Marathon Petroleum Corp. Reports First-quarter 2020 Results

Source Press Release
Company Marathon Petroleum Corporation 
Tags Refining & Marketing Activities, Strategy - Downstream, Capital Spending, Guidance, Financial & Operating Data, Strategy - Corporate
Date May 05, 2020

Marathon Petroleum Corp. (NYSE: MPC) today reported a net loss of $9.2 billion, or $(14.25) per diluted share, for the first quarter of 2020, compared to a loss of $7 million, or $(0.01) per diluted share, for the first quarter of 2019.

First-quarter 2020 results include pre-tax charges of $12.4 billion primarily related to non-cash impairments. Details on these and other adjustments are shown in the accompanying release tables. Adjusted net loss was $106 million, or $(0.16) per diluted share, for the first quarter of 2020, compared to an adjusted net loss of $59 million, or $(0.09) per diluted share, for the first quarter of 2019.

"Recent global events, including the COVID-19 pandemic and oil price tensions, have been disruptive to the personal and professional lives of many and significantly impacted demand for the transportation fuels we manufacture," said President and Chief Executive Officer Michael J. Hennigan. "In addressing these challenges, first and foremost, we are focused on the health and safety of our employees, our customers, and the communities where we operate. We are grateful for everyone working on the front lines of this pandemic and are proud to do our part by contributing supplies to those affected by this crisis. These are unprecedented times, leading us to make prudent tactical changes for 2020. We believe these proactive steps will help maintain our financial strength, support our investment-grade credit rating, and enhance the through-cycle resiliency of our business."

The company announced the following actions in response to the COVID-19 environment:

  • Consolidated capital spending reductions of $1.4 billion, or approximately 30%, which takes expected spending levels down to $3.0 billion for 2020. The reductions are planned across all segments of the business, including: $250 million in refining; $770 million in midstream, which includes MPLX; $250 million in retail; and $80 million in corporate. Remaining capital spend primarily relates to growth projects that are already in progress or spending that supports the safe and reliable operation of our facilities.

  Capital Spending, Millions of Dollars 
  Prior 2020  Revised 2020   
 Guidance(a)  Outlook  % Decrease 
       
Refining & Marketing  1,550    1,300    -16% 
Midstream       
     MPC Midstream(b)  300    230    -23% 
     MPLX  1,750    1,050    -40% 
  2,050    1,280    -38% 
Retail  550    300    -45% 
Corporate/Other  200    120    -40% 
MPC Consolidated  4,350    3,000    -31% 

   
(a)  As previously announced January 29, 2020 
(b)  Excludes capital budget associated with MPLX 

  • A reduction to forecasted consolidated operating expenses of $950 million in 2020, primarily through reductions of fixed costs and deferral of certain expense projects, which includes $200 million of operating expense reductions at MPLX.
  • Throughput levels have been reduced across the organization, including the temporary idling of some facilities. The company plans to continue to monitor market conditions and optimize crude oil acquisition, refining run rates, and logistics systems to respond on a regional basis.
  • Share repurchases have temporarily been suspended. The company will evaluate the timing of future repurchases as market conditions evolve.
  • The company issued $2.5 billion of senior notes in April.
  • The company also secured an additional $1 billion 364-day revolving credit facility in April.
  • As of May 5, 2020, MPC's total credit capacity, excluding MPLX, is approximately $7.5 billion and available borrowing capacity is approximately $6.75 billion.
  • The company continues to evaluate further actions to enhance liquidity.

Segment Results
Loss from operations was $11.8 billion in the first quarter of 2020, compared to income of $669 million in the first quarter of 2019. First-quarter 2020 results include $12.4 billion of non-cash charges.

