Welcome to the MPC Third Quarter 2021 Earnings Call. My name is Sheila and I will be your Operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instruction] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian.

Kristina, you may begin..

Welcome to Marathon Petroleum Corporation third quarter 2021 earnings conference call. The slides that acCompany this call can be found on our website at marathonpetroleum.com under the Investors tab. Joining me on the call today are Mike Hennigan, CEO Maryann Mannen CFO, and other members of the executive team.

We invite you to read the Safe Harbor statements on slide 2. We will be making forward-looking statements today, actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I'll turn the call over to Mike..

Thanks Kristina. Before we get into results for the quarter, we wanted to provide a brief update on the business. Midway through the quarter, we were impacted by Hurricane Ida. The Ida hurricane passed over our Garyville refinery with wind speed topping 120 miles per hour.

Fortunately, all of our employees in the region were safe but many of them experienced severe damage to their homes and the community around them. Our team was able to shut down our refinery in a controlled manner a day ahead of the storm and ensure operational integrity and safety of all of our employees.

It took roughly a week to restore some power which enabled the first crude unit to restart over the next several days. The remainder of the refinery restarted sequentially over the next 10 days as more power became available to the facility. I'd like to recognize our refining team and our support groups for their dedication and efforts.

Our commercial teams also did an excellent job in keeping our customers in the region supplied through coordinated efforts across the Company. Maryann will cover this specific impacts when she reviews are refining results. In addition to the Louisiana Hurricane,our Los Angeles refinery with impacted by an earthquake on September 18th.

Again, the major challenge was the loss of power. Once power was restored, the units were restarted, the refinery was back to normal operations in roughly 1 week. A gradual increase is in the demand for our products as mobility continue to recover.

Globally, product inventories are at their tightest level in many years, and this improvement has lifted margins. In the U.S., gasoline and diesel inventories have steadily improved and are both at the low end of their 5-year averages.

Jet fuel inventories have moved in at a 5-year range, although demand is still well below pre -pandemic levels, and we expect that to be a headwind for some time. Our system is seeing gasoline demand currently 2% to 3% below 2019 levels with the West Coast still lagging at about 8% below. Diesel demand is now slightly above 2019 levels.

Jet demand has improved, but still remains down nearly 15% to 20% below pre -pandemic levels. Natural gas costs steadily rose during the quarter, with an average increase of over $1 from the second to the third quarter. There's still some uncertainty as we head into the fourth quarter.

But lower inventory levels and strong holiday travel could be supportive. And looking at next year of global products inventories remain tight and demand continues to recover, we would expect to refining sector to rebound in 2022. At the same time, we're watching prices to see if there is a consumer demand pull back.

On the aspects of the business that are within our control, this quarter, we advanced several key initiatives. We progressed our renewables initiative with the addition of a new strategic partnership with ADM. This JV will own and operate ADM's soybean processing complex in Spearwood, North Dakota.

Upon completion which is expected in 2023, this facility will source and process local soybeans, supplying approximately 600 million pounds of soybean oil exclusively for MPC, enough feedstock for approximately 75 million gallons of renewable diesel per year.

While this JV provides a locally advantaged feedstock for our Dickinson project, we continue to evaluate feedstock options for our Martinez facility in California. At Martinez, our renewable fuels facility conversion reached another project milestone when it's environmental impact report was issued for public comment in mid-October.

The process highlights our extensive effort working with the local regulators and other stakeholders. Also in October, United Airlines, Marathon and others conducted a successful test slate of a 737, which flew for 90 minutes using drop in sustainable aviation fuel.

The SAF used during the test flight was 100% renewable drop in fuel made possible by proprietary technology from [Indiscernible] our wholly-owned subsidiary, which has a demonstration plant in Madison Wisconsin.

And as we continue to focus on ways to strengthen the competitive position of our assets, today we announced that we are pursuing strategic alternatives for the Kenai refinery, which could include a potential sale.We often share our belief that our businesses both a return on and it return of capital business.

And this quarter we made progress strengthening our portfolio, continuing our low cost focus, and progressing our commitment to return capital to our shareholders. As of today, we've completed approximately 25% of our $10 billion share repurchase program. And we're confident in our ability to return the remaining $7.5 billion by the end of 2022.

Finally, MPLX announced the Third Quarter distribution consisting of a 2.5% increase to its base distribution amount, and a special distribution amount as well. MPC will receive a total of $829 million.

This announcement reinforces the strategic importance of MPLX as part of MPC 's portfolio, and its ability to return substantial cash to MPC and all unit holders. Slide 4 provides a framework around some of the ways we are challenging ourselves to lead in sustainable energy.

Our approach to sustainability spans the environmental, social, and governments -- and governance or ESC dimensions of our operations.

It encompasses strengthening resiliency by lowering our carbon intensity and conserving natural resources, developing for the future by investing in renewables and emerging technologies and embedding sustainability in decision-making in all aspects of engagement with our people and many stakeholders.

We have 3 Company-wide targets many of our investors and stakeholders know well. First, a 30% reduction in our scope 1 and scope 2 greenhouse gas emissions intensity by 2030, second, a 50% reduction in midstream methane intensity by 2025, and lastly, a 20% reduction in our freshwater withdrawal intensity by 2030.

The evolving energy landscape presents us with meaningful opportunities for innovation. We have allocated 40% of our growth capital in 2021 to help advance two significant renewable fuels projects.

