Timothy T. Griffith - Vice President of Finance & Investor Relations and Treasurer Gary R. Heminger - Chief Executive Officer, President, Director and Member of Executive Committee Donald C. Templin - Chief Financial Officer and Senior Vice President Anthony R. Kenney - President of Speedway LLC C.

Michael Palmer - Senior Vice President of Supply, Distribution & Planning Richard D. Bedell - Senior Vice President of Refining.

Evan Calio - Morgan Stanley & Co. Inc. Ed Westlake - Credit Suisse Securities LLC Phil Gresh - JP Morgan Paul Sankey - Wolfe Research Neil Mehta - Goldman Sachs Paul Cheng - Barclay's Jeffrey A. Dietert - Simmons & Company International, Research Division Chi Chow - Tudor Pickering Holt and Co.

Brad Heffern - RBC Capital Markets Mohit Bhardwaj - Citigroup.

Good morning and welcome to the Fourth Quarter 2014 Marathon Petroleum Earnings Call. My name is Brandon and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer-session. Please note that this conference is being recorded and I will now turn it over to Mr. Tim Griffith.

You may begin, sir..

Okay, thank you, Brandon. Good morning and welcome to Marathon Petroleum Corporation's Fourth Quarter 2014 Earnings Webcast and Conference Call. The synchronized slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor Center tab.

On the call today are Gary Heminger, President and CEO; Don Templin, Senior Vice President and CFO; Mike Palmer, Senior Vice President of Supply, Distribution and Planning; Rich Bedell, Senior Vice President of Refining, Pam Beall, Senior Vice President of Corporate Planning and Government and Public Affairs; and Tony Kenney, President of Speedway.

We invite you to read the Safe Harbor statements on Slide 2. It's a reminder that we will be making forward-looking statements during the presentation and during the question-and-answer session. Actual results may differ materially from what we expect today.

Factors that could cause actual results to differ are included here, as well, as in our filings with the SEC. With that, I'll be happy to turn the call over to Gary Heminger for opening remarks and highlights. Gary..

Thank you, Tim, and good morning everyone and thank you for joining our call. We are pleased to report strong results for the quarter and full-year of $798 million of earnings in the fourth quarter and $2.5 billion or earnings for the full-year. MPC completed another milestone year.

Our Refining & Marketing segment achieved income from operations of $3.6 billion for the year while executing the largest series of planned refinery maintenance projects in the company's history.

Our achievements such as acquisition of Hess' retail operations and the acceleration of MPLX growth underscore our commitment to grow higher-value, stable cash flow segments of the business while optimizing our refining system for strong returns.

While crude oil prices fell and crack spreads narrowed during the fourth quarter, we experienced strong product price realizations at both the wholesale and retail level.

Speedway reported record earnings of $273 million for the quarter, including the newly acquired Hess locations and posted what would have been recording earnings for just the legacy Speedway locations. Conversions of these new locations and the deployment of Speedway's highly successful merchandise model are progressing well.

As of January 31, 134 of the 1,245 acquired stores have been converted. We are taking the opportunity to evaluate ways to leverage existing best practices of both business models and implementing those practices across the entire Speedway platform.

The earnings power of this combined business will be tremendous, and we are well positioned to execute our strategy to grow the EBITDA of this business to over $1 billion. MPC completed its third and largest dropdown to MPLX during the fourth quarter of 2014, which increased MPLX's interest in Pipeline Holdings to 99.5%.

This dropdown was an important first step in our strategy to substantially accelerate the growth of MPLX. As the sponsor of MPLX, MPC intends to maintain a growing reserve of MLP eligible assets.

That growth in reserves will be accomplished through MPC's continued focus of midstream investments and both entities' participation and energy infrastructure build-out that continues in North America. MPC continued to deliver peer-leading capital returns to its shareholders.

MPC returned a total of $2.7 billion of capital to shareholders in 2014, $820 million which occurred in the fourth quarter. We have repurchased approximately 25% of the shares that were outstanding when we became a standalone company. MPC remains focused on the long-term value proposition for our investors.

We also announced this morning our 2015 investment plan of $2.5 billion, which includes $1.3 billion for the refining and marketing segment, $452 million for the Speedway segment, and $659 million for the pipeline transportation segment.

With respect to the residual oil upgrader expansion project at the Garyville refinery, we believe this project has great potential returns, but we are deferring our final investment decision as we further evaluate the implications of current market conditions on the project.

MPC's 2015 capital plan reflects our commitment to further develop a stable cash flow, generate excitements of our business while enhancing refining margins.

This will be done by growing our midstream assets, integrating the Hess retail operations into our Speedway business, and continuing to implement the margin enhancement projects in refining, including synergistic projects at our Galveston Bay refinery, which we acquired in 2013.

Before I turn it over to Don, I also want to take this opportunity to remind investors that as a backdrop of the volatile crude price environment, we experienced over the last six months, we continue to be enthusiastic about the prospects for this business.

Our flexible refining system, large retail presence, and extensive logistics network allowed us to successfully adapt to changing production and supply patterns. This was a year where our results clearly demonstrate the value of our integrated downstream system.

Looking ahead, I think it is important to continue to pay close attention to crude oil inventory in PADD III and Cushing. We believe as those inventory levels continue to rise, it will have a favorable impact on crude differentials in the coming months. Fundamentally, ours is a spread business.

