Marathon Petroleum Corporation (MPC) Earnings Call Transcript & Summary

Welcome to the MPC Second Quarter 2026 Earnings Call. My name is Julie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Brian Worthington. Brian, you may begin.

Welcome to Marathon Petroleum Corporation's Second Quarter 2026 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investors tab. Joining me today on the call are Maryann Mannen, CEO; Maria Khoury, 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 SEC filings. With that, I will turn the call over to Maryann.

Thank you, Brian. Good morning. In the second quarter, we delivered $8.5 billion of adjusted EBITDA. Safety and reliability are fundamental. This performance reflects more than market strength. It demonstrates our planning, commercial and operational capabilities, which enable safe and reliable operations to meet resilient consumer demand. Our results reflect the differentiated capabilities of our value chains and the execution of our optimization strategies. Year-to-date, we have operated with our lowest level of unplanned downtime this decade. On the U.S. Gulf Coast, we ran at 100% utilization in the second quarter. Across the system, we achieved R&M margin capture of over $1 billion, the strongest on an absolute basis. Through the first half of 2026, we achieved capture of 108%. We are sourcing economically advantaged barrels, optimizing our feedstock to improve clean product yields, increasing margins in all markets we participate in. Our ability to run advantaged crude and optimize yields to meet consumer demand remains the core strength. Extensive pipelines and logistics provide abundant access to crude, limiting our exposure to Brent price crudes which were more significantly impacted by the Persian Gulf conflict. In the second quarter, we also completed 2 high-return yield-enhancing refining investments further positioning us to deliver incremental value. The Robinson product flexibility investment enables approximately 10,000 barrels per day of incremental jet fuel production, supporting growing regional demand and the El Paso yield improvement investment enhances the refinery's ability to produce specialty gasoline for key markets. These disciplined investments yield high returns aligned with our targeted return of 25% or above, extending the competitive position of these refining assets. The refining macro environment remains constructive. Globally, there is over 9 million barrels per day of planned and unplanned refined capacity downtime, approximately 4 million barrels per day above historical norms, reflecting ongoing Persian Gulf disruptions and accelerated Ukrainian attacks on Russian infrastructure. Against this backdrop, U.S. gasoline inventory remains well below the 5-year range, while distillate inventory is at the bottom of its 5-year range, underscoring continued market tightness. Within our system, consumer demand remains strong across gasoline, diesel and jet, supported by both domestic and international markets. Looking ahead, we expect to remain in an enhanced mid-cycle environment through the end of the year and into 2027. MPC's advantage is sustainable, a diversified and integrated U.S. refining system across 3 regions built for optimization with access to advantaged crude supply, low-cost natural gas and the ability to supply both domestic and global consumer demand. In the second quarter, our midstream business continued to advance its natural gas and NGL growth strategy. In April, MPLX placed the Secretariat I processing plant into service. In July, the Blackcomb natural gas pipeline began commissioning activities, the joint venture partners continue to progress the pipeline as planned with Blackcomb expected to achieve full commercial service in the fourth quarter. This week, MPLX is beginning operations at the Harmon Creek III processing plant in line with its strategy to add processing capacity on a just-in-time basis. This increases MPLX's total processing capacity to 8.1 billion cubic feet per day and de-ethanization capacity to over 800,000 barrels per day. In the Permian, sour gas treating volumes exceeded 150 million cubic feet per day for the second consecutive quarter as MPLX continues to optimize operations at our Titan treating facility. And sour gas treating capacity is expected to expand to over 400 million cubic feet per day by the end of the year. Natural gas and NGL fundamentals remain robust, creating compelling opportunities to support growing domestic and global demand for U.S. This morning, MPLX announced it is increasing its 2026 capital growth spending outlook by $500 million to $2.9 billion. The increase primarily reflects the accelerated execution of the ongoing Gulf Coast fractionation project pulling forward capital MPLX previously expected to deploy in early 2027. With multiple investments transitioning from construction to operations this year, MPLX is on track to deliver mid-single-digit adjusted EBITDA growth in 2026 weighted towards the second half of the year. This also positions MPLX for strong adjusted EBITDA growth in 2027. These investments are expected to support 12.5% annual distribution growth in '26 and 2027, positioning MPC to lead and capital return. During the second quarter, we returned $2.8 billion of capital inclusive of $2.5 billion of share repurchases, reflecting strong cash generation and disciplined execution of our capital allocation priorities. We are maintaining balance sheet discipline, with a targeted cash framework that allows flexibility while supporting return of capital. We will execute safely, invest strategically and generate significant cash all at the same time. With that, I'll turn it over to Maria to walk you through our financial performance.