In late 2020, we began renewable diesel production at our Dickinson North Dakota facility, the second largest of its kind in the U.S., and we're progressing the conversion of our Martinez, California refinery through a renewable diesel facility. I'd also like to highlight a few specific updates from the quarter.

We were recently awarded an ESG A rating by MSCI. We are the only U.S. based refiner that holds this rating. We continue to focus on enhancing our disclosures in this quarter, we also submitted data on our scope three emissions through CDP, and we're in the first in our refining sector to do so.

We invite you to go to Sustainability section of our website and learn more about how we are challenging ourselves to lead in sustainable energy. At this point, I'd like to turn it over to Maryann to review the Third Quarter results..

Thanks, Mike. Slide 5 provides a summary of our third quarter financial results. This morning, we reported earnings per share of $1.09 and adjusted earnings per share of $0.73. Adjusted earnings exclude $48 million of pre -tax charges primarily related to Hurricane Ida impairments and idling costs.

Additionally, the adjustments include an incremental $272 million of tax expense which adjusts all results to a 24% tax rate. Our year-to-date effective rate is just under 2%. We therefore expect to retain the tax benefits realized in 2021. We will continue to make this tax rate adjustment for the fourth quarter of 2021.

Adjusted EBITDA was $2.4 billion for the quarter, which is approximately $500 million higher from the prior quarter. Cash from operations excluding working capital and a voluntary pension contribution was nearly $1.8 billion, which is an increase of $230 million from the prior quarter. During the quarter, we paid $575 million into our pension plan.

We elected to contribute this additional amount as it was beneficial from a tax perspective. This amount covers nearly 3 years of estimated contributions and we forecast the plan would be fully funded at year-end. This also increased the Cares Act benefit to a total of $2.3 billion.

Similar to last quarter, we generated ongoing operating cash flow that exceeded the needs of the business and capital commitments, as well as covered our dividend and distribution. Finally, we returned nearly $1.3 billion of capital to shareholders this quarter through dividend payments and share repurchases.

Slide 6 illustrates the progress we have made towards lowering our cost structure. Since the beginning of 2020, we have taken almost $1.5 billion out of the Company's total costs. Refining has been lowered by approximately $1 billion, midstream reduced by $300 million, and corporate costs by about a $100 million.

Regardless of the margin environment, our EBITDA is directly improved by this $1.5 billion. We continue to emphasize our safe, reliable, and low cost focus across the organization. While we do not see further cost reductions of the same magnitude that we have already taken out, there are still opportunities for us to reduce cost.

Natural gas prices were higher in the Third Quarter and continue into the Fourth Quarter. For every $1 change in natural gas prices, we anticipate there is an approximate $360 million impact to annual EBITDA to our R&M segment.

Based on current prices, we estimate that in the Fourth Quarter higher natural gas prices have the potential to impact our business by an incremental $0.30 per barrel. As we have previously mentioned, our refining cost in 2020 began at $6 per barrel and are now trending at a quarterly average of roughly $5 per barrel for 2021.

As we continue -- and we continue to believe these are structural reductions. While our results reflect our focus on cost discipline, everyday we remain steadfast in our commitment to safely operate our assets and protect the health and safety of our employees, customers, and the communities in which we operate.

As we have shared with you previously, our cost reductions should be sustainable, not impact revenue opportunities and in no way jeopardize the safety of our people or our operations. Slide 7 shows the reconciliation from net income to adjusted EBITDA as well as the sequential change in adjusted EBITDA from Second Quarter 2021 to Third Quarter 2021.

A djusted EBITDA was approximately $500 million higher quarter-over-quarter, driven primarily by refining and marketing, but also benefiting from our strength in midstream. $48 million of pretax charges during the quarter are reflected in the adjustment column.

Moving to our segment results, slide 8 provides an overview of our refining and marketing segment. The business reported continuing improvement from last quarter with adjusted EBITDA of $1.2 billion. This was an increase of $444 million when compared to the second quarter of 2021.

The increase was driven primarily by higher refined margins, especially in the Gulf Coast region, as that regions cracks improved 34% from the second quarter. As Mike mentioned, our Garyville refinery was impacted by Hurricane Ida.

We estimate the cost impact was $19 million this quarter, with an additional $11 million to be incurred in the Fourth Quarter. We estimate the lost opportunity from the hurricane to be approximately $80 million. The Garyville refinery was down for about 10 days and took another 10 days to ramp back up to full production.

The throughput impact was approximately 8.3 million barrels. We also believe there was an additional $10 million of lost opportunity impact associated with the earthquake at our Los Angeles refinery which was back to the planned rate after roughly one week. Utilization was 93% for the quarter, flat with the second quarter.

We saw lower utilization in the Gulf Coast compared to the second quarter due to hurricane impacts. The Mid-Con region continued its strong utilization and West Coast strengthened as reopening in California continue to increase demand.

If adjusted to include capacity which was idled in 2020, utilization would have been approximately 88% in the third quarter of 2021. Operating expenses were higher in the third quarter, primarily due to higher natural gas prices. Slide 9 shows the change in our midstream EBITDA versus the Second Quarter of 2021.

Our midstream segment continues to demonstrate earnings resiliency and stability with consistent results from the previous quarter. The strong cash flow profile and lower capital spending supported the decision to return more cash to unit holders.

Today MPLX announced a 2.5% increase in the partnership's base quarterly distribution, and a special distribution amount of approximately $600 million. As I mentioned earlier, this quarter our midstream assets in the region were also impacted by Hurricane Ida.