We are well positioned to drive sustainable earnings in a variety of crude price environments, and we continue to believe that our best days are in front of us. With that, let me ask Don to review our financial performance for the quarter and provide some more detailed commentary on our 2015 capital plan..

Thanks Gary. Slide 4 provides earnings both on an absolute and per share basis. Our financial performance for both the fourth quarter and full-year 2014 was strong. MPC had earnings of $798 million or $2.86 per diluted share during the fourth quarter of 2014 compared to $626 million or $2.07 per diluted share in last year's fourth quarter.

For the full-year 2014, our earnings were over $2.5 billion, $400 million improvement over the $2.1 billion of earnings in 2013. Earnings per diluted share were $8.78 for the full-year 2014 compared to $6.64 for 2013. The chart on slide 5 shows by segment the change in earnings from the fourth quarter of 2013 to the fourth quarter of 2014.

Speedway segment income was a major driver for our year-over-year increase, which I'll discuss in a minute. The Refining & Marketing segment income also contributed to the increase in overall earnings in the quarter.

Turning to slide 6, Refining & Marketing segment income from operations was just over $1 billion in the fourth quarter of 2014 compared with $971 million in the fourth quarter last year.

The increase from 2013 was primarily due to higher product price realizations and a favorable LIFO inventory accounting effect, partially offset by narrower sweet/sour crude oil differentials and a lower LLS 6-3-2-1 blended crack spread. The lower blended crack spread had a negative impact on earnings of approximately $197 million.

The blended crack spread was $5.43 per barrel in the fourth quarter of 2014 compared to $6.82 per barrel last year. The narrower sweet/sour crude oil differential had a negative impact on earnings of approximately $240 million versus the fourth quarter of 2013. There were three primary contributors to the $494 million increase in other gross margin.

First, we recognized the build in our crude oil and refined products inventories in the 2014 fourth quarter when compared to year end 2013. For purposes of our annual LIFO inventory costing, this increase in inventory is recorded based on pricing at the beginning of 2014 which was substantially higher than fourth quarter prices.

As a result, Refining & Marketing segment income for the quarter reflects the favorable effect of approximately $240 million. Comparing the fourth quarter of 2014 to 2013, the LIFO impact was approximately $190 million, which is included in the $494 million increase in other gross margin shown here.

Second, we experienced strong product price realizations. Generally, as crude prices decline, our wholesale brand and Speedway prices tend to fall at a slower rate leading to some margin expansion.

For the wholesale and brand businesses, this margin impact is reflected in our Refining & Marketing segment and represents about two thirds of the non-LIFO change. Finally, our actual crude and feedstock acquisition costs compared to the market indicators were more favorable during the fourth quarter 2014 as compared to the fourth quarter 2013.

Segment income for the quarter was also impacted by the reinstatement of the biodiesel blenders credit on December 2014, retroactive to the beginning of the year. Slide 7 provides the drivers for the change in Refining & Marketing segment income on a year-over-year basis.

Refining & Marketing segment income from operations was $3.6 billion for the full-year 2014 compared with $3.2 billion in 2013. The LLS 6-3-2-1 blended crack spread had $761 million favorable impact on earnings.

Both the sweet/sour and the LLS to WTI crude oil differentials narrowed in 2014 compared to 2013 resulting in negative impact to earnings of approximately $489 million and $695 million respectively. All of the gross margin indicators utilize spot market values and an estimated mix of crude purchases and products sold.

Differences in our actual product price relations, mix and crude costs quarter-to-quarter are reflected in the other gross margin column. Given the substantial $1.7 billion impact of the items, let me make a few comments about these year-over-year differences.

The majority of the year-over-year change was attributable to product price realizations which were substantially more favorable in 2014 than they were in 2013. The impact of falling crude oil prices on wholesale and brand margins had a positive impact in the latter part of the year.

In addition, second and third quarter 2013 product price relations compared to spot market values were negatively impacted by the effects of RINs further driving the year-over-year change. The LIFO accounting effect that I described earlier also impacts the 2014 full-year earnings.

And finally our actual crude and feedstock acquisition costs compared to the market indicators were more favorable during 2014 as compared to 2013. Moving to operating costs, direct operating expenses were $913 million higher in 2014 compared to 2013 primarily due to higher turnaround expenses.

As Gary highlighted, 2014 included the largest series of planned refinery maintenance projects in the company's history. On slide 8 we provide the Speedway segment earnings walk [ph] for both the fourth quarter and full-year. Speedway's income from operations was $273 million in the fourth quarter of 2014 compared with 83 million last year.

This is the first quarter with the results for the acquired Hess sites. The Hess locations contributed approximately $118 million to the segment's fourth quarter income. For the legacy Speedway sites the light product gross margin was about $67 million higher in the fourth quarter of 2014 compared to last year.

Overall, the Speedway segment's gasoline and distillate gross margin increased by more than $0.11 per gallon from fourth quarter 2013 in the fourth quarter of 2014. Speedway's merchandise margin in the legacy locations was $20 million higher in the fourth quarter 2014 compared to fourth quarter 2013.

On a same-store basis, gasoline sales volumes increased 0.3% and merchandise sales excluding cigarettes increased 5.4% in the fourth quarter of 2014 compared with last year. In January 2015 we've seen a slight decrease in demand with an approximately 0.8% decrease in the same-store gasoline sales volumes versus the prior year.