Thank you, Maryann, and good morning. Our second quarter results demonstrate a strong financial performance across the business. We delivered earnings per share of $17.73 and adjusted EBITDA of $8.5 billion. Refining and Marketing adjusted EBITDA per barrel was $24.84. Cash flow from operations, excluding working capital changes, was $6.6 billion, and we returned $2.8 billion to shareholders. These results reflect both market strength and disciplined execution. The next slide shows the year-over-year change in adjusted EBITDA from second quarter 2025 to second quarter 2026. Adjusted EBITDA increased approximately $5.2 billion year-over-year, primarily driven by our refining and marketing segment. Overall, our results show how our operational execution translated into financial performance. Now turning to our segment results. We provide an overview of our Refining & Marketing segment, where R&M second quarter adjusted EBITDA was approximately $6.7 billion. Execution matters, and we delivered. All regions contributed to the significant improvement year-over-year, primarily driven by a stronger margin environment. On total throughput of nearly 3 million barrels per day reflecting strong availability following our first quarter plant turnaround activity, our refineries ran at 94% utilization. In the Gulf Coast, we run 100% utilization delivering $27 of adjusted EBITDA per barrel, where crude optimization, higher jet yields and strong domestic and export demand where differentiators. In the Mid-Con, we ran at 87% utilization as we completed plant turnaround and maintenance activity, delivering nearly $21 of adjusted EBITDA per barrel. In the West Coast, we ran at 93% utilization and delivered over $27 of adjusted EBITDA per barrel, supported by strong regional value chain optimization. We prioritized operational reliability, investments in high-return projects, therefore, value-enhancing opportunities and continuous improvement across the portfolio. These are objectives that we can and do control, positioning MPC to perform through cycles. Turning to Slide 7. Second quarter capture was 112%. Our results highlight the advantage of our integrated system, we're planning, commercial and operational execution are aligned to capture value across the barrel. Capture this quarter was supported by crude optimization included advantaged SPR barrels received from the DOE and a strong clean product margins across gasoline, diesel and jet. In the Gulf Coast, margin capture was positively impacted by the advantage crude we ran in the quarter, increased jet fuel margins and the physical offset related to the derivative losses in the first quarter. These tailwinds were partially offset by secondary products, which remain a market-driven headwind as prices of secondary products lag higher clean product prices. This performance underscores the strength of our integrated value chain and our commitment to deliver peer-leading profitability per barrel. Slide 8 shows our midstream segment performance for the quarter. Segment adjusted EBITDA increased $137 million compared to the second quarter of 2025. The increase was primarily driven by higher rates and throughputs, including growth from equity affiliates and acquisitions, partially offset by the divestiture of noncore gathering and processing assets. As MPLX is executing plans to expand its value chains and transition projects from construction to cash flow generation, it is also maximizing the utilization of existing assets and optimizing operations. MPLX remains on track to deliver sequential growth throughout the year, culminating in mid-single-digit adjusted EBITDA growth in 2026. Now moving to Slide 9. We cover our Renewable Diesel performance. Following the completion of the Martinez turnaround in the first quarter, utilization increased to 95%, reflecting a strong operational availability. Results were supported by a more constructive margin environment with uplift from feedstock optimization as well as improved regulatory credit values. Segment adjusted EBITDA increased approximately $277 million year-over-year. As we look ahead, we remain focused on optimizing operations, leveraging feedstock and logistics flexibility and responding to market conditions. Based on current fundamentals, we expect a constructive environment through the remainder of the year. Now Slide 10 presents the elements of change in our consolidated cash position for the second quarter. Operating cash flow, excluding changes in working capital, was approximately $6.6 billion. Working capital was a $3.8 billion source of cash for the quarter, driven by higher payables, the timing benefit of crude exchanges and inventory draws. During the quarter, we returned over $2.8 billion of capital to shareholders, executing on our disciplined capital allocation framework. At the end of the quarter, MPC had roughly $7.8 billion of consolidated cash, including MPC's cash of $6.7 billion and MPLX's cash of over $1 billion. Now turning to guidance. On Slide 11, we provide our third quarter outlook for the Refining & Marketing segment. We're projecting crude throughput volumes of 2.8 million barrels per day, representing utilization of 94%. Turnaround expenses is projected to be approximately $290 million, with activity mainly focused on conversion units in the Gulf Coast and Mid-Con regions, limiting our ability to upgrade certain products and creating a headwind to capture. With that, let me pass it back to Maryann.