  Three Months Ended March 31, 
(In millions)  2020    2019 
Income (loss) from operations by segment:           
Refining & Marketing  (622)      (334)   
Retail    519        170   
Midstream    905        908   
Corporate and other unallocated items    (227)        (191)   
Segment income before other items not allocated to segments    575        553   
           
Other items not allocated to segments:           
    Equity method investment restructuring gains    —        207   
    Transaction-related costs    (35)        (91)   
    Impairments    (9,137)        —   
    Inventory market valuation adjustment    (3,220)        —   
Income (loss) from operations  (11,817)      669   

Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $1.9 billion in the first quarter of 2020, compared to $1.7 billion for the first quarter of 2019. Adjusted EBITDA excludes refining planned turnaround costs of $329 million for the first quarter of 2020 and $186 million for the first quarter of 2019.

Reconciliation of Segment Income (Loss) From Operations to Segment Adjusted EBITDA and Adjusted EBITDA 
 
  Three Months Ended March 31, 
(In millions)  2020    2019 
Refining & Marketing Segment           
Segment loss from operations  (622)      (334)   
Add: Depreciation and amortization    447        427   
        Refining planned turnaround costs    329        186   
Segment Adjusted EBITDA  154      279   
Retail Segment           
Segment income from operations  519      170   
Add: Depreciation and amortization    125        126   
Segment EBITDA  644      296   
Midstream Segment           
Segment income from operations  905      908   
Add: Depreciation and amortization    345        307   
Segment EBITDA  1,250      1,215   
           
Segment Adjusted EBITDA  2,048      1,790   
Corporate and other unallocated items    (227)        (191)   
Add: Depreciation and amortization    45        59   
Adjusted EBITDA  1,866      1,658   

Refining & Marketing (R&M)

R&M segment loss from operations was $622 million in the first quarter of 2020 compared to a loss from operations of $334 million for the first quarter of 2019. The quarter-over-quarter decrease in R&M earnings was primarily due to lower blended crack spreads, lower sweet differentials, and higher planned turnaround expenses.

Segment adjusted EBITDA was $154 million in the first quarter of 2020, versus $279 million for the first quarter of 2019. Segment adjusted EBITDA excludes refinery planned turnaround costs, which totaled $329 million in the first quarter of 2020 and $186 million in the first quarter of 2019.

R&M margin was $11.30 per barrel for the first quarter of 2020. Crude capacity utilization was 91%, resulting in total throughputs of 3.0 million barrels per day, and clean product yield was 83%.

Retail

Retail segment income from operations was $519 million in the first quarter of 2020, compared with $170 million for the first quarter of 2019. Segment EBITDA was $644 million in the first quarter of 2020, versus $296 million for the first quarter of 2019. The increase in quarterly results was primarily due to higher fuel margins, partially offset by lower fuel volume.

Retail fuel margin increased to 32.91 cents per gallon in the first quarter of 2020, from 17.15 cents per gallon in the first quarter of 2019. Same-store merchandise sales increased by 0.7% year-over-year and same-store gasoline sales volume decreased by 8.3% year-over-year.

Midstream

Midstream segment income from operations, which primarily reflects the results of MPLX, was $905 million in the first quarter of 2020, compared with $908 million for the first quarter of 2019.

Segment EBITDA was $1.3 billion in the first quarter of 2020, versus $1.2 billion for the first quarter of 2019. Strong performance in the midstream business was driven by stable, fee-based earnings as well as contributions from organic growth projects.

Items Not Allocated to Segments and Other

Items not allocated to segments totaled $12.6 billion of expense in the first quarter of 2020, compared to $75 million in the first quarter of 2019. First quarter 2020 results include a $3.2 billion lower of cost or market inventory charge; $9.1 billion of impairment expense related to goodwill, equity method investments, and long-lived assets; as well as $35 million of costs incurred in connection with the Speedway separation, midstream strategic review, and other related activities.

The effective tax rate for the first quarter of 2020 was 16%, primarily due to the effect of non-tax deductible goodwill impairments.

