCO® brand name.
Through our ownership interest in MPLX, we own and operate significant midstream energy infrastructure assets.
We are one of the largest processorsmidstream operators in North America. We primarily conduct our midstream operations through our ownership interest in MPLX, which owns and operates crude oil and light product transportation and logistics infrastructure as well as gathering, processing, and fractionation assets. On July 30, 2019, MPLX acquired ANDX, as discussed below, to create a leading, large-scale diversified midstream company. As of natural gasJune 30, 2019, we owned, leased or had ownership interests in approximately 16,600 miles of crude oil and refined product pipelines to deliver crude oil to ourrefineries and other locations and refined products to wholesale and retail market areas. We distribute our refined products through one of the largest terminal operations in the United States and one of the largest processor and fractionator in the Marcellus and Utica shale regions.private domestic fleets of inland petroleum product barges. Our integrated midstream energy assetgathering and processing network links producers of natural gas and NGLs from some of the largest supply basins in the United States to domestic and international markets. Our midstream gathering and processing operations include: approximately 5.9 bcf/d of gathering capacity, 8.7 bcf/d of natural gas gathering, processing capacity and 610 mbpd oftransportation; and NGL gathering, transportation, fractionation, capacity. We also own, lease or have ownership interests in approximately 10,800 miles of crude oilstorage and refined product pipelines, as well as refining logistics assets, including tanks, docks and loading racks located atmarketing.
At June 30, 2019, our six refineries. We distribute our refined products through one of the largest terminal operations in the United States and one of the largest private domestic fleets of inland petroleum product barges. In addition, MPLX provides scheduling and marketing services (“fuels distribution services”) to our Refining & Marketing segment.
Our operations consistconsisted of three reportable segments: Refining & Marketing; Speedway;Retail; and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.
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• | Refining & Marketing – refines crude oil and other feedstocks at our six16 refineries in the Gulf Coast, Mid-Continent and MidwestWest Coast regions of the United States, purchases refined products and ethanol for resale and distributes refined products through transportation, storage, distribution and marketing services provided largely by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our SpeedwayRetail business segment and to independent entrepreneurs who operate primarily Marathon® retail branded outlets. |
Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest, East Coast, Southeast and Gulf Coast regions of the United States.
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• | Retail – sells transportation fuels and convenience products in the retail market across the United States through company-owned and operated convenience stores, primarily under the Speedway® brand, and long-term fuel supply contracts with direct dealers who operate locations primarily under the ARCO® brand. |
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• | Midstream – gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs; and transports, stores, distributes and markets crude oil and refined products principally for the Refining & Marketing segment via refining logistics assets, pipelines, terminals, towboats and barges; gathers, processes and transports natural gas; and gathers, transports, fractionates, stores and markets NGLs. The Midstream segment primarily reflects the results of MPLX and ANDX. |
Recent Developments
As described in Notes 4 and 5 to the unaudited consolidated financial statements, we have consolidated ANDX since October 1, 2018 in accordance with ASC 810 and previously recorded ANDX’s assets and liabilities to our balance sheet at preliminary fair values as of the Andeavor acquisition date of October 1, 2018.
On July 30, 2019, MPLX completed its acquisition of ANDX. At the effective time of the ANDX acquisition, each common unit held by ANDX’s public unitholders was converted into the right to receive 1.135 MPLX common units. ANDX common units held by MPC were converted into the right to receive 1.0328 MPLX common units. ANDX common unitholders will not receive any future distributions from ANDX but instead will receive a second quarter 2019 distribution as and when declared by the Board of Directors of MPLX with respect to the MPLX common units issued in connection with the acquisition. Additionally, the ANDX Series A Preferred unitholders will not receive any future distributions from ANDX, but instead will receive the semi-annual distributions payable August 15, 2019 on MPLX Series B Preferred units issued in connection with the acquisition. As of July 30, 2019, MPC will account for this transaction as a common control transaction, as defined by ASC 805, which will result in adjustments to our noncontrolling interest and additional paid-in capital balances.
The transaction simplifies MPLX and ANDX into a single listed entity to create a leading, large-scale, diversified midstream company anchored by fee-based cash flows. The combined entity will have an expanded geographic footprint that is expected to enhance its long-term growth opportunities and the sustainable cash flow profile of the business.
On August 1, 2019, we highlighted our continued focus on portfolio optimization, which could include asset divestitures. Proceeds from any divestitures would be used for general purposes, such as investments in high-return projects as well as debt reduction.
EXECUTIVE SUMMARY
Results
Select results are reflected in the following table. Our results include the results of Andeavor from the October 1, 2018 acquisition date forward. |
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | | 2019 | | 2018 | | 2019 | | 2018 |
Income from operations by segment | | | | | | | |
Refining & Marketing | $ | 906 |
| | $ | 1,025 |
| | $ | 572 |
| | $ | 892 |
|
Retail | 493 |
| | 159 |
| | 663 |
| | 254 |
|
Midstream | 878 |
| | 617 |
| | 1,786 |
| | 1,184 |
|
Items not allocated to segments | (235 | ) | | (90 | ) | | (310 | ) | | (179 | ) |
Income from operations | $ | 2,042 |
| | $ | 1,711 |
| | $ | 2,711 |
| | $ | 2,151 |
|
Net income attributable to MPC | $ | 1,106 |
| | $ | 1,055 |
| | $ | 1,099 |
| | $ | 1,092 |
|
Net income attributable to MPC per diluted share | $ | 1.66 |
| | $ | 2.27 |
| | $ | 1.63 |
| | $ | 2.31 |
|
Net income attributable to MPC was $1.11 billion, or $1.66 per diluted share, in the second quarter of 2019 compared to $1.06 billion, or $2.27 per diluted share, for the second quarter of 2018. Net income attributable to MPC was $1.10 billion, or $1.63 per diluted share, in the first six months of 2019 compared to $1.09 billion, or $2.31 per diluted share, for the first six months of 2018. In both periods of 2019, increased income from operations was partially offset by increased net interest and other financial costs, provision for income taxes and net income attributable to noncontrolling interests.
Refer to the Results of Operations section for a discussion of consolidated financial results and segment results for the second quarter of 2019 as compared to the second quarter of 2018 and the first six months of 2019 as compared to the first six months of 2018.
Andeavor Acquisition
On October 1, 2018, we completed the Andeavor acquisition. Andeavor stockholders received in the aggregate approximately 239.8 million shares of MPC common stock valued at $19.8 billion and approximately $3.5 billion in cash in connection with the Andeavor acquisition.
Andeavor was a highly integrated marketing, logistics and refining company operating primarily in the Western and Mid-Continent United States. Andeavor’s operations included procuring crude oil from its source or from other third parties, transporting the crude oil to one of its 10 refineries, and producing, marketing and distributing refined products. Its marketing system included more than 3,300 stations marketed under multiple well-known fuel brands including ARCO®. Also, we acquired the general partner and 156 million common units of ANDX, which was formed to own, operate, develop and acquire logistics assets. Its assets are integral to the success of our refining and marketing operations and are used to gather crude oil, natural gas, and water, process natural gas and distribute, transport and store crude oil and refined products principally for the Refining & Marketing segment via refining logistics assets, pipelines, terminals, towboats and barges. The Midstream segment primarily reflects the results of MPLX, our sponsored master limited partnership.
Recent Developments
On April 29, 2018, MPC and Andeavor entered into a definitive merger agreement under which MPC has agreed to acquire all of Andeavor’s outstanding shares. Under the terms of the agreement, Andeavor shareholders will have the option to choose 1.87 shares of MPC stock or $152.27 in cash per share of Andeavor common stock. The merger agreement includes election proration provisions that will result in approximately 22.9 million Andeavor shares being converted into cash consideration and the remaining Andeavor shares of approximately 128.2 million being converted into stock consideration. The aggregate cash consideration will be approximately $3.5 billion.products.
This anticipated transaction combinescombined two strong, complementary companies to create a leading nationwide U.S. refining, marketing, and midstreamdownstream energy company. The proposed combinationacquisition substantially increases MPC’sincreased our geographic diversification and scale and strengthensstrengthened each of our operating segments by:by diversifying our refining portfolio into attractive markets while alsoand increasing access to advantaged feedstocks, enhancing our midstream footprint in the Permian basin,Basin, and creating a nationwide retail and marketing portfolio thatall of which is expected to substantially improve efficiencies and enhance our ability to serve customers. We expect the combination to generate up to approximately $1$1.4 billion in tangible annual gross run-rate cost and operating synergies within the first three years, significantly enhancing our long-term cash flow generation profile.
On July 3, 2018, MPC and Andeavor announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired in connection with the proposed transaction. The parties have also received the necessary regulatory clearance by the Canadian Commissioner of Competition pursuant to the Competition Act (Canada). Together, these matters satisfy certain conditions for the closing of the proposed merger.
MPC’s joint proxy statement/prospectus with Andeavor has been declared effective by the Securities and Exchange Commission. The closing of the transaction remains subject to, among other things, customary closing conditions, including receipt of the approval of shareholders at the special meetings of both MPC and Andeaovor, which are scheduled for September 24, 2018.
In connection with this strategic combination, on April 30, 2018, we also announced that our board authorized an incremental $5 billion of share repurchases. Following the combination, we plan to continue our balanced approach to investing in the business and returning cash to our investors, while maintaining our commitment to an investment-grade credit profile.
The above discussion contains forward-looking statements with respect to the proposed transaction between MPC and Andeavor. Factors that could affect the proposed transaction between MPC and Andeavor include, but are not limited to, the ability of MPC and Andeavor to complete the proposed transaction on the anticipated terms and timetable; the ability to obtain shareholder approval; the ability to satisfy various other conditions to the closing of the proposed transaction; the risk that the cost savings and any other synergies from the proposed transaction may not be fully realized or may take longer to realize than expected; disruption from the proposed transaction making it more difficult to maintain relationships with customers, employees or suppliers; and risks relating to any unforeseen liabilities of Andeavor. Some factors that could cause actual results to differ materially from those implied in the forward-looking statements regarding the benefits of the proposed transaction include: future levels of revenues, refining and marketing margins, operating costs, retail gasoline and distillate margins, merchandise margins, income from operations, net income or earnings per share; the regional, national and worldwide availability and pricing of refined products, crude oil, natural gas, NGLs and other feedstocks; consumer demand for refined products; our ability to manage disruptions in credit markets or changes to our credit rating; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; the reliability of processing units and other equipment; business strategies, growth opportunities and expected investment; MPC’s share repurchase authorizations, including the timing and amounts of any common stock repurchases; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan and to effect any share repurchases, including within the expected timeframe; the effect of restructuring or reorganization of business components; the potential effects of judicial or other proceedings on our business, financial condition, results of operations and cash flows; continued or further volatility in and/or degradation of general economic, market, industry or business conditions; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard, and/or enforcement actions initiated thereunder; the anticipated effects of actions of third parties such as competitors, activist investors or federal, foreign, state or local regulatory authorities or plaintiffs in litigation; and the impact of adverse market conditions or other similar risks to those identified herein affecting MPLX and ANDX. For additional information on forward-looking statements and risks that can affect our business, see “Disclosures Regarding Forward-Looking Statements” and “Risk Factors” below, together with Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended Dec. 31, 2017.
EXECUTIVE SUMMARY
Results
Select results are reflected in the following table.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions, except per share data) | | 2018 | | 2017 | | 2018 | | 2017 |
Income from operations by segment | | | | | | | |
Refining & Marketing | $ | 1,025 |
| | $ | 562 |
| | $ | 892 |
| | $ | 492 |
|
Speedway | 159 |
| | 238 |
| | 254 |
| | 373 |
|
Midstream | 617 |
| | 332 |
| | 1,184 |
| | 641 |
|
Items not allocated to segments | (90 | ) | | (150 | ) | | (179 | ) | | (233 | ) |
Income from operations | $ | 1,711 |
| | $ | 982 |
| | $ | 2,151 |
| | $ | 1,273 |
|
Provision for income taxes | $ | 281 |
| | $ | 250 |
| | $ | 303 |
| | $ | 291 |
|
Net income attributable to noncontrolling interests | $ | 160 |
| | $ | 74 |
| | $ | 342 |
| | $ | 129 |
|
Net income attributable to MPC | $ | 1,055 |
| | $ | 483 |
| | $ | 1,092 |
| | $ | 513 |
|
Net income attributable to MPC per diluted share | $ | 2.27 |
| | $ | 0.93 |
| | $ | 2.31 |
| | $ | 0.98 |
|
Net income attributable to MPC was $1.06 billion, or $2.27 per diluted share, in the second quarter and $1.09 billion, or $2.31 per diluted share, in the first six months of 2018 compared to $483 million, or $0.93 per diluted share, and $513 million, or $0.98 per diluted share, for the same periods of 2017.
Refining & Marketing segment income from operations increased $463 million in the second quarter and $400 million in the first six months of 2018, compared to the same periods of 2017. The increases in segment results were primarily driven by positive Midwest and Gulf Coast crack spreads on an ex-RIN basis as well as wider sweet and sour and WTI crude differentials. These favorable effects more than offset the net reduction in Refining & Marketing segment results associated with the February 1, 2018, dropdown transaction of $232 million and $413 million for the second quarter and first six months of 2018, respectively. Midstream segment results include net increases of the same amounts. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018. The change in segment results in the first six months of 2018 also reflects a benefit related to the retroactive enactment of a biodiesel blending tax credit for 2017.
Refinery utilization was 99.9 percent during the second quarter resulting in record crude throughput of 1.9 million barrels per day. The USGC and Chicago LLS blended 6-3-2-1 crack spread on an ex-RIN basis was $6.98 per barrel in the second quarter of 2018 as compared to $5.71 per barrel in the second quarter of 2017. These crack spreads reflect blended 6-3-2-1 crack spreads of $9.14 and $9.18 per barrel for the second quarter of 2018 and 2017, respectively, less RIN crack adjustments of $2.16 and $3.46 per barrel for the second quarter of 2018 and 2017, respectively.
The USGC and Chicago LLS blended 6-3-2-1 crack spread on an ex-RIN basis was $5.86 per barrel in the first six months of 2018 as compared to $5.24 per barrel in the first six months of 2017. These crack spreads reflect blended 6-3-2-1 crack spreads of $8.43 and $8.46 per barrel for the first six months of 2018 and 2017, respectively, less RIN crack adjustments of $2.58 and $3.22 per barrel for the first six months of 2018 and 2017, respectively.
Speedway segment income from operations decreased $79 million in the second quarter and $119 million in the first six months of 2018, compared to the same periods of 2017. The decreases were primarily related to lower light product margins and higher expenses. Speedway’s gasoline and distillate margin decreased to 16.45 cents per gallon in the second quarter of 2018 compared with 18.35 cents per gallon in the second quarter of 2017 and decreased to 16.04 cents per gallon in the first six months of 2018 compared with 17.04 cents per gallon in the first six months of 2017, primarily due to the effects of rising crude oil prices.
Expenses increased $24 million and $42 million in the second quarter and first six months of 2018, respectively, primarily due to higher labor and benefit costs. Depreciation was $8 million and $23 million higher in the second quarter and first six months of 2018, respectively, due to increased investment in the business as well as accelerated depreciation in the first six months of 2018 due to Speedway’s upgrade of dispenser technology to provide marketing earnings enhancements and strengthen customer bank card security in advance of the required timeframe. Gains on the sale of assets of $6 million and $10 million in the second quarter and first six months of 2017, respectively, also contributed to the change in segment earnings. In addition, during the first quarter of 2018, multiple storms in the Northeast and Midwest markets resulted in reduced traffic at Speedway stores.
Midstream segment income from operations, which largely reflects MPLX, increased $285 million in the second quarter and $543 million in the first six months of 2018 compared to the same periods of 2017. These results include $232 million and $413 million in the second quarter and first six months of 2018, respectively, from the refining logistics assets and fuels distribution services contributed to MPLX on February 1, 2018. Prior period Midstream segment results do not reflect the impact of these new businesses. Strong second-quarter Midstream segment results benefited from record gathered, processed and fractionated volumes as well as pipeline throughput volumes.
Items not allocated to segments in both periods of 2018 include approximately $10 million of transaction costs related to the pending merger with Andeavor. Both periods of 2017 include an $86 million litigation charge and a $19 million gain on asset liquidations related to a canceled project.
Net income attributable to noncontrolling interests increased $86 million in the second quarter and $213 million in the first six months of 2018 compared to the same periods of 2017 due to higher MPLX net income resulting primarily from the February 1, 2018 dropdown transaction, partially offset by the reduced ownership in MPLX held by noncontrolling interests following the recent dropdown transactions and the GP/IDR Exchange. Noncontrolling interest ownership in MPLX decreased to 36.4 percent at June 30, 2018 from 72.8 percent at June 30, 2017. Beginning with the second quarter of 2018, the holders of MPLX preferred units are entitled to receive a quarterly distribution equal to the greater of $0.528125 per unit or the amount of distributions they would have received on an as converted basis. On July 26, 2018, MPLX declared a quarterly cash distribution of $0.6275 per common unit representing the distribution of income earned during the second quarter of 2018. The Preferred units will receive this rate in lieu of the lower $0.528125 base amount.
MPLX LP
As of June 30, 2018, we owned 63.6 percent of the outstanding MPLX common units and control MPLX through our ownership of the general partner interest in MPLX.
MPLX Highlights
On February 1, 2018, we completed the dropdown of the remaining identified assets related to our strategic actions to enhance shareholder value announced in January 2017. We contributed our refining logistics assets and fuels distribution services to MPLX in exchange for $4.1 billion in cash and approximately 114 million newly issued MPLX units.
Immediately following the dropdown, our IDRs were cancelled and our economic general partner interest was converted into a non-economic general partner interest, all in exchange for 275 million newly issued MPLX common units.
MPLX financed the cash portion of the February 1, 2018 dropdown with its $4.1 billion 364-day term loan facility, which was entered into on January 2, 2018.
On February 8, 2018, MPLX issued $5.5 billion in aggregate principal amount of senior notes in a public offering. MPLX used $4.1 billion of the net proceeds of the offering to repay the 364-day term-loan facility. The remaining proceeds were used to repay outstanding borrowings under MPLX’s revolving credit facility and intercompany loan agreement with us and for general partnership purposes.
On September 1, 2017, we contributed our joint-interest ownership in certain pipelines and storage facilities to MPLX in exchange for $420 million in cash and approximately 19 million MPLX units.
On March 1, 2017, we contributed certain terminal, pipeline and storage assets to MPLX in exchange for $1.5 billion in cash and approximately 13 million MPLX units.
On February 10, 2017, MPLX issued $2.25 billion in aggregate principal amount of senior notes in a public offering. The net proceeds were used to fund the $1.5 billion cash portion of the consideration MPLX paid MPC for the dropdown of assets on March 1, 2017, as well as for general partnership purposes.
Distributions from MPLX
The following table summarizes the cash distributions we received from MPLX.
|
| | | | | | | | |
| | Six Months Ended June 30, |
(In millions) | | 2018 | | 2017 |
Cash distributions received from MPLX: | | | |
General partner distributions, including IDRs | $ | — |
| | $ | 124 |
|
Limited partner distributions | 459 |
| | 92 |
|
Total | $ | 459 |
| | $ | 216 |
|
ANDXWe owned approximately 505 million MPLX common units at June 30, 2018 valued at $17.232019 with a market value of $16.25 billion based on the June 29, 201828, 2019 closing price of $34.14$32.19 per common unit.
On July 25, 2018,22, 2019, MPLX declared a quarterly cash distribution of $0.6275$0.6675 per common unit payable on August 14, 2018.2019. As a result, MPLX will make distributions totaling $497$692 million to its common unitholders, which includes $94 million to former ANDX common unitholders. MPC’s portion of these distributions is approximately $316$431 million.
We owned approximately 156 million ANDX common units at June 30, 2019 with a market value of $5.67 billion based on the June 28, 2019 closing price of $36.33 per common unit. Subsequent to MPLX’s acquisition of ANDX, as previously discussed, ANDX common unitholders will not receive any future distributions from ANDX but instead will receive a second quarter 2019 distribution noted above with respect to the MPLX common units issued in connection with the merger. Additionally, the ANDX Series A Preferred unitholders will not receive any future distributions from ANDX, but instead will receive the semi-annual distribution payable August 15, 2019 on MPLX Series B Preferred units issued in connection with the merger.
The following table summarizes the MPLX distributions we received in the six months ended June 30, 2019 and 2018 and ANDX distributions we received in the six months ended June 30, 2019.
|
| | | | | | | | |
| | Six Months Ended June 30, |
(In millions) | | 2019 | | 2018 |
Cash distributions received: | | | |
Limited partner distributions - MPLX | $ | 659 |
| | $ | 459 |
|
Limited partner distributions - ANDX | 294 |
| | — |
|
Total | $ | 953 |
| | $ | 459 |
|
See Note 43 to the unaudited consolidated financial statements for additional information on MPLX.MPLX and ANDX.
Acquisitions and Investments
Our acquisition and investment activity in 2017 was primarily focused on our Midstream segment as follows:
On March 1, 2017, MPLX purchased the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately $219 million.
On February 15, 2017, MPLX acquired a partial, indirect equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, through a joint venture with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”). MPLX holds, through a subsidiary, a 25 percent interest in MarEn Bakken, which equates to an approximate 9.2 percent indirect equity interest in the Bakken Pipeline system.
