OREANDA-NEWS. Marathon Petroleum Corporation (NYSE: MPC) today reported 2015 fourth-quarter earnings of $187 million, or $0.35 per diluted share, compared with $798 million, or $1.43 per diluted share, in the fourth quarter of 2014. Fourth-quarter 2015 earnings include a pretax charge of $370 million, or $0.44 per diluted share, to value inventories at lower of cost or market (LCM). The results of MarkWest are included from the Dec. 4, 2015, merger date.

Earnings were $2.85 billion, or $5.26 per diluted share, for the full-year 2015, compared with $2.52 billion, or $4.39 per diluted share, in 2014.
 
"In addition to our strong financial and operational results, we also made tremendous progress on our strategic objectives of growing the more stable cash-flow segments of our business and enhancing our refining margins," said MPC President and Chief Executive Officer Gary R. Heminger. "Product price realizations and continued strong gasoline demand supported crack spreads in the fourth quarter. In addition, Speedway continued its strong performance during the fourth quarter, finishing the year with segment income of $673 million and nearly $1 billion of EBITDA [earnings before interest, taxes, depreciation and amortization]," Heminger said. He also added that Speedway LLC, MPC's retail division, has substantially completed the planned conversions of its new East Coast and Southeast retail locations to the Speedway brand well ahead of schedule. "The acquisition of these retail locations has exceeded our expectations and has been a tremendous value driver for MPC."

The merger of MarkWest Energy Partners, L.P., and MPC's sponsored master limited partnership (MLP) MPLX LP (NYSE: MPLX) on Dec. 4, 2015, was a significant accomplishment in the company's strategy, highlighted Heminger. "This combination creates a diversified, large-cap MLP with compelling long-term growth opportunities. MPLX creates substantial value to MPC shareholders through its general partner interest." He noted that MPC has offered to contribute its inland marine business to MPLX at a supportive valuation in exchange for MPLX equity. "This drop-down of additional logistics assets to the partnership further diversifies its high-quality earnings stream. While MPC takes into consideration the capital allocation needs of both companies in determining sponsor support, the marine transaction demonstrates the flexible ways in which MPC can provide support to MPLX." The transaction is expected to close in the second quarter of 2016, pending requisite approvals.

Heminger noted that the continued decline in commodity prices, and the market's increasing belief that these conditions will persist for some period of time, has resulted in a challenging valuation and a higher yield environment within the MLP space. "Given current market conditions, more modest growth in volumes of natural gas and natural gas liquids, the increase in MPLX's yield and the impacts to its valuation, MPLX is now forecasting distribution growth of 12 to 15 percent for 2016, which is among the highest for large-cap, diversified MLPs," Heminger said, also noting that MPLX expects to provide 2017 distribution growth guidance later this year.

MPC is focused on strengthening the earnings power of all aspects of its business, with expanded, margin-enhancing investments across the enterprise. MPC recently announced plans to invest $2 billion in the Galveston Bay refinery over the next five years, an investment program collectively referred to as the South Texas Asset Repositioning (STAR) program. "The investments planned as part of the STAR program are intended to increase production of higher-value products and improve the facility's reliability, as well as increase processing capacity. These high-return investments will also fully integrate our Galveston Bay refinery with our Texas City refinery, making it the second-largest refinery in the U.S.," said Heminger. "We expect a rapid payback on the staged investments planned for the STAR program."

Heminger stated that MPC's investments in the business are balanced with returning capital to shareholders. Through share buyback programs and dividends, MPC returned a total of $1.6 billion of capital to shareholders in 2015, including $362 million during the fourth quarter. "Returning capital to our shareholders continues to be an instrumental part of our strategy," he said, noting that MPC has repurchased approximately 28 percent of the shares that were outstanding when it became a standalone company. "Through disciplined, strategic investments in our business and returning capital to shareholders, we remain focused on the long-term value proposition for our investors."

"By optimizing our logistics and transportation network, and using the flexibility inherent in our refining system, we continue to meet market needs quickly and efficiently as margin opportunities present themselves," said Heminger. "As our earnings demonstrate, our business produces strong results in a wide variety of market conditions."

Refining & Marketing

Refining & Marketing segment income from operations was $207 million in the fourth quarter of 2015 and $4.19 billion for full-year 2015, compared with $1.02 billion and $3.61 billion in the fourth quarter of 2014 and full-year 2014, respectively.

The decrease in quarter-over-quarter results was primarily due to the effects of the $345 million LCM charge and a last-in, first-out (LIFO) inventory accounting charge of approximately $45 million in the fourth quarter of 2015 compared to a LIFO benefit of approximately $240 million in the fourth quarter of 2014. In addition, segment results were negatively impacted by the effect of lower overall commodity prices on volumetric gains and unfavorable crude oil and feedstock acquisition costs relative to benchmark Light Louisiana Sweet (LLS) crude oil. These negative impacts were partially offset by higher crack spreads and the favorable effects of changes in market structure on crude oil acquisition prices.