We estimate the cost impact was $4 million this quarter, with an additional $7 million to be incurred in the Fourth Quarter. Slide 10 presents the elements of change in our consolidated cash position for the third quarter. Operating cash flow was $1,765,000,000 in the quarter.

As I mentioned earlier, this excludes changes in working capital and an incremental payment of approximately $575 million into our pension plans. Also, this amount does not include changes to our cares tax receivable in the quarter, which was a $500 million source of cash and is included in the income taxes bar of this chart.

Working capital was effectively flat this quarter. During the quarter, MPLX reduced its third-party debt by $1 billion funded by borrowing an additional $877 million under the MPC or Marathon interCompany loan agreement. Our income tax balances represented a use of cash primarily driven by a decrease in accrued taxes.

We made a tax payment due for the Speedway gain of $2.9 billion out of a total of $4.2 billion we have accrued. We were able to offset about $400 million of the amount using our cares tax receivable. There were about $100 million of other charges in our tax balances.

During the quarter, we adjusted our [Indiscernible] tax refund up to $2.3 billion from $2.1 billion last quarter.

We have identified a total of about $700 million that can be offset against our Speedway tax obligation, including the 400 million we used this quarter, and 300 million that we expect to use in the fourth quarter of 2021 to offset remaining balances for taxes due from our Speedway transaction.

We received $1.55 billion of the CARES Act refund in October. There is about $60 million of the refund remaining, which we expect to receive in the first half of 2022 with respect to capital return, MPC returned $370 million to shareholders through our dividend and repurchased $928 million worth of shares in the quarter using Speedway's proceeds.

At the end of the quarter, MPC had $13.2 billion in cash and higher returning short-term investments, such as commercial paper and certificates of deposit. Last quarter, we promised to continue to provide status updates on our progress deploying speedway proceeds.

We have repurchased an incremental $1.5 billion in shares since the end of the second quarter. This is comprised of $928 million of repurchase in the third quarter plus additional shares purchased through the end of October. As Mike indicated, we are approximately 25% complete with our $10 billion share repurchase program.

We are continuing to use a program that allows us to buy on an ongoing basis and we will provide updates on the progress during our earnings calls. To meet our $10 billion share repurchase commitment, we are progressing steps to be able to complete the remaining repurchases of approximately $7.5 billion by the end of 2022.

The options we have previously discussed remain available to us to complete this objective. Today, we also announced that we intend to redeem an additional $2.1 billion of debt. This entails two tranches of notes that mature in 2023, given the current interest rate environment as well as our cash position.

It makes economic sense to redeem these notes early, and we anticipate this will lead to roughly $20 million of savings. This short-term cash management provides immediate interest payment savings, and we'll have the ability to reissue notes at the appropriate time. With this redemption, we have no maturities over the next 3 years.

Our third quarter debt-to-capital ratio for MPC, excluding MPLX, was approximately 24%. The redemption of these notes will continue to lower this ratio. As we manage our balance sheet, we continue to ensure that we maintain our investment-grade credit portfolio. Turning to guidance on Slide 12, we provide our Fourth Quarter outlook.

We expect total throughput volumes of roughly 2.8 million barrels per day. Planned turnaround costs are projected to be approximately $200 million in the Fourth Quarter. The majority of the activity will be in the Mid-Con region. Total operating costs are projected to be $5.40 per barrel for the quarter.

Based on the current prices we estimate that in the Fourth Quarter, higher natural gas prices have the potential to impact our business by an incremental $0.30 per barrel. As we have previously mentioned, our turnaround activity is back half-weighted this year. Other operating expenses are coordinated to occur during these time periods as well.

Distribution costs are expected to be approximately $1.3 billion for the Fourth Quarter. Corporate costs are expected to be $170 million reflecting the approximately $100 million in costs that have been removed on an annual basis. With that, let me turn the call back over to Kristina..

Thanks, Maryann, as we open the call for your questions as a courtesy to all participants, we ask that you limit yourselves to one question and a follow-up. If time permits, we will re-prompt for additional questions. I will now open the call for questions, operator..

[Operation Instruction] Our first question will come from Neil Mehta with Goldman Goldman Sachs. Your line is open..

Good morning, team. Thanks for taking the question. The first question is around capital return. You still have $7.5 billion of stock, which is all stock to buyback by the end of '22.

Based on what we know right now, is it fair to assume that you're going to be buying this back ratably at $1.5 billion a quarter or do you see yourself leaning into it and then tie that into your capital return strategy at MPLX, we saw the special dividend that came through this morning is that something that we should think of as potentially more likely to happen going forward or was that one-time in nature?.

Sure. Thanks, Neil. Let me talk about the share buyback program and your question around rate ability. Just maybe as a quick reminder, we did not get into the market until the completion of our Second Quarter earnings call. So we really didn't have a full quarter, if you will, and hopefully you've seen what we've been.

doing in the remaining weeks post our earnings call as I tried to share with you. We do believe that we have opportunity as we go forward, given the timing of our earnings to be a little more opportunistic. So I would not assume in any way that ratably is the only plan that we have.

I think what you can see is if that were to be the case, we certainly would have full ability to complete our program, as we say, no later than the end of 2022, but that is certainly not the only available set of opportunities for us. I will turn the call -- I will turn the question over to Mike on MPLX..

Good morning, Neil. I'll address your second point. So I want to give you a little bit of a long-winded answer but hopefully it will get to the meat of your question.