Thank you, Maria. Our priorities remain consistent. Operate safely and reliably, execute commercially, invest with discipline and lead in the return of capital to shareholders. We remain focused on execution and are strengthened by our strategic relationship with MPLX. Our competitive advantage is sustainable. It is built on integrated value chains, scale, flexibility and disciplined execution. Our portfolio and optimization capabilities position us to deliver peer-leading profitability per barrel in each region where we operate. We are disciplined in how we deploy capital. We invest where we see clear line of sight to returns, strong demand pool and sustainable competitive advantages. At the same time, we maintain our commitment to return capital to shareholders, supported by strong cash generation. MPLX remains the key differentiator for MPC, strengthening MPC's through-cycle cash flow profile and enhancing our ability to deliver industry-leading capital returns. We remain constructive on the outlook for both U.S. refining and midstream. While volatility will persist, our priorities remain consistent. capture upside, protect the downside and lead in the return of capital to our shareholders. With that, I'll return the call back to Brian.

Thank you, Maryann. [Operator Instructions] We will now open the call to questions.

[Operator Instructions] The first question comes from Neil Mehta with Goldman Sachs.

The first question is just on the refining side. The capture was very strong at 112%. You called out a couple of things, including crude optimization and the strength of the product margin. But maybe you could just help us understand what was the formula for success around the capture rate as we think about modeling this on the go-forward too.

Neil, thank you. So you know this. Our overall objective with respect to commercial and planning and frankly, our operational execution is to optimize our results, add value in all markets. And there's always variables that we're not able to control. But I think when you look at our results, there's a few things that you should always expect to see that are largely consistent. One, would be our ability to capture, take advantage of the opportunities in the prompt, things like dislocations, supply constraints, regional asset disruptions, crude sourcing, as you saw in this quarter, and there are just a few, and we should be able to optimize around those. But the other element there is really trying to build sustainability into these results. You've heard me say before, we're using our planning, our commercial and our operational competency to do that. One example is our ability to narrow our decision windows, which means we're now able to make better decisions, value-driven decisions on the opportunities that are presented and in particular, in volatile markets. We're using an abundance of data, digital competencies to give our commercial leaders, our commercial planners, the analytics to make market-informed decisions, value decisions value-driven decisions and to make them faster. So our goal, as you know, is really to achieve peer-leading profitability in every region where we operate. This quarter, in particular, the $112 million was driven by strict inventory discipline in a backward-dated market. We had benefits from crude sourcing and optimization, as you've heard us talk about. We obviously had favorable impact from the derivatives that came through with the physical receipt in the second quarter, consistent with what we shared in the first quarter, incremental jet production in a very strong margin environment and then reliability in a strong crack environment. So these are a few of the things that are both market-driven and our own commercial and planning capabilities that drove that. But I'm going to ask the team to give you a little more detailed insight to help with our results in this quarter. So I'm going to pass it to Rick.