Effective January 1, 2017, MPLX, through its wholly owned subsidiary MarkWest, and Antero Midstream formed a joint venture, Sherwood Midstream, to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MarkWest has a 50 percent ownership interest in Sherwood Midstream. In connection with this transaction, MarkWest contributed certain gas processing plants currently under construction at the Sherwood Complex with a fair value of approximately $134 million and cash of approximately $20 million and sold Class A Interests in MarkWest Ohio Fractionation to Sherwood Midstream for $126 million in cash. Sherwood Midstream Holdings, a joint venture with MarkWest and Sherwood Midstream, was also formed to own, operate and maintain certain assets owned by Sherwood Midstream and MarkWest. MarkWest contributed certain real property, equipment and facilities with a fair value of approximately $209 million to Sherwood Midstream Holdings in exchange for a 79 percent initial ownership interest. During the three months ended March 31, 2018, MarkWest Liberty Midstream sold to Sherwood Midstream 6 percent of their equity ownership in Sherwood Midstream Holdings for $15 million.
See Note 5 to the unaudited consolidated financial statements for additional information on these acquisitions and investments and Note 6 for additional information related to the investments in Sherwood Midstream, Ohio Fractionation and Sherwood Midstream Holdings.
Share Repurchases
During the six months ended June 30, 2018,2019, we repurchased 31returned $1.39 billion to our shareholders through repurchases of approximately 23 million shares of common sharesstock at an average costprice per share of $71.58 funded primarily by after tax proceeds from the February 1, 2018 dropdown to MPLX.$60.75.
Since January 1, 2012, our board of directors has approved $18.0 billion in total share repurchase authorizations and we have repurchased a total of $12.02$14.48 billion of our common stock, leaving $5.98$3.52 billion available for repurchases.repurchases as of June 30, 2019. See Note 98 to the unaudited consolidated financial statements.
Liquidity
As of June 30, 2018,2019, we had cash and cash equivalents of approximately $5.00$1.22 billion, excluding MPLX'sMPLX and ANDX cash and cash equivalents $3.5of $7 million and $25 million, respectively, no borrowings and $32 million in letters of credit outstanding under our $6.0 billion of unused bank revolving credit facilities and full availabilityno borrowings outstanding under our $750 million trade receivables facility. Our $1 billion 364-day facility, which was partresulting in cash and available liquidity of our unused bank revolving credit facilities, expired on July 20, 2018. We intend to replace this facility with a new facility to become effective upon the closing of the Andeavor merger. As of
June 30, 2018, we did not have any commercial paper borrowings outstanding. We do not intend to have outstanding commercial paper borrowings in excess of available capacity under our bank revolving credit facility.$7.93 billion. As of June 30, 2018,2019, MPLX had cash and cash equivalents of $3 million and approximately $2.25$1.63 billion available through its bank revolving credit agreement and $956 million available through its intercompany credit facility with MPC. As of June 30, 2019, ANDX had approximately $600 million available through its bank revolving credit agreements and approximately $888$500 million available through its intercompany credit facility with MPC.
Upon the completion of the merger of MPLX and ANDX on July 30, 2019, the MPLX bank revolving credit facility was amended and restated to increase the borrowing capacity to $3.5 billion and to extend the maturity date to July 30, 2024. The above discussion contains forward-looking statementsANDX revolving and dropdown credit facilities were terminated and all outstanding balances were repaid and funded with respectthe new $3.5 billion bank revolving credit facility.
On July 31, 2019, in connection with the closing of the ANDX merger, we amended and restated the existing intercompany loan agreement with MPLX to, our business strategiesamong other things, increase MPLX’s borrowing capacity thereunder from $1.0 billion to $1.5 billion in loans at any one time outstanding and our share repurchase authorizations. Factorsto extend the term of the intercompany loan agreement to July 31, 2024.
On July 26, 2019, we entered into a new $1 billion 364-day revolving credit facility with a syndicate of banks that could affect our business strategies include, but are not limited to, our ability to achieve the strategic and other objectives relatedwill, subject to the strategic initiatives;satisfaction of customary conditions, become effective upon the impact of adverse market conditions affecting MPC’s and MPLX’s midstream businesses; and adverse changes in laws including with respect to tax and regulatory matters. Factors that could affect the share repurchase authorizations and the timing of any repurchases include, but are not limited to, our ability to generate sufficient income and cash flow to effect share repurchases; our ability to manage disruption in credit markets or changes to our credit rating; business conditions; availability of liquidity and the market priceexpiration of our common stock. These factors, among others, could cause actual resultsexisting $1 billion 364-day revolving facility in September 2019. The new 364-day revolving credit facility contains substantially the same terms and conditions as our existing 364-day revolving credit facility and will expire in September 2020.
On July 19, 2019, we amended our $750 million trade receivables securitization facility to differ materially from those set forth inextend the forward-looking statements. For additional information on forward-looking statements and risks that can affect our business, see “Disclosures Regarding Forward-Looking Statements” and “Risk Factors”, together with Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.maturity date to July 16, 2021.
OVERVIEW OF SEGMENTS
Refining & Marketing
Refining & Marketing segment income from operations depends largely on our Refining & Marketing margin and refinery throughputs.
Our Refining & Marketing margin is the difference between the prices of refined products sold and the costs of crude oil and other charge and blendstocks refined, including the costs to transport these inputs to our refineries and the costs of products purchased for resale. The crack spread is a measure of the difference between market prices for refined products and crude oil, commonly used by the industry as a proxy for the refining margin. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the same relationship as the cost of crude oil. As a performance benchmark and a comparison with other industry participants, we calculate Midwest (Chicago)Gulf Coast, Mid-Continent and USGCWest Coast 3-2-1 crack spreads that we believe most closely track our operations and slate of products. LLS prices and a 6-3-2-1 ratio of products (6 barrels of LLS crude oil producing 3 barrels of unleaded regular gasoline, 2 barrels of ULSD and 1 barrel of three percent residual fuel oil)The following are used for these crack-spread calculations.calculations:
The Gulf Coast crack spread uses three barrels of LLS crude producing two barrels of USGC CBOB gasoline and one barrel of USGC ULSD;
The Mid-Continent crack spread uses three barrels of WTI crude producing two barrels of Chicago CBOB gasoline and one barrel of Chicago ULSD; and
The West Coast crack spread uses three barrels of ANS crude producing two barrels of LA CARBOB and one barrel of LA CARB Diesel.
Our refineries can process significant amounts of sweet and sour crude oil, which typically can be purchased at a discount to sweet crude oil.oil referenced in these crack spreads. The amount of this discount,these discounts, the sweet/sweet and sour differential,differentials, can vary significantly, causing our Refining & Marketing margin to differ from crack spreads based on sweet crude oil.spreads. In general, a larger sweet/sweet and sour differentialdifferentials will enhance our Refining & Marketing margin.
Future crude oil differentials will be dependent on a variety of market and economic factors, as well as U.S. energy policy.
The following table provides sensitivities showing an estimated change in annual net income due to potential changes in market conditions.
|
| | | | |
(In millions, after-tax) | | |
LLS 6-3-2-1 crack spread sensitivity(a) (per $1.00/barrel change) | $ | 590 |
|
Sweet/sour differential sensitivity(b) (per $1.00/barrel change) | 300 |
|
LLS-WTI differential sensitivity(c) (per $1.00/barrel change) | 90 |
|
Natural gas price sensitivity(d) (per $1.00/million British thermal unit change) | 200 |
|
|
| | | | |
(In millions, after-tax) | | |
Blended crack spread sensitivity(a) (per $1.00/barrel change) | $ | 900 |
|
Sour differential sensitivity(b) (per $1.00/barrel change) | 450 |
|
Sweet differential sensitivity(c) (per $1.00/barrel change) | 370 |
|
Natural gas price sensitivity(d) (per $1.00/MMBtu) | 300 |
|
| |
(a) | Weighted 40Crack spread based on 38 percent ChicagoLLS, 38 percent WTI and 6024 percent USGC LLS 6-3-2-1 crack spreadsANS with Gulf Coast, Mid-Continent and West Coast product pricing, respectively, and assumes all other differentials and pricing relationships remain unchanged. |
| |
(b) | LLS (prompt) - [delivered costSour crude oil basket consists of sour crude oil: Arab Light, Kuwait,the following crudes: ANS, Argus Sour Crude Index, Maya and Western Canadian Select and Mars] and assumes approximately 58 percent of crude throughput are sour based. |
| |
(c) | Assumes 17 percent ofSweet crude oil throughput volumes are WTI-based domestic crude oil.basket consists of the following crudes: Bakken, Brent, LLS, WTI-Cushing and WTI-Midland |
| |
(d) | This is consumption based exposure for our Refining & Marketing segment and does not include the sales exposure foreffects to our Midstream segment. |
In addition to the market changes indicated by the crack spreads, the sweet/sour differential and the discount of WTI to LLS,sweet differential, our Refining & Marketing margin is impacted by factors such as:
the selling prices realized for and the mix of refined products;products as compared to the assumptions used to calculate the market crack spreads;
the types of crude oil and other charge and blendstocks processed;
processed as compared to the assumptions used to calculate the market crack spreads;
our refinery yields;
the cost of products purchased for resale;
the impact of commodity derivative instruments used to hedge price risk; and
the potential impact of LCM adjustments to inventories in periods of declining prices; and
the minimum commitments under certain agreements with MPLX.prices.
Inventories are carriedstated at the lower of cost or market value.market. Costs of crude oil, refinery feedstocks and refined products are stated under the LIFO inventory costing method and aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values.
Refining & Marketing segment income from operations is also affected by changes in refinery direct operating costs, which include turnaround and major maintenance, depreciation and amortization and other manufacturing expenses. Changes in manufacturing costs are primarily driven by the cost of energy used by our refineries, including purchased natural gas, and the level of maintenance costs. Planned major maintenance activities, or turnarounds, requiring temporary shutdown of certain refinery operating units, are periodically performed at each refinery. Costs for planned turnaround, major maintenance and engineering projects are expensed in the period incurred.
We have various long-term, fee-based commercial agreements with MPLX.MPLX and ANDX. Under these agreements, MPLX and ANDX, which isare reported in our Midstream segment, providesprovide transportation, storage, distribution and marketing services to our Refining & Marketing segment. Certain of these agreements include commitments for minimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil, refined products and butane.other products. Certain other agreements include commitments to pay for 100 percent of available capacity for certain marine transportation and refining logistics assets.
SpeedwayRetail
Our retail marketingRetail segment profitability is impacted by fuel and merchandise margin. Fuel margin for gasoline and distillate which is the price paid by consumers or direct dealers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees impacts(where applicable). Gasoline and distillate prices are volatile and are impacted by changes in supply and demand in the Speedway segment profitability.regions where we operate. Numerous factors impact gasoline and distillate demand throughout the year, including local competition, transportation fuel prices, seasonal demand fluctuations, availability ofthe available wholesale supply, the level of economic activity in our marketing areas and weather conditions. Market demand increases for gasoline and distillate generally increase the product margin we can realize.
The margin on merchandise sold at our convenience stores historically has been less volatile and has contributed substantially to Speedway’sour Retail segment margin. Speedway’sOur Retail convenience stores offer a wide variety of merchandise, including prepared foods, beverages and non-food items.
Midstream
NGLInventories are carried at the lower of cost or market value. Costs of refined products and natural gas pricesmerchandise are volatilestated under the LIFO inventory costing method and are impacted by changes in fundamental supply and demand, as well as market uncertainty, availabilityaggregated on a consolidated basis for purposes of NGL transportation and fractionation capacity and a variety of additional factors that are beyond our control. Our Midstream segment profitability is affected by prevailing commodity prices primarily as a result of processing or conditioning at our own or third‑party processing plants, purchasing and selling or gathering and transporting volumes of natural gas at index‑related prices andassessing if the cost basis of third‑party transportation and fractionation services. To the extent that commodity prices influence the level of natural gas drilling by our producer customers, such prices also affect profitability.these inventories may have to be written down to market values.
Midstream
Our Midstream segment transports, stores, distributes and markets crude oil and refined products, principally for our Refining & Marketing segment. The profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines. The profitability of our marine operations primarily depends on the quantity and availability of our vessels and barges. The profitability of our light product terminal operations primarily depends on the throughput volumes at these terminals. The profitability of our fuels distribution services primarily depends on the sales volumes of certain refined products. The profitability of our refining logistics operations depends on the quantity and availability of our refining logistics assets. A majority of the crude oil and refined product shipments on our pipelines and marine vessels and the refined product throughput at our terminals serve our Refining & Marketing segment and our refining logistics assets and fuels distribution services are used solely by our Refining & Marketing segment. As discussed above in the Refining & Marketing section, MPLX and ANDX, which isare reported in our Midstream segment, hashave various long-term, fee-based commercial agreements related to services provided to our Refining & Marketing segment. Under these agreements, MPLX hasand ANDX have received various commitments of minimum throughput, storage and distribution volumes as well as commitments to pay for all available capacity of certain assets. The volume of crude oil that we transport is directly affected by the supply of, and refiner demand for, crude oil in the markets served directly by our crude oil pipelines, terminals and marine operations. Key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields, the availability and cost of alternative
modes of transportation, the volumes of crude oil processed at refineries and refinery and transportation system maintenance levels. The volume of refined products that we transport, store, distribute and market is directly affected by the production levels of, and user demand for, refined products in the markets served by our refined product pipelines and marine operations. In most of our markets, demand for gasoline and distillate peaks during the summer driving season, which extends from May through September of each year, and declines during the fall and winter months. As with crude oil, other transportation alternatives and system maintenance levels influence refined product movements.
Our Midstream segment also gathers and processes natural gas and NGLs. NGL and natural gas prices are volatile and are impacted by changes in fundamental supply and demand, as well as market uncertainty, availability of NGL transportation and fractionation capacity and a variety of additional factors that are beyond our control. Our Midstream segment profitability is affected by prevailing commodity prices primarily as a result of processing at our own or third‑party processing plants, purchasing and selling or gathering and transporting volumes of natural gas at index‑related prices and the cost of third‑party transportation and fractionation services. To the extent that commodity prices influence the level of natural gas drilling by our producer customers, such prices also affect profitability.
RESULTS OF OPERATIONS
The following discussion includes comments and analysis relating to our results of operations. Our results include the results of Andeavor from the October 1, 2018 acquisition date forward. This discussion should be read in conjunction with Item 1. Financial Statements and is intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting our future performance.
Consolidated Results of Operations
| | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2018 | | 2017 | | Variance | | 2018 | | 2017 | | Variance | | 2019 | | 2018 | | Variance | | 2019 | | 2018 | | Variance |
Revenues and other income: | Revenues and other income: | | | | | | | | | | | | Revenues and other income: | | | | | | | | | | | |
Sales and other operating revenues(a) | Sales and other operating revenues(a) | $ | 22,118 |
| | $ | 18,033 |
| | $ | 4,085 |
| | $ | 40,812 |
| | $ | 34,167 |
| | $ | 6,645 |
| Sales and other operating revenues(a) | $ | 33,547 |
| | $ | 22,317 |
| | $ | 11,230 |
| | $ | 61,814 |
| | $ | 41,183 |
| | $ | 20,631 |
|
Sales to related parties | 199 |
| | 147 |
| | $ | 52 |
| | 371 |
| | 301 |
| | $ | 70 |
| |
Income from equity method investments | Income from equity method investments | 80 |
| | 83 |
| | (3 | ) | | 166 |
| | 140 |
| | 26 |
| Income from equity method investments | 107 |
| | 80 |
| | 27 |
| | 206 |
| | 166 |
| | 40 |
|
Net gain on disposal of assets | Net gain on disposal of assets | 3 |
| | 7 |
| | (4 | ) | | 5 |
| | 12 |
| | (7 | ) | Net gain on disposal of assets | 4 |
| | 3 |
| | 1 |
| | 218 |
| | 5 |
| | 213 |
|
Other income | Other income | 45 |
| | 84 |
| | (39 | ) | | 75 |
| | 127 |
| | (52 | ) | Other income | 30 |
| | 45 |
| | (15 | ) | | 65 |
| | 75 |
| | (10 | ) |
Total revenues and other income | Total revenues and other income | 22,445 |
| | 18,354 |
| | 4,091 |
| | 41,429 |
| | 34,747 |
| | 6,682 |
| Total revenues and other income | 33,688 |
| | 22,445 |
| | 11,243 |
| | 62,303 |
| | 41,429 |
| | 20,874 |
|
Costs and expenses: | Costs and expenses: | | | | | | | | | | | | Costs and expenses: | | | | | | | | | | | |
Cost of revenues (excludes items below)(a) | 19,517 |
| | 16,101 |
| | 3,416 |
| | 36,887 |
| | 31,047 |
| | 5,840 |
| |
Purchases from related parties | 138 |
| | 150 |
| | (12 | ) | | 279 |
| | 272 |
| | 7 |
| |
Cost of revenues (excludes items below) | | Cost of revenues (excludes items below) | 29,682 |
| | 19,655 |
| | 10,027 |
| | 55,642 |
| | 37,166 |
| | 18,476 |
|
Depreciation and amortization | Depreciation and amortization | 533 |
| | 521 |
| | 12 |
| | 1,061 |
| | 1,057 |
| | 4 |
| Depreciation and amortization | 886 |
| | 533 |
| | 353 |
| | 1,805 |
| | 1,061 |
| | 744 |
|
Selling, general and administrative expenses | Selling, general and administrative expenses | 424 |
| | 485 |
| | (61 | ) | | 826 |
| | 875 |
| | (49 | ) | Selling, general and administrative expenses | 904 |
| | 424 |
| | 480 |
| | 1,785 |
| | 826 |
| | 959 |
|
Other taxes | Other taxes | 122 |
| | 115 |
| | 7 |
| | 225 |
| | 223 |
| | 2 |
| Other taxes | 174 |
| | 122 |
| | 52 |
| | 360 |
| | 225 |
| | 135 |
|
Total costs and expenses | Total costs and expenses | 20,734 |
| | 17,372 |
| | 3,362 |
| | 39,278 |
| | 33,474 |
| | 5,804 |
| Total costs and expenses | 31,646 |
| | 20,734 |
| | 10,912 |
| | 59,592 |
| | 39,278 |
| | 20,314 |
|
Income from operations | Income from operations | 1,711 |
| | 982 |
| | 729 |
| | 2,151 |
| | 1,273 |
| | 878 |
| Income from operations | 2,042 |
| | 1,711 |
| | 331 |
| | 2,711 |
| | 2,151 |
| | 560 |
|
Net interest and other financial costs | Net interest and other financial costs | 195 |
| | 158 |
| | 37 |
| | 378 |
| | 307 |
| | 71 |
| Net interest and other financial costs | 322 |
| | 195 |
| | 127 |
| | 628 |
| | 378 |
| | 250 |
|
Income before income taxes | Income before income taxes | 1,516 |
| | 824 |
| | 692 |
| | 1,773 |
| | 966 |
| | 807 |
| Income before income taxes | 1,720 |
| | 1,516 |
| | 204 |
| | 2,083 |
| | 1,773 |
| | 310 |
|
Provision for income taxes | Provision for income taxes | 281 |
| | 250 |
| | 31 |
| | 303 |
| | 291 |
| | 12 |
| Provision for income taxes | 353 |
| | 281 |
| | 72 |
| | 457 |
| | 303 |
| | 154 |
|
Net income | Net income | 1,235 |
| | 574 |
| | 661 |
| | 1,470 |
| | 675 |
| | 795 |
| Net income | 1,367 |
| | 1,235 |
| | 132 |
| | 1,626 |
| | 1,470 |
| | 156 |
|
Less net income attributable to: | Less net income attributable to: | | | | | | | | | | | | Less net income attributable to: | | | | | | | | | | | |
Redeemable noncontrolling interest | Redeemable noncontrolling interest | 20 |
| | 17 |
| | 3 |
| | 36 |
| | 33 |
| | 3 |
| Redeemable noncontrolling interest | 21 |
| | 20 |
| | 1 |
| | 41 |
| | 36 |
| | 5 |
|
Noncontrolling interests | Noncontrolling interests | 160 |
| | 74 |
| | 86 |
| | 342 |
| | 129 |
| | 213 |
| Noncontrolling interests | 240 |
| | 160 |
| | 80 |
| | 486 |
| | 342 |
| | 144 |
|
Net income attributable to MPC | Net income attributable to MPC | $ | 1,055 |
| | $ | 483 |
| | $ | 572 |
| | $ | 1,092 |
| | $ | 513 |
| | $ | 579 |
| Net income attributable to MPC | $ | 1,106 |
| | $ | 1,055 |
| | $ | 51 |
| | $ | 1,099 |
| | $ | 1,092 |
| | $ | 7 |
|
| |
(a)
| We adopted ASU 2014-09, Revenue - Revenue from contracts with customers (ASC 606), as of January 1,Second Quarter 2019 Compared to Second Quarter 2018 and elected to report certain taxes on a net basis. We applied the standard using the modified retrospective method and, therefore, comparative information continues to reflect certain taxes on a gross basis. |
Net income attributable to MPC increased $572$51 million in the second quarter and $579 million in the first six months of 20182019 compared to the same periodssecond quarter of 2017,2018 primarily due to increasesan increase in income from operations, partially offset by increases in net interest and other financial costs, net income attributable to noncontrolling interests.interests and provision for income taxes.
Revenues and other income increased $11.24 billion. Sales and other operating revenues increased $4.09$11.23 billion in the second quarter and $6.65 billion in the first six months of 2018 compared to the same periods of 2017. The increases were primarily due to higher averageincreased Refining & Marketing segment refined product sales prices,volumes, which increased $0.53 per gallon1,422 mbpd, largely due to the Andeavor acquisition on October 1, 2018.