So at MPLX, one of the things that we decided to do was to move the business model such that we would have free cash after distributions and after growth capital that would put us in a financial flexibility situation where we could have options.

We achieved that about the Third Quarter of 2020 and as a result of that, we now have a situation where we have capital for deployment at MPLX that can be growth capital, buybacks, additional distribution for the base as you saw us bump that up today, additional distribution amounts in the form of a special which we've talked about a little bit here, and I'll address it further.

But the bottom line there is we're going to be dynamic and evaluating what's the best opportunity for us on that side of the house based on market conditions, business needs, etc. etc.

An important point though from the MPC side of it is, we often get asked the question, how does MPLX provide value to MPC shareholders? Well, we tried to enumerate many different ways, but this is one other example where this is additional cash that's coming from MPLX to MPC. So at the base distribution amount, MPC gets about $1.8 billion.

And that's been pretty ratable since 2020. With this special distribution amount, it will now be $2.2 billion because it's about 400 million MPC 's take of the special that went to all unit holders. So instead of a 1.8 say EBITDA addition from MPC, you're now looking at 2.2 and we'll continue to evaluate that going forward.

It's clearly our intent to grow earnings at MPLX. And as a result of that, there's going to be more cash available to come to MPC overtime, whether it's through distributions to the base or special, while we also continue to look at buybacks at MPC as well.

So hopefully everybody sees this as a nice strategic importance of MPLX to MPC shareholders as part of our overall scheme here.

That makes sense to you Neil?.

No. That's really helpful, Mike. And my follow-up is kind of a housekeeping modeling type of stuff, which is 2 parts to it.

One is, tax rate came in a little bit lower than expected this quarter, Should we think about tax rate going forward given that midstream, such a big part of the earnings, lower than the 24% effective tax rate that we've been base casing. And then just any waiver on ' 22 capex, 2 kind of housekeeping questions..

Neil on the tax question. So you're absolutely right in the quarter, frankly, we actually recorded from continuing operations about an $18 million benefit. Part of that is driven by our ability to carry back the incremental pension contribution and some other favorable discrete items in the quarter.

The second part of your question is whether or not we would actually migrate towards the statutory rate of 24%.

And I think you've articulated that as we look at the amount of non-controlling interest, we would most likely not see a statutory rate of 24% but as the level of R and M continues to improve against that, we'll see that rate get higher than the 2% that you were seeing on a year-to-date basis.

So we will migrate from 2% trending toward, but we would not reach the statutory rate. We have continued to make this adjustment since the First Quarter of 2020, and we will do that in the fourth quarter for consistency.

But most likely going forward beginning in the first quarter of 2022, we will not be making a tax adjustment to bring all of our earnings to 24%. I hope that -- I hope that answered the question. And then I'll address your second question around capital.

As you saw, we had a significant reduction from 2020 to 2021 and we're largely on track to reach that capex number for 2021. We have not given guidance for 2022 as yet and we'll do that on our fourth quarter earnings call, as we normally do.

But I think as you know, one of the key strategic pillars along with cost reduction is strict capital discipline. We've begun to outline for you the amount of capital that we are targeting or committing to renewables, and we would expect to be able to share that with you as well for when we give our guidance..

Thanks, Maryann..

Thank you. Next, we will hear from Doug Leggate with Bank of America. Your line is open..

Thanks. Good morning, everybody. Guys you've given a lot of every part, a lot of detail about cost reductions, price of gasoline [Indiscernible] and so on. I wonder if I could ask you to [Indiscernible] it down for us a little bit.

As we transition back to, for one of a better expression, mid-cycle, What do you see as the mid-cycle EBITDA for the portfolio after all the changes, what it stands like today and I'm talking specifically the refining business at the MLP consolidation.

Is that something you can quantify?.

Doug it's Mike. As you know from some of our previous conversations, I think it's very, very hard to call the mid-cycle. I often say I used the football analogy that just getting it between the 40's is tough enough, let alone trying to find mid-cycles.

So -- but most importantly for me, Doug, I will tell you that the way we manage the Company is we're not concerned about calling the 50 versus the 40. I'd like to think about the 2-end zones.

How do we feel about a low environment and a high environment, and how are we set up from a portfolio standpoint, whether each of those come out is because invariably overtime, as you've seen, you'll see cyclical high margin environments and then obviously we've seen some pretty low ones with the pandemic. So I don't really have a number for you.

That's not something we spend a lot of time with. Obviously internally, we also like to think about, where is our balance sheet and leverage, etc. As Maryann talked about, right now we're in a different situation than normal. We have a lot of cash on the balance sheet. We did a short-term optimization around that cash management.

Ultimately, I think our leverage to a normal mid-cycle would be higher in the future. But we'll keep debating that and ultimately trying frame ourselves that we're in a good position.

But at the end of the day, I don't have the crystal ball to tell you exactly what I think mid-cycle is going to be, but I do think that we're going to manage the Company such that we're prepared for either end of it and we're going to have the appropriate management disciplines and financial disciplines around those scenarios..

And, Doug. Maryann here, maybe at the risk of repeating that. But as we always say, we're going to control the things we can and whatever that mid-cycle brings, as I was sharing, we're $1.5 billion better than we otherwise would've been from the cost reductions that we've been able to achieve.

We still believe we have some opportunities in our low cost culture but certainly we're 1.5 billion better than we otherwise would have been regardless of what that market brings us..