Neil, I'm going to start with where Maryann ended, and that's on reliability. Everything starts with Mike's team, delivering safe, reliable operations at our refineries. That truly is the foundation of our ability to optimize our fully integrated system. And as Maryann mentioned in her opening remarks, in a volatile market, our crude optimization team excelled across 3 regions. So let me give you just a few examples that demonstrate our commercial sophistication and our maturity in terms of where we're at. I'll start with the purchase of SPR exchange barrels, Neil. We bought directly from the SPR. We avoided the middleman, and we're grateful where the DOE releases helped meet market demands and ultimately, consumer demands. We ran more than double Venezuelan crudes in 2Q versus what we ran in 1Q. We ran record amounts of Canadian heavy in the Gulf Coast in the second quarter, thus reducing our exposure to Brent-based crudes. And out on the West Coast, we ran twice as many California-based crudes than normal with advantaged economics due to the recent pure closures that we've seen in that market, making these barrels available. And Neil, we had many, many more yield enhancement shifts, but maybe I'll just pause there and pass it over to Julian and have him give you a little bit of color on a few of our yield enhancement shifts. Julian?

Thanks, Rick. Neil, in terms of the formula for success that you mentioned, I think that at its call, it's now our underlying operating model. And the sustainable capabilities we've embedded that drives capture through enhanced execution. So planning are responsible for identifying value-enhancing strategies under all market conditions. And to do that, we leverage crude sourcing, logistics optionality, but really the depth range of our integrated value chains. And in combination, it's my planning, Rick's commercial and Mike's operational teams who collaborate seamlessly now to optimize across these integrated value chains and run our strategies through the assets safely and reliably. And in Q2, I think jet is a really good example of this. So we leveraged the strong market signals that Rick's team identified. And then we work hand-in-hand with Mike's team to reoptimize quickly on refinery yields, and we were able to take full advantage of the jet investments that came online at Garyville and Robinson in the quarter, almost perfect timing. And that resulted in a 3% increase in jet yield year-on-year. And in fact, since 2024, we've now increased our jet yield capability from 8% to 12%. So I think the key to our success fundamentally is that we've really enhanced our ability to rapidly adapt to changing market conditions, and we can flex between jet and diesel production as appropriate to the conditions.

That's great. Very helpful. Just the follow-up is just on cash. You guys are on sitting on a lot of it, Maryann. And so just your perspective on some of the moving pieces as you think about what's the optimal level of cash relative to the $1 billion you've talked about in the past, return of capital, how aggressive you want to be? And then working capital was such a big nut this quarter. How do we think about the unwind of that item?

Yes. Certainly, Neil. So just on cash flow, no change to our priorities on capital allocation. As you saw in the quarter, we did build a bit of cash on the strengths. But our capital allocation priorities are unchanged. The strength of MPLX distribution should allow us to continue to lead in the return of capital. No change when we think about overall the cash balance that we need, roughly $1 billion. You probably heard Maria speak on the SPR as well. We do have an obligation to repay that and we'll look at those balances as well. But we really don't change at all in the way that we think about our cash balances. And then on working capital, I'll pass it to Maria and have her give you some of the sensitivities. But obviously, a strong quarter this quarter. We talked about inventory draw, et cetera. But let me give it to Maria and she'll give you a little more color on the specifics on working capital, Neil. And hopefully, that answers your question.

Yes. On working capital, we had a large benefit this quarter, as you saw of $3.8 billion. We are cognizant of the timing of our working capital needs and the elements. If you think about it, we are already starting to rebuild inventory, right? We have a liability and a repayment obligation for these crude exchanges. And we will be watching as well our payables. Now it's good to keep in mind the sensitivity that we have communicated. For every $10 move in crude, that is about a $550 million change in working capital, one way or another. So trust that helps.

Hope that helps, Neil.

Thank you. Very helpful.

The next question comes from Manav Gupta with UBS.

I was hoping to talk a little bit on refining macro. Your opening comments were very interesting, where you said 9 million barrels is offline, 4 million more than normal. And it's been offline for some time here. So I'm just trying to understand what this has done to global product inventory? How long could it take to replenish it? But more importantly, we have actually seen serious damaged Russian refining capacity. We have seen damages in the Middle East. So is there a possibility here that for the next 10 years or so, even the mid-cycle is higher given the actual unplanned downtime, which will go on for some time and the global product inventory depletion, if you could talk about that?