The U.S. Gulf Coast (USGC) and Chicago LLS blended 6-3-2-1 crack spread increased from $5.43 per barrel in the fourth quarter of 2014 to $6.65 per barrel in the fourth quarter of 2015, primarily due to an increase in the USGC crack spread.

The increase in Refining & Marketing segment income from operations for full-year 2015 compared to full-year 2014 was primarily due to higher crack spreads, favorable effects of changes in market structure on crude oil acquisition prices, more favorable net product price realizations compared to spot market reference prices and lower direct operating costs. These positive impacts were partially offset by unfavorable crude oil and feedstock acquisition costs relative to benchmark LLS crude oil, the unfavorable effect of lower commodity prices on volumetric gains and the LCM inventory valuation charge.

The blended 6-3-2-1 crack spread for the full year increased from $8.11 per barrel in 2014 to $9.70 per barrel in 2015.

Speedway

Speedway segment income from operations was $135 million in the fourth quarter of 2015 and $673 million for full-year 2015, compared with $273 million in the fourth quarter of 2014 and $544 million for full-year 2014. The decrease in segment income for the fourth quarter is primarily due to a lower light product gross margin, a $25 million non-cash LCM charge and an increase in operating expenses, partially offset by an increase in merchandise margin. Speedway's light product margin decreased to 18.23 cents per gallon in the fourth quarter of 2015 from 24.51 cents per gallon in the fourth quarter of 2014, which was a record quarter.

The increase for the full-year 2015 was primarily due to the full-year benefit from the locations acquired along the East Coast and Southeast on Sept. 30, 2014, as well as higher light product margins. Speedway's light product margin increased to 18.23 cents per gallon in 2015 from 17.75 cents per gallon in 2014.

Midstream

Midstream segment income from operations, which includes 100 percent of MPLX's operations as well as other related operations, was $71 million in the fourth quarter of 2015 and $289 million for full-year 2015, compared with $58 million and $280 million for the fourth quarter and full-year 2014, respectively. The increase in Midstream segment income for the fourth quarter and full-year of 2015 compared to 2014 was primarily due to the inclusion of MarkWest from the Dec. 4, 2015, merger date, partially offset by approximately $26 million and $30 million of merger transaction costs for the fourth-quarter and full-year 2015, respectively.

Items Not Allocated to Segments

Corporate and other unallocated expenses of $75 million in the fourth quarter of 2015 and $308 million for full-year 2015 were $7 million lower than the fourth quarter of 2014 and $22 million higher than full-year 2014. The reduction for the fourth quarter was primarily due to various lower corporate expenses while the increase for the full year is largely due to a lower allocation of employee benefit costs to the segments.

For full-year 2015, MPC recorded pretax pension settlement expenses of $4 million compared with $96 million of pretax pension settlement expenses in 2014.

Full-year 2015 unallocated expenses also included the $144 million impairment charge recorded in the third quarter of 2015 related to the cancellation of the ROUX project at our refinery in Garyville, La. The charge reflects the write-off of costs capitalized on the project through Sept. 30, 2015, including front-end engineering and long lead-time equipment.

Strong Financial Position and Liquidity

On Dec. 31, 2015, the company had $1.1 billion in cash and cash equivalents, an unused $2.5 billion revolving credit agreement and a $0.7 billion unused trade receivables securitization facility. Availability under the trade receivables securitization facility is a function of refined product selling prices, which will be lower in a sustained lower price environment. The company's liquidity should provide it with sufficient flexibility to meet its day-to-day operational needs and continue its balanced approach to investing in the business and returning capital to shareholders.

On Dec. 14, 2015, we completed a public offering of $1.5 billion in aggregate principal amount of unsecured senior notes. On Dec. 21, we used approximately $763 million of the net proceeds from this offering to fund the extinguishment of our obligation for the $750 million aggregate principal amount of 3.5 percent senior notes due in March of 2016, including remaining interest to maturity. As a result, we recorded a loss on extinguishment of debt of $5 million, which is reflected in net interest and other financial income (costs).

About Marathon Petroleum Corporation

MPC is the nation's fourth-largest refiner, with a crude oil refining capacity of approximately 1.8 million barrels per calendar day in its seven-refinery system. Marathon brand gasoline is sold through approximately 5,600 independently owned retail outlets across 19 states. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation's second-largest convenience store chain, with approximately 2,770 convenience stores in 22 states. MPC owns, leases or has ownership interests in approximately 8,300 miles of crude and light product pipelines and 5,000 miles of gas gathering and natural gas liquids (NGL) pipelines. MPC also has ownership interests in more than 50 gas processing plants, more than 10 NGL fractionation facilities and a condensate stabilization facility. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership. MPC's fully integrated system provides operational flexibility to move crude oil, NGLs, feedstocks and petroleum-related products efficiently through the company's distribution network and midstream service businesses in the Midwest, Northeast, Southeast and Gulf Coast regions.