Thank you. I was working in the office, I guess, but my follow-up -- I guess we've touched on this every other quarter, Mike, but the portfolio changes, Kenai is the latest than it seems to be these are kind of flat to be fair, or these are dribbling out over a long period of time.

I'm just wondering if you could connect us maybe in a baseball analogy. Give us an idea of where you think we are in that process. And I wonder if I could also ask you to touch on whether there's any similar studies or evolution of the portfolio going on at the MPLX level.

Obviously for a long time, there has been a lot of discussions over gathering and processing for that's the right fit for an NOP type of business and am hoping that.Thank you..

Doug, to your first part, I don't know that we think about it as dribbling it around. I mean, from the portfolio standpoint, we've executed the sale of the Speedway business, which as everybody knows, took a long time to get through that process.

We made early moves to idle some high-cost facilities in our refining system, converted Martinez to renewable diesel that's in progress, completed a feedstock JV, and an equity position in the feedstock situation for Dickinson.

So we continue to examine the portfolio, I think we've done some things that shows the market that it is a high priority for us. It's one of my three main initiatives that I stated from the start with respect to [Indiscernible], I would tell you, Doug, normally, I'm not a big fan of announcing stuff until things are done or not, it's a general rule.

But in this particular case, we've done an analysis. And the reason we disclosed it now is we're in pretty advanced discussions with several parties. And because of the timing of this call, we didn't want to have this call.

And if something progresses to closure in the near future, we didn't want everybody saying, "Hey, why didn't you tell us about it? " So we decided to go off our normal little bit and disclose that we may be able to execute something here in the short-term, but it may not happen as well. We're trying to be as open and transparent as we can be.

We're evaluating it. It is advanced discussions and that's the main reason that we've decided to tell the market that's where we are. But I will tell you that we will continue to evaluate the portfolio. There's more work in our mind that needs to be done.

And hopefully over time, people continue to see a pattern of us challenging ourselves to have a very robust portfolio that works in all market conditions. And ultimately, what I try and say to our team is we want all of our assets to provide free cash over the cycle of cash flows in margin environments that we hit..

Mike, I wonder if I could just press you on the MPLX start up question.

I guess drip feed was the better expression you should have used, but does that extend to MPLX?.

Yeah. Could you just say that again? Apologies. We couldn't hear you.

Did you say drip feed?.

I'm sorry. My point was I think drip feed was a better expression than dribble, I think was the Board [Indiscernible]. My question was those just extend to the MPLX portfolio..

Yes it does. We've said for some time, and maybe to our detriment again, but we'd like to around transparency that we believe that there's parts of the portfolio very core and are going to continue to get capital deployment.

There's parts of the portfolio that we do not think long term is core, but at the same time, we're generating free cash from those areas. And we'll continue to keep those part of the portfolio unless we see something that adds more value. The bid ask on the non-core has been wide and like I say, maybe no good deed goes unpunished.

The fact that we've been open about that option, I think has lead people to try and low-ball us as far as some of the bids, but we know what the value of the assets are in our mind. We're not going to move them for numbers less than that. We're happy with the execution of the assets at this point. So we're in what I call a good position.

We're generating free cash. The portfolio is working for us. We'll look for an opportunity if it makes sense, at some point to divest something that we think can be more useful to somebody else in the long term.

But if not, we will manage the capital into those areas and continue to generate free cash and deploy capital where we think there's more longer-term value. So long answer to your question, but yes, the portfolio is obviously something that matters at both MPC and MPLX..

Okay. Thank you very much..

You're welcome, Doug..

Thank you.Next we will hear from Phil Gresh with JP Morgan your line is open..

Yes. Hey, good morning. My first question is just around the balance sheet in the past, you've talked about. Parent leverage of I think 1 to 1.5 times. Obviously, you have a lot of cash coming in the door. The macro was looking more and more like mid-cycle faster.

Does this impact in any way the way you're thinking about the right level of consolidator or parent leverage that you want to maintain moving forward?.

It's Maryann. I'd say no, it does not. We are certainly as I tried to share, committed to maintaining our investment-grade ratings on both MPC and MPLX. Our decision in the short term on the incremental debt is really based on the $20 million worth of interest rate savings.

As I mentioned on the call, we're sitting at about 24% debt-to-cap that will lower that obviously as we take that incremental debt out. But it's short-term. We'll continue to look at the cash position. And then of course as we complete the share repurchase, we'll see that leverage move up a bit as well.

But this in no way changes the way that we are thinking about the optimal capital structure for MPC and MPLX. We remain comfortable, if you will, we've been talking about 4 times at the MPLX. And as John mentioned on the call earlier this morning, we're sitting at about 3.7 at the end of this quarter..

But just to clarify, Mike.

, I just want to add to what Maryann said because I want to make sure that the market doesn't over-interpret this short-term move. We have cash sitting on the balance sheet. The market has moved such that we can take out that a little earlier in such a way that we can put $20 million in our pocket.

The interest rate that we're getting on the cash in the short-term, obviously is small basis points compared to put in $20 million in our pockets. So as an optimization, we look to take that debt out, but don't read into it, which I'm concerned that's what you are doing.

Don't read into it that that's where we think our debt should be on a long-term basis.

Does that make sense to you?.

It does. I just want to make sure Maryann did I clarify or qualify that correctly at 1 to 1.5 times for the parent leverage as well, or just sort of make sure I'm thinking about that the right way..

Yeah, I think that's a fair assessment, so yes..