Speedway's income from operations for full-year 2014 was $544 million compared with $375 million in 2013. The Hess locations contributed approximately $113 million of income in 2014. For the legacy speedway sites like product gross margins increased $50 million and merchandise margins increased $55 million year-over-year.

For the Speedway site segment gasoline and distillates gross margins averaged $17.75 per gallon in 2014 compared to $14.4 per gallon in 2013. On a same-store basis, gasoline sales volumes decreased 0.7% in 2014 and increased 0.5% in 2013.

Partially offsetting the increases in Speedway income were higher operating expenses primarily attributed to an increase in the number of stores. Slide 9 provides the components of Speedway's fourth quarter segment income on an absolute basis.

The like product margin for the legacy Speedway and Hess locations were $176 million and $197 million respectively. The legacy Speedway and Hess locations contributed $225 million and $99 million in merchandise margin respectively. Operating and other net expenses were $424 million for the quarter.

Slide 10 shows fourth quarter and full-year changes for our Pipeline Transportation segment. Income from operations was $58 million in the fourth quarter of 2014 compared with $47 million last year. Income from operations was $280 million for the full-year 2014 compared with $210 million for the full-year 2013.

The increases for both the quarter and full-year were primarily attributable to higher transportation revenue and pipeline affiliate income partially offset by higher operating expenses associated with pipeline maintenance activities.

The increase in transportation revenue for the quarter and year were attributable to higher average pipeline tariff rates and an increase in the revenue recognized for volume deficiency credits in 2014. Slide 11 presents the significant drivers of changes in our cash flow for the fourth quarter of 2014.

At December 31, our cash balance was $1.5 billion. Operating cash flow before changes in working capital was $1.1 billion source of cash. The $670 million use of working capital noted on the slide primarily relates to $1.9 billion decrease in accounts payable partially offset by $1.2 billion decrease in accounts receivable.

Decreases in accounts payable and accounts receivable were primarily due to the significant drop in crude oil and refined product prices during the quarter.

Long-term debt was $371 million source of cash during the quarter which was driven by MPLXs borrowings to help finance its acquisition of an additional 30.5% interest in Pipeline Holdings in December. As Gary highlighted we continue delivering on our commitment to balance investments of the business with return of capital to our shareholders.

We repurchased $682 million of shares and paid $138 million of dividends in the fourth quarter demonstrating this commitment to regular returns of capital. MPLX also had a public equity issuance during the fourth quarter with net proceeds of $221 million. That makes up the most significant portion of the other column.

Slide 12 shows that at the end of the fourth quarter we had $1.5 billion of cash and approximately $6.6 billion of debt. With EBITDA of about $5.4 billion during the last 12 months we continue to be in a very manageable debt position with debt-to-EBITDA 1.2 times and a debt-to-total capital ratio of 37%.

Turning to slide 13, during the last 12 months we generated $3.1 billion in cash from operations and $1 billion of free cash flow excluding the Hess retail acquisition. Over this period we returned about $2.7 billion to shareholders through dividends and share repurchases or approximately 2.7 times our adjusted free cash flow.

During the fourth quarter of 2014 we purchased approximately 7 million shares for $682 million through open market repurchases.

It is our intention to continue returning capital to our shareholder s that is not currently needed to support the operational and investment needs of the business and we continue to believe that share repurchases are the most efficient way to do so.

Slide 14 provides updated outlook information on key operating metrics for MPC for the first quarter of 2015. We are expecting first quarter throughput volumes to be up compared to first quarter 2014 due to less planned maintenance.

Since we have no comparable 2014 data that includes the newly acquired Hess locations we plan to provide Speedway outlook information by quarter for 2015. For the first quarter 2015 we project Speedway's light product sales volume will be approximately 1.4 billion gallons.

Slide 15 provides a breakdown by segment of our 2014 capital expenditures and investments excluding the acquisition of the Hess retail operations along with our approved capital planned for 2015. Slide 16 lists the significant capital projects that we will be working on in 2015 and beyond.

Our capital investment plan is focused on growing our midstream business, integrating the Hess retail operations into our Speedway system and pursuing margin enhancing projects at our refineries including further implementing synergistic projects at our Galveston Bay refinery.

This slide also shows the percentage of our 2015 capital plan allocated to the various operations of our business. As you can see 35% of our capital is being allocated to investments in midstream assets, 18% to Speedway and 15% to margin enhancing refining projects. The remainder is primarily attributable to refinery sustaining capital.

We believe this allocation of capital is consistent with our commitment to further develop a stable cash flow generating segments of our business while also enhancing refining margins. Now, I will turn the call back to Tim Griffith..

Thanks Don. As we are going to poll for your questions we ask that you limit yourself to one question plus a follow-up. You may re-prompt for additional questions as time permits. With that Brandon, we are prepared to open up the call for questions..

Thank you sir, and we will now begin the question-and-answer session. [Operator Instructions] and from Morgan Stanley we have Evan Calio on the line. Please go ahead..

Good morning guys, very strong results today. My first question is on contango. I know you hedged 75% of your runs with the TI contract.

You know, can you remind us how you benefit in a contango TI market and any thoughts on contango as you move into turnarounds with the growing and imbalanced crude market and storage limitations and even how steeper contango may relate to a wider TI Brent spread?.

Hi Evan, this is C. Michael Palmer..

Hi Mike..