Costs and $0.40 per gallon, respectively. These increases were partially offset by our election to present revenues netexpenses increased $10.91 billion primarily due to:
increased cost of certain taxes under ASC 606 prospectively from January 1, 2018, which resulted in a decrease in revenues of $1.36$10.03 billion and $2.61 billion in the second quarter and first six months of 2018, respectively. See Notes 2 and 3mainly due to the unaudited consolidated financial statements for additional information.inclusion of costs related to the Andeavor operations following the acquisition;
Sales to related parties increased $52depreciation and amortization of $353 million in the second quarter and $70 million in the first six months of 2018 compared to the same periods of 2017, due to higher average refined product sales prices.
Income from equity method investments increased $26 million in the first six months of 2018 compared to the same period of 2017, primarily due to an increasethe depreciation of the fair value of assets acquired in income from gathering and processing affiliates.connection with the Andeavor acquisition;
Other income decreased $39 million in the second quarter and $52 million in the first six months of 2018 compared to the same periods of 2017, primarily due to decreases in RIN sales.
Cost of revenues increased $3.42 billion in the second quarter and $5.84 billion in the first six months of 2018 compared to the same periods of 2017, primarily due to:
increases in refined product cost of sales of $4.43 billion and $7.80 billion, respectively, primarily due to higher raw material costs; and
decreases in certain taxes of $1.36 billion and $2.61 billion, respectively, as a result of our election to present revenues net of certain taxes under ASC 606 prospectively from January 1, 2018. For the second quarter and first six months of 2017, certain taxes continue to be presented on a gross basis and are included in cost of revenues. See Notes 2 and 3 to the unaudited consolidated financial statements for additional information on recently adopted accounting standards.
Selling,selling, general and administrative expenses decreased $61of $480 million in the second quarter and $49 million in the first six months of 2018 comparedlargely due to the same periodsinclusion of 2017. Selling, general and administrative expenses in both periods of 2018 include approximately $10 million of transaction costs related to Andeavor operations and reflecting MPC’s classification of costs and expenses; and
increased other taxes of $52 million primarily due to the pending merger withinclusion of other taxes related to the acquired Andeavor and both periods of 2017 include an $86 million litigation charge.operations.
Net interest and other financial costs increased $37$127 million mainly due to debt assumed in the second quarteracquisition of Andeavor and $71 million in the first six months of 2018 compared to the same periods of 2017, primarily due to increased MPLX borrowings.
Provision for income taxes increased $31$72 million in the second quarter and $12 million in the first six months of 2018 compared to the same periods of 2017, primarily due to increases inincreased income before income taxes of $692 million and $807 million, respectively, offset by lower effective tax rates under the TCJA.$204 million. The combined federal, state and foreign income tax rate was 1921 percent and 3019 percent for the three months ended June 30, 2019 and 2018, respectively. The effective tax rate for the three months ended June 30, 2019 was equal to the U.S. statutory rate of 21 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interests offset by equity compensation and 2017, respectively,state and local tax expense. The effective tax rate for the three months ended June 30, 2018 was less than the U.S. statutory rate of 21 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interests and equity compensation offset by state and local tax expense.
Net income attributable to noncontrolling interests increased $80 million primarily due to net income attributable to noncontrolling interest in ANDX.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Net income attributable to MPC increased $7 million in the first six months of 2019 compared to the first six months of 2018 primarily due to an increase in income from operations, partially offset by increases in net interest and other financial costs, provision for income taxes and net income attributable to noncontrolling interests.
Revenues and other income increased $20.87 billion primarily due to:
increased sales and other operating revenues of $20.63 billion primarily due to increased Refining & Marketing segment refined product sales volumes, which increased 1,415 mbpd, largely due to the Andeavor acquisition on October 1, 2018; and
increased net gain on disposal of assets of $213 million mainly due to a $207 million gain recognized in connection with MPC’s exchange of its undivided interest in the Capline pipeline system for an equity ownership in Capline LLC.
Costs and expenses increased $20.31 billion primarily due to:
increased cost of revenues of $18.48 billion primarily due to the inclusion of costs related to the Andeavor operations following the acquisition;
increased depreciation and amortization of $744 million largely due to the depreciation of the fair value of assets acquired in connection with the Andeavor acquisition;
increased selling, general and administrative expenses of $959 million mainly due to the inclusion of costs related to Andeavor operations and reflecting MPC’s classification of costs and expenses; and
increased other taxes of $135 million primarily due to the inclusion of other taxes related to the acquired Andeavor operations.
Net interest and other financial costs increased $250 million largely due to debt assumed in the acquisition of Andeavor and increased MPLX borrowings.
Provision for income taxes increased $154 million primarily due to increased income before income taxes of $310 million and $36 million of state deferred tax expense recorded as an out of period adjustment related to the Andeavor acquisition. The combined federal, state and foreign income tax rate was 22 percent and 17 percent and 30 percent for the six months ended June 30, 20182019 and 2017,2018, respectively. The effective tax rate for the three andsix months ended June 30, 2019 was greater than the U.S. statutory rate of 21 percent primarily due to $36 million of state deferred tax expense recorded as an out of period adjustment, partially offset by permanent tax differences related to net income attributable to noncontrolling interests. The effective tax rate for the six months ended June 30, 2018 was less than the U.S. statutory rate of 21 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interest and equity compensation offset by state and local tax expense. The effective tax rate for the three and six months ended June 30, 2017 was less than the U.S. statutory rate of 35 percent primarily due to certain permanent tax differences related to net income attributable to noncontrolling interest, the domestic manufacturing deductioninterests and equity compensation offset by state and local tax expense.
Net income attributable to noncontrolling interests increased $86$144 million primarily due to net income attributable to noncontrolling interest in ANDX.
Segment Results
Our segment income from operations was approximately $3.02 billion and $2.33 billion for the six months ended June 30, 2019 and 2018, respectively. The following shows the percentage of segment income from operations by segment for these periods.
Refining & Marketing
The following includes key financial and operating data for the second quarter of 2019 compared to the second quarter of 2018 and the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Our results include the results of Andeavor from the October 1, 2018 acquisition date forward.
We revised our Refining & Marketing segment supplemental reporting in the second quarter as shown in the table on page 42. Costs formerly included in MPC’s direct operating costs category are now presented in three categories: refining operating costs, refining planned turnaround costs and $213depreciation and amortization. We also present distribution costs, formerly referred to as other operating expenses, which are primarily related to transportation and marketing of refined products, including fees paid to MPLX and ANDX.
| |
(a) | Includes intersegment sales and sales destined for export. |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Refining & Marketing Operating Statistics | | | | | | | | |
Total refinery throughputs (mbpd) | | 3,135 |
| | 2,038 |
| | 3,109 |
| | 1,972 |
|
Refining & Marketing margin per barrel(a)(b) | | $ | 15.24 |
| | $ | 15.40 |
| | $ | 13.23 |
| | $ | 13.08 |
|
Less: | | | | | | | | |
Refining operating costs per barrel(c) | | 5.35 |
| | 4.19 |
| | 5.47 |
| | 4.72 |
|
Distribution costs per barrel(d) | | 4.48 |
| | 4.17 |
| | 4.56 |
| | 3.93 |
|
Other per barrel(e) | | (0.04 | ) | | (0.18 | ) | | (0.06 | ) | | (0.14 | ) |
Refining planned turnaround costs per barrel | | 0.83 |
| | 0.33 |
| | 0.75 |
| | 0.66 |
|
Depreciation and amortization per barrel | | 1.44 |
| | 1.36 |
| | 1.49 |
| | 1.41 |
|
Refining & Marketing segment income per barrel | | $ | 3.18 |
| | $ | 5.53 |
| | $ | 1.02 |
| | $ | 2.50 |
|
| |
(a) | Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs. |
| |
(b) | See “Non-GAAP Measures” section for reconciliation and further information regarding this non-GAAP measure. |
| |
(c) | Includes refining major maintenance and operating costs. Excludes turnaround and depreciation and amortization expense. |
| |
(d) | Includes fees paid to MPLX and ANDX. On a per barrel throughput basis, these fees were $2.80 and $3.21 for the three months ended June 30, 2019 and 2018, respectively, and $2.81 and $3.01 for the six months ended June 30, 2019 and 2018, respectively. Excludes depreciation and amortization expense. |
| |
(e) | Includes income from equity method investments, net gain on disposal of assets and other income. |
The following table presents certain benchmark prices in our marketing areas and market indicators that we believe are helpful in understanding the results of our Refining & Marketing segment. Following the acquisition of Andeavor in October 2018, we expanded the benchmark prices included in these tables to include market information for the West Coast region of the United States, including LA CARBOB and LA CARB diesel spot prices, ANS crude prices and a West Coast ANS 3-2-1 crack spread. However, since the results of the Andeavor businesses are only included in our results from October 1, 2018 forward, these market indicators did not affect our results for the second quarter and first six months of 2018. The benchmark crack spreads below do not reflect the market cost of RINs necessary to meet EPA renewable volume obligations for attributable products under the Renewable Fuel Standard. |
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Benchmark Spot Prices (dollars per gallon) | | 2019 | | 2018 | | 2019 | | 2018 |
Chicago CBOB unleaded regular gasoline | $ | 1.94 |
| | $ | 2.02 |
| | $ | 1.73 |
| | $ | 1.88 |
|
Chicago ULSD | 1.94 |
| | 2.12 |
| | 1.89 |
| | 2.03 |
|
USGC CBOB unleaded regular gasoline | 1.79 |
| | 1.96 |
| | 1.66 |
| | 1.87 |
|
USGC ULSD | 1.94 |
| | 2.11 |
| | 1.91 |
| | 2.02 |
|
LA CARBOB | | 2.18 |
| | 2.21 |
| | 2.00 |
| | 2.10 |
|
LA CARB diesel | | 2.13 |
| | 2.21 |
| | 2.02 |
| | 2.11 |
|
| | | | | | | | |
Market Indicators (dollars per barrel) | | | | | | | | |
LLS | | $ | 67.15 |
| | $ | 73.03 |
| | $ | 64.79 |
| | $ | 69.51 |
|
WTI | | 59.91 |
| | 67.91 |
| | 57.45 |
| | 65.46 |
|
ANS | | 68.28 |
| | 74.14 |
| | 66.41 |
| | 70.65 |
|
Crack Spreads: | | | | | | | | |
Mid-Continent WTI 3-2-1 | $ | 20.43 |
| | $ | 16.58 |
| | $ | 16.15 |
| | 13.35 |
|
USGC LLS 3-2-1 | 8.98 |
| | 9.69 |
| | 7.14 |
| | 8.81 |
|
West Coast ANS 3-2-1 | 21.78 |
| | 17.03 |
| | 16.93 |
| | 15.45 |
|
Blended 3-2-1(a) | 16.41 |
| | 14.07 |
| | 12.91 |
| | 10.63 |
|
Crude Oil Differentials: | | | | | | | |
Sweet | $ | (2.62 | ) | | $ | (3.27 | ) | | $ | (2.95 | ) | | $ | (1.90 | ) |
Sour | (2.04 | ) | | (7.86 | ) | | (2.58 | ) | | (6.87 | ) |
| |
(a) | Blended 3-2-1 Mid-Continent/USGC/West Coast crack spread is 38/38/24 percent in 2019 and Blended 3-2-1 Mid-Continent/USGC crack spread is 40/60 percent in 2018, which reflects MPC’s capacity prior to the Andeavor acquisition. These blends are based on our refining capacity by region in each period. |
Second Quarter 2019 Compared to Second Quarter 2018
Refining & Marketing segment revenues increased $9.98 billion primarily due to higher refined product sales volumes, which increased 1,422 mbpd mainly due to the Andeavor acquisition on October 1, 2018, partially offset by decreased average refined product sales prices of $0.07 per gallon.
Refinery crude oil capacity utilization was 97 percent during the second quarter of 2019 and total refinery throughputs increased 1,097 mbpd primarily due to the refineries acquired from Andeavor.
Refining & Marketing segment income from operations decreased $119 million primarily driven by higher Refining & Marketing margin, which was more than offset by higher operating, distribution and planned turnaround costs as well as higher depreciation and amortization. The increases in Refining & Marketing margin and costs and expenses were primarily due to increased sales and production volumes following the Andeavor acquisition.
Refining & Marketing margin was $15.24 per barrel for the second quarter of 2019 compared to $15.40 per barrel for the second quarter of 2018. Refining & Marketing margin is affected by the market indicators shown earlier, which use spot market values and an estimated mix of crude purchases and product sales. Based on the market indicators and our crude oil throughput, we estimate a net positive impact of approximately $2.1 billion on Refining & Marketing margin for the second quarter of 2019 compared to the second quarter of 2018, primarily due to an approximate $2.0 billion benefit from increased throughput volume, mainly attributed to the Andeavor acquisition, partially offset by narrower crude oil differentials. Our reported Refining & Marketing margin differs from market indicators due to the mix of crudes purchased and their costs, the
effect of market structure on our crude oil acquisition prices, the effect of RIN prices on the crack spread, and other items like refinery yields and other feedstock variances. These factors had an estimated negative effect of $600 million on Refining & Marketing segment income in the second quarter of 2019 compared to the second quarter of 2018.
Refining operating costs, excluding depreciation and amortization, increased $1.16 per barrel, refining planned turnaround costs increased $0.50 per barrel and distribution costs, excluding depreciation and amortization, increased $0.31 per barrel. All of these increases were primarily due to the inclusion of costs for the refining operations acquired from Andeavor and the timing of turnaround activity. The per barrel cost increases, among other items, reflect the addition of Andeavor’s West Coast refineries, which generally have higher operating costs than the other regions in which we operate due to specific geographical location and regulatory factors. Distribution costs, excluding depreciation and amortization, include fees paid to MPLX and ANDX of $798 million and $596 million for the second quarter of 2019 and 2018, respectively. Depreciation and amortization per barrel increased by $0.08, primarily due to the $0.07 increase for intangible asset amortization related to the fair value of assets acquired from Andeavor as of October 1, 2018.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Refining & Marketing segment revenues increased $18.38 billion primarily due to higher refined product sales volumes, which increased 1,415 mbpd mainly due to the Andeavor acquisition on October 1, 2018, partially offset by decreased average refined product sales prices of $0.07 per gallon.
Refinery crude oil capacity utilization was 96 percent in the first six months of 2019 and total refinery throughputs increased 1,137 mbpd primarily due to the refineries acquired from Andeavor.
Refining & Marketing segment income from operations decreased $320 million primarily driven by higher Refining & Marketing margin, more than offset by higher operating, distribution, planned turnaround and depreciation costs. The increases in Refining & Marketing margin and operating, distribution, planned turnaround and depreciation costs are primarily due to increased sales and production volumes following the Andeavor acquisition.
Refining & Marketing margin was $13.23 per barrel for the first six months 2019 compared to $13.08 per barrel for the first six months of 2018. Refining & Marketing margin is affected by the market indicators shown earlier, which use spot market values and an estimated mix of crude purchases and product sales. Based on the market indicators and our crude oil throughput, we estimate a net positive impact of approximately $3.5 billion on Refining & Marketing margin for the first six months of 2019 compared to the first six months of 2018, primarily due to an approximate $3.2 billion benefit from increased throughput volume, mainly attributed to the Andeavor acquisition, and wider sweet crude oil differentials, partially offset by narrowing sour crude oil differentials.Our reported Refining & Marketing margin differs from market indicators due to the mix of crudes purchased and their costs, market structure on our crude oil acquisition prices, RIN prices on the crack spread, and other items like refinery yields and other feedstock variances. These factors had an estimated negative effect of approximately $700 million on Refining & Marketing segment income in the first six months of 2019 compared to the first six months of 2018.
Refining operating costs, excluding depreciation and amortization, increased $0.75 per barrel, refining planned turnaround costs increased $0.09 per barrel and distribution costs, excluding depreciation and amortization, increased $0.63 per barrel. All of these increases were primarily due to the inclusion of costs for the refining operations acquired from Andeavor and the timing of turnaround activity. The per barrel cost increases, among other items, reflect the addition of Andeavor’s West Coast refineries, which generally have higher operating costs than the other regions in which we operate due to specific geographical location and regulatory factors. Distribution costs, excluding depreciation and amortization, include fees paid to MPLX and ANDX of $1.58 billion and $1.07 billion for the first six months ended of 2019 and 2018, respectively. The first six months of 2019 also increased due to one additional month of fixed fee services provided by MPLX due to timing of dropdown transactions in 2018. Depreciation and amortization per barrel increased by $0.08, primarily due to the $0.07 increase for intangible asset amortization related to the fair value of assets acquired from Andeavor as of October 1, 2018.
Supplemental Refining & Marketing Statistics
|
| | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Refining & Marketing Operating Statistics | | | | | | | |
Refined product export sales volumes (mbpd)(a) | 408 |
| | 311 |
| | 420 |
| | 292 |
|
Crude oil capacity utilization percent(b) | 97 |
| | 100 |
| | 96 |
| | 96 |
|
Refinery throughputs (mbpd):(c) | | | | | | | |
Crude oil refined | 2,937 |
| | 1,878 |
| | 2,902 |
| | 1,812 |
|
Other charge and blendstocks | 198 |
| | 160 |
| | 207 |
| | 160 |
|
Total | 3,135 |
| | 2,038 |
| | 3,109 |
| | 1,972 |
|
Sour crude oil throughput percent | 47 |
| | 55 |
| | 49 |
| | 53 |
|
Sweet crude oil throughput percent | 53 |
| | 45 |
| | 51 |
| | 47 |
|
Refined product yields (mbpd):(c) | | | | | | | |
Gasoline | 1,528 |
| | 970 |
| | 1,531 |
| | 943 |
|
Distillates | 1,080 |
| | 691 |
| | 1,086 |
| | 651 |
|
Propane | 57 |
| | 40 |
| | 55 |
| | 35 |
|
Feedstocks and petrochemicals | 370 |
| | 278 |
| | 350 |
| | 283 |
|
Heavy fuel oil | 51 |
| | 27 |
| | 48 |
| | 31 |
|
Asphalt | 83 |
| | 72 |
| | 81 |
| | 65 |
|
Total | 3,169 |
| | 2,078 |
| | 3,151 |
| | 2,008 |
|
| |
(a) | Represents fully loaded export cargoes for each time period. These sales volumes are included in the total sales volume amounts. |
| |
(b) | Based on calendar-day capacity, which is an annual average that includes down time for planned maintenance and other normal operating activities. |
| |
(c) | Excludes inter-refinery volumes which totaled 102 mbpd and 64 mbpd for the three months ended June 30, 2019 and 2018, respectively, and 88 mbpd and 53 mbpd for the six months ended June 30, 2019 and 2018, respectively. |
Retail
The following includes key financial and operating data for the second quarter of 2019 compared to the second quarter of 2018 and the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Our results include the results of Andeavor from the October 1, 2018 acquisition date forward.
| |
(a) | The price paid by consumers or direct dealers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees (where applicable), divided by gasoline and distillate sales volume. Excludes LCM inventory valuation adjustments. |
| |
(b) | See “Non-GAAP Measures” section for reconciliation and further information regarding this non-GAAP measure. |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | Six Months Ended June 30, |
Key Financial and Operating Data | | 2019 | | 2018 | 2019 | | 2018 |
Average fuel sales prices (dollars per gallon) | $ | 2.67 |
| | $ | 2.79 |
| $ | 2.62 |
| | $ | 2.66 |
|
Merchandise sales (in millions) | | $ | 1,620 |
| | $ | 1,285 |
| $ | 3,033 |
| | $ | 2,414 |
|
Merchandise margin (in millions)(a)(b) | $ | 471 |
| | $ | 366 |
| $ | 878 |
| | $ | 685 |
|
Same store gasoline sales volume (period over period)(c) | (2.4 | %) | | (2.6 | %) | (2.8 | )% | | (2.1 | )% |
Same store merchandise sales (period over period)(c)(d) | 6.3 | % | | 2.9 | % | 5.9 | % | | 2.6 | % |
Convenience stores at period-end | | 3,913 |
| | 2,744 |
| | | |
Direct dealer locations at period-end | 1,062 |
| | — |
| | | |
| |
(a) | The price paid by the consumers less the cost of merchandise. |
| |
(b) | See “Non-GAAP Measures” section for reconciliation and further information regarding this non-GAAP measure. |
| |
(c) | Same store comparison includes only locations owned at least 13 months. |
Second Quarter 2019 Compared to Second Quarter 2018
Retail segment revenues increased $3.68 billion primarily due to increased fuel and merchandise sales resulting from the Andeavor acquisition on October 1, 2018. The Andeavor acquisition added approximately 1,100 company-owned and operated locations along with long-term supply contracts for approximately 1,060 direct dealer locations. Increased fuel sales volumes of 1.15 billion gallons, almost all of which was related to the acquisition, were partially offset by decreased average fuel sales prices of $0.12 per gallon. Merchandise sales increased $335 million resulting from the contributions of the acquired businesses.