Okay. And then my second question. Again, with all the cash flow improvements here with the macro environment, does Marathon have a way that's thinking about its dividend framework, living forward post Speedway.

I don't know if it's percent of cash flow, or something where you're trying to think about not only the buybacks which are reducing the dividend burden, but also the potential for dividend growth. Thank you..

Yeah. Phil,It's Mike, so we're having a lot of internal discussions around the dividend level. But in the short term, our priority is to buy back the shares through the program we have.

We're not going to make a change on the dividend while that program is in place, but we are looking at what's the appropriate level going forward especially considering how much cash that we're generating at both MPC and MPLX.

And like I mentioned earlier, now the amount of EBITDA that's coming from MPLX into MPC for at least for this year is considerably higher than what it's been in the past.

So it is something that's on our radar screen, but while we are reducing shares, we're going to concentrate on that program first before we make any further comments on the dividend..

Okay. Thank you..

You're welcome..

Our next question will come from Manav Gupta with Credit Suisse. You may proceed..

Hey, Mike. given the cash build which we're seeing quarter-over-quarter, I know since you have taken over, you have been very focused on cost reductions, what you can control and optimizing the portfolio.

But just because the cash is building, is there a possibility you could accelerate your renewal fuel development through more JVs or actually acquire some assets under development, or even other forms of renewable energy.

I'm just trying to understand if that part of the portfolio can be accelerated here to inorganic means, is that something you could be open to?.

Yeah. We're certainly open to it. We have a team of people that's constantly looking at the opportunities that are out there inorganically.

Obviously, we don't count on that in our base plan and we count on the things we control as you mentioned, but yeah, we have a whole team of people both on the MPC and the MPLX side looking for opportunities in renewables, and as well as all the other alternative energy options.

In the short-term, we have not found anything that we think is worthy of deployment, but we'll continue to look at it. Some of these other technologies, I think, are going to develop over time, and I think we're going to get some opportunities into the future but up until this point, we haven't found anything that we thought was worthwhile.

But we're certainly open to it. And like I said, we have a lot of people looking at all the different parts of this energy evolution that's going to continue to evolve over time..

And a quick follow-up here is during the quarter in refining, obviously the widening sour differentials were a meaningful tailwind for you. Obviously, what I think it's $150 million quarter-over-quarter, we are seeing opaque raise some volumes there, we're seeing some widening of the Canadian differentials.

So if you could help us understand the outlook for medium and heavy sour differentials there and how that plays into MPC. Thank you..

Yes. Hi, Manav. It's Rick Hessling, I can help you there. So you're absolutely correct, here in the near term medium sours, heavy differentials have widened, so You're seeing that in the marketplace. Going forward, what I would share is there's a lot of puts and takes out there in the marketplace.

We've certainly got the opec plus decision here, that's expected on Thursday that we'll pivot the market certainly a bit. We've got political intervention, ie, as SPR releases that always way in the outlook. So it makes it very tough to truly take a position above and beyond that you've got production.

You've got Gulf or Mexico production, Canadian production recently, looking robust. but then on the flip side, you certainly have consumer demand. Where will that go? How will the demand play out? And then lastly, several other wildcards on how it will affect these differentials which is line 3 and Capline reversal here in a few months.

So a lot of puts and takes Manav really hard to call going forward..

Thank you so much..

You're welcome..

Our next question will come from Roger Read with Wells Fargo. Your line is open..

Thank you. Good morning..

Good morning, Roger..

Good morning, guys. Just dive into its here, First one on the Martinez conversion. Just to make sure you talked a little bit about feed stock earlier, how you're looking at where you are relative to secured feed stock and how that would compare to the normal process.

In other words, if you don't have a 100% that's not a surprise because we're still what, 2 years away essentially from full run rates are year-and-a-half. And then are there any specific regulatory hurdles remaining permitting, etc that needs to go on there..

Mr. Roger, I will let Ray talk about the regulatory side and then I'll come back on the feed stocks..

Good morning, Roger hey the big hurdle for us. The first hurdle was the environmental impact report was actually issued for public comment a few weeks ago on October 18th, and that's a 60-day comment period. I want to emphasize this. This is a major milestone for us and not an insignificant piece of work.

It's a 450 page answered-the-questions and scenarios and so forth. There are initially was a little bit of miss interpretation. that, but I was very pleased to see that some of our key stakeholders, particularly CARB, came out in strong support for our projects. So that's encouraging.

And we'll monitor any comments that we receive over the next 60 days and address those accordingly. At the end result, we are hopeful to get a land-use permit and that's the big deal because what that does is that allows us to go ahead and start construction. And what I want to emphasize is the project is ready for that phase 1.

We're done with the engineering, we've got material stage and we're ready to put the building trades to work on getting phase 1 going. As far as our outlook on it, we remain where we've been in the past, where second half 2022 phase 1 of the renewable diesel project is online..

And Roger it's Mike, I'll just add to with Ray saying first off on your question on feed stocks. So we continue to have commercial discussions around that. We have kept that kind of close to the vest for now and we'll keep it that way while we're having some of these discussions. But what I wanted to point out the is like Ray said.

We're at an important point in the project. We're out for public comment like Ray said, we're ready to go to construction. I know the market has been asking us to disclose the capital. We're looking forward to doing that. We've been holding that back to get through this regulatory process.