Financial Position and Liquidity

As of March 31, 2020, the company had $1.6 billion in cash and cash equivalents (excluding MPLX's cash and cash equivalents of $57 million), $3 billion available under a five-year bank revolving credit facility, $1 billion available under a 364-day bank revolving credit facility, and $750 million available under its trade receivables securitization facility. MPC drew $2 billion on the five-year bank revolving credit facility in the first quarter of 2020. This borrowing was undertaken to provide financial flexibility given the recent commodity price downturn and the significant working capital impact associated with the decline in crude oil prices. The company has made borrowings to manage the impact of working capital in the past and expects to do so from time to time in the future.

In mid-April, the company borrowed an incremental $1.5 billion on the five-year bank revolving credit facility. In late April, the company issued $2.5 billion of senior notes. Net proceeds were used to repay amounts outstanding on the five-year revolving credit facility. Also in late April, the company added an additional $1 billion 364-day revolver.

As of May 5, 2020, the company had total credit capacity, excluding MPLX, of $7.5 billion, comprised of $5 billion on the five-year bank revolving credit facility, $2 billion under two 364-day bank revolving credit facilities, and $517 million under a trade receivables securitization facility. Of this amount, $6.75 billion is undrawn and available.

Strategic and Operations Update

During the quarter, the company announced the unanimous decision of its Board of Directors to maintain MPC's current midstream structure, with the company remaining the general partner of MPLX. MPC continues to target fourth quarter 2020 for the completion of the separation of Speedway, however timing could change given the COVID-19 related impacts to the business environment and access to capital markets.

Consistent with MPC's midstream strategy of developing long-haul pipelines and other logistics solutions, the company progressed several projects during the quarter, including the Wink-to-Webster crude oil pipeline, the Whistler natural gas pipeline, and the reversal of the Capline crude pipeline. Each of these projects is backed by minimum volume commitments from customers.

In addition, the Gray Oak pipeline began full service on April 1, 2020. The Gray Oak pipeline connects to multiple terminals, including the South Texas Gateway terminal, which is expected to start up in the third quarter of 2020. MPC owns a 25% interest in both the Gray Oak pipeline and the South Texas Gateway terminal.

In keeping with the company's retail strategy of driving merchandise growth and operating cost efficiencies, Speedway continues to expand its brand through store conversions, completing 39 store conversions in the quarter prior to suspending activities due to impacts from COVID-19.

In refining, growth capital spend is primarily focused on high-return projects that are in progress or spending that supports the safe and reliable operation of our facilities. At Garyville, the second phase of the coker project was completed in the first quarter of 2020. Construction continues on the Dickinson Renewable Diesel project, which remains on schedule for planned completion in late 2020. The project will convert the Dickinson refinery into a 12,000 barrel per day biorefinery capable of producing renewable diesel from corn and soybean oil. MPC intends to sell the renewable diesel into the California market to comply with the California Low Carbon Fuel Standard.

Second Quarter 2020 Outlook

Refining & Marketing Segment:     
Refining operating costs per barrel(a)  6.90   
Distribution costs (in millions)  1,275   
Refining planned turnaround costs (in millions)  215   
Depreciation and amortization (in millions)  440   
     
Refinery throughputs (mbpd):     
    Crude oil refined    2,045   
    Other charge and blendstocks    80   
        Total    2,125   
     

   
(a)  Includes refining major maintenance and operating costs. Excludes turnaround and depreciation and amortization expenses. 
   

Retail Segment:  Range 
Fuel sales (millions of gallons)    1,450        1,650   
Merchandise sales (in millions)  1,400      1,500   
           
       
Corporate and unallocated items (in millions)  220   
     

Conference Call

At 9:30 a.m. ET today, MPC will hold a conference call and webcast to discuss the reported results and provide an update on company operations. Interested parties may listen by visiting MPC's website at  and clicking on the "Join the Webcast" link. A replay of the webcast will be available on the company's website for two weeks. Financial information, including the earnings release and other investor-related material, will also be available online prior to the conference call and webcast at https://www.marathonpetroleum.com.

Source: EvaluateEnergy® ©2020 EvaluateEnergy Ltd