Retail segment income from operations increased $334 million largely related to the addition of the legacy Andeavor retail operations as well as a $59 million year-over-year increase in MPC's legacy Speedway segment earnings driven by higher fuel margins and merchandise sales. These increases were partially offset by increases in operating expenses and depreciation primarily resulting from the locations acquired from Andeavor. The Retail fuel margin increased to 26.66 cents per gallon in the second quarter of 2019 compared with 16.45 cents per gallon in the second quarter of 2018 and the merchandise margin increased $105 million.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Retail segment revenues increased $6.49 billion primarily due increased fuel and merchandise sales resulting from the Andeavor acquisition on October 1, 2018. Fuel sales volumes increased 2.26 billion gallons, almost all of which was related to
the acquisition, and average fuel sales prices decreased $0.04 per gallon. Merchandise sales increased $619 million resulting from the contributions of the acquired businesses.
Retail segment income from operations increased $409 million primarily due to higher light product and merchandise margins largely related to the addition of the legacy Andeavor retail operations as well as an $83 million year-over-year increase in MPC's legacy Speedway segment earnings. These increases were partially offset by increases in operating expenses and depreciation primarily resulting from the locations acquired from Andeavor. The Retail fuel margin increased to 22.00 cents per gallon in the first six months of 2019 compared with 16.04 cents per gallon in the first six months of 2018 and the merchandise margin increased $193 million.
Midstream
The following includes key financial and operating data for the second quarter of 2019 compared to the same periodssecond quarter of 20172018 and the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Our results include the results of Andeavor from the October 1, 2018 acquisition date forward.
| |
(a) | On owned common-carrier pipelines, excluding equity method investments. |
| |
(b) | Includes amounts related to unconsolidated equity method investments on a 100 percent basis. |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Benchmark Prices | | 2019 | | 2018 | | 2019 | | 2018 |
Natural Gas NYMEX HH ($ per MMBtu) | $ | 2.51 |
| | $ | 2.83 |
| | $ | 2.69 |
| | $ | 2.84 |
|
C2 + NGL Pricing ($ per gallon)(a) | $ | 0.52 |
| | $ | 0.78 |
| | $ | 0.57 |
| | $ | 0.76 |
|
| |
(a) | C2 + NGL pricing based on Mont Belvieu prices assuming an NGL barrel of approximately 35 percent ethane, 35 percent propane, 6 percent Iso-Butane, 12 percent normal butane and 12 percent natural gasoline. |
Second Quarter 2019 Compared to Second Quarter 2018
Midstream segment revenue increased $637 million primarily due to higherthe inclusion of ANDX revenues subsequent to the Andeavor acquisition on October 1, 2018.
Midstream segment income from operations increased $261 million largely due to contributions of $223 million from ANDX and a $38 million increase in Midstream segment results driven primarily by growth across MPLX’s businesses.
Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
On February 1, 2018, we completed the dropdown of refining logistics assets and fuels distribution services to MPLX, net income resultingwhich is reported in our Midstream segment. These new businesses were reported in the Midstream segment prospectively from February 1, 2018.
Midstream segment revenue increased $1.48 billion primarily fromdue to the inclusion of ANDX revenues subsequent to the Andeavor acquisition on October 1, 2018. In addition, the first six months of 2019 reflects an extra month of fees charged for fuels distribution and refining logistics services provided to Refining & Marketing following the February 1, 2018 dropdown transaction, partially offsetto MPLX.
Midstream segment income from operations increased $602 million largely due to contributions of $443 million from ANDX and a $159 million increase in Midstream segment results driven primarily by growth across MPLX’s businesses.
Items not Allocated to Segments
|
| | | | | | | | | | | | | | |
Key Financial Information (in millions) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Items not allocated to segments: | | | | | | | |
Corporate and other unallocated items(a) | $ | (179 | ) | | $ | (81 | ) | | (370 | ) | | (170 | ) |
Capline restructuring gain | — |
| | — |
| | 207 |
| | — |
|
Transaction-related costs | (34 | ) | | (10 | ) | | (125 | ) | | (10 | ) |
Litigation | (22 | ) | | — |
| | (22 | ) | | — |
|
Impairments | — |
| | 1 |
| | — |
| | 1 |
|
| |
(a) | Corporate and other unallocated items consist primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX and ANDX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Retail segments. |
Second Quarter 2019 Compared to Second Quarter 2018
Corporate and other unallocated items increased $98 million largely due the reduced ownership in MPLX held by noncontrolling interests followinginclusion of costs and expenses related to Andeavor operations.
Other unallocated items include transaction-related costs of $34 million associated with the recent dropdown transactionsAndeavor acquisition including employee retention, severance and the GP/IDR Exchange. Noncontrolling interest ownership in MPLX decreased to 36.4 percent atother costs and a litigation reserve adjustment of $22 million.
Six Months Ended June 30, 2018 from 72.8 percent at2019 Compared to Six Months Ended June 30, 2017.2018
Corporate and other unallocated items increased $200 million largely due to the inclusion of costs and expenses related to Andeavor operations. Segment ResultsOther unallocated items include a $207 million gain resulting from the agreements executed with Capline LLC to contribute our 33 percent undivided interest in the Capline pipeline system in exchange for a 33 percent ownership interest in Capline LLC. Other unallocated items also include transaction-related costs of $125 million associated with the Andeavor acquisition and a litigation reserve adjustment of $22 million. The transaction-related costs recognized in the first six months include the recognition of an obligation for vacation benefits provided to former Andeavor employees in the first quarter as well as employee retention, severance and other costs.
Non-GAAP Financial Measures
Management uses certain financial measures to evaluate our operating performance that are calculated and presented on the basis of methodologies other than in accordance with GAAP. We believe these non-GAAP financial measures are useful to investors and analysts to assess our ongoing financial performance because, when reconciled to itstheir most comparable GAAP financial measure,measures, they provide improved comparability between periods through the exclusion of certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, and our calculations thereof may not be comparable to similarly titled measures reported by other companies. The non-GAAP financial measures we use are as follows:
Refining & Marketing Margin
Refining margin is defined as sales revenue less the cost of refinery inputs and purchased products and excludes any LCM inventory market adjustment.
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Reconciliation of Refining & Marketing income from operations to Refining & Marketing margin (in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Refining & Marketing income from operations | | $ | 906 |
| | $ | 1,025 |
| | $ | 572 |
| | $ | 892 |
|
Plus (Less): | | | | | | | | |
Refining operating costs(a) | | 1,527 |
| | 776 |
| | 3,079 |
| | 1,685 |
|
Refining depreciation and amortization | | 368 |
| | 235 |
| | 755 |
| | 471 |
|
Refining planned turnaround costs | | 237 |
| | 62 |
| | 423 |
| | 235 |
|
Distribution costs(b) | | 1,277 |
| | 774 |
| | 2,567 |
| | 1,403 |
|
Distribution depreciation and amortization | | 43 |
| | 17 |
| | 83 |
| | 33 |
|
Income from equity method investments | | (3 | ) | | (4 | ) | | (4 | ) | | (7 | ) |
Net gain on disposal of assets | | — |
| | (3 | ) | | (6 | ) | | (4 | ) |
Other income | | (8 | ) | | (27 | ) | | (22 | ) | | (39 | ) |
Refining & Marketing margin | | $ | 4,347 |
| | $ | 2,855 |
| | $ | 7,447 |
| | $ | 4,669 |
|
| |
(a) | Includes refining major maintenance and operating costs. Excludes turnaround and depreciation and amortization expense. |
| |
(b) | Includes fees paid to MPLX and ANDX of $798 million and $596 million for the second quarter 2019 and 2018, respectively, and $1.58 billion and $1.07 billion for the six months ended June 30, 2019 and 2018, respectively. Excludes depreciation and amortization expense. |
Speedway Gasoline and DistillateRetail Fuel Margin
Speedway gasoline and distillateRetail fuel margin is defined as the price paid by consumers or direct dealers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees (where applicable) and excluding any LCM inventory market adjustment.
SpeedwayRetail Merchandise Margin
SpeedwayRetail merchandise margin is defined as the price paid by consumers less the cost of merchandise.
See the reconciliations of these non-GAAP financial measures in the following segment discussions.
Refining & Marketing
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Key Financial and Operating Data | | 2018 | | 2017 | | 2018 | | 2017 |
Refining & Marketing revenues (in millions)(a) | $ | 19,173 |
| | $ | 15,644 |
| | $ | 35,134 |
| | $ | 29,607 |
|
Refining & Marketing intersegment sales to Speedway (in millions)(a) | $ | 2,871 |
| | $ | 2,808 |
| | $ | 5,250 |
| | $ | 5,398 |
|
Refining & Marketing intersegment fees paid to Midstream (in millions) | $ | 762 |
| | $ | 363 |
| | $ | 1,393 |
| | $ | 707 |
|
Refining & Marketing income from operations (in millions) | $ | 1,025 |
| | $ | 562 |
| | $ | 892 |
| | $ | 492 |
|
Refined product sales volumes (mbpd)(b) | 2,392 |
| | 2,358 |
| | 2,327 |
| | 2,215 |
|
Refined product intersegment sales volumes to Speedway (millions of gallons) | 1,397 |
| | 1,431 |
| | 2,729 |
| | 2,767 |
|
Refined product export sales volumes (mbpd)(c) | 311 |
| | 313 |
| | 292 |
| | 271 |
|
Average refined product sales prices (dollars per gallon)(d) | $ | 2.16 |
| | $ | 1.63 |
| | $ | 2.05 |
| | $ | 1.65 |
|
Average refined product intersegment sales prices to Speedway (dollars per gallon)(d) | $ | 2.45 |
| | $ | 1.96 |
| | $ | 2.32 |
| | $ | 1.94 |
|
Refinery throughputs (mbpd): | | | | | | | |
Crude oil refined | | 1,878 |
| | 1,864 |
| | 1,812 |
| | 1,688 |
|
Other charge and blendstocks | | 160 |
| | 159 |
| | 160 |
| | 179 |
|
Total | | 2,038 |
| | 2,023 |
| | 1,972 |
| | 1,867 |
|
Sour crude oil throughput percent | | 55 |
| | 62 |
| | 53 |
| | 64 |
|
WTI-priced crude oil throughput percent | 28 |
| | 20 |
| | 27 |
| | 18 |
|
Refining & Marketing margin (dollars per barrel)(e) | $ | 15.40 |
| | $ | 11.32 |
| | $ | 13.08 |
| | $ | 11.47 |
|
Refinery direct operating costs (dollars per barrel)(f): | | | | | | | |
Planned turnaround and major maintenance | $ | 0.98 |
| | $ | 1.01 |
| | $ | 1.58 |
| | $ | 1.96 |
|
Depreciation and amortization | | 1.27 |
| | 1.39 |
| | 1.32 |
| | 1.50 |
|
Other manufacturing(g) | | 3.54 |
| | 3.84 |
| | 3.80 |
| | 4.24 |
|
Total | | $ | 5.79 |
| | $ | 6.24 |
| | $ | 6.70 |
| | $ | 7.70 |
|
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Reconciliation of Retail income from operations to Retail total margin (in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Retail income from operations | | $ | 493 |
| | $ | 159 |
| | $ | 663 |
| | $ | 254 |
|
Plus (Less): | | | | | | | | |
Operating, selling, general and administrative expenses | | 597 |
| | 401 |
| | 1,180 |
| | 785 |
|
Depreciation and amortization | | 130 |
| | 73 |
| | 256 |
| | 152 |
|
Income from equity method investments | | (21 | ) | | (19 | ) | | (38 | ) | | (33 | ) |
Net gain on disposal of assets | | — |
| | — |
| | (2 | ) | | — |
|
Other income | | (4 | ) | | (2 | ) | | (6 | ) | | (3 | ) |
Retail total margin | | $ | 1,195 |
| | $ | 612 |
| | $ | 2,053 |
| | $ | 1,155 |
|
| | | | | | | | |
Retail total margin: | | | | | | | | |
Fuel margin | | $ | 694 |
| | $ | 239 |
| | $ | 1,123 |
| | $ | 456 |
|
Merchandise margin | | 471 |
| | 366 |
| | 878 |
| | 685 |
|
Other margin | | 30 |
| | 7 |
| | 52 |
| | 14 |
|
Retail total margin | | $ | 1,195 |
| | $ | 612 |
| | $ | 2,053 |
| | $ | 1,155 |
|
| |
(a)
| We adopted ASU 2014-09, Revenue - Revenue from contracts with customers (ASC 606), as of January 1, 2018, and elected to report certain taxes on a net basis. We applied the standard using the modified retrospective method and, therefore, comparative information continues to reflect certain taxes on a gross basis. |
| |
(b)
| Includes intersegment sales and sales destined for export. |
| |
(c)
| Represents fully loaded export cargoes for each time period. These sales volumes are included in the total sales volume amounts. |
| |
(d)
| Refined product sales prices include consumer excise taxes. |
| |
(e)
| Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs. |
| |
(f)
| Per barrel of total refinery throughputs. Effective with the February 1, 2018 dropdown, direct operating costs related to certain refining logistics assets are now reported in the Midstream segment. No effect was given to prior periods as this entity was not considered a business prior to February 1, 2018. |
| |
(g)
| Includes utilities, labor, routine maintenance and other operating costs. |
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Reconciliation of Refining & Marketing margin to Refining & Marketing income from operations (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Refining & Marketing income from operations | | $ | 1,025 |
| | $ | 562 |
| | $ | 892 |
| | $ | 492 |
|
Plus: | | | | | | | | |
Refinery direct operating costs(a) | | 839 |
| | 894 |
| | 1,920 |
| | 2,096 |
|
Refinery depreciation and amortization | | 235 |
| | 255 |
| | 471 |
| | 506 |
|
Other: | | | | | | | | |
Operating expenses, net(a)(b) | | 739 |
| | 355 |
| | 1,353 |
| | 747 |
|
Depreciation and amortization | | 17 |
| | 17 |
| | 33 |
| | 33 |
|
Refining & Marketing margin(c) | | $ | 2,855 |
| | $ | 2,083 |
| | $ | 4,669 |
| | $ | 3,874 |
|
| |
(a)
| Excludes depreciation and amortization. |
| |
(b)
| Includes fees paid to MPLX for various midstream services. MPLX’s results are reported in MPC’s Midstream segment. |
| |
(c)
| Sales revenue less cost of refinery inputs and purchased products, excluding any LCM inventory adjustment. |
The following table presents certain benchmark prices in our marketing areas and market indicators that we believe are helpful in understanding the results of our Refining & Marketing segment’s business. The benchmark crack spreads below do not reflect the market cost of RINs necessary to meet EPA renewable volume obligations for attributable products under the Renewable Fuel Standard.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Benchmark Prices (dollars per gallon) | | 2018 | | 2017 | | 2018 | | 2017 |
Chicago spot unleaded regular gasoline | $ | 2.02 |
| | $ | 1.49 |
| | $ | 1.88 |
| | $ | 1.49 |
|
Chicago spot ultra-low sulfur diesel | 2.12 |
| | 1.48 |
| | 2.03 |
| | 1.50 |
|
USGC spot unleaded regular gasoline | 2.02 |
| | 1.52 |
| | 1.92 |
| | 1.53 |
|
USGC spot ultra-low sulfur diesel | 2.11 |
| | 1.47 |
| | 2.02 |
| | 1.52 |
|
Market Indicators (dollars per barrel) | | | | | | | | |
Chicago LLS 6-3-2-1 crack spread(a)(b) | $ | 9.24 |
| | $ | 8.96 |
| | $ | 8.02 |
| | $ | 7.80 |
|
USGC LLS 6-3-2-1 crack spread(a) | 9.07 |
| | 9.32 |
| | 8.71 |
| | 8.89 |
|
Blended 6-3-2-1 crack spread(a)(c) | 9.14 |
| | 9.18 |
| | 8.43 |
| | 8.46 |
|
LLS | 73.03 |
| | 50.17 |
| | 69.51 |
| | 51.77 |
|
WTI | 67.91 |
| | 48.15 |
| | 65.46 |
| | 49.95 |
|
LLS—WTI crude oil differential(a) | 5.12 |
| | 2.03 |
| | 4.05 |
| | 1.82 |
|
Sweet/Sour crude oil differential(a)(d) | 9.46 |
| | 5.48 |
| | 8.63 |
| | 6.15 |
|
The following table includes the impacts of changes in the market indicators on Refining & Marketing segment results. The benchmark crack spreads below do not reflect the market cost of RINs necessary to meet EPA renewable volume obligations for attributable products under the Renewable Fuel Standard.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Market Indicators impact on Refining & Marketing segment income | | 2018 vs. 2017 Variance | | 2018 vs. 2017 Variance |
| (dollars per barrel) | | (in millions) | | (dollars per barrel) | | (in millions) |
Chicago LLS 6-3-2-1 crack spread(a)(b) | | $ | 0.28 |
| | $ | 26 |
| | $ | 0.22 |
| | $ | 91 |
|
USGC LLS 6-3-2-1 crack spread(a)(e) | | (0.25 | ) | | (21 | ) | | (0.18 | ) | | 62 |
|
LLS – WTI crude oil differential(a) | | 3.09 |
| | 180 |
| | 2.23 |
| | 267 |
|
Sweet/Sour crude oil differential(a)(d) | | 3.98 |
| | 320 |
| | 2.48 |
| | 312 |
|
LLS Prompt vs LLS Delivered Cost | | 1.74 |
| | 48 |
| | 0.30 |
| | 20 |
|
Total | | | | $ | 553 |
| | | | $ | 752 |
|
| |
(a)
| All spreads and differentials are measured against prompt LLS. |
| |
(b)
| Calculation utilizes USGC three percent residual fuel oil price as a proxy for Chicago three percent residual fuel oil price. |
| |
(c)
| Blended Chicago/USGC crack spread is 40 percent/60 percent based on our refining capacity by region. |
| |
(d)
| LLS (prompt) – [delivered cost of sour crude oil: Arab Light, Kuwait, Maya, Western Canadian Select and Mars]. |
| |
(e)
| In the first six months of 2018, volume increases offset the narrowing crack spread resulting in a positive impact on segment income. |
Refining & Marketing segment revenues increased $3.53 billion in the second quarter and $5.53 billion in the first six months of 2018 compared to the same periods of 2017. The increases were primarily due to increases in refined product sales prices, which increased $0.53 per gallon and $0.40 per gallon, respectively. These increases were partially offset by our election to present revenues net of certain taxes under ASC 606 prospectively from January 1, 2018, which resulted in a decrease in Refining & Marketing segment revenues of $1.15 billion and $2.21 billion in the second quarter and first six months of 2018, respectively. See Notes 2 and 3 to the unaudited consolidated financial statements for additional information.
Refining & Marketing intersegment sales to our Speedway segment increased $63 million in the second quarter and decreased $148 million in the first six months of 2018 compared to the same periods of 2017. Refined product sales prices to Speedway increased $0.49 per gallon in the second quarter and $0.38 per gallon in the first six months of 2018. Our election to present revenues net of consumer excise taxes under ASC 606 prospectively from January 1, 2018, and decreases in sales volumes to Speedway partially offset the sales price increase in the second quarter and more than offset the sales price increase in the first six months. See Notes 2 and 3 to the unaudited consolidated financial statements for additional information.
Refining & Marketing intersegment fees paid to our Midstream segment increased $399 million in the second quarter and $686 million in the first six months of 2018 compared to the same periods of 2017, primarily due to the February 1, 2018 dropdown of fuels distribution and refining logistics services. These charges do not impact Refining & Marketing margin but reduce Refining & Marketing segment results with a corresponding increase to Midstream segment results.
Refining & Marketing segment income from operations increased $463 million in the second quarter and $400 million in the first six months of 2018, compared to the same periods of 2017. The increases in segment results were primarily driven by positive Midwest and Gulf Coast crack spreads on an ex-RIN basis as well as wider sweet and sour and WTI based crude differentials. These favorable effects more than offset the net reduction in Refining & Marketing segment results associated with the February 1, 2018, dropdown transaction of $232 million and $413 million for the second quarter and first six months of 2018, respectively. Midstream segment results include net increases of the same amounts. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018. The change in segment results in the first six months of 2018 also reflects a benefit related to the retroactive enactment of a biodiesel blending tax credit for 2017.
Refinery utilization was 99.9 percent during the second quarter resulting in record crude throughput of 1.9 million barrels per day. The USGC and Chicago LLS blended 6-3-2-1 crack spread on an ex-RIN basis was $6.98 per barrel in the second quarter of 2018 as compared to $5.71 per barrel in the second quarter of 2017. These crack spreads reflect blended 6-3-2-1 crack spreads of $9.14 and $9.18 per barrel for the second quarter of 2018 and 2017, respectively, less RIN crack adjustments of $2.16 and $3.46 per barrel for the second quarter of 2018 and 2017, respectively.
The USGC and Chicago LLS blended 6-3-2-1 crack spread on an ex-RIN basis was $5.86 per barrel in the first six months of 2018 as compared to $5.24 per barrel in the first six months of 2017. These crack spreads reflect blended 6-3-2-1 crack
spreads of $8.43 and $8.46 per barrel for the first six months of 2018 and 2017, respectively, less RIN crack adjustments of $2.58 and $3.22 per barrel for the first six months of 2018 and 2017, respectively.
Based on the changes in the market indicators shown above, which use spot market values and an estimated mix of crude purchases and product sales, we estimate a positive impact of $553 million and $752 million on Refining & Marketing segment income from operations in the second quarter and first six months of 2018, respectively, compared to the same periods of 2017. Differences in our results compared to these market indicators, including the effects of product price realizations, the mix of crudes purchased and their costs, market structure on our crude oil acquisition prices, RIN prices on the crack spread, and other items like refinery yields and other feedstock variances, had an estimated positive impact of $219 million and $44 million on Refining & Marketing segment income in the second quarter and first six months of 2018, respectively, compared to the same periods of 2017. Included in these effects were positive impacts of $238 million and $170 million for the second quarter and first six months of 2018, respectively, related to increases in the RIN crack adjustment of $1.30 and $0.64 per barrel from the same periods of 2017, respectively.