Certainly. So we've been very constructive, as you know, on the long term, even before the conflict. And then certainly, the opportunities and the challenges that the Persian Gulf conflict have created on top of the Russian and Ukraine. We remain constructive well into 2027. As you mentioned, the global supply, it's extremely dynamic. As we've seen, it is difficult for us to have a level of prediction as to when it will resolve. You've got, I think you mentioned this already, with respect to Persian Gulf conflict, the Middle East refineries have really been slow to come back online. And then again, any further disruption in the region could cause further supply constraints to evolve. Russian-Ukraine conflict, certainly, the acceleration of the Ukrainian attacks on Russian refineries have led to more than 2.8 million barrels offline, downtime there as well. And that's 1/3 of Russian's refinery capacity offline and the country's fully banned diesel exports. So we certainly see that it will take quite some time for the infrastructure to be repaired. And then as I mentioned in my remarks as well, you got global product balances remain extremely tight and some of the lowest levels of inventories in gasoline and diesel that we've seen. I'm going to pass it to Rick and let him give you a little more color as he sees some of the market impacts here.

Yes, I think where I'll start is on the demand side, just to give you a feel for what we're seeing in all 3 of the regions we operate. So within our system, we continue to see consumer demand being resilient on gas, diesel and jet, and this is both domestically and internationally. We are seeing very strong signals in both markets. As an example, U.S. jet was at an all-time high in June, the demand for it was, and we hit distillate records on exports in the quarter in 2Q and continue to see very positive economic signals there. If I move on with -- if you look at -- as you and Maryann have touched on, the amount of refining capacity off-line, I think what I want to leave you with, and I hope doesn't get overlooked, is the medium sour availability, which is reduced by the Middle East conflict and more refineries running light crudes, that ultimately is yielding more gasoline globally. And the diesel spread is partially high as a result of that. In combination with, as Maryann mentioned, low global inventories, but especially low global inventories in the U.S. and in Europe. So we're seeing most everyone taking the appropriate signals and we're all in max diesel mode, and we've watched this play out before. When you're in max mode of any one product, for a significant period of time, it puts pressure on other products. And we're starting to see that pull through on the gas crack is I think you're seeing in the indicators. And then finally, I'll leave you with this. As refineries are running hard, and as we enter hurricane season, a little bit of an elevated turnaround season in 3Q, which is in line with other 3Qs. We do expect more volatility here in the near term, Manav. Any refining disruption, as you've seen over the last couple of months, it really doesn't matter what region you're in; Gulf Coast, West Coast, Mid-Con; it is proving to cause significant outsized market moves, and we just see a lot of that continuing to happen here as we look forward through the end of the year and beyond.

My quick follow-up here is on the West Coast, where things appear particularly tight. I think there was a theory at one point that California can import its way out of the problem. It clearly looks like that's not going to work. So a, your leverage over there, can you move some product from your refinery in Washington over to California to capitalize on it? And do you think market will get even tighter in 3Q given one of the bigger peers of yours as already announced downtime at both the refineries?

Yes, Manav, really insightful question. What I would start by saying is the Jones Act waiver is allowing us and the rest of the industry to make movements from the Gulf Coast into the West Coast. But those movements are enough to overcome the lack of Asian imports that are not coming in as they usually would due to the Middle East conflict. To your point, I would tell you, we are extremely well positioned with LAR and our Pacific Northwest assets to meet consumer demands, especially as you rightfully noted several of our competitors there will have turnarounds here in 3Q.

The next question comes from Doug Leggate with Wolfe Research.

Maryann, it's great to hear you on the call. I wonder if I could hit one very specific question and one follow-up. And my specific question is on capture rates. You clearly had extraordinary capture rates across all 3 refineries. You normally show pretty fantastic capture rates in the fourth quarter when the RVP rules are different, butane blending and so on. So my question is the RVP waiver, as I understand it, was one of the policy steps taken by the U.S. government. So are you benefiting from that butane blending uplift in your capture in the second quarter? And should we, therefore, expect that also in the third quarter? That's my first question. And then I've got a follow-up on the cash balance.

Yes, certainly. So that benefit, certainly, it would be a part of 3Q -- 2Q, excuse me, but it is just a really small element of all of the contributors that we were trying to articulate in the second quarter. So certainly a benefit, but not one that is significant in the second quarter. We tried to mention the things in the second quarter that led to that. I'd say 2 things. One, we had clearly market tailwinds as we talked about, and then good commercial and planning execution, really trying to optimize in the prompt and bring those sustainable changes that we've been referring to, to deliver the most profitable profitability per barrel in each of the regions where we operate. I hope that helps.