Yeah, as you point out, not only are we able to lock in that front month contango with our hedging strategies, but in terms of the purchase strategy for domestic crude, we also lock in that front month contango, so we are the beneficiary of that, you know, cheaper front month.

With regard to the rest of your question, what was next?.

Yeah, just more just as an outlook item of kind of what do you think of the structure on the curve as we move into peak U.S. turnarounds with the growing imbalance market and even how storage limitations can factor into return of some more favorable U.S.

pricing?.

Well you know, that's the $64,000 question in my mind and everyone's mind is how long does this very weak market last. You know, I think to the extent that we see oversupply in the market, which certainly appears to be with us during the first half of the year, you'd believe the steep contango should be with us.

As things come back more in the balance in the second half of the year, then I would guess that the contango would narrow..

Great and then a second question I have is really on the wholesale fuel distribution segment. I know that it increased following the Hess transaction. It's included within the other gross margin in your R&M operations, and you included I think $600 million of MLP -able EBITDA largely related to that fuel distribution business.

Can you help us with what wholesale added in the fourth quarter, and can it really, how you define that wholesale margin at least as for an internal transfer basis?.

Well, I guess Evan, this is Don. We don't typically comment on sort of individual components of the business.

I guess when I was explaining the results for the quarter, in that other gross margin caption about two-thirds of the differential from last year's fourth quarter was related to, you know, product price realizations, and that's really a function of you know, wholesale and brand.

So that to me is a demonstration if you will of sort of the earnings power of that part of the business, but in terms of the - when we had come up with the $600 million of fuels distribution that could potentially be MLP –able, that was largely a function of our wholesale and BRENT volumes of 20 billion gallons times, you know we just used a $0.03 marker to get you 20 billion gallons times $0.03 cents to the $600 million..

Okay, so a portion of that, the step up quarter-to-quarter is ongoing and a portion of that profitability relates to market conditions for both product and other feedstock. So, I guess, I am trying to distill, which would ultimately at least how we model to drive higher capture rate going forward.

So, I am just trying to find what that step change was given the Hess assets within your portfolio, and I guess we can maybe use the volumetric and the margin that you provided..

I think that's the best way to do it Evan..

Great, I appreciate it..

From Credit Suisse we have Ed Westlake on line. Please go ahead..

Yes, good morning and I guess solid is an underestimation, congratulations.

Just on the same follow-on from Evan's question, where are you in terms of decision making or process in terms of being able to perhaps monetize some of that sort of wholesale EBITDA stream into the MLP?.

Ed, this is Gary.

As we said the last November, when we rolled out the acceleration, the fuels distribution was just a piece of the backlog, if you will of MLP eligible assets and we are in the process of going to a private letter ruling on the fuels distribution just to confirm what our thoughts are that this will all be eligible earnings, and we are very confident that it will, but there are certain steps you have to take.

We would expect as we go through and look at future opportunities for MPLX, the fuels distribution more than likely is going to have to follow with the terminals as we go into that business, so we have plenty of run room where we need to instead of dropping in the fuels distribution, but we are carefully working on it and we expect to have that completed, that private letter ruling completed this year..

And then sticking with the MLP, obviously you mentioned that you’ve got the binding open season in the first quarter for Cornerstone and there is the permitting issues on Sandpiper and SAX, but maybe just a general comments in terms of the response of potential shippers given obviously the collapse in oil prices in terms of your ability to execute?.

Well, it is very interesting Ed, if you look at the rig count Mike Palmer was just showing with me this morning. If you looked at the rig counts in the Bakken, Niobrara, Eagle Ford, and [indiscernible] rig counts have declined versus the Utica.

The Utica's rig counts are fairly unchanged at this point in time and being one of the larger purchasers of the output of Utica, we continue to see growth in that volume. So we continue to still be confident in our open season, and the binding open season portion, and I think that truly reflects the change in the rig count..

Right, and comments on Sandpiper and SAX?.

Sandpiper and SAX we unfortunately have the delay in the ride away permits. They're moving along well. They have just completed some testimony last week on the ride away business side that continues to move along well.

So it's just the delay in the permitting is why we're deferring the capital spend, but we expect both of them to be moving along once they are ride away and this typical need is completed by the end of this year..

Great, thanks very much..

You're welcome Ed. Thank you..

From JP Morgan we have Phil Gresh on line. Please go ahead..

Hi, good morning..

Good morning..

First question is just in terms of the Garyville hydrocracker project, was just kind of wondering where things stand in terms of what contribution if any you are seeing? And just in general, your distillate production in the Gulf Coast in the fourth quarter was not up as much on a year-over-year basis as the third quarter, so just curious if you could kind of put those two things together and talk about just any color you have on the distillate fundamentals in the Gulf Coast, some of your peers have talked about weaker export markets recently?.

Right, well, first of all on the Garyville ROUX project as we said in our earnings call this morning and in our capital plan that was released is that we are going to differ the final investment decision on the Garyville ROUX due to the very volatile crude markets and the crude markets tend to relay into the spreads that you will look between ultra low sulfur diesel and the heavy resid.

So we are going to delay that for the time being, but still believe it is an outstanding project and one that has great potential for us, but at this point in time we will delay and come back and look at it at a later date. On the distillate, I will turn that over to Rich..

But Phil, were you asking about the hydrocracker expansion we did at Garyville last year?.