Crude oil throughputs increased 124 mbpd in the first six months of 2018 compared to the same period of 2017, primarily due to decreased turnaround activity at our Galveston Bay and Garyville refineries.
Refinery direct operating costs decreased $0.45 per barrel in the second quarter and $1.00 per barrel in the first six months of 2018 compared to the same periods of 2017, primarily due to decreases in planned turnaround and major maintenance of $0.03 per barrel and $0.38 per barrel, respectively, largely attributable to lower turnaround costs incurred by the Galveston Bay refinery in both periods and the Garyville refinery in the first six months. Other manufacturing costs were $0.30 per barrel and $0.44 per barrel lower, respectively, and depreciation and amortization was $0.12 per barrel and $0.18 per barrel lower, respectively, primarily as a result of the dropdown of refining logistics assets to MPLX on February 1, 2018. Subsequent to February 1, 2018, direct operating costs for these assets are reported in the Midstream segment. Higher crude throughputs during the second quarter and first six months of 2018 also reduced refinery direct operating costs per barrel.
We purchase RINs to satisfy a portion of our Renewable Fuel Standard compliance. Our expense associated with RINs decreased to $58 million in the second quarter and $146 million in the first six months of 2018 from $109 million in the second quarter and $206 million in the first six months of 2017, primarily due to a decrease in RINs prices.
Speedway
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Key Financial and Operating Data | | 2018 | | 2017 | | 2018 | | 2017 |
Speedway revenues (in millions)(a) | | $ | 5,267 |
| | $ | 4,797 |
| | $ | 9,839 |
| | $ | 9,181 |
|
Speedway income from operations (in millions) | $ | 159 |
| | $ | 238 |
| | $ | 254 |
| | $ | 373 |
|
Convenience stores at period-end | | 2,744 |
| | 2,729 |
| | | | |
Gasoline & distillate sales (millions of gallons) | 1,450 |
| | 1,475 |
| | 2,843 |
| | 2,868 |
|
Average gasoline & distillate sales prices (dollars per gallon) | $ | 2.79 |
| | $ | 2.30 |
| | $ | 2.66 |
| | $ | 2.27 |
|
Gasoline and distillate margin (dollars per gallon)(b) | $ | 0.1645 |
| | $ | 0.1835 |
| | $ | 0.1604 |
| | $ | 0.1704 |
|
Merchandise sales (in millions)(a) | | $ | 1,285 |
| | $ | 1,271 |
| | $ | 2,414 |
| | $ | 2,398 |
|
Merchandise margin (in millions)(c) | $ | 366 |
| | $ | 371 |
| | $ | 685 |
| | $ | 691 |
|
Merchandise margin percent | 28.5 | % | | 29.2 | % | | 28.4 | % | | 28.8 | % |
Same store gasoline sales volume (period over period)(d) | (2.6 | %) | | (0.5 | %) | | (2.1 | )% | | (0.8 | )% |
Same store merchandise sales (period over period)(d)(e) | 2.9 | % | | 2.1 | % | | 2.6 | % | | 2.1 | % |
| |
(a)
| We adopted ASU 2014-09, Revenue - Revenue from contracts with customers (ASC 606), as of January 1, 2018, and elected to report certain taxes on a net basis. We applied the standard using the modified retrospective method and, therefore, comparative information continues to reflect certain taxes on a gross basis. |
| |
(b)
| The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, divided by gasoline and distillate sales volume. |
| |
(c)
| The price paid by the consumers less the cost of merchandise. |
| |
(d)
| Same store comparison includes only locations owned at least 13 months.
|
|
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Reconciliation of Speedway total margin to Speedway income from operations (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
Speedway income from operations | | $ | 159 |
| | $ | 238 |
| | $ | 254 |
| | $ | 373 |
|
Plus (Less): | | | | | | | | |
Operating, selling, general and administrative expenses | | 401 |
| | 377 |
| | 785 |
| | 743 |
|
Depreciation and amortization | | 73 |
| | 65 |
| | 152 |
| | 129 |
|
Income from equity method investments | | (19 | ) | | (21 | ) | | (33 | ) | | (34 | ) |
Net gain on disposal of assets | | — |
| | (6 | ) | | — |
| | (10 | ) |
Other income | | (2 | ) | | (3 | ) | | (3 | ) | | (6 | ) |
Speedway total margin | | $ | 612 |
| | $ | 650 |
| | $ | 1,155 |
| | $ | 1,195 |
|
| | | | | | | | |
Speedway total margin: | | | | | | | | |
Gasoline and distillate margin(a) | | $ | 239 |
| | $ | 271 |
| | $ | 456 |
| | $ | 489 |
|
Merchandise margin(b) | | 366 |
| | 371 |
| | 685 |
| | 691 |
|
Other margin | | 7 |
| | 8 |
| | 14 |
| | 15 |
|
Speedway total margin | | $ | 612 |
| | $ | 650 |
| | $ | 1,155 |
| | $ | 1,195 |
|
| |
(a)
| The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees and excluding any LCM inventory adjustment. |
| |
(b)
| The price paid by the consumers less the cost of merchandise. |
Speedway segment revenues increased $470 million in the second quarter and $658 million in the first six months of 2018 compared to the same periods of 2017. The increases in revenues were primarily due to increases in gasoline and distillate sales of $659 million and $1.03 billion, respectively, resulting from increases in average gasoline and distillate sales prices of $0.49 per gallon and $0.39 per gallon, respectively, partially offset by decreases in gasoline and distillate sales volumes of 25 million gallons in both periods. These increases were also offset by our election to present revenues net of certain taxes under ASC 606 prospectively from January 1, 2018, which resulted in decreases in Speedway segment revenues of $215 million in the second quarter and $408 million in the first six months of 2018. See Notes 2 and 3 to the unaudited consolidated financial statements for additional information.
Speedway segment income from operations decreased $79 million in the second quarter and $119 million in the first six months of 2018, compared to the same periods of 2017. The decreases were primarily related to lower light product margins and higher expenses. Speedway’s gasoline and distillate margin decreased to 16.45 cents per gallon in the second quarter of 2018 compared with 18.35 cents per gallon in the second quarter of 2017 and decreased to 16.04 cents per gallon in the first six months of 2018 compared with 17.04 cents per gallon in the first six months of 2017, primarily due to the effects of rising crude oil prices.
Expenses increased $24 million and $42 million in the second quarter and first six months of 2018, respectively, primarily due to higher labor and benefit costs. Depreciation was $8 million and $23 million higher in the second quarter and first six months of 2018, respectively, due to increased investment in the business as well as accelerated depreciation in the first six months of 2018 due to Speedway’s upgrade of dispenser technology to provide marketing earnings enhancements and strengthen customer bank card security in advance of the required timeframe. Gains on the sale of assets of $6 million and $10 million in the second quarter and first six months of 2017, respectively, also contributed to the change in segment earnings. In addition, during the first quarter of 2018, multiple storms in the Northeast and Midwest markets resulted in reduced traffic at Speedway stores.
Midstream
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
Key Financial and Operating Data | | 2018 | | 2017 | | 2018 | | 2017 |
Midstream third party revenues (in millions)(a) | $ | 750 |
| | $ | 548 |
| | $ | 1,463 |
| | $ | 1,080 |
|
Midstream intersegment revenues - Refining & Marketing (in millions) | 762 |
| | 363 |
| | 1,393 |
| | 707 |
|
Total Midstream revenues (in millions) | $ | 1,512 |
| | $ | 911 |
| | $ | 2,856 |
| | $ | 1,787 |
|
Midstream income from operations (in millions) | 617 |
| | 332 |
| | 1,184 |
| | 641 |
|
Crude oil and refined product pipeline throughputs (mbpd)(b) | 3,789 |
| | 3,439 |
| | 3,625 |
| | 3,165 |
|
Average crude oil and refined products tariff rates (dollars per barrel)(c) | $ | 0.60 |
| | $ | 0.62 |
| | $ | 0.59 |
| | $ | 0.63 |
|
Terminal throughput (mbpd) | 1,485 |
| | 1,489 |
| | 1,465 |
| | 1,456 |
|
Gathering system throughput (MMcf/d) | 4,295 |
| | 3,326 |
| | 4,233 |
| | 3,255 |
|
Natural gas processed (MMcf/d) | 6,850 |
| | 6,292 |
| | 6,740 |
| | 6,212 |
|
C2 (ethane) + NGLs (natural gas liquids) fractionated (mbpd) | 439 |
| | 387 |
| | 432 |
| | 377 |
|
| | | | | | | | |
Benchmark Prices | | | | | | | | |
Natural Gas NYMEX HH ($ per MMBtu) | $ | 2.83 |
| | $ | 3.14 |
| | $ | 2.84 |
| | $ | 3.10 |
|
C2 + NGL Pricing ($ per gallon)(d) | $ | 0.78 |
| | $ | 0.57 |
| | $ | 0.76 |
| | $ | 0.60 |
|
| |
(a)
| We adopted ASU 2014-09, Revenue - Revenue from contracts with customers (ASC 606), as of January 1, 2018, using the modified retrospective method. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. |
| |
(b)
| On common-carrier pipelines and private pipelines owned and operated by MPLX, excluding equity method investments. |
| |
(c)
| Average tariff rates calculated using pipeline transportation revenues divided by pipeline throughput barrels. |
| |
(d)
| C2 + NGL pricing based on Mont Belvieu prices assuming an NGL barrel of approximately 35 percent ethane, 35 percent propane, six percent Iso-Butane, 12 percent normal butane and 12 percent natural gasoline. |
On February 1, 2018, we completed the dropdown of our refining logistics assets and fuels distribution services to MPLX, which is reported in our Midstream segment. Refining logistics contains the integrated tank farm assets that support MPC’s refining operations. These logistics assets include: 619 tanks, with approximately 56 million barrels of storage capacity (for crude, finished products and intermediates), 32 rail and truck racks and 18 docks. Fuels distribution is structured to provide a broad range of scheduling and marketing services as MPC’s sole and exclusive agent. These new businesses were reported in the Midstream segment prospectively from February 1, 2018. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018.
Midstream segment revenue increased $601 million in the second quarter and $1.07 billion in the first six months of 2018 compared to the same periods of 2017. Intersegment revenue, related to various midstream services provided to the Refining & Marketing segment, increased in both periods primarily due to fees charged for fuels distribution and refining logistics services following the February 1, 2018 dropdown to MPLX. Revenues also increased by approximately $124 million and $240 million, in the second quarter and first six months of 2018, respectively, due to ASC 606 gross ups. See Note 3 to the unaudited consolidated financial statements for additional information.
Midstream segment income from operations increased $285 million in the second quarter and $543 million in the first six months of 2018 compared to the same periods of 2017. These results include $232 million and $413 million in the second quarter and first six months of 2018, respectively, from the refining logistics assets and fuels distribution services contributed to MPLX on February 1, 2018. Prior period Midstream segment results do not reflect the impact of these new businesses. Strong second-quarter Midstream segment results benefited from record gathered, processed and fractionated volumes as well as pipeline throughput volumes.
Items not Allocated to Segments
|
| | | | | | | | | | | | | | |
Key Financial Information (in millions) | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2018 | | 2017 | | 2018 | | 2017 |
Items not allocated to segments: | | | | | | | |
Corporate and other unallocated items(a) | $ | (91 | ) | | $ | (83 | ) | | (180 | ) | | (166 | ) |
Litigation | — |
| | (86 | ) | | — |
| | (86 | ) |
Impairments(b) | 1 |
| | 19 |
| | 1 |
| | 19 |
|
| |
(a)
| Corporate overhead expenses attributable to MPLX are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments. |
| |
(b)
| Includes MPC’s share of gains from the sale of assets remaining from the canceled Sandpiper pipeline project. |
Corporate and other unallocated items increased $8 million in the second quarter and $14 million in the first six months of 2018 compared to the same periods in 2017, largely due to transaction costs of approximately $10 million related to the pending merger with Andeavor.
Other unallocated items in both periods of 2017 include an $86 million litigation charge and a $19 million gain on asset liquidations related to a canceled project.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Our consolidated cash and cash equivalents balance was approximately $5.00$1.25 billion at June 30, 20182019 compared to $3.01$1.69 billion at December 31, 2017.2018. Net cash provided by (used in) operating activities, investing activities and financing activities are presented in the following table.
Our cash flows reflect the results of the business acquired in connection with the Andeavor acquisition from October 1, 2018 forward. | | | | Six Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2018 | | 2017 | | 2019 | | 2018 |
Net cash provided by (used in): | Net cash provided by (used in): | | | | Net cash provided by (used in): | | | |
Operating activities | Operating activities | $ | 2,249 |
| | $ | 1,961 |
| Operating activities | $ | 4,245 |
| | $ | 2,249 |
|
Investing activities | Investing activities | (1,518 | ) | | (2,012 | ) | Investing activities | (2,880 | ) | | (1,518 | ) |
Financing activities | Financing activities | 1,258 |
| | 613 |
| Financing activities | (1,841 | ) | | 1,258 |
|
Total | $ | 1,989 |
| | $ | 562 |
| |
Total increase (decrease) in cash | | Total increase (decrease) in cash | $ | (476 | ) | | $ | 1,989 |
|
Net cash provided by operating activities increased $288 million$2.00 billion in the first six months of 20182019 compared to the first six months of 2017,2018, primarily due to an increase in operating results and favorable changes in working capital of $658 million. Changes in working capital exclude changes in short-term debt.
Changes in working capital, excluding changes in short-term debt, were a net $269 million source of cash in the first six- months of 2019 compared to a net $389 million use of cash in the first six months of 2018.
For the first six months of 2019, changes in working capital, excluding changes in short-term debt, were a net $269 million source of cash primarily due to the effects of increasing energy commodity prices at the end of the period on working capital. Current receivables increased primarily due to higher refined product and crude prices and higher crude sales volumes. Accounts payable increased primarily due to increases in crude prices and crude volumes. Inventories decreased due to decreases in refined product and crude inventories, partially offset by an unfavorable changeincrease in working capitalmaterials and supplies inventory.
For the first six months of $691 million. Changes2018, changes in working capital, excluding changes in short-term debt, were a net $389 million use of cash in the first six months of 2018 compared to a net $302 million source of cash in the first six months of 2017. The changes in working capital for the first six months of 2018 were primarily due to an increasethe effect of decreases in current receivables and a decrease in accounts payables and accrued liabilities,volumes, partially offset by a decreaseincreases in inventories. Changes from December 31, 2017 to June 30, 2018 perenergy commodity prices at the consolidated balance sheets were as follows:
end of the period on working capital. Current receivables increased $224 million from year-end 2017, primarily due to higher refined product and crude prices, partially offset by lower volumes.
Accounts payable decreased $184 million from year-end 2017, primarily due to a decrease in refined product and feedstock purchases.
Inventories decreased $65 million from year-end 2017, due to decreases in materials and supplies and refined products inventories.
The net $302 million source ofNet cash from changesused in working capitalinvesting activities increased $1.36 billion in the first six months of 2017 was primarily due to decreases in current receivables and inventories partially offset by a decrease in accounts payable and accrued liabilities. Changes from December 31, 2016 to June 30, 2017 per the consolidated balance sheets were as follows:
Current receivables decreased $358 million from year-end 2016, primarily due to lower refined product and crude volumes.
Accounts payable decreased $286 million from year-end 2016, primarily due to the timing of costs incurred for certain major maintenance activity and capital projects, lower feedstocks and other light product purchases and lower crude purchase prices, partially offset by higher crude purchase volumes.
Inventories decreased $108 million from year-end 2016, primarily due to decreases in refined product and material and supplies inventories, partially offset by an increase in crude oil inventories.
Net cash used in investing activities was $494 million lower in the first six months of 20182019 compared to the first six months of 2017,2018, primarily due to the following:
MPLX’s investment of $500 million for a partial interestAn increase in the Bakken Pipeline system in the first six months of 2017.
MPLX’s acquisition of the Ozark pipeline for $220 million in the first six months of 2017.
Additionsadditions to property, plant and equipment increased $201of $953 million primarily due to increased capital expenditures in the first six months of 20182019 in our Midstream segment.and Refining & Marketing segments; and
an increase in net investments of $434 million largely due to investments in connection with the construction of the Gray Oak Pipeline, which is scheduled to commence operations in the fourth quarter of 2019.
The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. A reconciliation of additions to property, plant and equipment per the consolidated statements of cash flows to reported total capital expenditures and investments follows.
| | | | Six Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2018 | | 2017 | | 2019 | | 2018 |
Additions to property, plant and equipment per the consolidated statements of cash flows | Additions to property, plant and equipment per the consolidated statements of cash flows | $ | 1,466 |
| | $ | 1,265 |
| Additions to property, plant and equipment per the consolidated statements of cash flows | $ | 2,419 |
| | $ | 1,466 |
|
Asset retirement expenditures | Asset retirement expenditures | 5 |
| | 1 |
| Asset retirement expenditures | — |
| | 5 |
|
Increase (decrease) in capital accruals | Increase (decrease) in capital accruals | 77 |
| | (54 | ) | Increase (decrease) in capital accruals | (281 | ) | | 77 |
|
Total capital expenditures | Total capital expenditures | 1,548 |
| | 1,212 |
| Total capital expenditures | 2,138 |
| | 1,548 |
|
Acquisitions(a) | — |
| | 220 |
| |
Investments in equity method investees(b) | 118 |
| | 677 |
| |
Investments in equity method investees (excludes acquisitions) | | Investments in equity method investees (excludes acquisitions) | 595 |
| | 118 |
|
Total capital expenditures and investments | Total capital expenditures and investments | $ | 1,666 |
| | $ | 2,109 |
| Total capital expenditures and investments | $ | 2,733 |
| | $ | 1,666 |
|
| |
| The six months ended June 30, 2017 includes the $220 million acquisition of the Ozark pipeline. |
| |
(b)
| The six months ended June 30, 2017 includes an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system. |
Financing activities were a net $1.84 billion use of cash in the first six months of 2019 compared to a net $1.26 billion source of cash in the first six months of 2018 compared to a net $613 million source of cash in the first six months of 2017.2018.
Long-term debt borrowings and repayments, including debt issuance costs, were a net $848 million source of cash in the first six months of 2019 compared to a net $4.29 billion source of cash in the first six months of 2018 compared to a net $2.01 billion source of cash in2018. During the first six months of 2017.2019, MPLX had net borrowings of $615 million under its revolving credit facility and ANDX had net borrowings of $255 million under its revolving credit facilities. During the first six months of 2018, MPLX issued $5.5 billion of senior notes, we redeemed $600 million of our senior notes and MPLX repaid $505 million in outstanding borrowings under the MPLXits revolving credit facility. During the first six months of 2017, MPLX issued $2.25 billion of senior notes and we repaid the remaining $200 million balance under the MPC term loan agreement.
Cash used in common stock repurchases increased $1.04decreased $827 million in the first six months of 2019 compared to the first six months of 2018. Share repurchases totaled $1.39 billion in the first six months of 20182019 compared to the first six months of 2017. Share repurchases totaled $2.21 billion in the first six months of 2018. In 2018, compared to $1.17 billion inshare repurchases were funded primarily by after tax proceeds from the first six months of 2017.February 1, 2018 dropdown. See Note 98 to the unaudited consolidated financial statements for further discussion of the share repurchase authorizations.repurchases.
Cash provided by the issuance of MPLX common units decreased $434used in dividend payments increased $276 million in the first six months of 20182019 compared to the first six months of 2017 as MPLX did not issue any2018, primarily due to a net increase in the number of shares of our common units for cashstock outstanding related to the Andeavor acquisition and a $0.14 per share increase in our base dividend, partially offset by a reduction of shares resulting from share repurchases. Our dividend payments were $1.06 per common share in the first six months of 2018.
Cash provided by contributions from noncontrolling interests decreased $123 million in the first six months of 20182019 compared to the first six months of 2017, primarily due to MPLX’s sale of a noncontrolling interest in Ohio Fractionation to Sherwood Midstream in the first six months of 2017 for $126 million.
Cash used in distributions to noncontrolling interests increased $70 million in the first six months of 2018 compared to the first six months of 2017, primarily due to an increase in MPLX’s distribution per common unit.
Cash used in dividend payments increased $54 million in the first six months of 2018 compared to the first six months of 2017, primarily due to a $0.20 per share increase in our quarterly dividend payment, partially offset by a decrease in the number of outstanding shares of our common stock attributable to share repurchases. Our dividend payments were $0.92 per common share in the first six months of 2018 compared2018.
Cash used in distributions to $0.72 per common sharenoncontrolling interests increased $246 million in the first six months of 2017.2019 compared to the first six months of 2018, primarily due to the addition of ANDX distributions subsequent to the acquisition of Andeavor and an increase in MPLX’s distribution per common unit.
| |
• | Contributions from noncontrolling interests increased $90 million in the first six months of 2019 compared to the first six months of 2018 primarily due to cash received in 2019 for an increased noncontrolling interest in an MPLX subsidiary. |
Derivative Instruments
See Item 3. Quantitative and Qualitative Disclosures about Market Risk for a discussion of derivative instruments and associated market risk.