Yes, it does. Maryann, my follow-up is, I mean, clearly, I hear my peers talking about the extraordinary market we're in right now. And those of us who have been doing this for 30 years are looking at it going, well, how long is this going to last? And I see you not deploying 100% of your surplus cash to buybacks. We see obviously the big cash build on your balance sheet this quarter. I'm just curious, are you -- do you have any hesitancy about allocating your full cash distributions in the current environment? In other words, do you have any concerns on the durability of the current margin environment?

Yes, certainly. Thanks for the question, Doug. No, our capital allocation priorities are consistent. No change there. We believe the return of capital via share buyback to our shareholders continues to be the right vehicle. When we talk about cash balances, timing matters. Obviously, there's been a lot of volatility in the quarter. But that volatility doesn't change the way we think about returning capital. The only thing that's slightly different, and Maria mentioned it as well, with the SPR barrels, we have an obligation to repay those barrels in the future. But overall -- and that's embedded in the working capital that she spoke about. But again, our overall view on the cash that we need to run the company, notwithstanding the SPR return is consistent and therefore, the return of capital remains a priority. I hope that helps.

The next question comes from Sam Margolin with Wells Fargo.

So historically, Marathon and the whole refining industry has been pretty successful at identifying the best possible growth investments when there's a surplus of light crude, we saw the industry build out some distillation capacity when there's a call on product it's -- there's been very timely conversion projects that have been executed and MPC is certainly a part of that. Right now, I think the salient question is how you see growth potential on the refining side in the context of not only product shortages that are accumulating structurally, but also crude availability dynamics that are changing with Venezuela and Canada as well in growth mode.

Yes. Thanks, Sam. So I'm going to pass the question first to Julian to talk about crude sourcing, et cetera. And then I'll come back and just talk in general, the way that we are thinking about deployment of capital with respect to refining in general. But Julian, first, please.

Thanks, Maryann. Sam, I think in relation to the crudes that we choose to put in front of our refineries, I'll start and reinforce that we'll always maximize the most cost-effective feedstock to run through our system at all times. And we've already got the ability to run over 100 different types of crudes across our system with Garyville being the most flexible refinery on the Gulf Coast. We've got 2 premier Gulf Coast assets, and we can run almost any crude that's put before us or based on economics. So we have very high crude optionality. So we don't really see a need to further invest in the ability to run more different types of crudes. We have that choice across our enterprise. So we're all ready to run on -- in terms of crude slate diversification.

Thanks, Julian. Sam, so maybe to your question on how we are thinking about deploying capital in the refining space. Hopefully, you've seen even over the last few years, we're not relying on any particular specific market environment, a mid-cycle enhanced crack, et cetera. we're really looking to deploy capital where we can improve reliability, optimize around the yield. I think the example that Julian and others have talked about here on our decision to flex incremental jet yield. We talked about that last quarter at Garyville, completing the Robinson product. So we're trying to be sure that we can increase value, again, be the most competitive in every region where we operate by putting capital to work aligned with where we see longer-term demand headed, the strength of our U.S. Gulf Coast, particularly as we look at export opportunities, and align with the way that we see the portfolio for today and the portfolio for the future, and then maintaining that strict discipline around the returns that we expect when we put capital to work. I hope that helps, Sam.

Yes, it does. And then it's along the same reinvestment team, but Renewable Diesel probably worth asking, commodity margins are back to where they were when you FID-ed Martinez. And so it's obviously very policy-driven. And so your thoughts on kind of the call on incremental renewable diesel capacity as well would be helpful.

Yes. You're welcome, Sam. No different. The capital that we put to work in RD is really for efficiency only. And there's no change in the way we think about the allocation of capital today to the renewable segment. We want that asset to run well reliably, as you've seen in the second quarter, feedstock sourcing there, safe and reliable operations and obviously, the benefit of the regulatory environment has helped. But we have no change in the way that we're thinking about capital in that particular segment, efficiency only as we said in the beginning of the year.