Yes, I just kind of, you know, you had expected contribution from an EBITDA basis, so just kind of curious to get a snapshot on where you're at with that and I just noticed that the distillate production wasn't up quite as much in the fourth quarter on a year-over-year basis, so just kind of wondering you know, what's going on behind the scenes there?.

Well, the Garyville distillate, or hydrocrack, or not distillate hydrocrack. Hydrocrack expansion that was taken from 95,000 to 110,000 and it is doing all of that and has been for most of the year.

I think anything you see in distillate in the fourth quarter we had some hydrotreaters down and some turnaround activities at Galveston Bay and Garyville on catalyst changes, so that's probably what you're seeing there..

Got it..

And Phil, this is Don. I think you had asked about sort of export. We averaged about 282,000 barrels a day in the fourth quarter of exports and about two-thirds of that was distillate and a third of that was gasoline. So we continue to see strong markets in terms of our ability to place export products both gasoline and distillate..

Got it. Okay.

Follow-up question just on the fundamentals as we look to the second half of the year, a comment was made just you know, when we kind of get past the supply situation, just wondering how you are thinking about crude differentials in that world, you know, you have a long-term view of $7 to top $12 spreads for Brent- WTI for example, but you know, also just worrying about Brent LLS and how you think about that in the world where crude production growth could actually maybe turn negative?.

Well, you know Phil, I guess the – this is Mike Palmer.

I guess the thing that we've been focused on of late is how quickly that Brent-WTI spread has moved out from something on the order of $1 out to $5 in that range and I think that's related to something that we've talked about before and that's just the inventories, they are building up on the U.S. Gulf Coast.

So you know, it's extremely difficult to go out very far into fine forecast that differential, but it's at $5 today and certainly as inventories build it could go wider..

Okay, thanks..

From Wolfe Research we have Paul Sankey on line. Please go ahead..

Hi, good morning everyone. Gary, I was going to ask you about the hydrocracker decision, but I think you made that pretty clear in the previous answer. I don't know if there is anything more to add on that. I think of you is that we wanted to see a breather in terms of major projects. As I said, I am not sure if you want to add anything.

I think it was quite clear. I'll go on to say given the oil price environment in the case of demand for oil, in the past you've talked about the year that distillate demand would exceed gasoline demand. We obviously got a different situation right now.

How sustainable do you think the strength in gasoline demand is going to prove to be and how low do you think oil prices need to be for that to be the case? I'll leave it there..

Right, well. First of all, let me go back to your first comment on the Garyville project and I know you've always stated somewhat of a breather, however, I look at these projects as being very important for the long-term sustainability of the company.

And when you have a very strong project we will continue to look at that, but as I stated, we have delayed any final investment decision and we will continue to look at this, but we certainly need to see these crude markets come back to some normal range before we would step in and look at this again. .

If I could just jump in Gary, so if I could just jump in there, what would that be, at what point would you say okay, this makes much better sense now?.

Well as I said earlier, you have to have a view and a very strong view on where the ultra low sulfur diesel to resid spread will go into the future.

And if you look at the projects based on for flatlining spreads and for flatlining different crude prices, even in today's markets it's still a good project, but it's not as robust as we had, as I said we'll continue to look at this and determine where we go from there. Looking at Mike Palmer and Rich just talked a bit about exports.

The export, diesel across the globe is down just a little bit from the exports and the gasoline has picked up somewhat. And if you look at gasoline prices in this market, gasoline was very strong in the second half of the fourth quarter. As prices continued to decline, we were able to see an uptick in gasoline demand.

But recognized we're comparing ourselves same period this year when you look at same-store results both in the same period this year versus last year and we have a lot of other issues going on last year. We had three polar vortex events, very heavy snowstorms. Now this year we have the addition of the Hess locations in the Northeast.

We have stores that we didn’t have before that we're comparing some numbers against this year some very heavy snowstorms in the Northeast that we did not have in the period last year.

But we see gasoline demand and my view is gasoline demand will continue to be strong this year and I think even at this prices, anything below 250 [ph] is going to continue to be robust for gasoline demand.

I think we are just in a little bit of a low in Europe as far as diesel demand and the amount of exports of diesel, but we still see fundamentally across North America and even into the international markets we think diesel demand is going to be strong..

I got it.

So essentially it's more of a price effect on gasoline and the cyclical effect on diesel right now?.

Yes sir..

Thanks Gary..

All right Paul, thank you..

From Goldman Sachs we have Neil Mehta on line. Please go ahead..

Hey, good morning Gary..

Hi Neil..

Just can you just walk us through a little bit the way you're thinking about your capital allocation strategy, been aggressive on the dividend, aggressive on buy backs, but as you look to stock today and as you think about the cash flow going forward, how do you think about weighting one versus the other?.

We have been and will continue to be very focused on capital discipline.

If you look at the projects and our budgets they, and our capital plan for 2015 it aligns very much with the Analyst Day meeting we had at the end of 2013, where we said we're going to continue to invest in midstream and in our Speedway retail segment and in those very strong projects within refining that will give us high rates of return and that's exactly what we're doing.

At the time we at that Analyst Meeting we did not have the Hess acquisition on our radar, but the investments we are doing are in the legacy Speedway locations, where we're going very strong, in fact across the entire Speedway chain.