Capital Resources
Our liquidity totaled $9.25$7.93 billion at June 30, 20182019 consisting of:
| | | | June 30, 2018 | | June 30, 2019 |
(In millions) | | Total Capacity | | Outstanding Borrowings | | Available Capacity | | Total Capacity | | Outstanding Borrowings | | Available Capacity |
Bank revolving credit facility(a) | Bank revolving credit facility(a) | $ | 2,500 |
| | $ | — |
| | $ | 2,500 |
| Bank revolving credit facility(a) | $ | 5,000 |
| | $ | 32 |
| | $ | 4,968 |
|
364-day bank revolving credit facility(b) | 364-day bank revolving credit facility(b) | 1,000 |
| | — |
| | $ | 1,000 |
| 364-day bank revolving credit facility(b) | 1,000 |
| | — |
| | $ | 1,000 |
|
Trade receivables facility | Trade receivables facility | 750 |
| | — |
| | 750 |
| Trade receivables facility | 750 |
| | — |
| | 750 |
|
Total | Total | $ | 4,250 |
| | $ | — |
| | $ | 4,250 |
| Total | $ | 6,750 |
| | $ | 32 |
| | $ | 6,718 |
|
Cash and cash equivalents(c)(b) | Cash and cash equivalents(c)(b) | | | | | $ | 4,996 |
| Cash and cash equivalents(c)(b) | | | | | 1,215 |
|
Total liquidity | Total liquidity | | | | | $ | 9,246 |
| Total liquidity | | | | | $ | 7,933 |
|
| |
(a) | Outstanding borrowings include $32 million in letters of credit outstanding under this facility. Excludes MPLX’s $2.25 billion bank revolving credit facility, which had approximately $2.25$1.63 billion available as of June 30, 2018.2019, and ANDX’s $2.10 billion bank revolving credit facilities, which had approximately $600 million available as of June 30, 2019. |
| |
(b) | Our $1 billion 364-day facility expired on July 20, 2018. We intend to replace this facility with a new facility to become effective upon the closing of the Andeavor merger. |
| |
(c)
| Excludes MPLX’sMPLX and ANDX cash and cash equivalents of $3 million.$7 million and $25 million, respectively. |
Because of the alternatives available to us, including internally generated cash flow and access to capital markets and a commercial paper program, we believe that our short-term and long-term liquidity is adequate to fund not only our current operations, but also our near-term and long-term funding requirements, including capital spending programs, the repurchase of shares of our common stock, dividend payments, defined benefit plan contributions, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies.
Upon the completion of the merger of MPLX and ANDX on July 30, 2019, the MPLX bank revolving credit facility was amended and restated to increase the borrowing capacity to $3.5 billion and to extend the maturity date to July 30, 2024. The ANDX revolving and dropdown credit facilities were terminated and all outstanding balances were repaid and funded with the new $3.5 billion bank revolving credit facility.
On January 2, 2018, MPLXJuly 26, 2019, we entered into a $4.1new $1 billion 364-day term-loanrevolving credit facility with a syndicate of banks that will, subject to fund the cash portionsatisfaction of customary conditions, become effective upon the February 1, 2018 dropdown consideration.
On February 8, 2018, MPLX issued $5.5expiration of our existing $1 billion 364-day revolving facility in aggregate principal amount of senior notes in a public offering, consisting of $500 million aggregate principal amount of 3.375 percent unsecured senior notes due March 2023, $1.25 billion aggregate principal amount of 4.000 percent unsecured senior notes due March 2028, $1.75 billion aggregate principal amount of 4.500 percent unsecured senior notes due April 2038, $1.5 billion aggregate principal amount of 4.700 percent unsecured senior notes due April 2048,September 2019. The new 364-day revolving credit facility contains substantially the same terms and $500 million aggregate principal amount of 4.900 percent unsecured senior notes due April 2058. MPLX used $4.1 billion of the net proceeds of the offering to repay theconditions as our existing 364-day term-loan facility. The remaining proceeds were used to repay outstanding borrowings under MPLX’s revolving credit facility and will expire in September 2020.
On July 19, 2019, we amended our $750 million trade receivables securitization facility to extend the maturity date to July 16, 2021.
On July 31, 2019, in connection with the closing of the ANDX merger, we amended and restated the existing intercompany loan agreement with us and for general partnership purposes. On April 27, 2018,MPLX to, among other things, increase MPLX’s credit facility with MPC was amended to increase itsborrowing capacity to $1thereunder from $1.0 billion to allow additional flexibility$1.5 billion in loans at any one time outstanding and to MPLX.
On March 15, 2018, we redeemed allextend the term of the $600 million outstanding aggregate principal amount of our 2.700 percent senior notes due December 2018. The 2018 senior notes were redeemed at a price equalintercompany loan agreement to par plus a make whole premium, plus accrued and unpaid interest. The make whole premium of $2.5 million was calculated based on the market yield of the applicable treasury issue as of the redemption date as determined in accordance with the indenture governing the 2018 senior notes.July 31, 2024.
We establishedhave a commercial paper program that allows us to have a maximum of $2.0 billion in commercial paper outstanding. We do not intend to have outstanding commercial paper borrowings in excess of available capacity under our bank revolving credit facility. As of June 30, 2018,2019, we had no commercial paper borrowings outstanding.
See Note 17 to the unaudited consolidated financial statements for further discussion of our debt.
The MPC credit agreements contain representations and warranties, affirmative and negative covenants and events of default that we consider usual and customary for agreements of these types. The financial covenant included in the MPC credit agreements requires us to maintain, as of the last day of each fiscal quarter, a ratio of Consolidated Net Debt to Total Capitalization (as defined in the MPC credit agreements) of no greater than 0.65 to 1.00. As of June 30, 2018,2019, we were in compliance with this financial covenant, with a ratio of Consolidated Net Debt to Total Capitalization of 0.040.21 to 1.00, as well as the other covenants contained in the MPC bank revolving credit facility.
The MPLX credit agreement contains representations and warranties, affirmative and negative covenants and events of default that we consider usual and customary for agreements of these types. The MPLX credit agreement includes a financial covenant that requires MPLX to maintain a ratio of Consolidated Total Debt (as defined in the MPLX credit agreement) as of the end of each fiscal quarter to Consolidated EBITDA (as defined in the MPLX credit agreement) for the prior four fiscal quarters of not greater than 5.0 to 1.0 (or 5.5 to 1.0 during the six-month period following certain acquisitions). Consolidated EBITDA is subject to adjustments for certain acquisitions completed and capital projects undertaken during the relevant period. Other covenants restrict MPLX and/or certain of its subsidiaries from incurring debt, creating liens on assets and entering into transactions with affiliates. As of June 30, 2018,2019, MPLX was in compliance with this debt covenant, with a ratio of Consolidated Total Debt to Consolidated EBITDA of 3.663.70 to 1.0, as well as the other covenants contained in the MPLX credit agreement.
As disclosed in Note 3 to the unaudited consolidated financial statements, we expect the adoption of the lease accounting standard update will have a material impact our consolidated financial statements as virtually all leases will be recognized as a right of use asset and lease obligation. The MPC credit agreements and the MPLX credit agreement both contain provisions under which the effects of the new accounting standard are not recognized for purposes of financial covenant calculations.
Our intention is to maintain an investment-grade credit profile. As of JuneJuly 30, 2018,2019, the credit ratings on our senior unsecured debt were at or above investment grade level as follows.
|
| | |
Company | Rating Agency | Rating |
MPC | Moody’s | Baa2 (stable outlook) |
| Standard & Poor’s | BBB (stable outlook) |
| Fitch | BBB (stable outlook) |
MPLX | Moody’s | Baa3Baa2 (stable outlook) |
| Standard & Poor’s | BBB (stable outlook) |
| Fitch | BBB-BBB (stable outlook) |
The ratings reflect the respective views of the rating agencies. Although it is our intention to maintain a credit profile that supports an investment-grade rating, there is no assurance that these ratings will continue for any given period of time. The ratings may be revised or withdrawn entirely by the rating agencies if, in their respective judgments, circumstances so warrant.
NeitherNone of the MPC credit agreements, the MPLX credit agreement, noror our trade receivables facility containcontains credit rating triggers that would result in the acceleration of interest, principal or other payments in the event that our credit ratings are downgraded. However, any downgrades of our senior unsecured debt ratings wouldcould increase the applicable interest rates, yields and other fees payable under the MPC credit agreements, MPLX credit agreement, our trade receivables facility and debt held by our ocean vessel joint venture with Crowley.such agreements. In addition, a downgrade of our senior unsecured debt rating to below investment gradeinvestment-grade levels could, under certain circumstances, decrease the amount of trade receivables that are eligible to be sold under our trade receivables facility, impact our ability to purchase crude oil on an unsecured basis, or result in us having to post letters of credit under existing transportation services agreements.or other agreements and make it more difficult to raise capital in the future.
Capital Requirements
Capital SpendingInvestment Plan
MPC’sMPC's capital investment plan excluding MPLX,for 2019 totals approximately $1.6$2.8 billion for 2018 capital projects and investments, excluding MPLX, ANDX, capitalized interest and acquisitions. MPC’s capital investment plan includes approximately $1.8 billion of growth capital and $1.0 billion of maintenance capital. This budgetplan includes all of the planned capital spending on refiningfor Refining & Marketing, Retail and marketing and retail projectsCorporate as well as amounts designated for corporate projects. Substantially alla portion of the midstream projects are includedplanned capital investments in the MPLXMidstream. MPLX’s capital investment plan whichfor 2019, excluding capitalized interest and acquisitions, includes $2.2 billion of organic growth capital and approximately $190$200 million of maintenance capital. There have been no material changes to our 2018ANDX’s capital investment plan for 2019, excluding capitalized interest and acquisitions, includes $600 million of organic growth capital and investment budget since our Annual Report on Form 10-K for the year ended December 31, 2017.approximately $100 million of maintenance capital. We continuously evaluate our capital investment plan and make changes as conditions warrant.
Capital expenditures and investments are summarized by segment below. These amounts include capital spending and investments related to businesses acquired in connection with the Andeavor acquisition from October 1, 2018 forward.
| | | | Six Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | | 2018 | | 2017 | | 2019 | | 2018 |
Refining & Marketing | Refining & Marketing | $ | 387 |
| | $ | 372 |
| Refining & Marketing | $ | 824 |
| | $ | 387 |
|
Speedway | 127 |
| | 113 |
| |
Retail | | Retail | 193 |
| | 127 |
|
Midstream(a) | Midstream(a) | 1,083 |
| | 1,564 |
| Midstream(a) | 1,637 |
| | 1,083 |
|
Corporate and Other(b)(a) | Corporate and Other(b)(a) | 69 |
| | 60 |
| Corporate and Other(b)(a) | 79 |
| | 69 |
|
Total capital expenditures and investments
| Total capital expenditures and investments
| $ | 1,666 |
| | $ | 2,109 |
| Total capital expenditures and investments | $ | 2,733 |
| | $ | 1,666 |
|
| |
(a) | Includes $220 million for the acquisition of the Ozark pipeline and an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system for the six months ended June 30, 2017. |
| |
(b)
| Includes capitalized interest of $34$65 million and $26$34 million for the six months ended June 30, 20182019 and 2017,2018, respectively. |
Capital expenditures and investments in affiliates during the six months ended June 30, 20182019 were primarily for Midstream and Refining & Marketing segment projects including the completion of a butane cavernand investments in Robinson, Illinois,affiliates. The Midstream segment capital investment plan includes projects for MPLX and ANDX. MPLX’s capital investment plan includes the addition of approximately 825 MMcf/d of processing capacity at five gas processing plants, fivetwo in the Marcellus and three in the Southwest, which expands MPLX’s processing capacity in the Permian Basin and the STACK shale play of Oklahoma. The MPLX capital investment plan also includes the addition of approximately 100 mbpd of fractionation capacity in the Marcellus and Utica basins and the continued expansion of MPLX’s marine fleet, long-haul crude oil, natural gas and NGL pipelines as well as projects to increase its export capability. The ANDX capital investment plan includes the construction of additional crude storage capacity for unloading of marine vessels, the construction of crude gathering systems to provide connectivity to multiple long-haul pipelines and a pipeline interconnect project to provide direct connectivity between certain MPC refineries. The remaining Midstreamsegment’s capital expenditures and investments relate to investments in equity affiliate pipelines, including our expected investments in the Gray Oak Pipeline, a new pipeline spanning from the West Texas Permian Basin to the Gulf Coast which were placedis expected to be in service duringby the first six monthsend of 2018, completion2019.
The Refining & Marketing segment capital investment plan includes projects focused on high-return investments in refinery optimization, production of major expansion work on the Ozarkhigher value products, increased capacity to upgrade residual fuel oil and Wood Riverexpanded export capacity. We also plan to Patoka pipeline systems and expansion of the marine fleet.continue investing in domestic light products supply placement flexibility.
Other Capital Requirements
During the six months ended June 30, 2018,2019, we made no contributionscontributed $16 million to our funded pension plans. Weplans and have noadditional required funding for 2018, butthe 2019 plan year of approximately $48 million. We may choose to make voluntaryadditional contributions for future years atto our discretion depending on the funding status and the plan asset performance.pension plans.
On July 25, 2018,31, 2019, our board of directors approved a dividend of $0.46$0.53 per share on common stock. The dividend is payable September 10, 2018,2019, to shareholders of record as of the close of business on August 16, 2018.21, 2019.
We may, from time to time, repurchase our senior notes in the open market, in privately-negotiated transactions or otherwise in such volumes, at such prices and upon such other terms as we deem appropriate.
Share Repurchases
Since January 1, 2012, our board of directors has approved $18.0 billion in total share repurchase authorizations and we have repurchased a total of $12.02$14.48 billion of our common stock, leaving $5.98$3.52 billion available for repurchases at June 30, 2018.2019. The table below summarizes our total share repurchases for the six months ended June 30, 20182019 and 2017.2018. See Note 98 to the unaudited consolidated financial statements for further discussion of the share repurchase plans.
| | | Six Months Ended June 30, | Six Months Ended June 30, |
(In millions, except per share data) | 2018 | | 2017 | 2019 | | 2018 |
Number of shares repurchased | 31 |
| | 23 |
| 23 |
| | 31 |
|
Cash paid for shares repurchased | $ | 2,212 |
| | $ | 1,170 |
| $ | 1,385 |
| | $ | 2,212 |
|
Average cost per share | $ | 71.58 |
| | $ | 51.53 |
| $ | 60.75 |
| | $ | 71.58 |
|
We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be effected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.
Contractual Cash Obligations
As of June 30, 2018,2019, our contractual cash obligations included long-term debt, capital and operating lease obligations, purchase obligations and other long-term liabilities. During the first six months of 2018,2019, our long-term debt commitments increased $9.31 billiondecreased approximately $550 million due to interest payments made during the public offering of the MPLX senior notes in February 2018,period, partially offset by the redemption of $600 million of MPC senior notes and net repayment of $505 million in outstandingincreased borrowings underon the MPLX bank revolving credit facility.
There were no other material changes to our contractual cash obligations outside the ordinary course of business since December 31, 2017.
2018.
Off-Balance Sheet Arrangements
Off-balance sheet arrangements comprise those arrangements that may potentially impact our liquidity, capital resources and results of operations, even though such arrangements are not recorded as liabilities under U.S. GAAP. Our off-balance sheet arrangements are limited to indemnities and guarantees that are described below. Although these arrangements serve a variety of our business purposes, we are not dependent on them to maintain our liquidity and capital resources, and we are not aware of any circumstances that are reasonably likely to cause the off-balance sheet arrangements to have a material adverse effect on liquidity and capital resources.
We have provided various guarantees related to equity method investees. In conjunction with our spinoff from Marathon Oil, we entered into various indemnities and guarantees to Marathon Oil. These arrangements are described in Note 2223 to the unaudited consolidated financial statements.
Our opinions concerning liquidity and capital resources and our ability to avail ourselves in the future of the financing options mentioned in the above forward-looking statements are based on currently available information. If this information proves to be inaccurate, future availability of financing may be adversely affected. Factors that affect the availability of financing include our performance (as measured by various factors, including cash provided by operating activities), the state of worldwide debt and equity markets, investor perceptions and expectations of past and future performance, the global financial climate, and, in particular, with respect to borrowings, the levels of our outstanding debt and credit ratings by rating agencies. The discussion of liquidity and capital resources above also contains forward-looking statements regarding expected capital requirements, including our capital budget and investment spending, costs for projects under construction, project completion dates and expectations or projections about strategies and goals for growth, upgrades and expansion, the carrying value of our Centennial equity investment, future contributions to our funded pension plans and share repurchases. Some factors that could cause actual results to differ materially from those included in our forward-looking statements regarding capital requirements include: the availability of liquidity; business conditions; a further decline or improvement in the long-term outlook of the potential uses of Capline’s assets and the pursuit of different strategic alternatives for such assets; a further decline or improvement in the long-term outlook of the potential uses of Centennial’s assets and the pursuit of different strategic alternatives for such assets; our ability to achieve the strategic and other objectives related to the strategic initiatives discussed herein; adverse changes in laws including with respect to tax and regulatory matters; our ability to generate sufficient income and cash flow to effect the intended share repurchases, including within the expected timeframe; our ability to manage disruptions in credit markets or changes to our credit rating; the potential impact on our share price if we are unable to effect the intended share repurchases; changes to the expected construction costs and timing of projects; delays in obtaining third-party approvals; changes in labor, materials and equipment costs and availability; planned and unplanned outages; the delay of, cancellation of or failure to implement planned capital projects; project cost overruns; disruptions or interruptions of our refining operations due to the shortage of skilled labor or unforeseen hazards such as weather conditions, acts of war or terrorist acts and the governmental or military response; civil protests and resulting legal/regulatory uncertainty regarding environmental and social issues, including pipeline infrastructure, may prevent or delay the construction and operation of such infrastructure and realization of associated revenues; continued/further volatility in and/or degradation of market and industry conditions; the availability and pricing of crude oil and other feedstocks; slower growth in domestic and Canadian crude supply; completion of pipeline capacity to areas outside the U.S. Midwest; consumer demand for refined products; transportation logistics; the reliability of processing units and other equipment; MPC's ability to successfully implement growth opportunities; modifications to MPLX earnings and distribution growth objectives; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard, and/or enforcement actions initiated thereunder; adverse results in litigation; changes to MPC's capital budget; other risk factors inherent to MPC's industry. These factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements. For additional information on forward-looking statements and risks that can affect our business, see “Disclosures Regarding Forward-Looking Statements” and “Risk Factors”, together with Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.
TRANSACTIONS WITH RELATED PARTIES
We believe that transactions with related parties were conducted under terms comparable to those with unrelated parties.
ENVIRONMENTAL MATTERS AND COMPLIANCE COSTS
We have incurred and may continue to incur substantial capital, operating and maintenance, and remediation expenditures as a result of environmental laws and regulations. If these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, our operating results will be adversely affected. We believe that substantially all of our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, marketing areas, production processes and whether it is also engaged in the petrochemical business or the marine transportation of crude oil and refined products.
On March 3, 2014, the EPA signed the final Tier 3 fuel standards. The final Tier 3 fuel standards require, among other things, a lower annual average sulfur level in gasoline to no more than 10 ppm beginning in calendar year 2017. In addition, gasoline refiners and importers may not exceed a maximum per-gallon sulfur standard of 80 ppm while retailers may not exceed a maximum per-gallon sulfur standard of 95 ppm. We anticipate thatFrom 2014 through 2018, we will spend an estimated $650made approximately $490 million between 2014 and 2019 forin capital expenditures to comply with these standards which includes estimatedand expect to make approximately $245 million in capital expenditures of approximately $400 million for 2018 andthese standards in 2019.
There have been no other significant changes to our environmental matters and compliance costs during the six months ended June 30, 2018.2019.
CRITICAL ACCOUNTING ESTIMATES
ThereAs of June 30, 2019, there have been no significant changes to our critical accounting estimates duringsince our Annual Report on Form 10-K for the three monthsyear ended June 30,December 31, 2018.
ACCOUNTING STANDARDS NOT YET ADOPTED
As discussed in Note 32 to the unaudited consolidated financial statements, certain new financial accounting pronouncements will be effective for our financial statements in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a detailed discussion of our risk management strategies and our derivative instruments, see Item 7A. Quantitative and Qualitative Disclosures about Market Risk in our Annual Report on Form 10-K for the year ended December 31, 20172018.
See Notes 15 and 16 to the unaudited consolidated financial statements for more information about the fair value measurement of our derivatives, as well as the amounts recorded in our consolidated balance sheets and statements of income. We do not designate any of our commodity derivative instruments as hedges for accounting purposes.
The following table includes the composition of net losses on our commodity derivative positions as of June 30, 2019 and 2018, respectively.
|
| | | | | | | | |
| | Six Months Ended June 30, |
(In millions) | | 2019 | | 2018 |
Realized loss on settled derivative positions | $ | (3 | ) | | $ | (46 | ) |
Unrealized loss on open net derivative positions | (79 | ) | | (39 | ) |
Net loss | $ | (82 | ) | | $ | (85 | ) |
See Note 16 to the unaudited consolidated financial statements for additional information on our open derivative positions at June 30, 2019.