Once we're through that, then hopefully we'll be able to give you a lot more color with respect to capital and feed stocks and everything else as to where we are. But this important part of this process, as Ray just mentioned, will play itself out. And then hopefully by the next time we talk, we'll be able to give you more color..

I appreciate that.

The other question I had, just to go the opposite direction of the discussion earlier on potentially coming up with a different solution for the Kenai Unit, lot of units are for sale out there from various operators on refining, and I was just curious, you did a big transaction shortly before you took this role, understandable, you'd want to clean up some of what you bought and some of what you already had but as you look out over the next 3 to 5 years, is there any interest in expanding the refining footprint or you look at the issues with cafe standards, EVs, etc, and you say generally speaking, we're probably shrinking refining from here? I'm just curious how you're looking at it strategically..

Yeah, Roger it's Mike again, so I'd like to -- I never say never, but it's not a high priority for us to increase our refining position. I think the higher priority for us is to increase our opportunities in the energy evolution. You see us doing some things in renewables.

We've gotten a few other ideas that we're percolating on that hopefully in time will advance the portfolio. But probably in general, as a general rule, we're looking to balance the portfolio and head a little bit more leaning in towards where things are going to be growing over the next couple of decades if we get the right opportunity..

Alright, great. Thank you..

You're welcome..

Our next question comes from Prashant Rao with Citigroup. Your line is open..

Hi. Thanks for taking the question. If I could follow-up on Martinez a bit, like you talked about where you are with feed stocks and obviously I appreciate keeping that close to the vest right now.

But perhaps viewed another way, could you help us out with maybe thinking about the CI score or a range of CI scores or sort of bandwidth you're looking at that's feasible, or realistic for what's going to be produced out of Martinez.

And maybe if I could tie that into some recent news, and some movement we've had here on sustainable aviation fuel, where it looks like, not only is the blenders tax credit higher, but it ties in an emissions reduction factor. Is that also sort of on the table that given where we are in, it will be coming on-stream.

You'll have at [Indiscernible] BTC credit as well.

So does that how does that change how you think about purposing the asset?.

Prashant, I'll start off and then I'll let Ray give you a little bit more color on SAF, etc. The first item is when we sanction this project, we assumed a 100% soybean so we assume the highest CI in theory, worse feed that we could imagine here, because over a long period of time, the market will [Indiscernible].

Obviously in the short-term, we are looking to provide some better opportunity on the feed stock side for Dickinson and for Martinez.

But as I said, we're going to keep that discussion a little close to the vest right now while we get through this whole regulatory period, as far as SAF, we are open to the opportunity for us, but it comes with some puts and takes and I'll let Ray give you a little bit more color on that..

Sure, Mike. I just want to emphasize in the first portion of the Martinez's project, phases 1, 2, and 3, SAF isn't in the base scope for what we are engineering and building. However, having said that, we believe that SAF will be an opportunity for Martinez.

And to support that, we're currently doing engineering work at Martinez as far as what the CapEx would be to add that to the portfolio. I think everybody knows that SAF economics will compete with renewable diesel. We believe that the economic drivers for SAF are not there right now, but they will be there eventually as regulatory and product demand.

Support builds for this. And so that's why we're evaluating that Martinez. But I just want to emphasize in our, in our near-term, our next two-year focus at Martinez. We're not building for SAF, but that's definitely a future enhancement to the plant..

Thanks. That's very helpful. And my second question, just to touch back and I think Mike and Maryann, you both talked about this in answering previous questions on this call, but I just wanted to take a different tack on those on the capital allocation, [Indiscernible] group potential for one, you are making great progress on the debt.

The buyback is 25% through on the Speedway proceeds, now. I guess, and I know I've asked this before and others have to eventually can we expect that there should be a framework for return to shareholders out of organic cash flows. And in I'm just timing of when that might get announced.

What do you need to see to be able to give us a bit, bit better definition on that.

Do you need I mean, well is it something that you need to be maybe midway through the Speedway proceeds buyback and with a good view into 2022 right now or would you look to maybe get through the 10 billion first and then it becomes more of a 2023 or further out of question.

I know it's -- a bit specifically, you can help us think about gauging our expectations on that. I think that'll be helpful. Thanks..

Sure. Thanks for the question. Maybe just a couple of things to just state here, you're right, 25% of that share repurchase as we shared of that $10 billion, we're on our way to complete no later than the end of 2022.

And hopefully as you've heard, in terms of the debt reduction consistent with what we've been sharing with you, and certainly short-term in nature.

I think what we've been discussing and what we've tried to share with you is we'd like to see more progress around our $10 billion share repurchase completed, before we begin to provide a little more structural content on how we think about the remaining use of that cash.

We'd want to get a little bit further along in that $10 billion before we give you any more specifics around that, I'll pass it back to Mike and I think you want to add a little more color for you..

And I think Maryann just said it very well. We're just trying not to get ahead of ourselves in the program. [Indiscernible] or we're looking at some opportunities that maybe are inorganic. We continue to look at that. We definitely have excess cash to the point that was opening in the call.

As margins recover, we hope to be continuing to generate more cash through our business. So we're just trying not to get in front of ourselves.

We know we have cash beyond the commitment we've made today, we know there's going to be opportunities and I understand your question, but we just don't want to get too ahead of ourselves because we're in a good spot, and we have some time here to continue to execute the program. And as we move along, we'll disclose more and more.

Obviously, we want to grow earnings, so we're looking for opportunities. I keep saying it's a return of and a return on capital business.