If I look at the return on capital employed in that segment over the last five years, we've continued to increase return on capital employed each year. So we think that was a - that strategy and our deployment of capital in Speedway is very sound.

The same way in the midstream our strategy around Sandpiper and SAX and our Cornerstone are a very strong and that it provides very good earnings from a MLP -eligible earnings type of a project, but behind that it also has some very strong components that provides synergies to Mike Palmer's crude oil acquisition strategies and also into some of our light product distribution strategies.

So we will continue to be focused on those components and then let me turn it over to Don to talk about the balance sheet, share repurchases versus dividend and our philosophy. .

Neil, this is Don. I think that we are not targeting a particular amount of share repurchases in any period. I mean what we've historically leave was, was the way to manage the balance sheet, what we've communicated to you all is that we look to core liquidity and that sort of drives our investment allocation.

So to the extent that we have the cash on our balance sheet that supports our core liquidity, the incremental cash is either invested in the business or returned to shareholders and if it isn’t being invested into the business we are returning it to the shareholders. So that is really the way we look at that allocation of capital..

That is very clear Don. So, Gary and Don, as follow-up on two topics that have been in the news lately, just any comments you might have on either then would be great.

One would be thoughts on the union strike that has impacted your two facilities and then how you're responding to it and how we should think about the path forward there? And the other is the crude export discussion which seems like the volume around that has died down a bit, but Gary, I know you've spent a lot of time in Washington talking to policy makers, so your latest temperature on that issue would be great..

Sure, let me take both of those Neil, first of all on the union and the strike at various refineries around the country. It's been very orderly.

We have two plants that have been affected, our Galveston Bay Refinery and Catlettsburg and both and we were very well prepared in the event this happened at any of our plants, as I said we were very well prepared, we were operating these plants at a very cleaned, what I should say cleaned turnover is the word I was looking for, cleaned turnover when the union workers left and we took over.

And we would expect to continue to have very strong operations and as I said, we are well prepared, we were well trained and when you have these type of incidents you have to be prepared. So we'll continue to see Neil how this plays out.

On crude oil exports and this really comes back to the crude oil exports that and it's a definition of crude oil exports. What is being exported is condensate and as I have said in the past and I have said in Washington, we really do not see that the condensate is an issue for U.S.

refining, and what we've always in the past that there is not a glut of crude oil on the marketplace. Therefore some innuendo that there was a glut of crude oil, therefore we have to be able to export light crude oil. We do not see that as factual.

And as we continue each month to close out the books, we continue to see areas where we do not get the deliveries of light crude that we had expected, and then the backdrop of that is to look at the imports that are coming into the country still suggest that we have at least 50% or so of the crude oil requirements of North America being imported.

So looking at the condensate that is being exported, I'm not so certain that the volume has increased that much as maybe the media around this issue has dropped off more. So I think that's really more the subject that is going on, but it has not affected of us and I come back to most important thing to watch is how the exports coming in to the U.S.

Gulf Coast as I said the imports with the exports from the middle east and others that are coming into the Gulf Coast has continued to watch how that grows, look at inventory that is building up in Houston and Cushing, I looked at the numbers in the last couple of days to see how PADD III, PADD II and Cushing inventories and for the last three weeks in a row have continued to grow if I take it even back to October, November, December, those inventories continue to grow in those markets.

And that is what is even I think to watch to determine where crude spreads might be going. And overall where the crude price in the market may be going..

Thank you for your comments..

All right Neil..

From Barclay's we have Paul Cheng online, please go ahead..

Hey guys, good morning..

Hey, Paul..

Gary, can it, the 2014 was a very happy turnaround year. If that means that now Galveston Bay is pretty much that up to your standard and any rough estimate for the 2015 total turnaround expense? I mean in 2014 it was about $1.2 billion..

Right and as I said last year may been on the call this same period that we do, 2014 was going to be a very large turnaround year especially for Galveston Bay as we went through two of their very large units. Yes, we now have been through the majority of the big units and have those units close to our operating expectations.

I'll let Rich go into that in a little more detail. And Paul, as you know, we do not give out the actual numbers nor do we give out a calendar of what our turnarounds are for this year. But it is going to be significantly less than the expenditures we had last year.

Don you want to cover that?.

Yeah Paul, this is Don. I mean you are right, we did about $1.2 of turnaround expense last year.

If you look at our guidance or just the outlook for the first quarter of 2015, you compare that to the first quarter of 2014 our turnaround, the projected turnaround expense is substantially down and you know it's probably in the $250 million range or slightly higher than that compared to first quarter of 2013.

So we would also expect there be a bit of that that would play through in the rest of the year, but that's in the guidance of the outlook information that we've provided there..

Don what numbers they averaged for the cycle turnaround cause for you guys, is it $900 million a year a conjured opinion? I mean what number you can share?.

Well I would say that that number has probably been in the $800 million range, you know, broadly. I mean it's hard to point to a typical year.

I would say last year it was $1.2 billion, maybe it was a $400 million differential this year to, for last year, but it is hard to kind of, each year is different and it depends on which units are being turned around and what not, but I'd say broadly that would be a good guide..

And Paul, let me ask Rich to make any comments after has finished these two big turnarounds any further comments on what you see in the plant and how you are in your staged planning that we talked about back in the acquisition day..

Well, we could continue to work through and we still have some more turnarounds out in the future on some of the Capline [ph] areas, but that's out in the out years. So we've been through some of the crude units and the hydrocracker s and we've been refurbishing them and getting them up to our standards.