Sensitivity analysis of the effects on income from operations (“IFO”) of hypothetical 10 percent and 25 percent increases and decreases in commodity prices for open commodity derivative instruments as of June 30, 20182019 is provided in the following table.
| | | | Change in IFO from a Hypothetical Price Increase of | | Change in IFO from a Hypothetical Price Decrease of | | Change in IFO from a Hypothetical Price Increase of | | Change in IFO from a Hypothetical Price Decrease of |
(In millions) | | 10% | | 25% | | 10% | | 25% | | 10% | | 25% | | 10% | | 25% |
As of June 30, 2018 | | | | | | | | |
As of June 30, 2019 | | As of June 30, 2019 | | | | | | | |
Crude | Crude | $ | (26 | ) | | $ | (65 | ) | | $ | 26 |
| | $ | 65 |
| Crude | $ | (112 | ) | | $ | (279 | ) | | $ | 115 |
| | $ | 289 |
|
Refined products | Refined products | (2 | ) | | (4 | ) | | 2 |
| | 4 |
| Refined products | 44 |
| | 110 |
| | (44 | ) | | (110 | ) |
Blending products | | Blending products | (11 | ) | | (28 | ) | | 11 |
| | 28 |
|
Embedded derivatives | Embedded derivatives | (7 | ) | | (17 | ) | | 7 |
| | 17 |
| Embedded derivatives | (7 | ) | | (16 | ) | | 7 |
| | 16 |
|
We remain at risk for possible changes in the market value of commodity derivative instruments; however, such risk should be mitigated by price changes in the underlying physical commodity. Effects of these offsets are not reflected in the above sensitivity analysis.
We evaluate our portfolio of commodity derivative instruments on an ongoing basis and add or revise strategies in anticipation of changes in market conditions and in risk profiles. Changes to the portfolio after June 30, 20182019 would cause future IFO effects to differ from those presented above.
Sensitivity analysis of the effect of a hypothetical 100-basis-point change in interest rates on long-term debt, including the portion classified as current and excluding capitalfinance leases, as of June 30, 20182019 is provided in the following table. Fair value of cash and cash equivalents, receivables, accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table.
| | (In millions) | | Fair Value as of June 30, 2018(a) | | Change in Fair Value(b) | | Change in Net Income for the Six Months Ended June 30, 2018(c) | | Fair Value as of June 30, 2019(a) | | Change in Fair Value(b) | | Change in Net Income for the Six Months Ended June 30, 2019(c) |
Long-term debt | Long-term debt | | | | | | Long-term debt | | | | | |
Fixed-rate | Fixed-rate | $ | 17,321 |
| | $ | 1,692 |
| | n/a |
| Fixed-rate | $ | 27,620 |
| | $ | 2,352 |
| | n/a |
|
Variable-rate | Variable-rate | — |
| | n/a |
| | 1 |
| Variable-rate | 2,117 |
| | n/a |
| | 9 |
|
| |
(a) | Fair value was based on market prices, where available, or current borrowing rates for financings with similar terms and maturities. |
| |
(b) | Assumes a 100-basis-point decrease in the weighted average yield-to-maturity at June 30, 20182019. |
| |
(c) | Assumes a 100-basis-point change in interest rates. The change to net income was based on the weighted average balance of debt outstanding for the six months ended June 30, 20182019. |
At June 30, 20182019, our portfolio of long-term debt was comprised of fixed-rate instruments.instruments and variable-rate borrowings. The fair value of our fixed-rate debt is relatively sensitive to interest rate fluctuations. Our sensitivity to interest rate declines and corresponding increases in the fair value of our debt portfolio unfavorably affects our results of operations and cash flows only when we elect to repurchase or otherwise retire fixed-rate debt at prices above carrying value. Interest rate fluctuations generally do not impact the fair value of borrowings under our variable-rate debt, but may affect our results of operations and cash flows.
See Note 15 to the unaudited consolidated financial statements for additional information on the fair value of our debt.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e)13a-15(e) under the Securities Exchange Act of 1934, as amended) was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of June 30, 2018,2019, the end of the period covered by this report.
Internal Control over Financial Reporting and Changes in Internal Control over Financial Reporting
During the quarter ended June 30, 2018,2019, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SUPPLEMENTARY STATISTICS (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(In millions) | 2018 | | 2017 | | 2018 | | 2017 |
Income from Operations by Segment | | | | | | | |
Refining & Marketing(a) | $ | 1,025 |
| | $ | 562 |
| | $ | 892 |
| | $ | 492 |
|
Speedway | 159 |
| | 238 |
| | 254 |
| | 373 |
|
Midstream(a) | 617 |
| | 332 |
| | 1,184 |
| | 641 |
|
Items not allocated to segments: | | | | | | | |
Corporate and other unallocated items | (91 | ) | | (83 | ) | | (180 | ) | | (166 | ) |
Litigation | — |
| | (86 | ) | | — |
| | (86 | ) |
Impairments(b) | 1 |
| | 19 |
| | 1 |
| | 19 |
|
Income from operations | $ | 1,711 |
| | $ | 982 |
| | $ | 2,151 |
| | $ | 1,273 |
|
Capital Expenditures and Investments(c) | | | | | | | |
Refining & Marketing | $ | 196 |
| | $ | 180 |
| | $ | 387 |
| | $ | 372 |
|
Speedway | 88 |
| | 78 |
| | 127 |
| | 113 |
|
Midstream(d) | 601 |
| | 494 |
| | 1,083 |
| | 1,564 |
|
Corporate and Other(e) | 33 |
| | 32 |
| | 69 |
| | 60 |
|
Total capital expenditures and investments | $ | 918 |
| | $ | 784 |
| | $ | 1,666 |
| | $ | 2,109 |
|
| |
(a)
| On February 1, 2018, we contributed certain refining logistics assets and fuels distributions services to MPLX. The results of these new businesses are reported in the Midstream segment prospectively from February 1, resulting in a net reduction of $232 million and $413 million to Refining & Marketing segment results and a net increase to Midstream segment results of the same amount for the three and six months ended June 30, 2018, respectively. No effect was given to prior periods as these entities were not considered businesses prior to February 1, 2018.
|
| |
(b)
| Includes MPC’s share of gains from the sales of assets remaining from the canceled Sandpiper pipeline project. |
| |
(c)
| Capital expenditures include changes in capital accruals, acquisitions and investments in affiliates. |
| |
(d)
| The six months ended June 30, 2017 includes $220 million for the acquisition of the Ozark pipeline and an investment of $500 million in MarEn Bakken related to the Bakken Pipeline system. |
| |
(e)
| Includes capitalized interest of $16 million and $14 million for the three months ended June 30, 2018 and 2017, respectively, and $34 million and $26 million for the six months ended June 30, 2018 and 2017, respectively. |
SUPPLEMENTARY STATISTICS (UNAUDITED)
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
MPC Consolidated Refined Product Sales Volumes (mbpd)(a) | 2,404 |
| | 2,370 |
| | 2,340 |
| | 2,228 |
|
Refining & Marketing Operating Statistics | | | | | | | |
Refining & Marketing refined product sales volume (mbpd)(b) | 2,392 |
| | 2,358 |
| | 2,327 |
| | 2,215 |
|
Export sales volume (mbpd)(c) | 311 |
| | 313 |
| | 292 |
| | 271 |
|
Refining & Marketing margin (dollars per barrel)(d) | $ | 15.40 |
| | $ | 11.32 |
| | $ | 13.08 |
| | $ | 11.47 |
|
Crude oil capacity utilization percent(e) | 99.9 |
| | 102.6 |
| | 96.3 |
| | 92.9 |
|
Refinery throughputs (mbpd):(f) | | | | | | | |
Crude oil refined | 1,878 |
| | 1,864 |
| | 1,812 |
| | 1,688 |
|
Other charge and blendstocks | 160 |
| | 159 |
| | 160 |
| | 179 |
|
Total | 2,038 |
| | 2,023 |
| | 1,972 |
| | 1,867 |
|
Sour crude oil throughput percent | 55 |
| | 62 |
| | 53 |
| | 64 |
|
WTI-priced crude oil throughput percent | 28 |
| | 20 |
| | 27 |
| | 18 |
|
Refined product yields (mbpd):(f) | | | | | | | |
Gasoline | 970 |
| | 922 |
| | 943 |
| | 895 |
|
Distillates | 691 |
| | 665 |
| | 651 |
| | 605 |
|
Propane | 40 |
| | 38 |
| | 35 |
| | 33 |
|
Feedstocks and special products | 278 |
| | 331 |
| | 283 |
| | 277 |
|
Heavy fuel oil | 27 |
| | 34 |
| | 31 |
| | 32 |
|
Asphalt | 72 |
| | 70 |
| | 65 |
| | 63 |
|
Total | 2,078 |
| | 2,060 |
| | 2,008 |
| | 1,905 |
|
Refinery direct operating costs (dollars per barrel):(g) | | | | | | | |
Planned turnaround and major maintenance | $ | 0.98 |
| | $ | 1.01 |
| | $ | 1.58 |
| | $ | 1.96 |
|
Depreciation and amortization | 1.27 |
| | 1.39 |
| | 1.32 |
| | 1.50 |
|
Other manufacturing(h) | 3.54 |
| | 3.84 |
| | 3.80 |
| | 4.24 |
|
Total | $ | 5.79 |
| | $ | 6.24 |
| | $ | 6.70 |
| | $ | 7.70 |
|
Refining & Marketing Operating Statistics By Region - Gulf Coast | | | | | | | |
Refinery throughputs (mbpd):(i) | | | | | | | |
Crude oil refined | 1,156 |
| | 1,147 |
| | 1,106 |
| | 999 |
|
Other charge and blendstocks | 190 |
| | 218 |
| | 179 |
| | 220 |
|
Total | 1,346 |
| | 1,365 |
| | 1,285 |
| | 1,219 |
|
Sour crude oil throughput percent | 65 |
| | 74 |
| | 63 |
| | 78 |
|
WTI-priced crude oil throughput percent | 16 |
| | 12 |
| | 15 |
| | 8 |
|
Refined product yields (mbpd):(i) | | | | | | | |
Gasoline | 570 |
| | 537 |
| | 552 |
| | 518 |
|
Distillates | 458 |
| | 432 |
| | 410 |
| | 371 |
|
Propane | 26 |
| | 27 |
| | 22 |
| | 24 |
|
Feedstocks and special products | 290 |
| | 360 |
| | 294 |
| | 302 |
|
Heavy fuel oil | 16 |
| | 23 |
| | 20 |
| | 20 |
|
Asphalt | 23 |
| | 19 |
| | 20 |
| | 17 |
|
Total | 1,383 |
| | 1,398 |
| | 1,318 |
| | 1,252 |
|
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Refinery direct operating costs (dollars per barrel):(g) | | | | | | | |
Planned turnaround and major maintenance | $ | 0.56 |
| | $ | 0.91 |
| | $ | 1.65 |
| | $ | 2.40 |
|
Depreciation and amortization | 0.99 |
| | 1.10 |
| | 1.04 |
| | 1.21 |
|
Other manufacturing(h) | 3.21 |
| | 3.45 |
| | 3.54 |
| | 3.96 |
|
Total | $ | 4.76 |
| | $ | 5.46 |
| | $ | 6.23 |
| | $ | 7.57 |
|
Refining & Marketing Operating Statistics By Region – Midwest | | | | | | | |
Refinery throughputs (mbpd):(i) | | | | | | | |
Crude oil refined | 722 |
| | 717 |
| | 706 |
| | 689 |
|
Other charge and blendstocks | 34 |
| | 28 |
| | 34 |
| | 30 |
|
Total | 756 |
| | 745 |
| | 740 |
| | 719 |
|
Sour crude oil throughput percent | 39 |
| | 42 |
| | 38 |
| | 43 |
|
WTI-priced crude oil throughput percent | 49 |
| | 34 |
| | 48 |
| | 32 |
|
Refined product yields (mbpd):(i) | | | | | | | |
Gasoline | 400 |
| | 385 |
| | 391 |
| | 377 |
|
Distillates | 233 |
| | 233 |
| | 241 |
| | 234 |
|
Propane | 14 |
| | 12 |
| | 13 |
| | 10 |
|
Feedstocks and special products | 52 |
| | 56 |
| | 42 |
| | 45 |
|
Heavy fuel oil | 11 |
| | 12 |
| | 11 |
| | 12 |
|
Asphalt | 49 |
| | 51 |
| | 45 |
| | 46 |
|
Total | 759 |
| | 749 |
| | 743 |
| | 724 |
|
Refinery direct operating costs (dollars per barrel):(g) | | | | | | | |
Planned turnaround and major maintenance | $ | 1.65 |
| | $ | 1.06 |
| | $ | 1.33 |
| | $ | 1.02 |
|
Depreciation and amortization | 1.66 |
| | 1.76 |
| | 1.71 |
| | 1.84 |
|
Other manufacturing(h) | 3.81 |
| | 4.13 |
| | 3.98 |
| | 4.31 |
|
Total | $ | 7.12 |
| | $ | 6.95 |
| | $ | 7.02 |
| | $ | 7.17 |
|
Speedway Operating Statistics | | | | | | | |
Convenience stores at period-end | 2,744 |
| | 2,729 |
| | | | |
Gasoline and distillate sales (millions of gallons) | 1,450 |
| | 1,475 |
| | 2,843 |
| | 2,868 |
|
Gasoline and distillate margin (dollars per gallon)(j) | $ | 0.1645 |
| | $ | 0.1835 |
| | $ | 0.1604 |
| | $ | 0.1704 |
|
Merchandise sales (in millions) | $ | 1,285 |
| | $ | 1,271 |
| | $ | 2,414 |
| | $ | 2,398 |
|
Merchandise margin (in millions) | $ | 366 |
| | $ | 371 |
| | $ | 685 |
| | $ | 691 |
|
Merchandise margin percent | 28.5 | % | | 29.2 | % | | 28.4 | % | | 28.8 | % |
Same store gasoline sales volume (period over period)(k) | (2.6 | %) | | (0.5 | %) | | (2.1 | %) | | (0.8 | %) |
Same store merchandise sales (period over period)(k)(l) | 2.9 | % | | 2.1 | % | | 2.6 | % | | 2.1 | % |
Midstream Operating Statistics | | | | | | | |
Crude oil and refined product pipeline throughputs (mbpd)(m) | 3,789 |
| | 3,439 |
| | 3,625 |
| | 3,165 |
|
Terminal throughput (mbpd) | 1,485 |
| | 1,489 |
| | 1,465 |
| | 1,456 |
|
Gathering system throughput (MMcf/d)(n) | 4,295 |
| | 3,326 |
| | 4,233 |
| | 3,255 |
|
Natural gas processed (MMcf/d)(n) | 6,850 |
| | 6,292 |
| | 6,740 |
| | 6,212 |
|
C2 (ethane) + NGLs (natural gas liquids) fractionated (mbpd)(n) | 439 |
| | 387 |
| | 432 |
| | 377 |
|
| |
(a)
| Total average daily volumes of refined product sales to wholesale, branded and retail customers. |
| |
(b)
| Includes intersegment sales. |
| |
(c)
| Represents fully loaded export cargoes for each time period. These sales volumes are included in the total sales volume amounts. |
| |
(d)
| Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs. |
| |
(e)
| Based on calendar-day capacity, which is an annual average that includes down time for planned maintenance and other normal operating activities. |
| |
(f)
| Excludes inter-refinery volumes of 64 mbpd and 87 mbpd for the three months ended June 30, 2018 and 2017, respectively, and 53 mbpd and 71 mbpd for the six months ended June 30, 2018 and 2017, respectively. |
| |
(g)
| Per barrel of total refinery throughputs. Effective with the February 1, 2018 dropdown, direct operating costs related to certain refining logistics assets are now reported in the Midstream segment. No effect was given to prior periods as this entity was not considered a business prior to February 1, 2018. |
| |
(h)
| Includes utilities, labor, routine maintenance and other operating costs. |
| |
(i)
| Includes inter-refinery transfer volumes. |
| |
(j)
| The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bank card processing fees, divided by gasoline and distillate sales volume. |
| |
(k)
| Same store comparison includes only locations owned at least 13 months.
|
| |
(m)
| Includes common-carrier pipelines and private pipelines owned or operated by MPLX, excluding equity method investments. |
| |
(n)
| Includes amounts related to unconsolidated equity method investments on a 100 percent basis. |
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving
a variety of matters, including laws and regulations relating to the environment. Except as described below, there have been no material changes to the legal proceedings previously disclosed in our Annual Report on Form 10-K, as updated in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Between June 20Litigation
As previously disclosed, in May 2007, the Kentucky attorney general filed a lawsuit against us and Marathon Oil in state court in Franklin County, Kentucky for alleged violations of Kentucky’s emergency pricing and consumer protection laws following Hurricanes Katrina and Rita in 2005. The lawsuit alleged that we overcharged customers by $89 million during September and October 2005. The complaint sought disgorgement of these sums, as well as penalties, under Kentucky’s emergency pricing and consumer protection laws. In May 2011, the Kentucky attorney general amended his complaint to include a request for immediate injunctive relief as well as unspecified damages and penalties related to our wholesale gasoline pricing in April and May 2011 under statewide price controls that were activated by the Kentucky governor on April 26, 2011 and which have since expired. The court denied the attorney general’s request for immediate injunctive relief. In July 11, 2018, six putative class actions were filed against some or all of Andeavor, the directors of Andeavor, and MPC Mahi Inc. (“Merger Sub 1”) and Mahi LLC (“Merger Sub 2” and, together with2019, MPC and Merger Sub 1, the “MPC Defendants”), relatingattorney general reached a settlement to the merger. Two complaints, Malka Raul v. Andeavor, et al., and Stephen Bushansky v. Andeavor, et al., were filed in the U.S. District Court for the Western District of Texas. Four complaints, captioned The Vladimir Gusinsky Rev. Trust v. Andeavor, et al., Lawrence Zucker v. Andeavor, et al., Mel Gross v. Andeavor, et al., and Hudson v. Andeavor, et al. were filed in the U.S. District Court for the District of Delaware. The complaints generally allege that Andeavor, the directors of Andeavor and the MPC Defendants disseminated a false or misleading registration statement regarding the proposed merger in violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder. Specifically, the complaints allege that the registration statement filed by MPC misstated or omitted material information regarding the parties’ financial projections and the analyses performed by Andeavor’s and MPC’s respective financial advisors, and that disclosure of material information is necessary in light of preclusive deal protection provisions in the merger agreement, the financial interests of Andeavor’s officers and directors in completing the deal, and the financial interests of Andeavor’s and MPC’s respective financial advisors. The complaints further allege that the directors of Andeavor and/or the MPC Defendants are liable for these violations as “controlling persons” of Andeavor under Section 20(a) of the Exchange Act. The complaints seek injunctive relief, including to enjoin and/or rescind the merger, damages in the event the merger is consummated, and an award of attorneys’ fees, in addition to other relief. Additional lawsuits arising out of the proposed merger may be filed in the future. We believe that the lawsuits are without merit and intend to defend vigorously against them and any other lawsuits challenging the merger. Therefore, atresolve this time, we dolitigation. This resolution will not believe the ultimate resolution of these lawsuits will have a material adverse effect.effect on our consolidated financial position, results of operations or cash flows.
Environmental Proceedings
Detroit Refinery
In June 2019, we received an offer from the Michigan Department of Environment, Great Lakes, and Energy (“EGLE”) to settle violations alleged in five NOVs issued to the refinery between September 2017 and February 2019. The NOVs allege violations of emissions limitations and other requirements of the refinery’s air permit. We are negotiating a settlement of the allegations with EGLE and cannot currently estimate the timing of the resolution of this matter.
El Paso Refinery
We are presently negotiating with the EPA regarding several emission events at our El Paso refinery that could subject the refinery to stipulated penalties under the existing Consent Decree in U.S. v. Western Refining Co. LP, W.D. Texas No. 3:11-CV-00276-FM (entered August 31, 2011). We cannot currently estimate the timing of the resolution of this matter.
Gallup Refinery
As previously reporteddisclosed in ourMPC’s Annual Report on Form 10-K for the year ended December 31, 2017, MarkWest Liberty Midstream2018 (the “2018 10-K”), on October 19, 2018, Western Refining Southwest, Inc. (“Refining Southwest”) received an offer from the EPA to settle alleged violations of the Resource Conservation and its affiliates agreedRecovery Act (“RCRA”) regulations. In the second quarter of 2019, Refining Southwest and the EPA executed a Consent Agreement and Final Order (CAFO) (Effective Date April 3, 2019) to resolve these allegations, which arose from the Gallup refinery’s self-disclosure of incorrectly profiling and shipping hazardous waste between August 26, 2013 and February 18, 2014 to a disposal site that did not have a RCRA permit and could not accept RCRA hazardous waste. The CAFO requires payment of a penalty of $148,303, and the development of a standard operating procedure, training, a system of management review of waste determination, and a narrative of changes since the alleged violations occurred.
As previously disclosed in our 2018 10-K, in March 2016, the EPA conducted a Risk Management Program inspection at our Gallup refinery and issued an Inspection Report on April 7, 2016 identifying Areas of Concern. In the second quarter of 2019, Refining Southwest and the EPA executed a Consent Agreement and Final Order (CAFO) and Administrative Compliance Order (ACO) (Effective Date April 16, 2019) to resolve alleged violations of the Clean Air Act regulations at the Gallup refinery arising from a Risk Management Program (RMP) inspection that EPA conducted at Gallup refinery in March 2016. Pursuant to the CAFO & ACO Gallup paid a civil penalty of $98,874 and will complete a Supplemental Environmental Project (SEP) valued at approximately $91,351.
Galveston Bay Refinery
In the second quarter of 2019, we reached an agreement with the Texas Commission on Environmental Quality to pay a penalty of $62,782 and undertake a supplemental environmental project at a cost of $62,781 to settle allegations arising from an investigation of deviations self-reported in the 2016 Title V deviation reports.