We want to balance those were very committed to the return of as, as you've seen us, It's executing now, we'd like to see some more opportunities in return on as we continue to look for opportunities to grow earnings. So it's just that balance as we move forward and just not trying to get ahead of ourselves while we have the time to execute..

Makes sense. Thank you both for the time..

You're welcome..

Welcome..

Our next question will come from Theresa Chen with Barclays. Your line is open..

Hi there. First I want to follow up on the discussion about Kenai. Mike is your expectation that once the transaction happens that Kenai will remain as a petroleum refinery or is the operating environment so difficult out there leading to me your own decision to exit that it could be used for a different purpose once it changes hands..

Yes.

Theresa, I don't want to get ahead of the discussions that we're having, so I'm going to have to plan on that question.We're just -- like I said earlier, we're just in such advanced discussions with a couple of different interested parties that have different views of the marketplace that we just didn't feel that it was right to just ignore it on today's call in case something comes to closure.

I will tell you that again, everybody knows this when you're doing deals even in advanced discussions, it may happen, it may not happen. We'll see how it plays out. And if it does, we'll have -- try to give you some insight to it and then we'll be able to talk a lot further about it if it does happen.

If it doesn't happen, obviously we'll come out and say that as well. But it's just the timing of the call and where we are in the discussions that we felt it was worth given some disclosure..

Got it. And going back to Rick's earlier comments about Line 3, and the cap line reversal current rate line-filling, I believe in fully coming on in a couple of months.

So as part owner and who is operator at the system, the initially reversed capacity was pretty low, and I was just wondering if you have expectations that it will grow over time on the heels of the Line 3 replacement, bring 300,000 incremental barrels per day to Patoka.

And what do you think it could run rate as in the repurchase differential from that?.

Yes. Hi, Theresa. It's Rick again. So to your point, a lot of the answer truly depends on what grades are put on the line. Capline can move heavy or light and those and truly the volumes are going to vary significantly. From our perspective, we're excited about Capline.

We obviously have Garyville sitting on the coast of the Eastern golf and it can be a recipient. But truly, volumes will be based on demand from us and others, econ. And then lastly, grayed, as I've already stated..

Okay. Maybe if I could just clarify. So the initial reverse I believe with re-configuring 3 out of the 16 pumps. If you had to reconfigure more to laugh for more volumes, can that be done pretty quickly..

I would have to defer to MPLX on that Theresa..

Theresa, it's Mike. Yeah, we have the ability to ramp up if the expansion is required, so I'll give you my take on top of Rick's. The whole genesis of the project is that Eastern Gulf is looking for more grades as Rick mentioned. Over time, my personal belief is there's going to be more interest there.

The issue is supplying the pipe, whether it comes from the north, as you know, there was a project coming out of Cushing that doesn't look like it's going to go forward at this point, but whatever can get supply to that pipe I think is going to be advantageous to get more optionality down to the Gulf Coast.

As Rick mentioned, our facility in Garyville is interested in some of the grades. The rest of the Eastern Gulf refining area would be interested in different types of opportunities as far as grade selection as well. So on the personal believer that over time, we're going to get the bottleneck and get more availability of crude into that system.

And I do believe over time it is going to expand..

Thank you..

Your welcome..

Our next question will come from Connor Lynagh with Morgan Stanley. Your line is open..

Thanks for squeezing me in, and I've got 2 questions, but I think they're relatively related, so I'll just ask them at once here. So 1 question that we've been trying to figure out is you guys obviously have significant savings that you flagged already from OpEx.

But I think you've also flagged some operational improvements as well that might flow through more in terms of the capture rate or throughput margin, however, you want to define it.

Do you have any framework for how people can think about it? I know you don't want to go to the mid-cycle framework, but just any thoughts on improvements that we should look for over the next year or two here.

And the related question is, given that you have a lot of capital freeing up, here, are there any major upgrades or enhancements to your legacy refining business that you're considering over the next couple of years here?.

Hey, Connor. It's Maryann, maybe I'll start here. I think what you're referring to is the commercial opportunities that we've been sharing as part of those 3 pillars, we've done a lot of great work as we've said, on cost reduction, strict capital discipline, hopefully you see that Kenai as another example of our asset optimization.

I think when we continue to look forward, we still believe that there are opportunities for us to improve on the commercial opportunities, you mentioned capture being one of them. And as we've shared, we're a little bit, I'd say we keep that close to the vest for competitive reasons.

What we intend to demonstrate to you as we go forward quarter-by-quarter is the actual realization of those efforts that have been ongoing by the commercial team. And you'll see those appear, and we obviously will call those out as they manifest through the earnings in the coming quarters..

Connor this is Ray. I'll briefly address your second question regarding refining spending probably the biggest thing that we have out there is a project that you've heard before, the Galveston Bay Star project.

We still have some remaining spend on that that will go into '22 and '23 to complete that modification to the refining -- refineries, specifically, the remaining scope dealing with the reset hydro-cracker and one of the crude unit is the sour crude unit, but that's the biggest thing in refining on the go-forward plus at this point..

All right. Thanks for that. I'll turn it back..

Operator, are there any other questions in the queue?.

We are showing no further questions at this time..

Well, thank you, everyone for your interest in Marathon Petroleum Corporation. Should you have additional questions or would you like clarification on topics discussed this morning? Please reach out and our IR team will be available to take your calls. Thank you so much for joining us today..

That does conclude today's conference. Thank you again for your participation. You may disconnect at this time..