And we’ve seen through last year we set record production rates on a number of units at that refinery and we continue to optimize it and we think it's a great platform going forward..

The second question, do you have updates about Capline [ph] discussion with your partner? And also Mike do you have or maybe this is actually for Tony, do you have a number that what is the biodiesel blenders credit that the catch up from the first nine months of the year that you reported in the fourth quarter? Thank you..

Well that was about $40 million, the biodiesel impact..

Full-year or just nine months is the catch up?.

Well it was about 40 million for the catch up yeah..

Okay, thank you..

Right, and Paul on Capline, we've talked about this somewhat before. We're completing the engineering to reverse this pipeline is not that difficult and the engineering studies will be complete here in the first quarter.

But the longer term effect is really the commercial and it really goes back to and especially in this crude market that we're seeing today, we have a lot of analysis to understand where is the or do we have enough supply and it needs to mainly be heavy, so Canadian heavy type of input and there is enough supply to be able to satisfy those refineries in the upper PADD II markets who have already converted and require the Canadian heavy in order to be able to fill up their coffers.

And then secondly, how much volume is available to get all the way down to the St. James or Louisiana Gulf Coast.

So that is the big study that we know is going to take the balance of the year to understand if we you can line up the supply, how that supply will move to the markets and how that supply may affect some of the upper PADD II refineries I discussed touched earlier..

Thank you..

Welcome..

From Simmons we have Jeff Dietert on the line, please go ahead..

Good morning..

Hi, Jeff..

I was wanting to follow up Don, I believe you mentioned same-store sales in your discussion lead in, but I wanted to make sure I understood the January comparisons correctly, what were the comparisons for Speedway and then for Hess for January?.

Why don’t we turn that Jeff over to Tony Kenney who is with us today?.

Jeff, January the light, the gasoline same-store we reflected negative 0.8 tens of a percent on gasoline and that is only for the legacy Speedway stores. We are not tracking yet same-store metrics on the Hess assets until the 13th month when we have confidence in those metrics..

Got you and were there specific things that you attributed that the client to the DOE stats are reporting gasoline up seven or 8% this or the 5% or 6% which sometimes does get revised in the monthly data, but I was curious if there's any specific items that caused this to be lower? And anything that you are expecting to see, response on the demand side to these lower prices?.

Yeah, I guess what I would say is that from the Speedway and Hess side of the business during the month of January we actually saw about just under 10% increase in the wholesale cost to our business. So as we've attempted to pass along those increased costs to the market, you know that price elasticity does come into play for us.

So as we're out there with those prices there may be some shifting between gasoline volume between competitors in the market and that's generally what I would say that the eight tenths rules, that reflects the Speedway..

Great, and secondly on your Hess retail obviously a terrific performance in the quarter, excellent margin environment, could you talk about operations and sales volumes and how they're performing relative to expectations and any update to synergies that you have there?.

Yeah Jeff, I would say that I'm very pleased with the overall, I mean from the very beginning I took over the operations on October 1st and this is really a lot of credit goes to the wonderful people and the execution and the focus that Hess had on the business we basically were seamless.

So the ongoing day-to-day operations and probably the most important aspect is making sure we're taking care of the customer and we've got some very good feedback from our customers. They've acknowledged the performance. So I've been very pleased on that side of it.

In terms of the overall business, I think we're seeing that as we continue to implement the best practices at a stepped-up pace, the conversions and branding from Hess to Speedway as well as the implementation of the technology platforms inside the store such as our Speedy Rewards program, those are all generating the types of benefits that we would expect from that activity.

The comment in terms of the synergies, we met the $20 million in the fourth quarter 2014 that we told the market and we are on pace to hit the 2015 mark as well for synergies. So, so far so good..

Thanks for your comments..

From Tudor Pickering Holt, we have Chi Chow on line. Please go ahead..

Great, thanks, this fantastic fourth quarter earnings, doesn’t look like you're getting much credit quite frankly in the market today. So I guess the question is, I guess Don, you outlined in some of the waterfall charts the uptick on the product price realizations.

I'm just wondering, can the company sustain that outperformance on those realizations when crude prices stabilize or increase or will that performance reverse in that sort of commodity price environment?.

Chi, this is Don. I would say broadly if prices are falling quickly we tend – it tends to be sticky coming down and we tend to outperform. If prices are rising quickly the inverse is true. We tend to - it tends to take as a little while to catch up.

So you know, in a flat environment I would say we would typically perform consistent with how we've done in the flat environments in a drop, in a dropping price environment, you know, we tend to outperform and this is really against the market metrics as opposed to our ability to capture margin, but it's against the market metrics and then in a rising price environment, you know, we tend to capture rate at least as it's reflected against those market metrics tend to be, tend to show that we are not getting all of that as the price runs up..

Okay, great. And you also talked about realizing lower crude acquisition costs.

Can you comment on that versus the indicators and have you changed your crude slate versus historical levels and is that sort of lower cost basis sustainable in the coming quarters?.

Yeah Chi, I would say that when you look at the crude slate in general there have not been very significant changes to the crude slates. As you know, I mean we basically have a process in place where we will take advantage of whatever the most advantageous crude is during a month when we're optimizing.

So I don't think that the changes to the crude slates have been huge. We continue to focus on the domestic crudes, North American crudes, Canada as well as the U.S. and I think that will continue to be the case..