Los Angeles Refinery
As previously disclosed in our 2018 10-K, Tesoro Refining and Marketing LLC (“TRMC”) previously reached an agreement in principle to pay a cash penalty of approximately $0.6 million$425,000 and to undertake certaina supplemental environmental projects with an estimatedproject at a cost of approximately $2.4 million, related$425,000 to civil enforcementsettle allegations associated with permittingby the CARB relating to the state’s Greenhouse Gas Reporting Standards. The CARB allegations relate to the self-disclosure and other regulatory obligations for launcher/receiver and compressor station facilities in southeastern Ohio and western Pennsylvania. On April 24, 2018, MarkWest Liberty Midstream and its affiliates entered into a Consent Decreecorrection of reported greenhouse gas emissions emitted by the Los Angeles refinery’s calciner unit from May 9, 2014 to June 12, 2017. A formal agreement consistent with the EPAforegoing was signed in May 2019, and we expect to make the Pennsylvania Departmentrelated payments in the third quarter of Environmental Protection resolving these issues, pursuant2019.
As previously disclosed in our 2018 10-K, TRMC reached an agreement to which MarkWest Liberty Midstream will pay a penalty of $0.6 million$75,000 and undertake certain supplemental environmental projects with an estimated cost of approximately $2.4 million,$75,000 to settle five NOVs from the South Coast Air Quality Management District. The NOVs were issued to the Los Angeles refinery between June and October 2017, alleging violations of various federal and district air emission regulations. A formal agreement consistent with the foregoing was signed in addition to other related projects that are substantially complete. The Consent Decree was approved by the court on July 9, 2018April 2019 and the penalty has been paid.
Martinez Refinery
As reported previously disclosed in our Annual Report2018 10-K, on Form 10-K forJuly 18, 2016, the year ended December 31, 2017, MPL agreed in principle to payU.S. Department of Justice (“DOJ”) lodged a total civil penaltycomplaint on behalf of $335,000 to the Illinois Environmental Protection Agency (“IEPA”) and the EPA related to an April 17, 2016 pipeline release toand a Consent Decree with the Wabash River near Crawleyville, Indiana. MPL paid a penaltyWestern District Court of $226,000 toTexas. Among other things, the Consent Decree required that the Martinez refinery meet certain annual emission limits for NOx by July 1, 2018. In February 2018, TRMC informed the EPA duringthat it would need additional time to satisfy requirements of the Consent Decree. In the second quarter of 20182019, MPC, the EPA and the DOJ reached a settlement in principle, which includes a civil penalty of approximately $6.5 million and a penaltyschedule for installation of $109,000a Selective Catalytic Reduction system to IEPA in July 2018.control NOx emissions from the FCCU.
ITEM 1A. RISK FACTORS
TheThere have been no material changes from the risk factors below supplement and, where applicable, update the discussion of risk factors that could adversely affect our business includedpreviously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017. With the exception of the following, there have been no other material changes2018, as updated in our risk factors from those found under Item 1A. Risk Factors in our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended December 31, 2017.
Risks Relating to the Previously Announced Proposed Merger with Andeavor
Failure to complete the merger with Andeavor could negatively impact the price of shares of MPC common stock, as well as MPC’s future businesses and financial results.
The merger agreement contains a number of conditions that must be satisfied or waived prior to the completion of the merger. There can be no assurance that all of the conditions to the merger will be so satisfied or waived. If the conditions to the merger are not satisfied or waived, MPC and Andeavor will be unable to complete the merger and the merger agreement may be terminated.
If the merger is not completed for any reason, including the failure to receive the required approvals of MPC’s and Andeavor’s respective stockholders, MPC’s businesses and financial results may be adversely affected as follows:
MPC may experience negative reactions from the financial markets, including negative impacts on the market price of shares of MPC common stock;
the manner in which customers, vendors, business partners and other third parties perceive MPC may be negatively impacted, which in turn could affect MPC’s marketing operations or its ability to compete for new business or obtain renewals in the marketplace more broadly;
MPC may experience negative reactions from employees; and
MPC will have expended time and resources that could otherwise have been spent on MPC’s existing businesses and the pursuit of other opportunities that could have been beneficial to MPC, and MPC’s ongoing business and financial results may be adversely affected.
In addition to the above risks, if the merger agreement is terminated and MPC’s board seeks an alternative transaction, MPC’s stockholders cannot be certain that it will be able to find a party willing to engage in a transaction on more attractive terms than the merger. If the merger agreement is terminated under specified circumstances, either MPC or Andeavor may be required to pay the other party a termination fee, reverse termination fee or other termination-related payment.
MPC will be subject to business uncertainties while the merger is pending, which could adversely affect its business.
Uncertainty about the effect of the merger on employees and customers may have an adverse effect on MPC. These uncertainties may impair MPC’s ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause customers and others that deal with MPC to seek to change their existing business relationships with MPC, respectively. In addition, the merger agreement restricts MPC and Andeavor from entering into certain corporate transactions and taking other specified actions without the consent of the other party. These restrictions may prevent MPC from pursuing attractive business opportunities that may arise prior to the completion of the merger.
The merger may not be accretive, and may be dilutive, to MPC’s earnings per share and cash flow from operations per share, which may negatively affect the market price of shares of MPC common stock.
The merger may not be accretive, and may be dilutive, to MPC’s earnings per share and cash flow from operations per share. Earnings per share and cash flow from operations per share in the future are based on preliminary estimates that may materially change. In addition, future events and conditions could decrease or delay any accretion, result in dilution or cause greater dilution than is currently expected, including:
adverse changes in energy market conditions;
commodity prices for oil, natural gas and natural gas liquids;
production levels;
operating results;
competitive conditions;
laws and regulations affecting the energy business;
capital expenditure obligations;
higher than expected integration costs;
lower than expected synergies; and
general economic conditions.
Any dilution of, or decrease or delay of any accretion to, MPC’s earnings per share or cash flow from operations per share could cause the price of MPC’s common stock to decline.
MPC will incur significant transaction and merger-related costs in connection with the merger, which may be in excess of those anticipated by MPC.
MPC has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement, including the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus and all filing and other fees paid to the SEC in connection with the merger.
MPC expects to continue to incur a number of non-recurring costs associated with completing the merger, combining the operations of the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance and benefit costs and filing fees.
MPC will also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. MPC will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the merger and the integration of the two companies’ businesses. Although MPC expects that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow MPC to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all. See the risk factor entitled “The integration of Andeavor into MPC may not be as successful as anticipated” below.
The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of MPC following the completion of the merger.
Many of these costs will be borne by MPC and/or Andeavor even if the merger is not completed.
The combined company’s debt may limit its financial flexibility.
As of March 31, 2018, MPC had approximately $17.8 billion of outstanding indebtedness, including approximately $12.4 billion of obligations of MPLX. As of March 31, 2018, Andeavor had approximately $8.8 billion of outstanding indebtedness, including approximately $4.2 billion of obligations of Andeavor Logistics. MPC continues to review the treatment of its and Andeavor’s existing indebtedness and MPC may seek to repay, refinance, repurchase, redeem, exchange or otherwise terminate its or Andeavor’s existing indebtedness prior to, in connection with or following the completion of the merger. If MPC does seek to refinance its or Andeavor’s existing indebtedness, there can be no guarantee that MPC would be able to execute the refinancing on favorable terms or at all. Assuming MPC does not repay, repurchase, redeem, exchange or otherwise terminate any of its or Andeavor’s existing indebtedness, immediately following the completion of the merger, MPC is expected to have outstanding indebtedness of approximately $27.7 billion, based on MPC’s and Andeavor’s outstanding indebtedness as of March 31, 2018.
Any increase in MPC’s indebtedness could have adverse effects on its financial condition and results of operations, including:
increasing MPC’s vulnerability to changing economic, regulatory and industry conditions;
limiting MPC’s ability to compete and MPC’s flexibility in planning for, or reacting to, changes in its business and the industry;
limiting MPC’s ability to pay dividends to its stockholders;
limiting MPC’s ability to borrow additional funds; and
requiring MPC to dedicate a substantial portion of its cash flow from operations to payments on its debt, thereby reducing funds available for working capital, capital expenditures, acquisitions, share repurchases, dividends and other purposes.
In addition, in connection with executing MPC’s business strategies following the merger, MPC expects to continue to evaluate the possibility of acquiring additional assets and making further strategic investments, and MPC may elect to finance these endeavors by incurring additional indebtedness.
MPC’s ability to arrange any additional financing for the purposes described above or otherwise will depend on, among other factors, the company’s financial position and performance, as well as prevailing market conditions and other factors beyond MPC’s control. MPC cannot assure you that it will be able to obtain such financing on terms acceptable to MPC or at all.
The impact of the recent significant federal tax reform on the combined company is uncertain and may significantly affect the operations of the combined company after the merger.
On December 22, 2017, the President signed the budget reconciliation act commonly referred to as the Tax Cuts and Jobs Act, which is referred to as the TCJA, into law. The TCJA makes broad and complex changes to the U.S. tax code. The TCJA will change how the combined company’s earnings are taxed, including, among other items, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) repealing the corporate alternative minimum tax and changing how existing credits can be utilized; (3) temporarily providing for elective immediate expensing for certain depreciable property; (4) creating a new limitation on the deductibility of interest expense; and (5) changing rules related to uses and limitations of net operating losses
created in tax years beginning after December 31, 2017. MPC continues to evaluate the TCJA and its impact on the combined company’s businesses. It is possible that the TCJA will be subject to further changes either in a technical corrections bill or entirely new legislation. The overall impact of the TCJA also depends on the future interpretations and regulations that may be issued by U.S. tax authorities. We expect there will be further guidance provided by these authorities potentially having a material adverse effect on our combined financial condition or results of operations. The impact of broad proposals or of regulatory issuances on our business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are implemented by the authorities.
The integration of Andeavor into MPC may not be as successful as anticipated.
The merger involves numerous operational, strategic, financial, accounting, legal, tax and other risks; potential liabilities associated with the acquired businesses; and uncertainties related to design, operation and integration of Andeavor’s internal control over financial reporting. Difficulties in integrating Andeavor into MPC may result in Andeavor performing differently than expected, in operational challenges or in the failure to realize anticipated expense-related efficiencies. MPC’s and Andeavor’s existing businesses could also be negatively impacted by the merger. Potential difficulties that may be encountered in the integration process include, among other factors:
the inability to successfully integrate the businesses of Andeavor into MPC in a manner that permits MPC to acheive the full revenue and cost savings anticipated from the merger;
complexities associated with managing the larger, more complex, integrated business;
not realizing anticipated operating synergies or incurring unexpected costs to realize such synergies;
integrating personnel from the two companies while maintaining focus on providing consistent, high-quality products and services;
potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the merger;
loss of key employees;
integrating relationships with customers, vendors and business partners;
performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the merger and integrating Andeavor’s operations into MPC; and
the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures and policies.
MPC’s results may suffer if it does not effectively manage its expanded operations following the merger.
Following completion of the merger, MPC’s success will depend, in part, on its ability to manage its expansion, which poses numerous risks and uncertainties, including the need to integrate the operations and business of Andeavor into its existing business in an efficient and timely manner, to combine systems and management controls and to integrate relationships with customers, vendors and business partners.
Even if MPC and Andeavor complete the merger, MPC may fail to realize all of the anticipated benefits of the proposed merger.
The success of the proposed merger will depend, in part, on MPC’s ability to realize the anticipated benefits and cost savings from combining MPC’s and Andeavor’s businesses, including the approximately $1 billion in annual gross, run-rate, commercial and corporate synergies that MPC expects the combined company to realize within the first three years after the combination. The anticipated benefits and cost savings of the proposed merger may not be realized fully or at all, may take longer to realize than expected, may require more non-recurring costs and expenditures to realize than expected or could have other adverse effects that MPC does not currently foresee. Some of the assumptions that MPC has made, such as with respect to anticipated: operating synergies or the costs associated with realizing such synergies; significant long-term cash flow generation; the benefit from a substantial increase in scale and geographic diversity; complementary growth platforms for both midstream and retail businesses; positioning for potentially significant benefits from the International Maritime Organization change in specifications for marine bunker fuel; the expansion in opportunities for logistics growth in crude oil production basins and regions; further optimization of crude supply; and the continuation of MPC’s investment grade credit profile, may not be realized. The integration process may, for each of MPC and Andeavor, result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. There could be potential unknown liabilities and unforeseen expenses associated with the merger that were not discovered in the course of performing due diligence.
The market price of shares of MPC common stock may decline in the future as a result of the sale of shares of MPC common stock held by former Andeavor stockholders or current MPC stockholders.
Based on the number of shares of Andeavor common stock outstanding as of April 26, 2018 (other than certain excluded shares held by Andeavor, MPC or any of their respective direct or indirect subsidiaries), MPC expects to issue up to approximately 240 million shares of MPC common stock to Andeavor stockholders in the merger. Following their receipt of shares of MPC common stock as stock consideration in the merger, former Andeavor stockholders may seek to sell the shares of MPC common stock delivered to them. Other MPC stockholders may also seek to sell shares of MPC common stock held by them following, or in anticipation of, completion of the merger. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of MPC common stock, may affect the market for, and the market price of, MPC common stock in an adverse manner.
The combined company will record goodwill and other intangible assets that could become impaired and result in material non-cash charges to the results of operations of the combined company in the future.
The merger will be accounted for as an acquisition by MPC in accordance with accounting principles generally accepted in the United States. Under the acquisition method of accounting, the assets and liabilities of Andeavor and its subsidiaries will be recorded, as of completion, at their respective fair values and added to those of MPC. The reported financial condition and results of operations of MPC for periods after completion of the merger will reflect Andeavor balances and results after completion of the merger, but will not be restated retroactively to reflect the historical financial position or results of operations of Andeavor and its subsidiaries for periods prior to the merger.
Under the acquisition method of accounting, the total purchase price will be allocated to Andeavor’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the merger. The excess of the purchase price over those fair values will be recorded as goodwill. MPC and Andeavor expect that the merger will result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent the value of goodwill or intangibles becomes impaired, the combined company may be required to incur material non-cash charges relating to such impairment. The combined company’s operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment.
We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017.2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth a summary of our purchases during the quarter ended June 30, 2018,2019, of equity securities that are registered by MPC pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
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Period | | Total Number of Shares Purchased(a) | | Average Price Paid per Share(b) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(c) |
04/01/18-04/30/18 | 6,367,133 |
| | $ | 75.58 |
| | 6,245,920 |
| | $ | 6,391,663,224 |
|
05/01/18-05/31/18 | 4,296,124 |
| | 77.31 |
| | 4,296,124 |
| | 6,059,509,350 |
|
06/01/18-06/30/18 | 1,048,678 |
| | 76.07 |
| | 1,048,448 |
| | 5,979,755,079 |
|
Total | 11,711,935 |
| | 76.26 |
| | 11,590,492 |
| | |
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(a) | | Average Price Paid per Share(b) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(c) |
04/01/2019-04/30/2019 | 5,268,926 |
| | $ | 61.25 |
| | 5,141,205 |
| | $ | 3,704,606,774 |
|
05/01/2019-05/31/2019 | 410,585 |
| | 61.05 |
| | 409,578 |
| | 3,679,603,410 |
|
06/01/2019-06/30/2019 | 3,193,848 |
| | 50.11 |
| | 3,193,663 |
| | 3,519,582,400 |
|
Total | 8,873,359 |
| | 57.23 |
| | 8,744,446 |
| | |
| |
(a) | The amounts in this column include 121,213127,721, 1,007 and 230185 shares of our common stock delivered by employees to MPC, upon vesting of restricted stock, to satisfy tax withholding requirements in April, May and June,, respectively. |
| |
(b) | Amounts in this column reflect the weighted average price paid for shares purchased under our share repurchase authorizations and for shares tendered to us in satisfaction of employee tax withholding obligations upon the vesting of restricted stock granted under our stock plans. The weighted average price includes commissions paid to brokers on shares purchased under our share repurchase authorizations. |
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(c) | On April 30, 2018, we announced that our board of directors had approved a $5$5.0 billion share repurchase authorization in addition to the remaining authorization pursuant to the May 31, 2017 announcement. Theseauthorization. This share repurchase authorizations haveauthorization has no expiration date. The share repurchase authorization announced on April 30, 2018, together with prior authorizations, results in a total of $18$18.0 billion of share repurchase authorizations since January 1, 2012. |
ITEM 5. OTHER INFORMATION
None
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| | | | | | Incorporated by Reference | | Filed Herewith | | Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | SEC File No. | |
| | | | 8-K | | 2.1 | | 4/30/2018 | | 001-35054 | | | | |
| | | | S-4/A | | 2.2 | | 7/5/2018 | | 333-225244 | | | | |
| | | | 8-K | | 3.1 | | 6/22/2011 | | 001-35054 | | | | |
| | | | | | | | | | | | X | | |
| | | | 8-K | | 3.1 | | 5/1/2018 | | 001-35054 | | | | |
| | | | 8-K | | 10.1 | | 4/30/2018 | | 001-35054
| | | | |
| | | | | | | | | | | | X | | |
| | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | X |
| | | | | | | | | | | | | | X |
101.INS | | XBRL Instance Document | | | | | | | | | | X | | |
101.SCH | | XBRL Taxonomy Extension Schema | | | | | | | | | | X | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | | | | | | | | X | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | | | | | | | | X | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | | | | | | | | X | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase | | | | | | | | | | X | | |
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| | | | | | | | | | | | | | |
| | | | | | Incorporated by Reference | | Filed Herewith | | Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | SEC File No. | |
| | | | 8-K | | 2.1 | | 4/30/2018 | | 001-35054 | | | | |
| | | | S-4/A | | 2.2 | | 7/5/2018 | | 333-225244 | | | | |
| | | | 8-K | | 2.1 | | 9/18/2018 | | 001-35054 | | | | |
| | | | 8-K | | 2.1 | | 5/8/2019 | | 001-35054 | | | | |
| | | | 8-K | | 3.2 | | 10/1/2018 | | 001-35054 | | | | |
| | | | 10-K | | 3.2 | | 2/28/2019 | | 001-35054 | | | | |
| | | | 8-K | | 10.1 | | 5/8/2019 | | 001-35054 | | | | |
| | Second Amendment to Receivables Purchase Agreement, dated July 19, 2019, by and among MPC Trade Receivables Company LLC, as seller, Marathon Petroleum Company LP, as servicer, MUFG Bank, Ltd., as administrative agent, certain committed purchasers and conduit purchasers that are parties thereto from time to time and certain other parties thereto from time to time as managing agents and letter of credit issuers. | | 8-K | | 10.1 | | 7/25/2019 | | 001-35054 | | | | |
| | 364-Day Revolving Credit Agreement, dated as of July 26, 2019, among MPC, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, each of JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC, Barclays Bank PLC, Citibank, N.A., BofA Securities, Mizuho Bank, Ltd., MUFG Bank, Ltd. and Royal Bank of Canada, as joint lead arrangers and joint bookrunners, Wells Fargo Bank, National Association, as syndication agent, each of Bank of America, N.A., Barclays Bank PLC, Citibank, N.A., Mizuho Bank, Ltd., MUFG Bank, Ltd., and Royal Bank of Canada, as documentation agents, and the other lenders and issuing banks that are parties thereto. | | 8-K | | 10.1 | | 8/1/2019 | | 001-35054 | | | | |
| | Amended and Restated Credit Agreement, dated as of July 26, 2019, by and among MPLX, as borrower, Wells Fargo Bank, National Association, as administrative agent, each of Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., Barclays Bank PLC, BofA Securities, Inc., Citigroup Global Markets Inc., Mizuho Bank, Ltd., MUFG Bank, Ltd. and Royal Bank of Canada, as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as syndication agent, each of Bank of America, N.A., Barclays Bank PLC, Citigroup Global Markets Inc., Mizuho Bank, Ltd., MUFG Bank, Ltd. and Royal Bank of Canada, as documentation agents, and the other lenders and issuing banks that are parties thereto. | | 8-K | | 10.2 | | 8/1/2019 | | 001-35054 | | | | |
| | Waiver and Second Amendment to Fourth Amended and Restated Omnibus Agreement, dated as of July 29, 2019, by and among MPC, Andeavor Logistics LP, Tesoro Logistics GP, LLC, Tesoro Refining & Marketing Company LLC, Tesoro Companies, Inc., Tesoro Alaska Company LLC and Marathon Petroleum Company LP. | | 8-K | | 10.3 | | 8/1/2019 | | 001-35054 | | | | |
| | | | | | | | | | | | X | | |
| | | | | | | | | | | | X | | |
| | | | | | | | | | | | | | X |
| | | | | | | | | | | | | | X |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL document. | | | | | | | | | | | | |
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| | | | | | | | | | | | | | |
| | | | | | Incorporated by Reference | | Filed Herewith | | Furnished Herewith |
Exhibit Number | | Exhibit Description | | Form | | Exhibit | | Filing Date | | SEC File No. | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | | | | | | | | | X | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | | | | | | X | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | | | | | | X | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | | | | | | X | | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | | | | | | X | | |
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* | Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Marathon Petroleum Corporation hereby undertakes to furnish supplementally a copy of any omitted schedule upon request by the SEC. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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August 6, 20185, 2019 | MARATHON PETROLEUM CORPORATION |
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| By: | /s/ John J. Quaid |
| | John J. Quaid Vice President and Controller |