Okay, I guess one more question on kind of the crude market then.

Gary, you've talked about and you made some comments today also that you don't really see a glut of crude develop in the Gulf Coast, yet at the same time you also comment on looking at rising inventory levels and I think Mike, you mentioned that maybe the TI Brent widens out beyond $5 bucks.

How do you reconcile those two statements on no glut versus potentially widening differential?.

Well, I might have Mike Palmer cover this, but the comments that were made before was that there is a glut of light sweet crude. We ran 51% sour in the quarter which means we ran 49% sweet. That says and we believe we can run up to about 65% sweet crude, light sweet crude in our units.

That suggests we have a tremendous runway to run more light sweet crude. If it is priced – if it is the right barrel and if you look at the alternative barrel if it's the next best priced barrel then that's what we would buy. So let me have Mike go into this in a little more detail..

Yeah, it's kind of an interesting phenomenon where you get the - have three inventories that have been consistently rising, but certainly that doesn't appear to be in the very light sweet crude oil, you know, especially when you look at differentials.

The differential between LLS and Mars has been fairly consistent around that $4 level and there's been no compelling advantage to buy these light sweet crudes. And certainly when we look at the market today and if you're in the market on a spot basis for some of these again light sweet shale crudes, they are not very plentiful.

So the inventories that are building up you know, we don't have a breakdown of exactly what that is, but certainly the differentials don't reflect the fact that it's a glut of this very light sweet shale crude that producers have been worried about..

So Mike, are you suggesting then the inventory build is more on medium, you think it is Gulf of Mexico produced crudes or are there incremental imports coming in?.

I think it's a combination of all those things to be honest and I think that the other thing that is happening as you know is the logistics systems continue to build out. So there's more line fill that's needed.

I think that's one of the differences between this year and last year, but we certainly don't see this glut of this very light material that that producers have been worried about..

Okay, great. Thanks for your comments, I appreciate it..

From RBC Capital Markets we have Brad Heffern on the line. Please go ahead..

Good morning everyone. One for Don maybe, you know, just looking at debt levels certainly they've ticked up since the Speedway acquisition.

I'm wondering how you think about returning cash to shareholders versus maybe using some cash to paydown debt?.

Yes Brad, I think our view and our commitment is to maintain an investment grade credit profile. So that will guide sort of all of our actions around what our balance sheet looks like and you know, right now we feel comfortable that our balance sheet comfortably supports an investment grade credit profile.

And as we make investments in the business and as we continue to look at M&A opportunities, we'll continue to evaluate what the balance sheet needs to look like to make sure that we don't cross the line or put any pressure on that investment grade credit profile..

Okay, great, and then I think that the Canton condensates that has been online for a little while now, can you talk about how that's running and sort of demands that you are seeing?.

Yeah Brad, this is Rich Bedell. We put the Canton splitter online at right the end of the year and it's running, we run it up to designed capacity. We're running maybe 20,000 barrels a day right now. So it's running very well..

Great. Thanks..

From Citigroup we have Mohit Bhardwaj on the line. Please go ahead..

Yeah, thanks for taking my question. Gary we spent a lot of time looking at two different shells and also talking about your integrated business.

But one of the things that a lot of people forget is about some of the other feedstock prices like VGO prices and they have been really low of late if you compare the differentials versus the traditional differentials that they had versus compared to say on lesser the Brent pricing.

If you could just talk about that and how does that impact your business and what kind of benefit it has been over the last six months?.

Yes, this is the Mike Palmer. Yeah, what I would say is that we are a big player in that feedstock market and generally when you're talking about VGO, as you know I mean the VGO is just extremely sensitive to the operations of those Gulf Coast refineries.

If you have a CAT cracker go down and it is surplusing VGO into the market, you can get very attractive differentials and that’s true of planned turnarounds as well. So that's a market that we're involved in all the time buying and selling in VGO.

Our position changes depending upon our turnaround schedule, but it's something that we always take advantage of..

Is there a number that you guys can provide like it wasn't anything different last year or is it really what your normal operations are and there was no significant impact of it?.

You know, I don't think we really have any comparisons that we could provide today..

Okay. Thank you.

I know that we are just running over the hour here, but one final question Don, you just mentioned M&A opportunities and if you just comment especially on the logistics side if you're seeing especially with the light of – in the light of the crude prices where they are and you're seeing more opportunities here just to grow MPLX as you guys want to, but with a higher rate of dropdowns and also higher rate of distribution growth over there?.

Hey, Mohit, this is Gary. You know, the market that we're in and we are seeing many opportunities come across our desk throughout the entire market. I think we're very well positioned. If something made sense we're well positioned within our balance sheet and are very well positioned within MPLX.

If something made sense within the logistics from midstream side of the business we would I think be in a good position to be able to act.

But the key here is to be cautious and to do your - continue to do very strong due diligence on anything that might become available because I think there will be more and more things available in the marketplace as we go forward..

Yeah, thanks for your comments..

Yep..

We will now turn it back to Tim Griffith for final remarks..

Okay, thanks Brandon. With that, we want to thank everyone for joining us today and for your interest in Marathon Petroleum. If there are additional questions you would like clarification on any of the topics discussed this morning, Jerry Ewing and Teresa Homan will be available to take your calls. Thanks for joining..

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect..