Marathon Petroleum Stock

Welcome to the MPC Third 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 conference over to Brian Worthington. Brian, you may begin.

Welcome to Marathon Petroleum Corporation's Third 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 on the call today 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. We are pleased to welcome David Constable to the Marathon Board effective March 1, 2027. His 4 decades of global leadership, experience in energy, chemicals, engineering and construction sectors will be a tremendous asset as we execute our strategy.

Our third quarter results demonstrate the earnings power of MPC's value chains. Consistent with our commitment to safe and reliable operations we achieved record third quarter utilization of 100% to meet market demand while executing our planned turnaround and maintenance activity. Consistent with our commitment to safe and reliable operations, we achieved record third quarter utilization across all 3 regions, our teams executed in a strong margin environment.

We delivered peer-leading cash flow generation in the third quarter, demonstrating the strength of our system, ensuring the long-term competitive position of our portfolio is a strategic commitment. And today, we announced steps we are taking to advance our strategic commitment. MPC has agreed to sell the St. Paul Park and Mandan refineries, and MPLX has agreed to sell the associated midstream assets to CVR Energy for $4.2 billion.

MPC will receive $3.4 billion and MPLX will receive $750 million. MPLX expects to redeploy proceeds from the sale to advance its growth plans anchored in the Permian and Marcellus basins. The refining macro environment remains constructive and the U.S. Gulf Coast is the most structurally advantaged refining region globally.

We intend to reinvest the proceeds from the announced sale of our Mid-Con asset opportunities that meet our return thresholds and advance our strategic priorities, primarily in the Gulf Coast. Globally, there are 10 million barrels per day of planned and unplanned refining capacity off-line. This is approximately 3 million barrels per day above historical norms, reflecting ongoing Persian Gulf disruptions and Ukrainian attacks on Russian infrastructure. U.S. diesel inventory is below the 5-year range, while gasoline inventory is near the bottom of its 5-year range, underscoring continued market tightness.

Yet within our system, demand remains resilient across gasoline, diesel and jet. We expect to remain in an enhanced mid-cycle environment through the end of the decade with elevated margins through at least mid-2027. Against this backdrop, our ability to run advantaged crude and optimize our value chain provides a sustainable advantage. The scale, geographic diversity and flexibility of our refining system enable us to respond rapidly across dynamic market conditions. Access to low-cost natural gas and integrated midstream logistics further enhances the competitiveness of our system. And we are investing in value-enhancing opportunities focused on lowering operating costs and enhancing system reliability while improving our ability to convert lower value inputs into the high-value products, the market continues to demand.

We expect the investments we have been making in our Gulf Coast region to enter service by year-end 2027. These include the construction of a 90,000 barrel per day distillate hydro-treater at our Galveston Bay refinery, which will convert lower value, high sulfur diesel to higher-value ULSD. At Garyville, further feedstock optimization will increase crude throughput by 30,000 barrels per day and reduce our reliance on higher-cost intermediate purchases.

Additionally, we are increasing flexibility at Garyville to produce an incremental 10,000 barrels per day of export premium gasoline, while lowering cost. We will continue evaluating additional opportunities to further strengthen the long-term competitiveness of our strategic value gains, positioning the portfolio for today and the future.

Moving on to our midstream business, MPLX continued to execute its natural gas and NGL value chain strategies. Harmon Creek III began operations with 300 million cubic feet per day of gas processing and 40,000 barrels per day of de-ethanization capacity, increasing our Northeast processing capacity to 8.1 billion cubic feet per day and fractionation capacity to 800,000 barrels per day.

Additionally, MPLX and its joint venture partners announced FID of the Solitude pipeline system, which when completed, will provide an additional 4.5 billion cubic feet per day of natural gas egress from the Permian Basin.

MPLX is also progressing the expansion of sour gas treating capacity at the Titan complex to more than 400 million cubic feet per day expected by year-end. Natural gas and NGL fundamentals remain robust, creating compelling opportunities to support growing domestic and global demand for U.S. energy. MPLX continues to advance its integrated U.S. Gulf Coast wellhead-to-water strategies through disciplined investment across the value chain. MPLX increased its quarterly distribution by 12.5% for the third consecutive year. The increase is supported by MPLX's multiyear track record of delivering mid-single-digit adjusted EBITDA growth and growth projects coming online over the next several years. MPC now expects to receive $3.1 billion of annual distributions from MPLX more than covering MPC's annual dividend and capital expenditures, a differentiator in our industry.

During the third quarter, MPC returned $3.3 billion of capital, executing on our commitment to industry-leading capital return. We also announced a 10% increase in MPC's quarterly dividend, consistent with our capital allocation priorities. We are maintaining balance sheet discipline with a targeted cash framework that allows flexibility while supporting return 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 through our financial performance.

Thank you, Maryann, and good morning. Our third quarter results demonstrate a strong operational performance across the business. We delivered earnings per share of $26.93 and adjusted EBITDA of $11.7 billion. Refining & Marketing segment adjusted EBITDA per barrel was $34.15. Cash flow from operations, excluding working capital changes, was $8.5 billion, and we returned $3.3 billion to shareholders. These results reflect disciplined execution.

The next slide shows the year-over-year change in adjusted EBITDA from third quarter 2025 to third quarter 2026. Adjusted EBITDA increased $8.5 billion year-over-year led by our Refining & Marketing segment. Overall, our results demonstrate the earnings power of our value chains enabled by strong planning, commercial and operational execution.

Turning to our segment results. Refining & Marketing segment, third quarter adjusted EBITDA was $9.9 billion. Every region contributed to the significant improvement year-over-year, primarily driven by a stronger margin environment. With total throughput of nearly 3.2 million barrels per day, our refineries ran at 100% utilization. We achieved this while executing our planned turnaround activity, maintaining our commitment to safe and reliable operations. Execution matters, and we delivered.

Let's talk about our regional performance. In the Gulf Coast, we ran at 99% utilization despite planned conversion unit downtime delivering nearly $33 of adjusted EBITDA per barrel. Our ability to respond to market signals and maximize distillate yields was enhanced by the added flexibility from our cable investment that came online earlier this year. The Mid-Con we achieved record utilization of 101% and delivered $36 of adjusted EBITDA per barrel, higher rates and maximize distillate yields were supported by our Robinson investment that came online in the second quarter.

In the West Coast, we ran at 98% utilization at record levels for this region delivering over $33 of adjusted EBITDA per barrel. Our results reflect our commitment to peer-leading profitability per barrel in every region where we operate.

Turning to Slide 7. Third quarter capture was 93%. Secondary products were a material headwind, the largest we have seen on an absolute basis to capture as benchmark clean product prices increased more than secondary product prices during the quarter. Weaker jet margins and seasonal inventory bills were additional headwinds and partially offset by clean product margins and wider diesel to gasoline spreads in the quarter. Importantly, 100% utilization enabled us to optimize the system while a strong planning and commercial performance further strengthened our results. A slide shows our midstream segment results. Segment adjusted EBITDA increased $173 million compared to the third quarter 2025.

The increase was primarily driven by higher rates and throughput, increased income from equity affiliates and growth from acquisitions. Underlying operating performance was strong across MPLX's value chains. As additional projects enter service and utilization increases across the system, MPLX is positioned to deliver durable mid-single adjusted EBITDA growth.

Now moving to Slide 9. We cover our renewal diesel performance. Segment adjusted EBITDA increased by $310 million year-over-year. These results were supported by a more constructive margin environment, improved regulatory credit values and higher throughputs. We continue to optimize operations and leverage our feedstock and logistics flexibility to adapt to market conditions. This performance demonstrates the value of our disciplined investment.

Slide 10 presents the elements of change in our consolidated cash position for the third quarter. Operating cash flow, excluding changes in working capital, was $8.5 billion. Working capital was at $2.3 billion source of cash for the quarter, primarily driven by income tax payables and the timing benefit of the SBR crude exchanges. In the quarter, MPC redeem all of its outstanding $749 million senior notes due December 2026. As we think about liability management, we will consider opportunities when the economics are favorable. During the quarter, we returned $3.3 billion of capital to shareholders, demonstrating a strong cash generation and disciplined execution. At the end of the quarter, MPC had roughly $13.6 billion of consolidated cash and short-term investments, including MPLX's cash of nearly $1.3 billion.

Now turning to guidance. On Slide 11, we provide our fourth quarter outlook. For the Refining & Marketing segment, we are projecting crude throughput volumes of 2.8 million barrels per day, representing utilization of 95%. Turnaround expenses is projected to be $230 million with activity mainly focused on conversion units in the Gulf Coast and West Coast regions. This will limit our ability to upgrade certain products and create a headwind to capture. For the year, turnaround expenses remain in line with our 2026 outlook of $1.350 billion. For the renewable diesel segment, we are projecting 85% utilization and planned turnaround costs of $65 million, driven primarily by turnaround activity at Dickinson. With that, let me pass it back to Maryann for closing remarks.

Thank you, Maria. Our performance reinforces the strength of MPC's value proposition our scale, flexibility and geographical diversification are key competitive advantages. Combined with our integrated midstream logistics and our commercial capabilities, these advantages allow us to optimize our system and enhance margins in dynamic market conditions.

Safety and reliability are foundational, ensuring the competitive position of our assets, is a strategic commitment. We are developing a resilient portfolio for today and for the future, investing where we see attractive returns and sustainable competitive advantages. We are directing investment to our Gulf Coast value chain to further strengthen the long-term competitiveness of our system.

Our capital allocation priorities are consistent. We remain committed to industry-leading capital return supported by strong cash generation that enables us to continue to invest in the business. MPLX provides durable growth and an increasing source of cash flow to MPC, further strengthening our through-cycle cash flow profile. Global supply and demand fundamentals support our constructive outlook for both U.S. refining and midstream. Our differentiated portfolio and disciplined execution, position MPC to deliver exceptional value across market cycles. With that, I'll turn the call back to Brian.

Thank you, Maryann. [Operator Instructions]

We will now open the call to questions. Operator?

[Operator Instructions]

Our first question comes from Neil Mehta with Goldman Sachs.

Yes. Thanks, Maryann, for the rundown here. Just wanted to start off on the transactions and the asset sales. It's been a long time since Marathon has monetized some of its refining assets. So maybe you could just talk about the process, why you identified these assets and how that fits into the broader strategy? And how did you get comfortable with the valuation around this monetization as well.

Yes, Neil, thanks for the question. And maybe before I share a little bit about the divestiture, once again, I really want to thank the employees of our St. Paul Park and Mandan refineries, and those employees that are accompanying the midstream assets that supported as well for their ability to safely and reliably operate these assets up until this point and all the way through the close of the transaction.

So just a big thank you for all of our employees. But let me try to address your question, Neil, around the divestiture. I think you know maybe as far back as August of 2024. I and the rest of the leadership team have really been talking about ensuring that we create a portfolio for today, looking at market demand, et cetera, and a portfolio for the future. And we remain committed to ensuring that, that is a portfolio that we are operating consistently. We acted on an opportunity to align our portfolio with our strategy at valuations that I think we deem to be very attractive. Glad that we are able to divest to a company that is looking to grow and also operate safely and reliably. And we believe those assets fit well into their portfolio. And as I mentioned, I think we have been committed to ensuring that we will deploy capital strategically grow in the areas like the U.S. Gulf Coast that we believe have the strongest long-term potential for growth and value creation. So that would be the reason why all of our assets in our portfolio are cash flow positive and generating strong returns there. But this was, we think, an appropriate decision to align our strategy with the long term. Let me pause, Neil, and see if I've answered your question.

You have. And that kind of brings me to the follow-up, which is just as we think about crude sourcing post this transaction, how should we think about how much WCS Marathon is running? And just your perspectives on the Western Canadian crude environment, I think on the last call, you had indicated a view that it could widen out a little bit before this has exceeded, I think, even the most bullish expectations for differentials. So your views on the market and your perspective on how much WPS you can run through the system.

Yes, Neil, I think you said it well. I'm going to give Rick the opportunity to share some of the details. But as you know, we have been one of the largest, if you will, operators that using WCS including the imports, and we continue to see the strength of those differentials, particularly as you look into the fourth quarter. So let me pass it to Rick.

Yes, Neil. So we're really leaning into the WCS story. I think this morning, my team reported to me that there was a print of minus 32 [indiscernible] barrel under TI. So it continues -- that differential continues to widen out. And when you look at it, Neil, I continue to think it may widen out further. There's just significant tailwinds when you look at the heavy and the sour grades. It's led by freight, the freight challenges with crude export economics, especially on the medium and heavy sour barrel and thankfully, for MPC, we have a very small exposure to freight on the crude side as about 90% of our crude sourcing is from U.S. and Canada. And then what little we do bring in via waterborne barrels, we locked into very attractive time charter rates before the war started. So we're in a really good spot there. And then when you couple that with the Venezuelan and the SPR barrels that have hit the U.S. Gulf Coast, the diluents that are being blended into the heavy Canadian right now. And then here recently, we just saw increased Enbridge apportionment on both lights and heavies we're in a really good spot. In fact, here in the fourth quarter, we expect to set records on how much heavy Canadian we process.

The next question comes from Manav Gupta with UBS.

I wanted to ask you on the refining macro you guys are constructive coming into this year. Obviously, it's been a record year for you. I'm just trying to understand what's the margin outlook now. We have seen gasoline pull back. Do you think that's just seasonal, but obviously, the overall differentials even medium sours are pretty wide. So as you enter 2027, how are you looking in terms of the overall refining macro? And have you seen any early signs of any kind of demand destruction here?

Again, it's Maryann. So let me start first with -- as you mentioned, we have been extremely constructive long-term prior to the Iran conflict. We look at the supply coming online, frankly, and the demand that we see over the longer term. And we went into 2026 in a very constructive environment. Obviously, Iran conflict has had significant impact, really elevating margins as you see. And one of the things that we've been trying to do, frankly, is capitalize on that through our planning, commercial and operational excellence to be sure that delivering the greatest value possible. As we -- as I've mentioned, and again, Rick will give you a little bit more color here. But frankly, we haven't seen really demand destruction across our system, particularly when you look at jet and diesel. So we head into 2027 believing that it is -- continues to be structurally sound, solid, notwithstanding the timing of resolution on the Iran conflict, a series of things would have to happen. So we remain quite constructive over '27. I'll let Rick give you incremental color to some of the specifics there.

Yes, Manav, on the demand side specifically, when you really take a step back and look at the industry, but then even say, look at MPC specific, we ran at 100% utilization in 3Q and met all of our consumer demands, both domestically and internationally. And then when you kind of overlay that and look at the inventories on gas and diesel, they continue to remain at or below 5-year averages.

So we're really bullish as you look back into the larger term S&D fundamentals within the system. And then as Maryann said, within our system, consumer demand remains very resilient across gasoline, diesel and jet, both domestically and internationally. And then on the recent pullback, I think maybe a little color there. We're expecting the unexpected. Everything you see is headline driven here lately. But in our view, a slight pullback was not unexpected as we transitioned out of the summer driving season. This is just a seasonal pullback that is quite typical as well as when you couple that with their third quarter turnarounds, it really makes sense to us. But going forward, Manav, we see continued volatility we're bullish because of the inventory positions I mentioned on gas and diesel throughout the United States. And bright days are ahead. We haven't entered a winter season in this position ever, and we feel very constructive on it going forward.

My quick follow-up is on the amount of cash on the balance sheet. You ended the quarter at 12.3. This is before the asset sale proceeds come in and then fourth quarter is looking pretty strong, as you said. Your cash on the balance sheet could balloon to over $20 billion by the end of this year. And that's a lot of cash to hold on to the balance sheet. So I'm just trying to understand the possible uses of this amount of cash on the balance sheet.

Certainly. Yes, you're right. Obviously, as we look at the third quarter, we built cash and of course, depending on how you view that outlook for the fourth quarter, Rick just shared with you sort of how we see it. We are obviously quite constructive. We could build cash again. A few things to think about. In the third quarter, we remain disciplined to our capital allocation priorities. We increased our dividend 10% at normal timing as we have in previous years. We also bought back $3 billion of our own equity. We would continue to say that our capital allocation priorities have not changed. And to your point, as we see the sales come to conclusion as we're projecting by the end of the fourth quarter. We would also see, obviously, net proceeds from that.

As I mentioned in my prepared remarks and you see in the press release, our objective would be to invest those proceeds into U.S. Gulf Coast as well as other value chains. Historically, over the last few years, we have put capital to work that has grown our EBITDA per barrel. You can talk about the things that we did in 2026, frankly. We talked about our Robinson jet project talked about Garyville coming online in 2027. We have the DHT. We have 2 Garyville projects that I mentioned that will reduce cost, improve feedstock input as well as give us capabilities for export premium, and we see the opportunity in the U.S. Gulf Coast to put that capital to work as well, Manav.

The next question comes from Sam Margolin with Wells Fargo.

Well, your last point, I think, is a pretty good prompt for some more detail on maybe some reinvestment opportunities in the Gulf Coast. It sounds like you have a lot underway right now, you're prosecuting some projects, but I think you just said pretty clearly that you see opportunity for more. So can you talk about the categories of reinvestment that are most appealing right now, whether it's debottlenecking or conversion or all of the above? Or what exactly I think is jumping off the screen for you right now?

Sure, Sam. First and foremost, whenever we consider putting capital to work as we've been sharing over the last several years, we want to be sure that there are certain things that are evident and obvious when we put capital to work on, we're looking for yield enhancement. We're looking to strengthen our reliability. Frankly, you may have heard over the last couple of quarters, we talked about reliability that has been kind of some of the best that we've been able to experience in a decade as those projects come to fruition, critically important. We want to enhance flexibility. We talked about increasing our jet yield and also having flexibility to move to different distillates as demand changed.

We executed those this year. And then cost reduction also being a place that we would look to invest. They are the areas where our review, if you will, and objectives must be met. If you think actually over the last 5 years from the capital that we've put to work, we've actually been able to increase about 175,000 barrels a day of capacity, and I think that's been pretty important. But I'm going to pass it to Mike because as you know, we've got what we think to be -- 2 of the best assets in the U.S. Gulf Coast, one of which is probably the lowest cost operating asset. And I'd like Mike to share a bit about what he is contemplating, what we're contemplating as well into next year.

Yes, Sam, a couple of things. Obviously, the reliability. We're continuously investing in that. But all the things you laid out are all in the plan, to be honest with you. We're looking at additional conversion, yield enhancements and throughput as well in the Gulf Coast and as Maryann stated, we have 2 world-class facilities there that we intend to invest in. But the future looks bright in the Gulf Coast, and we're ready to invest.

Okay. And then just as a follow-up on the seasonality of gasoline. I think one of the factors right now that's unusual is that LPGs have very high value and it's influencing blending economics and some other seasonality that might be important in gasoline. But MPC has a very integrated system when it comes to LPGs and blending. And so -- maybe if you could just remark a little bit on how you're positioned right now within this kind of abnormal commodity SKU with respect to butane and seasonal gasoline?

Yes, Sam, a very timely question. We have a build program that we execute, and we executed it very well on butane this year. So we built in 2Q and early 3Q, and to your point, we're reaping the benefits of that right now significantly. So I would say we're positioned very well from a butane perspective. And then I would also say when you look at propane, where we export a decent amount of propane as well, and we're seeing [indiscernible].

Please continue to host for today's conference call. We will begin 1 moment. Please continue to hold. We are having technical difficulties. Please stand by.

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Sam, it's Maryann, can you hear us, sorry, we think we lost audio there for a moment. I just wanted to be sure that you got the answer to your question.

Yes, I heard -- that's right. It did interrupt, but I heard most of it. I think -- I'm not sure if I speak for everybody on the call, but I cut off when you're talking about propane. So I don't know if you want to continue there if you felt it's been answered.

Yes, Sam, let me just finish my thoughts on propane and then we'll continue on. So on propane, as you know, we're a large exporter and about to get a lot larger as we bring on our projects on the U.S. Gulf Coast next year. But on the propane side, we have had significant economic margins within the environment, mainly because of the demand overseas. So we've not only -- I feel really been advantageously the butane market, but propane has been a nice shot in the arm for us as well. I hope that answers your question, Sam.

Yes. Thanks, Sam. Sorry about that. Sorry, all.

Our next question comes from Joe Laetsch with Morgan Stanley.

So I wanted to just start on the refining side. So utilization came in much stronger than guidance and that we expected really across the regions during the third quarter. Can you just talk to what went right during the quarter and some of the drivers of the outperformance.

It's Mike. A few things we talked about earlier, is the investment and reliability has been key for us, not just in the Gulf Coast, but all of our value chains. With that gives us a better platform to grow from as well. But I will say we're tackling just the basics of operating really paying attention to the blocking and tackling of day-to-day operations and a lot of work around training and optimization as well. That's been a target to our utilization.

And Joe, it's Maryann. I think the other thing that I would add, as you know, over the last several quarters, we've been talking about the opportunity across our planning, commercial and operational value chains. And I think really, we are focused on the things that we can control, looking for those opportunities and ensuring that we are able to deliver that. I thought I'd pass it maybe to Julian to see if there was anything else that he wanted to add as he's thinking through the planning side of our utilization.

Yes. Thanks, Maryann. I think our performance, as Mike said, it reflects the strength of our integrated planning commercial and operations teams and optimization can only really create value if the assets are available to run. So kudos to Mike and the team, reliability was and remains, it's the foundation upon which the capture of any commercial opportunity really depends. And we've said previously, I think our speed of analysis now, the sophistication of our tools and modeling. That's given us the ability to identify opportunities and convert it to executable sort of insights that we can pass the teams. And it's our ability now to coordinate those decisions as one integrated system that creates that durable -- differentiating resilience, I think.

Yes, definitely. And then maybe just looking ahead into the fourth quarter. So recognizing it's still early, the market obviously remains volatile. Can you just walk through some of the puts and takes on capture relative to 3Q? And in particular, how should we think about the benefit of wider WCS differentials like we talked about earlier, maybe changes in freight, crude backwardation, secondary product margins. And then I think you also had mentioned in the prepared remarks that there's some conversion unit maintenance. So how that factors in as well?

Certainly, Joe. So maybe let me start with third quarter and then I'll head to fourth quarter, and then I'll let Rick give you some of the more intricate details as we're thinking about your questions on freight and WCS era. In our third quarter, we delivered capture of about 93%. And as we mentioned in the second quarter, we had some elements that we did not expect to repeat. Obviously, crude sourcing and the benefit of SPR that occurred in the second quarter were clearly tailwinds that we shared would not be able to repeat into the third quarter. I think the other headwind that we had very significant, Maria mentioned it, too, as she was sharing her remarks with all of you, was the most significant second dairy headwind that we have experienced. And that certainly played into the third quarter as well.

Having said that, if you go back and you look at the average over the time period, our third quarter averages in and about that 94%, 95% range. So just a few things to consider as we think about the third quarter's strongest really headwind coming from secondary ever in the history of the company. And then as we -- yes, year-to-date, frankly, through the third quarter, we are at capture of 101%. And then the fourth quarter is typically our strongest quarter on the things that we can absolutely control. So I'm going to pass it to Rick and he can give you some of those specific thoughts to answer your questions.

Yes, Joe. So when you look at 4Q, just a little bit of insight there, 1 month and a 3-month game here. We're seeing through -- excuse me, through October, we saw the same headwinds on secondary products. So we'll continue to watch that for the next 60 or so days. But early on, we're seeing very similar numbers that we saw in the secondary side in 3Q. I do want to make very clear 1 item, though, because I think it's not well understood. And I think it's because within the industry, our capture metrics seem to vary company by company, and we're no different or we are quite different, I should say, than others.

So I talked earlier about tailwinds on heavy sours and inland crudes. However, I want to remind you that they -- those differentials, they're referenced in our market indicator as well as backwardation as referenced in our marketing indicator.

Unlike others, they put that in their capture results. So we're a bit unique there. And I just wanted to call that out, so you're not overstating what our capture may be in any given quarter. I hope that helps answer your question, Joe.

One other thing that I'd like to maybe just add is we talk about capture, it's clearly one of the metrics that we look at only one. But as we've stated, our objective really is to ensure that we're the most competitive in every region where we operate. And that comes through, obviously, commercial and our ability to capture those markets, hurdling the things that Rick just shared with you that are already embedded in the market metrics are planning and then obviously, our operational execution, which allows us to be the most competitive in every region where we operate over a period of time. So we hope that helps and answers your question.

The next question comes from Jason Gabelman with TD Cowen.

I wanted to go back to the use of proceeds from this asset sale, if I could, $3.5 billion MPC, I imagine there will be some tax leakage there. But in terms of deploying that to the U.S. Gulf Coast, your kind of growth capital the past few years has been $1 billion. So it doesn't necessarily seem like all of that cash will be deployed incremental growth projects. So should we expect some of that cash to be used to defend the stock if the market turns, does it open the aperture for inorganic activity? Just a bit more color would be helpful there.

So maybe let me start with capital allocation to the Gulf Coast. As you know, we always give you the detailed capital planning as we head into our fourth quarter call, and it will be in February this year. And of course, we will do the same with a significant amount of clarity in terms of where that capital would be deployed and the projects. You're right. We've averaged a little over $1 billion each year. And hopefully, as I tried to articulate in some of my earlier responses, we are actually seeing the benefit of that capital deployment pull-through in our results.

You're seeing it earlier this year as we saw jet demand rise in our ability to have that conversion project complete and meet that demand. I mentioned a couple of other projects that are coming online in 2027, like the DHT obviously, a little bit later in the year. There's a few Garyville projects that we think also will be incremental to the value propositions and the planning that Julian and Rick have been talking about. So yes, if we deploy more capital into the Gulf Coast, it is likely that our total capital plan for 2027, you will see higher than what you normally have seen given the opportunity that we see on the U.S. Gulf Coast.

Mike talked about a few of the areas that we're planning on. We really are not intending to reduce or shrink our refining footprint, we really want to be sure that our refining footprint meets the demand, and we believe the Gulf Coast is a place where capital is warranted there. Let me pause and see if that answers the question, Jason.

Yes. That's great. My follow-up is is on the Mid-Continent. I think Laurel is now shipping product. So just wondering to what extent you expect that to reduce seasonality and kind of the Eastern pad to Chicago market and the benefits that add to MPC?

Jason, it's Rick. So we see a significant advantage with Laurel moving East. In fact, we're going to be a significant shipper or or a significant shipper here in November, and we'll continue to ramp up through the winter months when PADD II is predominantly long. So as you know, we're uniquely positioned across PADD II and our ability to clear product is really a lifeline that we have that others don't have. And the reason is, as we've invested over the years, especially with the Midland connection, specifically to Laurel that's going to enable us to lean into that market in a big way. So we see significant advantages specifically when you look at our Canton and Catlettsburg refineries. Hope that answers your question, Jason.

And Jason, I probably didn't completely answer your question because I think you were also talking about overall capital allocation. And so our capital allocation priorities have not changed. We continue to be committed to return capital to our shareholders via share buyback. You've seen we've built a little bit of cash in the third quarter. And again, as I mentioned earlier, depending on what you believe about the fourth quarter, but we intend to continue our capital allocation priorities and return capital via share buyback as well.

The next question comes from John Royall with Piper Sandler.

So my first question is just another follow-up on the divestiture and specifically on the tax implications. I would imagine the sale price is well in excess of your cost basis and should we expect most of the proceeds to be taxable. Is that kind of the right way to be thinking about it? John.

Great to talk to you today, and thanks for the question. So when you think about the taxable implications from a refining perspective, you will expect that those proceeds will be taxable. From an MPLX, as you know, it's a different structure. So we have a different level of tax implications on that side. But just from a refining perspective.

Understood. And then I guess my follow-up is on Midstream looks like a really strong quarter. And you previously talked about kind of back half loaded growth this year, which seems to be playing out. Can you just update us on how the project start-ups are phasing in from an EBITDA perspective? Or are there other drivers there driving the 3Q strength? And any expectations for 4Q?

Certainly, yes. One of the things that we tried to share is we expected our MPLX EBITDA back half of the year, so Q3 and 4, its growth to be stronger than the first half, and that's largely because of the timing of project completions and capital that we've put to work and we have no different expectation operationally that our fourth quarter should actually be stronger than the third quarter. And I also shared earlier today on our MPLX call that we expect 2027 EBITDA growth to be stronger than we have in 2026. So fourth quarter, just to walk through a few of the projects coming online Secretary One came online earlier in 2026, and that continues its ramp. Harmon Creek III and the Marcellus came online around August of this year. That continues to ramp.

We're seeing strength in utilization in the Utica from second quarter in about 70%, moving to 80% in the third quarter, and we expect that to continue into the fourth quarter. As you look at our TITAN 1, so this is our Delaware Basin sour gas processing, we expect to see good performance there and completing the expansion to 400 a day for TITAN 2, which will be a very strong support as that ramp through 2027, that will start there as well. So there are a few of the key operational opportunities that we have across the system to see the strength in the fourth quarter.

On the call, Chris mentioned that we could have a headwind or a tailwind coming from executive compensation, and that's partly because that executive compensation is tied to the performance of the MPC stock. So as it increases or decreases, there is some mark-to-market that is necessary. But when we think about the growth on an operational basis, we feel good about the fourth quarter delivering as we said.

The next question comes from Doug Leggate with Wolfe Research.

Maryann, you probably want to delegate this one, but I want to ask, if I may, about gasoline we all know was in on the diesel, but utilization rates are running pretty hard. And I'm just wondering if your team has a prognosis to the extent of seasonal gasoline weakness, but more importantly, what you can do to minimize gasoline versus maximize jet and diesel within your system? And I've got a quick follow-up, please.

Yes, certainly. I will. I'm going to look at both Julian and Rick here to give you some incremental color, one, on kind of what's happening; and two on our planning opportunities to continue to modify yield as we look at both jet and diesel versus gasoline.

Doug, I'll take maybe the first part and then pass it to Julian. One thing I don't want to be overlooked is as we're in max diesel mode as we've been predominantly all year, and lean into the diesel and jet markets, that continues to put pressure on the gas crack. And here recently, a good example of that is when you look at the S&D balances in the Mid-Con, you see that they're extremely tight. So any disruption in the Chicago market, you see outsized responses on the gas crack specifically. And we saw that were within a week or 2, we saw a $30 crack move. So I will just maybe double click on saying we are leaning in on the yields, specifically on diesel and jet, but it's also bearing fruit on the gas side. So with that, I'll pass it to Julian to give you a little more color on the yields.

Thanks, Rick. I think in terms of flexibility, Doug, historically, we've demonstrated the ability to shift roughly 4% of our product yield between gasoline and diesel. But more importantly than that, we can now respond incredibly quickly as jet and diesel economic shift, and we optimize our production and product placement accordingly. So it's part of our DNA to continuously improve and optimize the assets. And I think it really is that combination of manufacturing flexibility and the commercial optionality that enable us to respond quickly to changing market conditions and shift things around to capture opportunity as and when they arise.

Yes. I think that volatility argument is something that we've been focused on. So I appreciate the answers. Maryann, I apologize for this one, but I just wanted to touch on the MPC MPLX relationship, extraordinary times for MPC share price. But my question is a little different than the usual, what about the structure. It's really more about the reinvestment. Does MPLX have the opportunity set and the reinvestment capability to maintain its tax-free status and tax-free distribution. I'm just wondering if that factors into your thinking about the right affiliate relationship between those two. And I'll leave it there.

Yes. Sure, Doug. So I'd say right now, yes, absolutely. We do not see any challenge in maintaining our tax status through the MLP, notwithstanding the structure at all, but we're confident in our ability to maintain that structure. Obviously, the things that we can control, right? I certainly don't know what an administration might choose to do. But as the current rules, if you will, and tax structure is today, no issue with us being able to do that.

The next question comes from Phillip Jungwirth with BMO.

We've seen higher operating costs across the industry this quarter, but you guys respond on guidance. 4Q also looks a bit better along with the turnaround performance. So I was just hoping you could touch on how you're managing the cost side of the business just given inflation in areas where you're seeing pressure? And separately, if there's any initial read on whether 2027 could be average or above average turnaround year for MPC in the industry.

Sure. This is Mike. I will say overall, from a cost discipline standpoint has been a major focus for us. We're not in the cost cutting, we're in cost discipline. But when you invest in the reliability, like we are, we're starting to realize those benefits in '26 and in '27. So the investment side of it, I would say, the upskilling of our resources and our assets are really helping on, I would say, the cost disciplined, cost control side. Turnaround for 2027, it looks to me it's going to be a lighter year in 2027 than it was in '26. So our investments are paying off, especially around the reliability.

And Phil, it's Maryann. I also wanted to say we maintained our turnaround plan for 2026. I think Maria talked about it as well. We did not delay, postpone any turnaround activities in 2026. Obviously, you can see we were still able to run. So our decision on 2027, as Mike just said, is the plan that we've had in place for a period of time. Discipline has been paying off for us over a period of time as we write constantly manage cost discipline. We hope that helps, Phil.

No, that's great. And then recognizing it's less a factor in the Mid-Con and the Gulf Coast. So I was hoping we could just bring the whole freight rate discussion to the West Coast and see how how you're seeing market dynamics across crude sourcing, but also the cost of product imports. And if you could just separately touch on your ability to source in state crude, along with just market implications of less Jones Act waiver usage versus 2Q?

Yes, Phil, I'll start with the end. The Jones Act waivers, we've been able to lean into specifically during here at Candies while it didn't impact California specifically, but it was a big help for us in supplying the Florida market. So that's been a win for us there. Specifically, when you think of the West Coast One of the things we've been able to do is with the recent closures, we have been able to double, actually more than double our California grades that we're running at LAR. That's been a big win for us. We've also leaned in when we think West Coast fill, we also -- in our vernacular, we weave in Pacific Northwest.

And when you think of Pacific Northwest, we're actually running a lot of inland crudes over to Anacortes, Washington, specifically to give us a competitive advantage over more expensive crudes, such as ANS. And then lastly, I would say when you think of the transportation from a crude perspective. As I stated earlier, we have a significant amount of our time charters locked in at a rate significantly below the high market today. That is providing us a significant benefit. And then in terms of Asian barrels making their way over, it continues to be more and more difficult. The marker with freight is high and you continue to have supply disruptions as well, causing them to not run at full rates. So we continue to see that as a nice tailwind for our West Coast asset. I hope that helps.

Our last question comes from Matthew Blair with TPH.

Great. Maybe we could end on renewable diesel, where your results be better than expected, better than peers. Anything to highlight in the third quarter? And then so far in the fourth quarter, it looks like industry margins are are generally trending higher. Are you seeing the same thing in your system?

Yes, Matt, it's Rick. Let me start with just as with our fossil fuel refineries, our R&D plants are running and have been running really well. That's where it all starts. But in addition to that, our results were certainly supported by a more constructive margin environment, improved regulatory credit values and higher throughputs. And we're early into the fourth quarter, but we see more of the same in the fourth quarter.

And that was our last question.

Thank you for your interest in Marathon Petroleum Corporation. Should you have more questions or want clarification on topics discussed this morning, please contact us, and our team will be available to take your calls. Thank you for joining us.

Thank you for your participation. Participants, you may disconnect at this time.

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.

The next question comes from Joe Laetsch with Morgan Stanley.

I wanted to follow up on Sam's renewable fuels question. And I think it was the strongest quarter from an earnings standpoint since the segment was broken out. And I know the industry overall has seen tailwinds from higher credit prices. But could you just maybe unpack some of the drivers for Marathon specifically and speak to the repeatability of the strong results?

Yes. Joe, this is Rick. What I'll start with is we continue to have a constructive view. It was key for us, as is in our entire refining portfolio that we ran, and Maryann mentioned this in her opening remarks, at 95% utilization this quarter. So that is an absolute must, and we did quite well there. Renewable Diesel margin continues to look favorable given the fundamental RIN balance. As you probably well know, the market is short, and we believe it will continue to stay short. And when I speak of short, I'm specifically referring to the RIN balances. And we've seen volatility in the RVO market here in the last week to 10 days, but we believe the market is short and will continue to be short, and the volatility is probably short-lived. So we believe we remain well positioned, and we're going to continue to optimize around our assets at Martinez and Dickinson and really lean into our pretreatment at Martinez as well, which we believe is a significant benefit. I hope that helps, Joe.

That's helpful. And then I wanted to follow up on some of the comments within Refining. So one of the areas about performance relative to our expectations was on the Gulf Coast. And I know utilization was strong, like you called out in the opening remarks, but could you just provide some more detail on what you saw during 2Q? And then as part of that, could you also talk about the economic signals and arms you're seeing in the export market?

Yes. So maybe I'll start and then turn it over to Maryann. I'll start on the export side. I mentioned record diesel export numbers that we exported. And so that would be a combo of both from Garyville and GBR. We continue to see very strong arbs and demand, specifically in Latin America and in Europe on the Gulf Coast, as well as we're leaning into the jet market out there as well. And while the diesel to jet differentials have come in, they're still attractive, just not as attractive as they were in 2Q. So I would say those are some pretty good signals. And I will touch on gas just for a moment because we continue to see gas demand throughout the Southeast to be very healthy. Margins are decent. And then when we look at exports, we're seeing a little bit better than average export demand and margins as well on gas. So some very positive signals on the Gulf Coast that we're leaning into, Joe.

And Joe, Maryann, let me just give you maybe a little more color on what drove the Gulf Coast. First, we continue to talk about our lost capacity due to internal problems being, frankly, at the lowest level that we've seen in a decade. So reliability and execution really mattered. And that, I would say, is one of the drivers. Second, you heard us talk about Garyville, obviously, having incremental jet capacity. You saw those jet to diesel margins. So clearly, being able to deliver that -- those incremental volumes in a very healthy market backdrop helped the results there on the Gulf Coast as well. And then Rick and Maria both talked a bit about the benefit of SPR and the crude sourcing, right? So it's not just SPR, but just in general, and Julian mentioned the flexibility that we have with being able to run multiple crudes. So incremental Ven, WCS, so crude sourcing, clearly a strong variable into the Gulf Coast as well. They would be a few of the things that I would tell you drove our Gulf Coast performance. I hope that helps.

The next question comes from Theresa Chen with Barclays.

Would you provide some additional color on your views on quality differential from here and key dynamics to watch for the balance of 2026 and beyond? And on the Gulf Coast consumption of heavy barrels in particular, would you elaborate on the economics of running WCS versus Venezuelan crude? And how does that compare across your Gulf Coast refining system currently?

Yes. Theresa, this is Rick. Thank you for the question. I'll start with how heavy compares to Venezuelan in our system. I would tell you, 8 out of 10 times heavy wins when we look at the economic advantage of a heavy Canadian barrel versus Venezuela. Now that's not to say we don't like the Ven barrel. We do. We bought twice as much in 2Q as we did 1Q. But I think a key differentiator is when you think of Marathon, we have the largest appetite for Canadian barrels of anyone in the United States. And on the Gulf Coast, specifically, we have a large appetite.

So economically, to address your question head on, that usually wins the day for us, both at Garyville and at GBR. From a Venezuela perspective, when you look at the e-com, we continue to see more Vens barrels coming to the U.S. So they'll have to price those barrels accordingly. I believe there'll continue to be more economical for us and that inadvertently will put direct pressure on other grades such as WCS.

When I and we look at WCS, today, it's, call it, WTI minus $14 a barrel. And when we look forward, if you look at 4Q, Theresa, on the forward curve, it's north of $16 a barrel. So it's going to move positive in our direction by about $2 a barrel between now and the fourth quarter, which is certainly a nice tailwind. I mentioned earlier, we also have the benefit of domestic California crudes at LAR, which we've doubled up on there as well at very advantageous numbers.

So that, along with the SPR barrels, we were a large buyer of SPR barrels. And if you look year-to-date, they've released about 110 million, 111 million barrels of SPR at least is accounted for. And we believe there's potentially another 38 million barrels that they could release yet this year. So we believe that will apply some pressure on differentials, which will be a definite tailwind for us from a feedstock perspective.

And then lastly, I would say when the conflict gets solved and you get more Middle East barrels coming into the Gulf Coast, specifically into North America, that's going to continue to put pressure on every competing grade in the Gulf Coast. So when that day happens, it will be another tailwind. I hope that helps, Theresa.

That's incredibly helpful. Looking at the Gulf Coast again, with Blackcomb ramping higher and multiple Bcf per day of residue egress in the Permian headed to the Texas Gulf Coast over the near to medium term, how do you think about how this incremental gas translates as far as better profitability for your refining assets in the Gold Coast, Galveston, in particular, both in terms of getting cheaper gas to augment capture and COGS as well as lower OpEx. How should we think about that going forward?

Yes, Theresa, I'll take a stab at that. So we have several commitments that we're making on many, if not all, of the lines you just mentioned. And I will tell you that you will continue to see a bottleneck as nat gas gets closer to the U.S. Gulf Coast refining complex, and we are solving for that. We are solving for that from an optionality and flexibility perspective with the sole intent of reducing our nat gas cost into our refining system on the Gulf Coast. So the bottleneck is moving from what we would say, ultimately, it will continue to move downstream from Waha closer to the water, and we will benefit from that bottleneck moving closer to us as we will ultimately be able to provide cheaper feedstock -- cheaper nat gas cost into our Gulf Coast refining system.

The next question comes from Conor Fitzpatrick with Bank of America.

I'll do another follow-up on renewable fuels for a second. So the policy changes with each renewable volume obligation that comes out, they generally don't shrink year-over-year. So given the tight market balance today, it looks like that could continue after 2027. So I was just wondering what do you think the sustainability of margins for Renewable Diesel are today beyond 2027? And where you think supply could evolve market-wide as a result?

So Conor, the SET 3 rule is supposed to come out by mid next year, and that will set obligations for 2028 and 2029. We feel those obligations need to be realistic based upon U.S. production and recognition of the existing headwinds to imports, which include tariffs, the exclusion from the production tax credit, the registration and compliance requirements set in SET 2 and even the potential reduction in the RIN value from the SET 2 rule. So right now, as Rick mentioned earlier, we are pulling on the bank, and that is not sustainable. So we feel that the SET 3 rule has got to lower the obligations to be more realistic of more supply-demand fundamentals.

The next question comes from John Royall with Piper Sandler.

So my first question is another follow-up on captures, and I hate to pound out in too much, but it's just such an important part of your story. After this really strong result, you're tracking well above 100% year-to-date. And thinking about 2H and some of the drivers you called out, presumably, you can keep buying advantage Venezuelan barrels like we have more opportunity to buy from the SPR. And you've got these new projects running. And on top of that, 4Q was always very seasonally strong. Is it fair to say that this year's full year cap should look even higher than last year's 105%? And if that's the case, are you thinking of the long-term targets any differently today? Or would you view the past couple of years' strength is more transitory, especially given some of this is self-help?

John, thanks for the question. So let me try to take that question in a couple of parts. So first half of the year, as you said, absolutely right, 108%. There were clearly some things in that first half of the year that we think are sustainable, right? And that is both the operations, planning, commercial and operational excellence that allow us to optimize both in the short term and the long term, capture the prompt and continue to generate sustainable change. So those things will continue.

But there were a few things in the first half of the year that we don't control. Obviously, the volatility that was created in Q1 on derivatives, we saw the benefit of that unwind in the second quarter. A crude sourcing, to your point, however, is something that we should have the opportunity to deliver going forward. That doesn't change for all of the reasons Rick talked about availability of Ven pressure on WCS, and we're a significant buyer and utilizer, if you will, of WCS.

Third quarter, just keep in mind, if you look over 2023 to 2025, it has tended to be the most muted quarter of all 4 quarters. It averages 95%, which means some are higher, some are lower. But there's a lot of headwinds there, inventory build ahead of the hurricane season. And again, if you go back and you look, secondaries is always a challenge for us, but on average, the secondary product impact is typically the most significant in the third quarter. Having said all that, we believe that our sustainable changes that we're making, you heard Julian talk about our crude sourcing optimization, Mike is running reliably across the entire system and then Rick's commercial team, obviously doing its part with respect to optimizing in the prompt.

So I'm going to pass it to Rick and I'll allow him to give you a little more color. Our focus is really to ensure that through all markets, we are delivering incremental barrels -- I mean, sorry, incremental profitability, incremental EBITDA per barrel, that is our objective. I'm going to pass it to Rick.

Yes, John. Maryann really captured the majority of what I would have had to have said. I'll add 2 things. We're 1 month into the quarter. So a lot of time to play out to see how this quarter actually looks going forward. And then certainly, fourth quarter is generally quite different than the third quarter, as Maryann indicated. There's 2 additional items that I would lean into when you look at 2Q results versus what we're seeing early on here in 3Q. While margins are good, they're not to the level they were. And when I say margins, I'm specifically speaking to product margins. They're not to the level that we saw in 2Q through a month or so in of the quarter. And then we've seen a pullback in the jet to diesel spread. So there's a lot of puts and takes here. A lot to go here within the quarter. So we'll watch the game play out and optimize as best we can around it.

And John, maybe just to close the question, given our objective, and that is to add incremental value through all markets, I think it's appropriate to expect that we're going to continue to drive value quarter after quarter. I hope that helps.

Yes. And my follow-up is hopefully a quick one. It's just kind of a mechanical question on the share buyback. Sitting on a good amount of excess cash as others on this call have pointed out. And you weren't too far removed from another period of having a lot of excess cash, and that's when you were working off your Speedway cash. During that time period, you seem to max out around $3 billion to $3.5 billion of buyback in a given quarter. So starting with the assumption that you'll be willing and able to buy back the stock, should we think of that $3 billion to $3.5 billion as kind of a reasonable upper bound for the buybacks as you work down this cash balance?

Yes, John. Look, no change in the way that we think about the return of capital. Timing matters, as you can imagine. So we continue to say the return of capital via share buyback is the priority. The growth of MPLX giving us the $2.8 billion and growing to cover our dividend for MPC and the capital that we outlay should continue to allow us to lead in the return of capital via share buyback, no change in the way that we think about that.

The next question comes from Matthew Blair with TPH.

Maybe I could circle back to the comment on that the fundamental RIN balance is short and just asking for a prediction, if you can, on how this all resolves. Normally, you see RIN prices move higher and then imports would ramp up. But it sounds like there might be some challenges for that. So do you think that we're headed for a pretty big RIN spike as the year progresses? And is MPC taking any actions today to help offset that spike? Are you buying RINs ahead of time to meet your refining obligations?

Matt, this is Rick. I would tell you that from a RIN spike perspective, Usually, the market does have to act and then others take that signal and respond accordingly. Certainly, we're not going to step out and play the game of a regulator. And so really, it's a tough call. But I would say the market will respond, and I think that's what you're signaling here. And we believe the market is efficient, and ultimately, they will take the signals and act accordingly.

The last question comes from -- sorry, Phillip Jungwirth with BMO.

Just coming back to the theme of integration across refining, logistics and commercial. When you look at the regions, is there any one where you feel like you're better positioned here than others? Clearly, Gulf Coast had a strong quarter. And if so, what's the opportunity of rolling out some of the shared learnings technologies across the other areas?

Yes, Phil, it's Maryann. So first and foremost, I'd say no difference with respect to prioritization across all 3. Each of those regions present different capabilities, differentiations that allow us, again, to have some degree of confidence that over the longer term here will continue to be the most profitable in every region where we operate. I'm going to ask Mike to talk a little bit about some of the things that he's doing around the maintenance side here, and then pass it to Julian because there's also some incremental tools that he is using as well that allow us to look at the optimization across all 3 of those regions. And hopefully, that will give you a bit more color. Mike?

Sure. Thanks, Maryann. One of the couple of areas we're focusing on from technologies right around drones. We're using quite a bit of drone inspection technology, and we're also using them for emergency response support. The other piece is our digital twin. That's where we actually scan our assets, and then we use that for maintenance planning, centralized reliability and capital project reviews.

One thing that's in the last couple of years is wireless sensors have become cost competitive. So we're installing quite a bit of wireless sensing, and we're rolling that into our asset health monitoring program, which drives our predictive reliability. And then we have the digital twin, which is a contextualization piece that we're using, and that's how we're getting our data that we're using for predictive reliability. So those are all in motion or if not already done. So it's -- we're proceeding pretty quick in that area.

Thanks, Mike. If you think about optimization for Marathon, let's say, it's become a systemic behavior now across the entire organization. So we've now deployed very sophisticated refining and logistics models all across the network, and we're able to run those now almost continuously. And in combination with enhanced analytical capabilities, we've now got the agility and we've got the ability to reforecast quickly, adjust our yields and optimize crude and product placement across regions and also export markets.

And as we take this capability, we're long past optimizing single refineries. We optimize regional refineries, and now we're optimizing cross-regional across the entire system. And that's really where both the size and the footprint of our company really matters. But to your point on technology, it's the speed of being able to convert insights into executable actions that really make a difference. And we think that as we coordinate decisions as one iterated system, that's what creates a differentiating durability for us.

And Phil, we are really trying to prioritize the capital that we're using on these AI capabilities, these digital capabilities to prioritize the most value-enhancing that deliver right, that incremental EBITDA per barrel, and that's the way that across the planning, commercial and operational teams were using these technologies. So anyway, we hope that helps to address your question, though.

I am showing no further questions. I'll turn the call back to Brian.

Thank you for your interest in Marathon Petroleum Corporation. Should you have any more questions or want clarification on topics discussed this morning, please contact us and our team will be available to take your calls. Thank you for joining us.

Thank you for your participation. Participants, you may disconnect at this time.

Welcome to the MPC First 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 Kristina Kazarian. Kristina, you may begin.

Welcome to Marathon Petroleum Corporation's First Quarter 2026 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab.

Joining me on the call today 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 filings with the SEC.

With that, I will turn the call over to Maryann.

Good morning. Our first quarter results demonstrated the impact of our strategy, the capability of our integrated system. Operationally, we delivered. Our refineries ran at 89% utilization with nearly 100% capture. This was our strongest first quarter on process safety as well as our lowest level of unplanned downtime this decade, all while completing approximately 40% of our full year planned maintenance activity. Given the constructive macro backdrop for the remainder of 2026, we proactively made decisions to enhance operational readiness. As a result, we are well positioned to respond to the strong level of demand we are seeing across the system.

Late in the first quarter, geopolitical events tightened global markets, disrupted trade flows, and drove global cracks higher. While estimates vary, we believe approximately 6 million barrels per day, representing close to 6% of global refined products capacity has come offline during the conflict in the Middle East. And the time line for return of supply remains dependent on the extent of any damage to facilities and resumption of crude flows to those refineries.

Against that backdrop, domestic demand for gasoline, diesel and jet fuel remained strong with exports providing incremental upside. We are largely insulated from global crude supply disruptions given our crude sourcing comes mainly from the United States and Canada. Combined with the depth and sophistication of our highly integrated value chains, we are well positioned to optimize through volatility. This market environment underscores the strength of our refining system, and it showed in our financial results this quarter. We invested nearly $330 million in our Refining and Marketing business this quarter with near-term projects focused on increasing jet optionality.

High expected returns, clear line of sight and disciplined deployment, we are directing capital towards advantage assets with visible demand pool and a clearly defined path to monetization. Approximately 25% of our 2026 refining value-enhancing capital is directed to our Garyville refinery.

In March, we brought more than 30,000 barrels per day of incremental jet production capacity online at our Garyville refinery. This investment strengthens one of the most competitive refining assets in the world and positions us to meet growing global jet demand. As we move into the second quarter, our El Paso yield improvement investment is expected to enhance the refinery's ability to produce specialty gasolines for the El Paso, Phoenix and Mexico markets, reinforcing its geographic advantage and its competitive position. Our Robinson Jet flexibility investment is expected to come online in the third quarter, enabling approximately 10,000 barrels per day of incremental jet fuel production and helping to address growing regional demand.

Taken together, these investments strengthen our competitive position and support our commitment to peer-leading profitability across the regions where we operate.

Over the past 2 years, we have meaningfully expanded our international LPG trading footprint, executing delivered business across Europe, Latin America and Asia. Building on that momentum, through an agreement with our South Korean customer, E1, we have secured long-term delivered demand for up to 40% of the volumes MPC will purchase from MPLX's new Gulf Coast fractionation facilities, which are adjacent to MPC's Galveston Bay refinery.

Construction of MPLX fractionators as well as the JV export facility progress on time and on budget and are expected to enter service in 2028 and 2029.

2026 is a year of both execution and growth for MPLX. The business is investing over $2.4 billion with multiple investments anticipated to transition from construction to cash generation in the second half of the year. Approximately 90% of that growth capital is focused on natural gas and NGL opportunities. Against a backdrop of ongoing geopolitical uncertainty, global demand for secure and reliable energy continues to grow with international customers increasingly turning to the United States as a preferred supplier. U.S. natural gas and NGLs offer a compelling combination of supply abundance and demand visibility driven by LNG exports, power generation and industrial growth, supporting disciplined infrastructure investment.

In the Permian, Secretariat I processing plant has entered service and is expected to ramp steadily over the next 9 to 12 months, increasing regional system processing capacity to 1.4 billion cubic feet per day. Building on that progress, MPLX's sour gas trading expansion, Titan remains firmly on schedule with expectations to exit 2026 with more than 400 million cubic feet per day of treating capacity.

In the Northeast, Harmon Creek III remains on track for startup in the third quarter bringing regional system processing capacity to 8.1 billion cubic feet per day. Collectively, these investments provide a clear path to distribution growth, strengthen cash flow durability for MPC and demonstrate our leadership in capital returns. In the first quarter, we returned over $1 billion to shareholders. And today, we announced an additional $5 billion share repurchase authorization, reinforcing our commitment to delivering industry-leading returns through cycle. 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 through our financial performance.

Thank you, Maryann. Our first quarter highlights reflect execution and discipline across the business. We delivered adjusted earnings per share of $1.65 and adjusted EBITDA of $2.8 billion. Refining & Marketing segment, adjusted EBITDA per barrel was $5.37. Cash flow from operations, excluding working capital changes, was $1.7 billion. And consistent with our capital allocation framework will return over $1 billion to shareholders, inclusive of $750 million of share repurchases. Overall, our first quarter illustrated the strength of our financial position and our ability to manage through market dislocations and honor our commitment to shareholder returns with a payout ratio of 62%.

The next slide shows the year-over-year change in adjusted EBITDA from first quarter 2025 to first quarter 2026. It then connects EBITDA to net income providing clarity on key items, including depreciation and amortization, interest and taxes. Adjusted EBITDA was higher year-over-year by nearly $800 million, primarily driven by our Refining and Marketing segment.

Refining turnaround costs totaled $530 million in the first quarter. We safely completed roughly 40% of our full year activity. Our full year outlook remains unchanged at $1.35 billion. Our earnings power continues to translate from operational performance into financial results, and we remain focused on what we can control through operations excellence and commercial execution.

Moving to our segment results, slide 7 provides an overview of our Refining & Marketing segment, where R&M first quarter adjusted EBITDA was approximately $1.4 billion. We capitalized on a strong refining margin environment while safely executing planned maintenance. Our refineries ran at 89% utilization with total throughput of nearly 3 million barrels per day. Regionally, our utilization was 89% in the Gulf Coast, 88% in the Mid-Con, 92% in the West Coast region. Strong domestic and international demand drove increased Gulf Coast margins, resulting in an incremental $596 million of adjusted EBITDA.

In the Mid-Con, increased margins were offset by lower volumes as well as costs that occurred during our planned maintenance activity, resulting in an adjusted EBITDA decline year-over-year. On the West Coast, we delivered an incremental $460 million of adjusted EBITDA as we capitalize on a strong market environment and had minimal plant turnaround activity. This quarter, our Los Angeles refinery run with the benefit of the completed investments on utility systems, improving reliability and efficiency. These improvements are expected to strengthen the sustainability of our refinery position is to be one of the most competitive players in the region.

In an environment where market conditions can shift quickly a strong planning and tight operational control matters, and our teams deliver. Importantly, we are not just optimizing for the quarter. We're focused on sustaining performance through reliability, discipline spending and continuous improvement across our refineries. That's how we protect margins and position the business to perform across cycles.

Turning to Slide 8. First quarter capture was 99%. Executing on our commercial strategy and integrated logistics gives us the ability to respond dynamically adjusting geos, optimizing feedstocks and placing products into the highest value markets. Favorable distillate margins were a key tailwind to capture performance. We maximize diesel and jet production to align with the market demand. As Maryann mentioned, our jet production capabilities will further expand with the Robinson Jet flexibility investment expected to come online in the third quarter.

was also impacted by market-driven headwinds, primarily secondary products and derivatives used to manage price volatility. Our flexibility is a meaningful advantage, and we remain confident in the durability of the remaining -- the Refining & Marketing segment.

Slide 9 shows our Midstream segment performance for the quarter. Segment adjusted EBITDA decreased $122 million compared to the first quarter of 2025. The decrease was primarily driven by derivative losses, the absence of a nonrecurring benefit in the first quarter of 2025 and the divestiture of non-core gathering and processing assets. MPLX continues to execute its value chain growth strategy and remains a source of durable cash flow for NPC.

Now moving to our renewable diesel segment performance for the quarter on Slide 10. Results were uplifted by a stronger margin environment and recognition of clean fuel production tax credits from 45 regulatory guidance. As planned, we completed a successful turnaround at Martinez. We will continue to optimize our renewable facilities, leveraging logistics and pretreatment capabilities.

Slide 11 presents the elements of change in our consolidated cash position for the first quarter, underscoring the contributions from both refining and midstream and reinforcing the strength of our business model. Operating cash flow excluding changes in working capital, was $1.7 billion. Working capital was at $573 million use of cash for the quarter, primarily driven by inventory build lower throughput partially offset by higher crude pricing.

During the quarter, we returned over $1 billion of capital to shareholders, executing our capital allocation priorities. At the end of the quarter, MPC had roughly $2.2 billion of consolidated cash, including MPC's cash of $645 million and MPLX cash of over $1.5 billion. In this dynamic environment, we continue to generate substantial cash that supports reinvestment in the business and returns to shareholders, central to how we create value over the long term.

Now turning to guidance on Slide 12. We provide our second quarter outlook for the Refining & Marketing segment. Our focus is to execute growing safely and reliably, managing costs, staying responsive to market conditions.

With that, let me pass it back to Maryann.

Thank you, Maria. Safety and reliability are foundational to everything we do. They are ingrained in our decision-making and underpin the performance of our assets across the system. We are constructive on the outlook for U.S. refining and midstream. Structural advantages continue to support strong fundamentals and durable returns. We strive for excellence every day by leveraging our planning, commercial and operational capabilities to optimize our fully integrated value chains. This approach allows us to remain competitive, resilient through cycles and positioned to deliver peer-leading profitability in each region where we operate.

A key differentiator for us is MPLX, which continues to enhance MPC's value creation opportunities. MPLX's advantage natural gas and NGL footprint combined with disciplined growth, strengthens our through-cycle cash flow profile and reinforces the integrated strength of our enterprise. MPLX expects to deliver 12.5% distribution growth for the next 2 years, underpinned by mid-single-digit adjusted EBITDA growth. This performance provides growing cash flow uplift to MPC and further supports our ability to deliver industry-leading capital returns. Confidence in the durability of our cash generation profile is reflected in our actions.

In addition to returning significant capital this quarter, we announced an incremental $5 billion share repurchase authorization, reinforcing our commitment to lead the industry and capital returns through cycle. I'm confident in our ability to deliver improving results through our planning, commercial and operational capabilities.

With that, I'll turn the call back to Kristina.

Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions. We'll now open the questions. Operator? .

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

I just want to start off on Slide 12, the second quarter outlook. And Maryann, the utilization guide looked very good here at 94%, but maybe you can unpack the numbers a little bit more, give a sense of your plans for each of the regions. And to the extent uptime is surprising to the upside here, anything underneath the hood that would give us some sense of -- give us more confidence and reliability.

Yes. Thank you, Neil. So for our second quarter guidance, you're right. As you can see, we are planning for utilization at about 94% that comes off of a really strong turnaround in the first quarter. I mentioned in my comments that we pulled forward some of our turnarounds so that we've actually completed roughly 40% in the first quarter. And we did that because, obviously, we had a good view on what we saw the macro to be. And I'm sure we'll talk more about that here going forward. We didn't change scope. This is not a reduction of scope at all. This was just our intent to bring that cost forward so that we are prepared as we are running strong in the second quarter, given the demand that we're seeing.

Also, you hear me talk about planning and commercial execution as well. We have been, as you know, for a long period of time, really leaning in on our commercial performance. The team is really optimizing on ensuring that we're expanding the crack in the quarter. And then more importantly, that we are developing sustainable changes through our organizational effectiveness through our technology use and the commercial planning opportunities that we have as well, trading also. And you'll see that come through.

If you look at the quarterly performance first quarter, our capture would have exceeded 100%. And had it not been for as Maria mentioned in her comments, the timing impact of derivatives, all expected to unwind as we think about through the second quarter as that physical comes. And then frankly, given the volatility in the market from the commodity, we had headwinds coming on the secondary. So -- and then from a regional perspective, you see planning around our U.S. Gulf Coast clearly, export opportunities there continue to be strong. We can lean in on that as well. We made some changes in Garyville on expanding our jet flexibility there having yield capability around distillates and obviously having GBR running well.

And then on the West Coast, obviously, when you look at the environment there, you look at our positioning, you look at the challenges being caused in the region as a result of lack of flows into the state from the Iran conflict. You can see, as you look at our regional performance that we should be able to lean in very strong there. So hopefully, that gives you a sense. We're really looking at our execution being sustainable. I mentioned in my comments that we had the lowest unplanned downtime in the first quarter along with outstanding safety and recognize Mike and the rest of the refining team there. It has been a core objective of this organization, and they truly delivered this quarter, and I think you can expect to see that sustainable through the year. Let me pause there, Neil, and see if I've got it your questions.

No, you got it the question, Maryann, and that kind of brings us to the follow-up, which is what do you do with the cash. And if I think about some of the comments that you made on the last quarterly call, you said you did $4.5 billion of return of capital last year, 2025, and current market conditions, you think you could be higher this year. This first quarter, you did about $1 billion I guess the math would imply an acceleration of return of capital through the balance of the year. But any of your perspective on the cadence at the forward curve would be great.

Yes. Sure, Neil. I would say, look, we have no change to our capital allocation priorities. I mentioned we look at the strength of the MPLX growth and the distribution that it provides to MPC. This covers the $1.5 billion that we've committed to capital on the MPC side and our growing dividend. So it gives us the ability to truly lead in return of capital, you see the strength of that second quarter. My guess is your view on the long term is pretty consistent with ours. We should be able to generate cash flows as a result of this market, and we would continue to see return of capital via share buyback is -- as the vehicle to return capital to our shareholders.

Our next question comes from Manav Gupta with UBS.

I'm actually trying to get a little bit of handle on elevated earnings for the near term or medium term. And the two aspects I'm looking at is, one, is global refining macro, as you mentioned, a lot of capacity still offline. And eventually, even when it does come online, storage of products globally is depleted. So my hope is that cracks will be elevated for a longer period. But the other thing I also wanted to talk to you a bit about is there's a bear thesis which is floated around that as the refining crack tends to spike. There's a proportionate drop in capture. Now when I look at your 1Q results, your beat would not have been possible if March capture was not strong. So can you talk a little bit about a refining macro among the cracks? And then capturing as it capturing the higher track as it relates to your system? If you could talk a little bit about those two things.

Yes, Manav, thank you for the question. So maybe just our refining macro to begin with. So as you know, we've been saying, we've been very constructive, the refining macro for a longer period of time. When you look at demand that we see over the decade continues to be strong. When we look at supply, particularly past 2026. We think there's a true balance there. Actually, demand will ultimately outpace supply, a bit of supply coming online, as you know, some of that actually in the pet chem space. So even heading into -- before the Iran conflict, of course, we've been extremely constructive over the refining macro for the long term. then you add the impact of the Iran conflict to that. As I mentioned, obviously, estimates vary at least 6 million barrels off-line Middle East, China and then there's another 1 million Russia. I think you said it in your question to me. It will take time even if the straits were to be open rather immediately for global flows to normalize. I think this gives U.S. refineries in particularly MPC, an advantage. One, as we've mentioned, we are leaning in particularly on our export capabilities, and I'll pass it to Rick here in a moment and share a little bit more about that, we'll flex there when those economics are there, but we've been building capabilities there for a period of time. we source the majority of our crude, U.S. and Canada. So we're largely insulated.

So as you can see from our guidance for the second quarter and frankly, we have confidence as we look throughout the year, we remain extremely constructive given the macro backdrop, long-term supply/demand and then most importantly, our commercial planning and operational excellence to be able to optimize in these crack environments. So let me pass it to Rick and he can give you more color.

Yes. Manav, just a few comments. When we look at this unprecedented situation and scenario we're in, you're seeing extreme volatility. And I really want to make that point because that leads to incredible capture generation if and when we execute, and I think you're going to -- you've seen here in 1Q and you'll see going forward, our team is extremely energized in this environment and our ability to expand the crack was quite evident. And I think you'll continue to see that going forward. So just a few examples to give you and things I want to leave you with mainly by products.

So if I start with crude, think of the theme on crude that we are utilizing our inland connectivity to buy advantaged barrels versus high-priced waterborne barrels that are being bid up throughout the world. So those who have access to inland barrels are the big winner in these events, such as the one we're in. We more than doubled our U.S. Gulf Coast Canadian volumes in response to the rising premiums on the U.S. Gulf Coast that we've seen. And April actually is going to be a record volume of Canadian volumes for us system-wide. We've never hit volumes like we've seen now. And as you know, the differentials are quite attractive. So it's a double win for us. But then as you maybe move a little bit more into the heartland of where we're at, we've increased Bakken volumes in the Mid-Con and we're actually taking Bakken to the Pacific Northwest, which is backing out higher-cost waterborne barrels.

And then even a little closer home here to Finley, Ohio, when you look at what's in our backyard with the Utica Marcellus, we are blessed to have condensate right in our backyard, and we are running record amounts of local crudes at Canton and Catlettsburg. In addition, Manav, we purchased 5 Advantage Ven cargoes in 1Q. And the Ven cargoes are getting a lot of press. And what I would leave you with there is we would have bought more but we had better alternatives leaning into heavy Canadian. So we didn't have the need to buy any more than 5 cargoes of vents crude. But I will say the Vans crude being on the market, Manav, is quite a tailwind for us because it's putting pressure on other grades.

And then on the crude side, I'll leave you with, lastly, you've probably seen in print that we've purchased approximately 10 million barrels of advantaged SPR crude directly from the DOE, taking out the middleman, we're we are advantageously working with the DOE to run those barrels in 2Q. And we're hopeful we may even get some barrels to run in with the bid -- SPR bid that came out yesterday.

Moving on to products. I'll leave you with really a couple of comments that are in line with what Maryann previously mentioned. We're MAX diesel, as you would guess, and Jet across our system. And boy, the Garyville project came online at the absolute perfect time for us. And it's really a classic example of our strategic capital deployment to enhance our yields and our competitiveness to create capture tailwinds.

Jet was a big story for us. As you know, we're large producers of Jet, not only on the Gulf Coast, Mid-Con, but especially in L.A. Manav, where you see the ULSD to jet differentials blow out.

Then when you look at the Jones Act waiver, we leaned into that in a big way as well. We took jet from the Gulf Coast to Alaska. We took alkylate from the Gulf Coast to L.A. and we had various Jones Act waiver moves around L.A. and PNW amongst many other moves.

And Maryann, I guess, said and mentioned exports in her prepared remarks. So I'll touch on that a bit as well. We really were creative and made some unique movements on the export glass of trade this past quarter. We moved ULSD from LAR to Australia. First time ever we've done that. I give the team huge kudos on creativity and capturing a market opportunity, and we moved naphtha to Asia, first time we've done that. So from a jet export gas, diesel export opportunity, we continue to see strong markets, I would say, especially Manav in Europe and in Latin America.

So I guess, moving forward, if I were to kind of say what should you look for in 2Q, I think the tailwinds are going to be butane blending with the RVP waivers. Certainly, the JET ULSD spreads that we're seeing. We continue to expect those to persist. As Maryann and Maria have mentioned, we are ready to run in 2Q, and we postured this quite well going into driving season. And now with the conflict remaining, we continue to be in a great spot to capture margin. And then we have incredible optionality on our crude diet with our Mid-Con avails. And then the SPR barrels will be a nice shot in the arm for us as well.

And then lastly, Manav, maybe from a headwinds perspective, we're going to watch backwardation very closely. Obviously, it is extremely steep. So we're keeping a very close eye on our inventories, making sure we don't have any more than we need. But I think what you've seen, Manav, there is the prompt month keeps rolling up and rolling up. So we do expect that to continue to happen as long as the conflict persists. And then certainly, we're going to keep our eye on the secondary products market with how cracks move and how WTI and Brent moved. So hopefully, that gives you some color, Manav, maybe the more color than we had given you in the past, but I really felt like it was appropriate for me to lean into it this quarter because our commercial team really responded well.

This is a very detailed response. I'll be quick with my follow-up. First, thank you for providing adjusted EBITDA per barrel by region. So if you could talk a little bit about those additional disclosures you provided. But as I understand, some part of the management compensation is also linked to these. So you're trying to be top in terms of EBITDA per barrel, but now you're taking it a step further where you want to be top -- in the top end of the range for each specific region. So can you talk a little bit about that?

Yes, of course, Manav. Thank you. So you're absolutely right. We wanted to provide incremental visibility to our regional performance. As you know, for a while, we've been saying that we continue as an objective to have as a target for us to be the most competitive in every region where we operate. And you're absolutely right. Our executive compensation, the annual cash bonus element of that. It's a portion of that, about 20% actually is focused on the delivery of being the most competitive in every region where we operate. So we think this covers cost competitiveness.

So as Mike and his team are making decisions about turnaround and making decisions about OpEx, that played through in our EBITDA per barrel. Similarly, as we think about capital allocation, I mentioned, right, we need to have returns of 25% in order to put capital to work on the refining side. Projects like Robinson Jet, Garyville Jet, the DHT all of those decisions should be yielding incremental returns and improving EBITDA per barrel. So we think this gives you the visibility that you need to see the performance in each of those regions, and have the ability to assess our planning, commercial and operational excellence as it plays through in our EBITDA. I hope that helps.

Our next question comes from Sam Margolin with Wells Fargo.

So this might be an elaboration on the last answer, but -- your refining capital is directed to all these optimization projects and yield enhancements. And so I wonder if there's any commercial constraints that come with the yield benefits. And it doesn't sound like there are based on the last answer, but maybe just to hammer the point home. And if so, how does MPLX potentially address those in the context of -- it seems like MPLX has an imperative to invest in the gas value chain. So I guess, to sum it all up, competition for capital across logistics with the backdrop of all these yield benefits coming to the refinery level?

Yes. Thanks, Sam. So maybe two parts to my answer for you. Let me focus first on MPLX. You're absolutely correct. Our capital program is targeted as you well know, toward nat gas and NGL. It's roughly 90% of the spend in 2026. And had a similar allocation in 2025 as we invested in the Titan North Wind processing treatment as we are progressing our 2 fractionation and U.S. Gulf Coast export dock. So we'll continue to allocate capital that meet our strategic objectives, and optimize our ability to deliver mid-teens returns and again, continue to support our mid-single-digit growth.

As we move to the refining side, our target there, as I mentioned in the past, we're looking at returns in about 25%. We want yield optimization we want cost reduction. We want to continue to focus on those assets that are delivering the best profitability over the long term. You often hear us say our asset portfolio for the short term in our asset portfolio for the long term. These projects have high hurdles. But as you can see, when we put these to work, you look at Garyville, 30,000 incremental barrels a day of Jet. And then again, we got another one coming online in Robinson. And this has flexibility as well so that if we were to see changes in the Jet pattern, we can revert back to other distillates. And we think these projects give us outstanding capabilities. So again, both of these businesses, both MPLX and MPC have very specific mandates strategic focus, financial hurdles for which they need to allocate capital. I hope that helps.

Yes, it does. And then this is a follow-up within kind of this gas theme. These gas exposure is very thematic. As you know, there's end market growth across the natural gas value chain in every category. And so the question is whether would ever want to participate in those end markets and leverage MPLX's growing exposure into that vertical?

Yes, Sam, it's interesting. Let me give you some thoughts, and then I'll pass it to Rick to give you some incremental color. You hear us often talk about this concept of value chain. When you look at our refining side as a house, so to speak, right? We have a natural short, so to speak, or assets, demand, natural gas every single data to operate. And then you look at the flip side of that on MPLX and you look at our exposure, we're processing, touching, if you will, over 10% of U.S. natural gas every single day and expanding that footprint.

Rick and his team have a nat gas organization now, and we're looking how to optimize that focus on the U.S. Gulf Coast project that we're talking about. As you know, we've said MPC and MPLX will have a contract, meaning MPC will take all of the product from that -- those two fractionators. And then Rick and his team then takes a marketing of that, as I mentioned in my prepared remarks, right, we just concluded a potential contract here for 40% of our demand with E1. So we see this opportunity growing. I'm going to pass it to Rick and he can give you a little more color on how we're thinking through that.

Yes, Sam, I think Maryann said it very well. Think of on the R&M side, we have a massive nat gas short. And so as you know, with the substantial footprint, we have through MPLX with our pipeline commitments and the equity they have in pipelines, that is absolutely complementary to our U.S. Gulf Coast refineries, especially. So -- we look to parlay those positions into advantageous nat gas for our refineries, especially along the U.S. Gulf Coast. And then I'll just give you another little nugget. On the power side, we have several cogens across our footprint that we participate in those markets commercially. And they supply us certainly with power for our refining assets. And so there are opportunities and synergies there that we're really pressing into. So a lot of opportunity in this space, Sam.

Our next question comes from Doug Leggate with Wolfe Research.

Maryann, I think we've got a very thorough answer on capture, but it's never enough, sorry. I wonder if I could just ask a really simple characterization question. You guys have run -- you've got a target of 100% capture your trading businesses, obviously had a big impact, especially in this kind of market. But there's a lot of moving parts. And particularly on secondary products and you already talked about physical crude markets and how you're swinging your portfolio. My simple question is this, if we look forward at the extraordinary indicator margins and acknowledge there's going to be some offsets. Do you believe you can sustain your 100% target in this extraordinary environment? That's my first question.

My second question is really more -- I understand your comments about the macro and all the rest of it. I think none of us expected the situation we have currently. My question is, do you see this as a windfall as we secure currently. In which case, how does that inform the pacing or the decisions you make on Neil's question about cash returns. My point is simply this. couple of weeks ago, the Foreign Minister of Iran turnaround at the straightness reopened. Oil prices fell $17 that day and everything got hit pretty hard. I think missed time buybacks at this point in the cycle. The risk is a lot of that windfall cash flow goes away with a decline in the share price. So my question is how does that factor into your thinking? The first one capture and the second on the pacing of your cash returns.

Yes. Of course, Doug, sure. So on capture, first and foremost, we have been working on our commercial performance for a period of time. And the objective for the commercial team, as you know, in any quarter is really to expand the crack regardless of the market that we're given. So every quarter, the macro, they are diligently working to expand that crack and address all issues in the prompt. At the same time, the commercial team is working on sustainable changes for the long term, right? To your point, can we continue to say, capture should be improving period-over-period. Organizational changes, Rick has talked about those in the past or access to markets outside of the U.S., so that we've got, if you will, round-the-clock coverage. We're using other digital and other technology capabilities. We've got a planning organization now that is critical to identifying where those opportunities exist in the organization so that both commercial and Mike's team operationally can execute those and deliver the incremental value. So creating sustainable as well.

But if we look at just the first quarter alone, our capture would have been in excess of 100% this quarter, if not for two things that you mentioned. One, secondaries; and two, the impact of derivatives. And you know secondary is not necessarily something that we've got complete control over. As that commodity volatility moves rapidly up or down, our ability to capture or hold pricing on the way down or respond to pricing on a rapid rise is a challenge, and we saw headwinds this quarter coming from that secondary market.

Derivatives. Derivatives are a normal and ordinary course through our risk lens. We use hedges to protect a certain portion of our inventory, and that's a normal ordinary course and frankly, this quarter was absolutely no different. What was different was the volatility in the commodity. And so the timing of that, meaning when that physical barrel was actually received be it first quarter or second quarter also had a headwind. Now that will unwind in the second quarter, but that had an impact on our capture headwinds in the quarter. So I guess to try to answer your question, there are things that we cannot control, as you well know, and that volatility will create variability. We even try to look at tight correlations for -- so that we can actually do some projections ourselves. But the things that we can control the quarterly addressing the prompt market and responding and the long-term sustainability, we believe we have more opportunity to deliver incremental performance on an EBITDA per barrel across our regions, Doug. I hope that answers the question.

Yes, it's very clear. And maybe on the windfall question, allocation of cash.

Yes, certainly. So on the windfall question. As you know, our capital allocation hasn't changed. We continue to believe that MPLX supporting our capital plan and covering the distribution gives us the ability to lead in capital returns. That should not change. Obviously, as the volatility persists. We will watch our balance sheet. We will be very disciplined in the manner in which we allocate capital, both through our capital return as well as across the system when we're thinking about projects, et cetera. But overall, our return of capital, if you will, philosophy hasn't changed.

I think that's clear. Maybe just to clarify, would you pace the share buyback? Or is it ratable?

We try to do our very best across the system to make the best decisions that we can and be as disciplined as we can when we are returning capital, Doug.

Our next question comes from Theresa Chen with Barclays.

Given the upside volatility in slot prices that we've seen, I would love to get an update on your demand observations and outlook across the products within your footprint. Are there any regions or areas that you're seeing any resistance as far as demand goes, any areas where we're testing that point of inflection for demand elasticity?

Theresa, it's Rick. So I would say resilient is the word I would leave you with. We continue to see resilient demand for both gas and diesel across Mid-Con, Gulf Coast and the West Coast. And one ironic piece is even when you look at the differing prices throughout the United States, -- on the West Coast, we've actually seen a small increase in our wholesale class of trade with other players exiting that market. So -- we've seen the benefit of that, and we're seeing new markets for exports, such as diesel to Australia, as I mentioned earlier.

And then I would say from a Jet perspective, we are not seeing any decline in the jet demand. We see strong jet demand in L.A., Gulf Coast and Mid-Con Chicago area. So across the board, we're not seeing any impacts yet, Theresa.

And turning to the LPG export project. Great to see the commercialization progress there in terms of getting third-party offtake for that facility. I'm curious as far as your plans for the remaining 60%, is the strategy or plan that you will farm that out to an off-taker to like a consumer on the other end? Or are you planning to keep a certain portion of that capacity for your own marketing purposes? And beyond the initial 200,000 barrels per day, given the call on U.S. resources and export infrastructure in general at large and this growing stores of volumes from a supply push perspective from the producing basins. What are your thoughts on incremental phases of expansion on that facility?

Yes. So maybe I'll start with that, Theresa. So when you look at our strategy to continue to move LPG through our docs E1, as Maryann stated in her opening remarks, that's just the start. So that's a delivered barrel that will go to South Korea. We are looking at other Asian and other Asian and European markets, African markets. And so our ultimate plan is to contract up a significant portion more of those barrels before the project goes live in 2028 with Frac 1. So you'll see us lock down more volumes. We're leaning into both the delivered and FOB option. And you've heard me say this a lot over the years. We're going to look to what we believe is the best economic signal. Right now, we believe that's delivered with our expertise and with the VLGCs that we have on time charter and those that we will procure.

So I would say it will be a combination of FOB, Delivered and then we'll leave some to the spot market just to make sure we're able to take advantage of volatile markets when those fracs come online, which we expect to be in our favor with the Qatar LNG facility going down as well as the other projects around the world being delayed, we believe the timing of our asset coming online couldn't be better.

And Theresa, it's Maryann. To the first part of your question, maybe just around the potential beyond that. When we announced this project, we did say that we saw this as a growth platform. We've been saying Frac 1 and Frac 2. So one that comes online in '28 and 2029, we've got a high degree of confidence, right, that both of those fracs will be full. We'll continue to evaluate that opportunity. But certainly, this is a growth platform for us.

Our next question comes from Jason Gabelman with TD Cowen.

I wanted to start on what you're seeing kind of in the inland markets and West Coast and kind of we've seen a bit of inverse performance there in land was, I'd say, weaker than normal seasonality in 1Q. What do you think drove that? And do you see that kind of reversing back to normal seasonality as we move to 2Q and then kind of the inverse of the West Coast, which was very strong for 1Q, but has been volatile since 2Q started?

Yes. Jason, it's Rick. So I will start with the Mid-Con and tell you in Q1, the Mid-Con was really performed exactly how we thought it would perform, and that's in line with seasonal trends. It was a tough Jan and Fab, but that's not to be unexpected. As we leaned into March, though, we saw the Mid-Con start to widen out. And as we look at the Mid-Con today, it is absolutely the best market we have right now within our system. We're seeing extreme tightness on gas and diesel inventories. EIA stats went from length on inventory in Jan and Feb to abnormally low levels now. And really, what's causing this is you have some turnaround us included at locations such as Robinson. But really what's driving this, Jason, is we're seeing good demand and you're seeing a lot of unplanned maintenance in the region.

So the marker as we look today is very strong because of the supply/demand any qualities that exist in the market. And I would also say that everyone in max diesel mode, as you well know, to meet the demand signal, and we're seeing strong ag demand, which is positive. But that has led to tightness now on gas inventories as we head into driving season. So we feel very good about where we're at from a Mid-Con perspective and where we're headed as we enter into driving season.

On the West Coast, I will tell you, you signaled a bit that it's fallen off a bit, but it has, but it's still at very robust cracks and we believe that will continue to persist because the West Coast is structurally short. As you know, from a refining perspective, and the volumes coming over from Asia, the import volumes coming over from Asia have been significantly reduced due to all of the refining issues that Maryann mentioned in her prepared remarks. So we continue to feel very confident that the West Coast will stay in a good ZIP code area that it is generally in at this 10 seconds as well.

Got it. That's a color. My follow-up is on the intercompany contracts between and MPLX. And I think over the next couple of years, you'll see a number of those contracts come up for renewal. Should we expect those contracts to get renewed at kind of similar terms as what they're currently at? And can you just talk through the process that you go through in renewing those contracts. And if I could just sneak one last one in for any voting of doubt, can you provide the derivative impact that you've alluded to a few times that you've incurred for 1Q?

Yes. Sure, Jason. It's Maryann. And then I'll pass it to Maria to give you the specifics on the derivatives in the quarter. On the MPLX MPC contracts, absolutely, you should expect us to renew those contracts. We typically, as we get within an 18-month period, we'll get those renewed. But we have all intentions of those contracts being renewed. As you know, the relationship between MPC and MPLX continues to be extremely important. When we look at the strategic focus of both of those organizations and, if you will, the inextricable relationship, so to speak, that we have and the ability, frankly, for us to use that overall, integrated system, it's critically important. So yes, you should expect that those contracts will get renewed.

And then on the derivative side, I'll pass it to Maria in a moment, but let me just comment again. Our derivative program in the first quarter is no different than any quarter that we have ever executed. We use derivatives to cover a portion of those inventories to protect physical -- protect the price, obviously, the challenge in this quarter is just the extreme volatility of the commodity. I mean you can even go back and look at the crisis when Russia-Ukraine war, we would have seen similar except the change in volatility or the change in the commodity wasn't as severe. A portion of that physical came through in the first quarter and then the balance of that -- are largely balance of that, we would expect to unwind.

Let me pass it to Maria. She can give you a little more color.

Jason, so from a derivative perspective, in the first quarter, we had about $500 million of unrealized losses. And if you think about midstream was about $63 million. and then the impact on margin calls to working capital was about $340 million overall use of cash.

Our next question comes from Joe Laetsch with Morgan Stanley.

So I wanted to start on the renewable fuel -- so want to start on the renewable fuel side, with the rallying bins, I suspect we'll see results continue to improve in that business. Can you just talk about how you're thinking about the path for D4 RINs and margins broadly here in the outlook for the release segment? I know it's a smaller piece of the business, but it could flip to a tailwind here.

Yes, I'm going to have Maria give you that color, Joe. Thanks.

Thanks, Joe. As you noted, the macro environment is improving with the higher rents and also higher diesel values. But most importantly for us, it's really focusing on what we control. You just saw that we completed our first major turnaround in the Martinez facility in the first quarter. And we are ready to run here in the second quarter, and we are looking to have utilization levels in the second quarter of low 90%. So that's really where we are going to anchor ourselves for performing in the second quarter in this environment.

That's helpful. And then I wanted to follow up on some of the opening comments on refining and utilization in particular. First quarter came in 89% above the 85% guidance level. Can you just talk to some of the drivers of the performance during the quarter? Was that more efficient turnarounds or higher uptime when the assets were running? I think you also mentioned Lowes unplanned downtime, which is probably a factor here as well.

Yes, Joe, of course, and thank you. I think you did a nice job of answering the question. Our loss capacity, if you will, or unplanned downtime was at our lowest in a long period of time, and that clearly had a benefit over our operations. I'm actually going to ask Mike to give you a little bit more color. He and his refining team have been working diligently on operational effectiveness and excellence and ensuring their reliability. And I'd like to have him give you a little bit more color on what happened in the quarter.

Sure. Thanks, Maryann. The biggest thing that we've been working on from a utilization standpoint or reliability and obviously reducing our is primarily of reliability projects. We had talked about some that we had pulled forward into the first quarter. In addition to that, we have a continued reliability focus program along with human reliability and upskilling our operations and the main focus for us around utilization has also been targeting just the basic operation steps, making sure we are the best operator. That has really -- the first quarter has been our primary, I guess, changes that we're making. But in the second quarter, we're just continuing on with that as we go through the additional growth projects that we have in our reliability projects, and that's really been target -- the biggest target for our utilization numbers.

There are no other questions. Thank you for your interest in Marathon Petroleum Corporation today. Should you have more questions or want clarification on topics discussed this morning, please contact us, and our team will be available to take your calls. Thank you for joining us.

Thank you for your participation. Participants, you may disconnect at this time.

Welcome to the MPC Fourth Quarter 2025 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 Kristina Kazarian. Kristina, you may begin.

Welcome to Marathon Petroleum Corporation's Fourth Quarter 2025 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor's tab.

Joining me on the call today 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 filings with the SEC.

With that, I'll turn the call over to Maryann.

Good morning, and thank you for joining us. As Kristina shared, Maria Khoury, our CFO, is joining us on this call. She has over 25 years of broad industry experience as a global finance business executive. Maria's background and operational excellence, call competitiveness, financial planning and risk management as well as her global background are complementary to our leadership team. Her experiences will add a unique set of perspectives. I look forward to Maria's contributions to further our commitment to deliver industry-leading cash generation and capital returns.

In 2025, MPC delivered results that underscore the strength of our business and the momentum ahead. Our team's disciplined planning, operational rigor and commercial excellence translated into strong performance throughout the year. For the full year, we achieved margin capture of 105% and refining utilization of 94%, demonstrating the reliability and competitiveness of our fully integrated value chain.

Our Midstream segment grew adjusted EBITDA year-over-year, reaching a record of nearly $7 billion. We generated $8.3 billion in cash from operations reinvested back into the business to enhance our competitiveness and advanced high-return investment opportunities. We returned $4.5 billion through the share repurchases and dividends. Our operational execution provided the foundation for our financial performance. We delivered our strongest company-wide process safety performance in the last 4 years. We achieved the lowest OSHA recordable injury rate as well, had our fewest designated environmental incidents this decade. These outcomes reflect our commitment to safe, reliable and environmentally sound operations.

As we look ahead, we remain constructive on refined product demand. Over the past year, global consumption trends have been steady. Gasoline and distillates each grew by roughly 1% and and jet fuel demand increased nearly 4%. Based on current global consumption indicators, we expect these patterns to continue into 2026. The global refining system is expected to remain tight, with limited new capacity coming online in 2026. Regional closures such as the peers facility in California this spring only further tightened the U.S. market. We expect refined product demand growth to outpace the net effect of capacity additions and rationalization through the end of the decade. Nearly 50% of our crude usage is sour crude. Our refining system is exceptionally well told to source and process incremental barrels across sour grades as they come to market.

Today, prices for Canadian barrels have been the most compelling. However, we have the ability to quickly pivot to Venezuelan crude at our Garyville refinery as well as other refineries across our system should the economics warranted. While we continue to see structural demand growth across refined products, our capital strategy remains disciplined. For 2026, we plan to invest roughly $700 million in refining value-enhancing capital, reflecting a nearly 20% reduction year-over-year. Our spend is focused on lowering operating costs and enhancing system reliability while improving our ability to convert lower value inputs into the high-value products the markets continue to demand. Roughly 85% of our planned refining spend is directed toward multiyear investments at our Galveston Bay, Garyville, Robinson and El Paso refineries. These investments will further strengthen the long-term competitive position of these assets.

Within Marketing, we plan to invest $250 million to expand the reach and presence of our branded stations in targeted markets. These investments support long-term secured offtake, drive strong value capture and enhance the performance of our fully integrated value chain. Our integration from crude supply through branded product placement remains a clear differentiator versus our competitors. This morning, we announced three new projects that underscore both the strength of our portfolio and our confidence in the long-term fundamentals of the refining sector.

The first is at Garyville, where the intent is to optimize the refinery's feedstock slate. This should enhance margins by increasing crude throughput by 30,000 barrels per day and reducing our reliance on higher-cost intermediate purchases. We expect to spend about $110 million in 2026. This incremental crude capacity should be online by the end of '27. The second is another investment at Garyville, which builds on that optimization objective. It increases yield flexibility and enables us to produce an additional 10,000 barrels per day of export-grade premium gasoline, setting our commercial team up to meet strong international demand. Capital spend in 2026 is expected to be $50 million, with start-up also targeted for year-end 2027. Third, at El Paso, we are advancing work that increases the refinery's ability to produce higher-value products for local markets. We will invest $30 million in 2026 and bring this capacity into service in the second quarter of this year.

Progress continues at our two previously announced Jet Yield Maximization and DHT projects. Anticipated to come online in the third quarter of 2026 and year-end of 2027, respectively. Across all of these investments, we follow strict capital discipline. We put capital to work where it creates incremental value, and we consistently target returns of 25% or above. This capital deployment reflects our confidence in the long-term opportunities across the energy space and our commitment to delivering durable high-quality returns for our shareholders.

The long-term fundamentals for our Midstream business remains strong. In the U.S., natural gas demand is anticipated to grow over 15% through 2030, driven by the rapid expansion of LNG export capacity and rising power needs, particularly from data centers. We are also seeing higher gas-to-oil ratios across key shale basins as aging wells produce more associated gas per barrel of oil. This trend is increasing supplies of NGL-rich gas and underscores the strategic importance of our infrastructure in the Permian. MPLX handles 10% of all the natural gas produced in the U.S. And over the past year, MPLX took meaningful steps to optimize its portfolio through divestitures of non-core assets, ensuring our future capital deployment is aligned with the strongest return opportunities as we build the infrastructure that will fuel tomorrow's energy needs.

This morning, MPLX announced its plans to invest $2.4 billion of growth capital. 90% of MPLX' growth capital will be directed towards natural gas and NGL Services segment. These projects are concentrated in the Permian and Marcellus, two of the most prolific and competitive basins in North America and are expected to generate mid-teens returns when they come into service. These investments reflect our confidence in the long-term fundamentals of the energy markets and in MPLX's ability to continue capturing value as these opportunities unfold, enabling sustained meaningful return of capital. MPLX continues to target a distribution growth rate of 12.5% over the next 2 years, which implies expected future annual cash distributions to MPC of over $3.5 billion. With our competitive integrated value chains and increasing distributions from MPLX, we believe MPC is positioned to deliver industry-leading cash generation through all parts of the cycle.

Now I'll hand it over to Maria to discuss our financial performance.

Thanks, Maryann. Moving to the fourth quarter and full year highlights. Slide 7 provides a summary of our financial results. This morning, we reported adjusted earnings per share of $4.07 for the fourth quarter and $10.70 for the full year. Adjusted EBITDA was approximately $3.5 billion for the quarter and $12 billion for the year. Refining & Marketing segment adjusted EBITDA per barrel was $7.15 for the quarter and $5.63 for the year. Cash flow from operations, excluding working capital changes, was $2.7 billion for the quarter and $8.7 billion for the year. In 2025, we returned $4.5 billion to shareholders, inclusive of a 6.5% reduction to our shares outstanding.

Slide 8 shows the year-over-year change in adjusted EBITDA from fourth quarter 2024 to fourth quarter 2025 and the reconciliation between net income and adjusted EBITDA for the quarter. Adjusted EBITDA was higher year-over-year by approximately $1.4 billion, primarily driven by our Refining & Marketing segment. Moving to our segment results in Slide 9, we provide an overview of our Refining & Marketing segment.

Our R&M fourth quarter adjusted EBITDA was $2 billion. Our refineries ran at 95% utilization with total throughput just over 3 million barrels per day. We achieved monthly throughput records at our Garyville and Robinson refineries in the quarter. Regionally, our utilization was 98% in the Gulf Coast, 93% in the Mid-Con, 91% in the West Coast. We capitalized on a strong refining margin environment while executing planned turnarounds, safely and on time.

Turning to Slide 10. Fourth quarter capture was 114%. Solid commercial execution contributed towards our strongest capture in 2025. Our fully integrated approach is underpinned by planning, commercial and operational excellence, in addition to our differentiated logistics footprint. This quarter, we delivered a clean product yield of 86% and profitable product placement through our sales channels, resulting in material market uplift. Typical seasonal tailwinds associated with secondary products such as butane blending also contributed towards our strong capture results.

Slide 11 shows our Midstream segment performance for the quarter. Year-over-year fourth quarter results declined primarily due to the divestiture of non-core gathering and processing assets. Our full year Midstream segment adjusted EBITDA has grown at a 3-year compound annual growth rate of 5%. MPLX continues to execute its growth strategy and remains a source of durable cash flow for MPC.

Slide 12 shows our Renewable segment performance for the quarter. Results reflect 94% utilization and a onetime benefit from the sale of credits by the Martinez joint venture in the fourth quarter, which were offset by a weaker margin environment compared to the prior year fourth quarter. We will continue to optimize our Renewable facilities, leveraging logistics and pretreatment capabilities with a first quarter plan turnaround at Martinez, we anticipate utilization of approximately 70%.

Slide 13 presents the elements of change in our consolidated cash position for the fourth quarter. Operating cash flow, excluding changes in working capital, was $2.7 billion, our strongest quarter result in the past 2 years. During the quarter, we returned $1.3 billion of capital to shareholders, executing on our capital allocation priorities. At the end of the year, MPC had approximately $3.7 billion of consolidated cash, including MPC's cash of approximately $1.5 billion and MPLX cash of approximately $2.1 billion.

Turning to guidance. On Slide 14, we provide our first quarter outlook. Additionally, for the full year, turnaround expenses are expected to be lower compared to last year at $1.350 billion and we plan for continued reduction in both 2027 and 2028. Our capital allocation framework is unchanged. Our net debt-to-capital ratio remains in our range of 25% to 30%, and we continue to target an annual cash balance of $1 billion. Distributions received from MPLX are expected to fund MPC's dividends and stand-alone capital spending in 2026, allowing us to return all excess free cash flow after the needs of the business to shareholders in 2026.

With that, let me pass it back to Maryann.

Our commitments are unwavering. Safe, reliable operations are the foundation of our company. Operational excellence is ingrained in how we run the business every day. Combined with planning and commercial execution, these capabilities position us to deliver leading through-cycle cash generation. In Refining & Marketing, disciplined investments will further strengthen our competitiveness. In Midstream, capital deployment is aligned with the fastest-growing regions in the country as we build the infrastructure that will fuel tomorrow's energy needs. MPLX is strategic to MPC. The growth of MPLX's distribution over the next 2 years translates into more than $3.5 billion in expected future cash distributions to MPC, central to the value proposition we deliver to our shareholders.

Our team is committed to creating exceptional value for our shareholders. With integrated value chains and a geographically diverse asset base, MPC is well positioned to lead in capital return. With that, I'll turn the call back to Kristina.

Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will re-prompt for additional questions. Operator, please open the line for questions.

Our first question comes from Neil Mehta with Goldman Sachs.

Yes. Maryann and team. Last quarter, we spent a lot of time talking about capture rate and came in a little bit softer. This quarter, capture rate was very strong at 114%. And I was wondering if you can kind of build on what you saw there and anything that might have positively surprised, recognizing there's some seasonality here? But even then it beat our expectations.

As it relates to capture, first and foremost, I think you've heard me say it, you've heard Rick say it and others on the team, it is clearly a strategy for us when we think about planning and commercial execution to continue to deliver optimization through our commercial team. We are trying to leverage the scale of our integrated system. We think that's an advantage. And again, really trying to increase the capabilities of the commercial team to deliver sustained results across all three of our regions.

You mentioned at 105% for 2025. And if you go back and look over the last few years, while we don't necessarily control every quarter because there are headwinds and things we can't control, if you go back and look over the last few years, over the last 3 years, we've improved capture in each of those years. So there were some things in the third quarter that were not sustained and you see those reverse in the fourth quarter as well. But we are trying to control the things that we can throughout the year and plan to do so. I'm going to pass it to Rick and let him give you some of the specifics in the fourth quarter, Neil.

Neil, I think what I would add is when you look at our structural improvements that we've made within the commercial organization and the value chain optimization organization, we believe these are sustainable. And simply said, we're not done, Neil. Our commercial team's goal every single day they come into work is to expand the crack, and you're seeing this follow through with our results. So more to come there.

Specific to maybe answering your question, a couple of items that I'd call out, Neil. One is the diesel to jet spread, specifically when you look on the West Coast, in 3Q, it was a headwind. In 4Q, it was a tailwind, and we're continuing to see pretty good signals as we enter the first part of the first quarter. And I'll leave you with, on the jet side, we are the largest producer of jet fuel in the United States and then within all of our complexes. When you look at our Los Angeles refinery, it is the largest jet fuel producer within our system, and it resides in one of the three largest demand hubs in the United States, which is certainly going to continue to be a differentiator for us out there on the West Coast. And then maybe lastly, what I'd give you a little color around, Neil, is within the Mid-Con and the West Coast specifically, we had strong utilization. We ran really well, and we had really strong margin capture because of our strong utilization and because of the connectivity that we've spoken on many times from a product to feedstocks perspective, that weaves in and out between our Mid-Con refineries and optimizes 800,000 barrels a day like no other player in that market can do so.

So that's a Mid-Con reference specifically. But in the West Coast, we have similar optionality when you look at the West Coast and it's tied to our Pacific Northwest. So both of those regions specifically, I wanted to call out to your attention, Neil.

And just a follow-up is on return of capital. Last year, you guys put up $4.5 billion between the buyback and the dividend and Maryann, I don't know if you can comment on this, but as you look at consensus numbers and forward crack, do you think that you can match or beat that number as you go into next year?

Yes. Thanks, Neil. So first and foremost, you know one of our key strategic commitments is to ensure that we're delivering the strongest through cash cycle -- sorry, strongest cash flow through cycle, excuse me, and that was clearly 2025. As you look at that consensus, assuming current market cracks, that would be indicative of us being able to repeat a similar pattern that we did in 2025. So yes, I think that is clearly within our ability to deliver in 2026.

Our next question comes from Manav Gupta with UBS.

Maryann and team. Congrats. Look, I mean we did not see a $4 EPS, so you definitely surprised us to the upside. So congratulations on that. Maryann, I wanted to talk to you about this, especially because I know, saw you with the President also looks like Venezuelan crude production will ramp. And we wanted -- you briefly mentioned Garyville will, but just trying to understand how much more incremental Venezuelan waiting barrels, you could absorb in your system? And then if Rick can also talk about if these barrels do show up on the Gulf Coast, would that also mean that WCS differentials could widen, so your Mid-Con capture could also go up? If you could talk a few -- around that topic.

Yes. Thanks, Manav. Thanks for the question. I'd say this first, overall, we view the access to more Venezuelan crude as positive for U.S. energy and even specifically for MPC as well. If you look at our system capabilities, you look at our assets, you mentioned Garyville specifically. We have the most crude optionality, optimization, sophistication, and the ability to address complex refining opportunities and Garyville is an outstanding example of that.

You look at our sour basket, right, we're running approximately 50% sour crude diet across the system. Look, I think that's probably 10% stronger than our closest peer. So if you think about that, if there were to be a dollar movement in sour differentials on an annual basis, that's a $500 million benefit to MPC, just from a dollar movement. I think you know this, we import more barrels, the Canadian, Mexican and Venezuelan combined, than really all of our peers. And we've got a deep sour basket, WCS, ASCI crude, ANS and Maya. So I think overall, certainly positive for MPC as well. I'm going to pass it to Rick and have him give you a little more color as it relates to the specificity around the dip.

Manav your question is quite insightful because when I step back and look at what's happened here over the next -- over the last 30 days-ish. I would say it's a differential story. And when you look at the Venz barrels coming into the U.S. Gulf Coast, there are incremental barrels, so they're putting pressure on the entire complex. And so if you zoom out and say, okay, what does that mean from an MPC perspective, I think you are well aware, we have incredible flexibility.

As an example, we have the ability and have some years run over 100 different flavors of crude oil, and that's due to our optionality and connectivity via pipeline barrels and waterborne barrels. And I will say and say this strongly, we will not be the largest buyer of Venz crudes because we have more advantageous options, especially as Maryann mentioned, especially as the sweet-sour basket widens, which we've certainly seen, no one has more upside than MPC. And I will tell you, we have purchased 2 parcels of Venz crude Actually, Friday of last week, we purchased two cargoes. But those were the first two cargoes of many, many, many offers that we saw on the screen, Manav, that were in the money. So as you know, we're only going to purchase what is economically -- anything that is economically advantaged for us. So that's just a good example of we have better options, Manav, that's a short way of saying it.

And specifically, when you look at the softening of sour crudes post the Venezuela announcement and even before the Venezuelan announcement, if you look at WCS specifically, it's widened anywhere from $1 to $2 a barrel. And ironically, I would tell you, when you look at the prompt month, I actually think, as you look at the forward curve, it is showing that it's going to widen out even a bit more because many of these Venezuelan barrels have not reached the market yet and have not been run yet. So hopefully, that gives you some good color Manav, one, as to our position; two, the impact of Ven's barrels and what we feel is a significant advantage for us.

Perfect. I'm going to stick to Garyville. Can you give a little more color on these two projects? And what I'm specifically trying to understand is, let's say, MPLX was pursuing these projects. They will probably be like a 5 build multiple for $445 million investment, you could probably even make $90 million in EBITDA. And I'm just trying to understand. I understand it's not MPLX's. Its MPC pursuing them, but should we think about the returns in a similar way, mid-teen unlevered IRR. If you could talk a little bit about the two projects and what returns can we expect from these projects?

Sure, Manav. We can answer that. A few things on the Garyville projects. First of all, I want to say that's one of our top-performing facilities, so we'll continue to invest in it. The first project is our feedstock optimization at Garyville, basically to improve margin. This will increase crude's rate somewhere around 30,000 barrels while we're displacing higher cost intermediate purchases. The capital spend in 2026 is right at about $110 million with additional $185 million in 2027, and we have full intentions to have it online year-end '27.

The second project at Garyville is our product export flexibility. So basically, where export premium gasoline production at a lower cost. This investment will increase our flexibility to produce export premium gas by about 10,000 barrels and includes equipment upgrades to help our reliability, mainly around compression. Our capital spend in 2026 is right at about $50 million with an additional $100 million in 2027, and we tend to be wrapped up with that at year-end '27 as well.

And Manav, let me add a little bit more. Mike did a nice job of giving you some of the specifics on those two projects. I think one of the questions that you also asked is sort of what are the returns that we should expect, and when we're putting capital to work on the refining side, again, through the lens of strict capital discipline, we're looking for 25% returns here on these projects. So that's consistent, and as you know, when we're focused on that, we're looking for reliability. We're looking for upgrading capacity that will deliver incremental margin per barrel. That's the reason why we're doing it. We hope that answers your question, Manav.

So even better return than Midstream, so probably even a lower multiple than pipe.

Our next question comes from Doug Leggate with Wolfe Research.

Thanks. Good morning, everyone, and welcome, Maria. It's good to hear you on the call. I wonder, Maryann, this is probably a refining question, so i know Rick wants to tackle it. But I guess the report in the third quarter was on the 4 of November, and you guided us towards 90% refinery utilization, then diesel margins spiked -- and we didn't really see a huge blowout in heavy differentials, but you did swing towards a different slate than you guided towards. I guess I'm trying to understand what is the sensitivity when you can deliver a 4% beat in utilization, a big swing towards heavy oil. What should we consider that any time we see blowout margins. Marathon is going to treat the knobs to basically run significantly better into that margin environment? I'm just trying to get a handle as to what changed versus the guidance.

Yes. Thanks for the question, Doug. I'll say, first and foremost, the answer to that is yes. That is really what we are trying to do every day. You hear Rick talk about expanding the crack. You hear about our planning capabilities. We are building them each and every quarter, which gives us the ability to respond very rapidly to market conditions that we see and therefore given the -- I'll say, the capability of our assets, particularly when you look at yield conversion, you mentioned diesel. I think that is one of the strengths that we have and the complexity and the optimization in our system. When you look at optimization, I think it's critically important for us to be able to continue to demonstrate that. So that's what I would tell you was the capability there in the quarter.

I appreciate the answer. I realize it's not -- there's some sensitivities around this, but I'm grateful for that. My follow-on is on CapEx. Obviously, you've got -- you've dropped the CapEx a little bit this year. You're still covering your CapEx and your dividends with the MPLX distributions. And I guess -- and really, 2026 is great. I'm really trying to think about how do we think about Marathon's spending longer term? Is the cap on your -- because I'm sure you've got a bunch of projects that you can select. But is the cap to stay below that MPLX distribution threshold? Or should we expect CapEx to drop off at some point? Because obviously, it's only down a little bit in 2026?

Yes. Thanks, Doug. So maybe just to reiterate, in 2026, we are looking at a 20% reduction in the refining spend off of 2025. And as you heard in our prepared remarks, we continue to expect that 2027 and 2028 capital on the refining side will come down. And so we think it's critically important. And I talk about the strategic relationship between MPC and MPLX. And as that distribution grows, we're covering the CapEx that we are putting to work to ensure that we remain competitive in every region where we operate and deliver, if you will, the utilization that we just discussed. That's critically important to us and also cover the MPC dividend.

And then we take that remaining cash, as we said, and we return that via share buyback. You can see that in 2025. Hopefully, it was responsive to Neil's question as well that, that should be a repeat in 2026. So that is what we are trying to do. We're only putting to work capital investments through that lens of strict capital discipline. We see it coming down again in '27 on the refining side and in '28.

Our next question comes from Paul Cheng with Scotiabank.

Maryann two questions. First, on the stand-alone basis, the CapEx for this year is about $1.5 billion and last year that you end up spending about $1.6 billion, which is higher than what previously expected. On a going-forward basis, is that the [indiscernible] of good reasonable [indiscernible] we should assume going forward? Or that this is a number of new projects that over the next 2 or 3 years that as they roll off that your spending is going to be lower?

And secondly, that you guys is representing the industry to negotiate with the U.S.W and they just reject the last offer, I think, last Friday. So can you give us an update what's the [indiscernible]? And what's the next step? And also that what are the most sticky points between the industry and the union? What's the biggest differences that in order to strike the deal.

Yes. Thank you, Paul. So first and foremost, on Refining spending, in 2025, to your first part of the question, we did spend slightly more than we had initially guided to. And one of those key spending areas on the El Paso project, I spoke about it. Mike gave a little more color, and we can certainly do that again, if that would be helpful.

We started that project in 2025, given the return on that project and the benefit for the local region. So that, that project will actually complete in 2026 as you heard me say. Then for our '27 spend spend and our '28 spend for refining, we expect both of those years to be below 2026 spending. So again, a lens of strict capital discipline there, reducing that spend. We've got -- as you know, a couple of projects that we were completing like the LAR project. We've got DHT will complete. And that's part of our capital spend this year, taking high sulfur diesel and being able to convert it to ultra-low sulfur diesel for broader market and margin opportunity. And so that's the story, if you will, on our commitment to lowering capital spend in the Refining side and why we saw a little bit of a higher spend in '25. I'm going to pass it to Mike, who's at the tip of the spear there, if you will, on the negotiations, and I'll have him share with you the status of that. Thanks, Paul.

Paul. We continue to meet with the steelworkers at the international level, and we're continuing to negotiate at a pattern agreement for all of our facilities and in the industry. You're correct. Our contracts did expire in January 31. We do have a rolling 24-hour extensions based on our previous contracts, which, in my opinion, is a good thing. It's a positive sign that we're making progress. As you know, we're committed to bargaining in good faith, working together to mutually come up with a satisfactory agreement for both us and the USW, but the discussions have went well. I'm not going to get into the sticky points at all, but I will say we're having open and good dialogue.

Maryann can ask as a follow-up on 2027/'28, should we assume the CapEx is going to be closer to $1 billion or that is still going to be somewhat higher? But less than $1.5 billion.

Yes. Thanks, Paul. I think it's a little bit early for us to give guidance on '27 and '28, but you do have the commitment, as we've said, that '27 and '28 will be below the spending for 2026. And you can see the refining spend that we've outlined for 2026, which would help with that. We're still a little early for specific guidance on '27 and '28, but it will be lower.

Our next question comes from Theresa Chen with Barclays.

I wanted to ask about your comments, Maryann, on global consumption patterns. And if you could walk us through your views of demand going forward across the key products and specifically, what underlies your view that demand supply for the year ahead and maybe beyond is indeed going to be positive for refining economics taking into account the significant capacity expansions we're seeing coming online in Asia.

Yes. Thank you, Theresa. I appreciate the question. I'd say, first and foremost, when we look at 2026, as we mentioned, we continue to believe that '26 is going to be another year of strong refined product demand when you look at the estimates out over the next 5, frankly, over the next 10 years, really, and you look at demand expectations you see that growth year-on-year, 1% to 1.2% growth over that time period. That's just not domestically right. We look at it on a global basis.

Specifically to your question around '26, I think there is supply coming online. You've got an Indian refinery and an Asian refinery. I think that's probably somewhere in the range of about 1 million a day but the lion's share of that capacity is really pointed toward the Pet-chem market. And I'd also say, and we've seen this with some other capacity additions even when you look at [indiscernible] or [indiscernible] the pace at which that capacity comes online is typically a bit slower than what we would otherwise have expected. So long-term fundamentals support stronger margins demand over the long term. This may be for 2026, we saw a little bit of this in '25, maybe a little more back-end loaded, notwithstanding some of the macro volatility when we look at OPEC when we look at Iran, we look at Venezuela volatility. This could be a little more back-end loaded in 2026.

But they would be the reasons why we have a strong conviction in the macro and the refining outlook not only for '26, obviously, but for a longer period of time. So our view really is unchanged.

And maybe going back to some of Rick's comments about your jet production capabilities. And really on the heels of consistent commentary across the industry about threshold jet demand tailwinds. To what extent can you augment your jet yields further over time to capture this benefit?

Great question, Theresa. I will tell you that, first of all, we're enhancing our customer base out in the L.A. region we're actually seeing significant demand signals from our Department of Energy, Department of War, and we are leaning into those as well. And as you look forward, we will continue to even lean into producing more jet. I won't give you specific volume increases, Theresa, just for competitive reasons, but it's safe to say we have very good upside there.

Our next question comes from Jason Gabelman with TD Cowen.

I wanted to go back to the CapEx guide. And I guess two questions around it. One, the 2025 total MPC CapEx came in above the initial expectations and now that we're done with the year. I'm wondering what exactly drove that? It looked like some of the amount of the increase was on sustaining spend. So was there some work that needed to be done there? Was it around inflation and workforce costs? And have you seen that creep into the '26 budget at all?

Jason, thanks for the question. So let's first talk about 2025. One of the projects that was not initially in our 2025 guide, that we talked about today is our El Paso project. And we started spend in 2025. It will complete in 2026. I think we talked about the benefits of that, particularly when you look at regional benefits there. So that, that project will come online in 2026. Also -- and now I think it's reasonable to say that you could have had a little bit of inflation creep. Obviously, LAR was a critical project, as you know, that we completed in 2026, and that should -- and came up online in the fourth quarter, as Mike has alluded to.

When we give our guidance for 2026, we take those things into consideration. So to the extent that inflation estimates stay where we have anticipated, we don't necessarily see that there is inflation uptick in 2026. And again, when we look at that, Refining is down 20%, '26 versus '25, and we continue to say that '27 and '28 will be below that as well.

Great. And my follow-up, Maria, welcome to the team. We haven't met yet, but I look forward to working together. But I'm wondering if the team can talk about, maybe elaborate a bit on some of the comments you made in your opening remarks about however background is a nice fit and a nice add to the MPC C-suite. And then maybe you could touch a bit about the Board process to find a new CFO because it did come as a bit of a surprise for investors.

Jason. So look, first and foremost, I'd say we come from a position of strength. And it is my belief that when we are looking at ensuring we deliver our objectives, both in the short term and the long term, that we have a set of complementary skills and capability and the absolute best leadership team to deliver those shareholder expectations that we continue to talk about.

And first and foremost, that's the reason what any leadership team, and certainly, this leadership team would make a change. When I think about the things that we MPC have been trying to deliver, in fact, I should say, have delivered. When we think about cost competitiveness, we never stop that, when you look at Maria's background over the last 25 years in her career, that lean mindset and the work she's done there is a really nice dovetail to what we try to ensure that we are the most competitive in every region where we operate. So her experience there is important.

Strict capital discipline and capital deployment, I think are another piece of Maria's background that fits so nicely into the things that are critically important for us to deliver shareholder value. When you make any change, as you think about our Board, particularly on strategic decisions is always a part of those decisions as well. So I hope that answers your question, Jason.

Our next question comes from Philip Jungwirth with BMO Capital Markets.

The West Coast had a really heavy year as far as turnaround goes, representing about 40% of total spend. At least in 1Q, West Coast turnaround is minimal. But as we see additional closures in California, just wondering, do you think the West Coast is set up to run pretty hard in '26 and that you're past a lot of the downtime?

And separately, just with the closure of the outage which is more concentrated in NORCAL. Do you see much divergence between NORCAL and SoCal product prices? And if so, can you take advantage of that?

Sure, Phil. I'll take a shot at that. As we've talked about, the new project we just put in place in the fourth quarter of last year, really put ourselves in a competitive position. One, we had intertie project, to actually decrease our energy costs. And the second piece of that was we installed two new boilers and we got rid of six old boilers. I think we're in a really good position to run hard in L.A. The FCC alky outage completed. We did a ton of reliability work during that, along with the new boilers from a steam system and the intertie project also allows us to utilize our [indiscernible] plant to feed both sides, Wilmington and Carson. On the other side of your question, I'll turn you over to Rick for that.

Yes, Phil. So we certainly see the closure as a significant tailwind for us. In fact, most most prognosis were that the closure of our competitor would not happen until March, April, and we're hearing now it's closing truly as we speak. So we're seeing this as a nice tailwind. And as you know, we continue to have a competitive advantage out there with our size, our scale, our fully integrated logistics system, not only on the West Coast but in the Pacific Northwest. And it's the Pacific Northwest where maybe I want to dive in a little bit because we have the ability to your NorCal question to take products from our PNW system and take advantage of the NorCal dislocation should they occur.

So we're in a great position, and we look forward to being the primary supplier in the L.A. region and in the Pacific Northwest. We see it as quite a competitive advantage versus the alternative, which is imports. And we always used to say, Phil, that the region was short one refinery. Well, now it's short several refineries. So we view that as a significant positive tailwind. I hope that answers your question, Phil.

Yes, that's helpful. And then on Midstream, there's some interesting ethane market dynamics occurring this year. I mean, Permian takeaway increasing significantly. You're a big part of that. You had a couple of export facilities come on in second half and through '26 plus a new cracker startup in the Gulf Coast this year. So the question is more around do you see these changes, or how do you see these changes influencing ethane prices? And then also just impacting your NGL plant production and BANGL NGL volumes?

Phil, yes, let me try to take that for you. So on MPLX, as you know, we've been talking for quite some time now about our wellhead-to-water strategy. You've seen some of the investments that we've made, both organic and inorganic, in particular, when we talk about our U.S. Gulf Coast fractionation and export dock, we believe strongly in the pull there, the -- I should say, the demand pull, particularly when you look at growth coming from LNG. Our project fractionation one comes online 2028, second one. Those fracs will be completely full. We just started our Secretariat online brings 1.4 Bcf into the region. And then we announced Secretariat II, which will take it up to about 1.7 when that investment is complete.

And then over the export dock, obviously, we see the demand for LPGs growing, and you look at those markets. So I think all of that points to strength over the long term in our position, even where we look at the amount of capital that we're putting to work into the NGL and nat-gas base. We talked about some of those earlier today. So I think that's all extremely positive, particularly when you look at the demand pull there and a positive for MPC and MPLX. MPLX doesn't take on any of that commodity risk and MPC will contract with MPLX, and that commercial opportunity is important for MPC going forward as well. I hope that helps.

Our next question comes from Matthew Blair with TPH & Co.

If we could circle back to the Venezuela discussion. You mentioned you're buying two cargoes in the first quarter here. It looks like your sour guide for Q1, is it 50% versus the 47% in Q4. So the takeaway that your whole system is now moving heavier and that you're pushing out mostly lights with these new Venezuelan barrels?

Matthew, yes, this is Rick. Yes, that's the guidance. We are leaning into these differentials widening. And as Maryann stated earlier, every day, we're looking to optimize. And right now, the signals are pointing towards a heavy, more sour slate. And so we're leaning into it significantly.

Sounds good. And then, Maryann, I heard you mention dose focus. It looks like run rates have improved quite a bit recently at the refinery, which is reducing Mexico's net product imports. Is this impacting MPC at all? Or are you having to find new markets for your product exports in general, could you talk about the trends for MPC's product exports in 2025 versus 2024?

Yes. Thanks for the question. So as I mentioned, we run roughly -- and we just talked about roughly a 50% sour slate. WCS being one of them. We run the ASCI crudes and A&S as well. Maya for us, as you can see, is typically a very small portion of that sour basket. So as an overall impact to us, really not a concern for us. I think your assessment, frankly, and the focus is accurate. I think as that reliability has improved, I think there is less Maya available as they are consuming, obviously consuming that. But I'm going to pass it to Rick because I'm sure Rick will want to add a little more color on some of the specifics for us.

So Matthew, what I would add from an export perspective. So we are taking less to Mexico. However, we're seeing really good demand from other LatAm countries, specifically Brazil. So we are not seeing a falloff in exports at all. In fact, we had a really strong fourth quarter, and we're having a really good start to the first quarter. So while we are seeing less from Mexico per se, we're seeing others pick up the slack and to more than offset that decline.

Our final question comes from Conor Fitzpatrick with BofA.

The [ Enbridge ] mainline pipeline has seen some apportionment and pipe volume rationing rising a bit lately. Our Canadian pipeline bottlenecks affecting Canadian crude pricing or realized crude costs for the R&M setting at all?

Conor, it's Rick. Absolutely, they are. This is a tailwind for us. In fact, it's encouraging to see and hear people following the apportionment because it used to get followed a lot, and I think it's kind of fallen out of common knowledge for people to track, but it's quite important. So I commend you for following it. I'll start there.

I will tell you this, in January, even before the Venezuelan announcements and headlines, you started to see the heavy and the Canadian differentials start to widen and a couple of reasons they were widening. One, production is pretty darn strong in Canada, but two, it's apportionment, your exact point. So when you think of a portion, it backs in inventory into Canada, and forces barrels to clear to more expensive routes. So that in of itself puts pressure on the differential, which we've certainly seen, as I said, before the Venz announcement and now even after. So significant tailwind and one that I would encourage you to keep watching. Thank you for the question.

All right. With that, thank you for joining our call today and for your interest in Marathon Petroleum Corporation. Should you have more questions, want clarifications on topics discussed this morning, please contact us and our team will be available to take your calls. Thank you.

Thank you for your participation, participants. You may disconnect at this time.

Welcome to the MPC Third Quarter 2025 Earnings Call. My name is Shirley, and I'll 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 Kristina Kazarian. Kristina, you may begin.

Welcome to Marathon Petroleum Corporation's Third Quarter 2025 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me on the call today are Maryann Mannen, CEO; John Quaid, 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.

Thanks, Kristina, and good morning. I'd like to take a moment to recognize Mike Hennigan. At the end of the year, Mike will be stepping down as Executive Chairman. Mike's guidance has been tremendously valuable to our Board, to me and our entire leadership team. We thank him for his service as well as all of his contributions. He will be missed.

In the third quarter, we delivered strong cash generation of $2.4 billion. Utilization in the quarter was 95% as we executed our planned refinery turnarounds safely and on time. Our team delivered 96% capture despite significant market-driven headwinds. Year-to-date, capture is 102%. This compares to the prior year's level of 95%. We believe this demonstrates our commitment to deliver sustainable, improving commercial performance in varying market conditions. We have generated $6 billion of operating cash flow, excluding changes in working capital and have returned $3.2 billion to shareholders through the third quarter. Last week, we announced a 10% increase to MPC's dividend, reflecting our confidence in our business outlook. We believe that we should be able to lead in cash generation through cycle, delivering peer-leading results.

In October, our blended crack was over $15 per barrel, which is seasonally strong and more than $5 per barrel or 50% higher than the same time period last year. Diesel and jet demand are up modestly across our system, while gasoline is flat to slightly lower. The product inventory draws reported last week signal strong demand. Gasoline and distillate inventory levels remain below five-year averages. Current market fundamentals are indicative of tightness in supply and supportive demand, which we believe will persist into 2026. Throughout the quarter, we completed several transactions advancing our strategic objectives and optimizing our portfolio. We sold our interest in an ethanol production joint venture.

As the partner's strategic goals evolved and diverged, an opportunity came for MPC to exit the partnership at a compelling multiple. MPLX acquired a Delaware Basin sour gas treating business and the remaining 55% interest in the BANGL NGL pipeline. These transactions further MPLX's growth profile. MPLX increased its distribution this quarter, reflecting conviction in its growth outlook. We now expect to receive $2.8 billion annually from MPLX. MPLX continues to target a distribution growth rate of 12.5% over the next couple of years, which would imply annual cash distributions to MPC of over $3.5 billion. We are driving value and positioning MPC to be industry-leading in its own capital return program. With our competitive integrated refining and marketing value chains and durable midstream growth driving increasing distributions from MPLX, we believe MPC is positioned to deliver industry-leading cash generation through all parts of the cycle.

Now I'll hand it over to John to discuss our financial performance.

Thanks, Maryann. Moving to third quarter highlights. Slide 4 provides a summary of our financial results. This morning, we reported third quarter adjusted net income of $3.01 per share. We delivered adjusted EBITDA of $3.2 billion and $2.4 billion of cash flow from operations, excluding changes in working capital. MPC returned over $900 million to capital -- of capital to shareholders in the quarter with repurchases of $650 million and dividends of $276 million.

Slide 5 shows the sequential change in adjusted EBITDA from second quarter to third quarter and the reconciliation between adjusted EBITDA and our net results for the quarter. Third quarter adjusted EBITDA of $3.2 billion was largely in line with the prior quarter.

R&M segment results on Slide 6 were strong with adjusted EBITDA of $6.37 per barrel. Our refineries ran at 95% utilization, processing 2.8 million barrels of crude per day and several of our refineries achieved monthly throughput records in the quarter, including Robinson in Detroit in the Mid-Con and Anacortes in the West Coast. Mid-Con margins strengthened sequentially, but were offset by declining margins in the U.S. Gulf Coast and the West Coast.

Turning to Slide 7. Third quarter capture was 96% with headwinds in the West Coast and the Gulf Coast. Jet to diesel differentials compressed. We faced lower clean product margins and inventory changes contributed headwinds to capture. The downtime of our Galveston Bay refinery resid hydrocracker was also a headwind to capture of almost 2% across the whole system with a larger effect on our Gulf Coast results.

Slide 8 shows our Midstream segment performance for the quarter. Segment adjusted EBITDA increased 5% year-over-year. MPLX is executing its growth strategy, targeting its natural gas and NGL value chains and remains a source of durable cash flow growth for MPC.

Slide 9 shows our renewable diesel segment performance for the quarter. Our renewable diesel facilities operated at 86% utilization, reflecting improved operational reliability. Margins were weaker in the third quarter as higher diesel prices and RIN values were more than offset by higher feedstock costs. We will continue to optimize our renewable operations, leveraging their logistic and pretreatment capabilities.

Slide 10 presents the elements of change in our consolidated cash position for the third quarter. Operating cash flow, excluding changes in working capital, was $2.4 billion. And in the third quarter, MPLX completed acquisitions of over $3 billion and issued debt in connection with those acquisitions to finance them. Also, as we discussed with you last quarter, our second quarter share repurchases were influenced by the anticipated proceeds from the sale of our interest in the ethanol joint venture, which closed in July. At the end of the quarter, MPC had cash of nearly $900 million and MPLX had cash of approximately $1.8 billion.

Turning to guidance on Slide 11. We provide our fourth quarter outlook. We are projecting crude throughput volumes of 2.7 million barrels per day, representing utilization of 90%. The Galveston Bay resid hydrocracker is expected to be at full operating capacity before the end of the month, enabling optimization of our Gulf Coast system. Turnaround expense is projected to be approximately $420 million in the fourth quarter with activity mainly focused in the West Coast. We are completing our multiyear infrastructure improvement project at our Los Angeles refinery in the fourth quarter with start-up scheduled to align with the conclusion of planned turnaround work before the end of this month. These improvements are intended to strengthen the competitiveness of our Los Angeles refinery and position us to remain one of the most cost competitive players in the region for years to come. Operating costs for the fourth quarter are projected to be $5.80 per barrel. Distribution costs are projected to be approximately $1.6 billion and corporate costs are expected to be $240 million.

With that, let me pass it back to Maryann.

Thanks, John. We delivered a strong quarter in Refining and Marketing. Safe and reliable operations are foundational. Operational excellence is integral. The commercial team is optimizing decision-making as we leverage our value chains and capture opportunities the market presents. We are optimizing our portfolio through strategic investments. Fourth quarter refining cracks have started out stronger than seasonal averages. Current fundamentals highlight the market tightness and support our enhanced mid-cycle outlook into 2026. Our integrated value chains and geographically diversified assets position us to lead in capital allocation and offer a compelling value proposition to our shareholders.

Let me turn the call back to Kristina.

Thanks, Maryann. As we open your call for questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions.

Shirley, could you please open the line for questions?

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

Maryann, congrats on the Chairmanship as well. The question I had was really around capture rates in the quarter. We've gotten so used to you putting up north of 100%, 96% felt a little softer. And I think you called out some stuff in the script a little bit about the RHU, but also some West Coast dynamics around diesel and jet. I was wondering if you could unpack that for us here.

Yes, certainly. Neil, thanks for your question. So absolutely, in the quarter, we generated 96% capture sequentially down from the second capture -- second quarter capture, excuse me, of 105%. I would say that the West Coast was the leading driver in the quarter. It accounted for more than 50% of the capture change. we actually saw clean product margins fall about 40% in the West Coast. The jet premium to diesel narrowed. In fact, it actually moved from a benefit to a negative. And then, of course, as you know, secondary product margins were clearly a headwind. So, again, West Coast really the majority of the driver for the sequential change in capture.

Second, and John, as you said, mentioned it in his remarks as well, the RHU, and Mike shared with you sort of the status of that on our last earnings call. Obviously, its downtime impacted the quarter and then also the jet to diesel there. Year-to-date, as I mentioned, our capture is at 102% through the third quarter, and that compares to 95% the prior year quarter. So what we are hoping that you see is the sustainable changes that we have been working on over the last few years will continue to serve us well. Our headwinds were certainly a challenge. Fourth quarter, as you know, is typically our strongest quarter for many reasons, and we'll share a little bit more with you there. But we certainly don't see the fourth quarter being any different than we have in prior quarters as well.

So let me pass it to Rick, and he'll give you some incremental color as well, Neil.

Yes. Neil, just a couple of comments additional to Maryann. So we are off to a good start in the fourth quarter. We've seen the jet and product margins go right back to normal levels. So that's quite encouraging. we're one month through the quarter, but signals look promising. And the other item that I'd add on 3Q specifically is we built butane inventory in 3Q, and we're heading into blending season. So as we go into 4Q now, the building of inventory hit that we took in 3Q will be a tailwind in the fourth quarter. So we look to be in really good shape here, Neil, heading into the fourth quarter.

Yes. And then the follow-up is just on return of capital. It was a little bit lighter from a buyback perspective than, again, I think where the Street was modeling. Can you just talk about how you're thinking about the share repurchase on the go forward?

Yes, certainly. happy to do so, Neil. Thank you. No change in terms of the way that we view our primary return of capital using share buyback. As you know, essentially, what we've said and you heard, we've announced a 12.5% distribution increase at MPLX, and that brings about $2.8 billion back on the MPC side. So, our ability, as we said, given the differentiation with our midstream distribution should allow us to lead in capital returns. And you can see that on a year-to-date basis, shared those statistics there with you.

No change, Neil, in our ability to continue to lead in share repurchase, no change in the way we view it. And it will be, as you know, the primary return of capital going forward.

Our next question comes from Manav Gupta with UBS.

So I'm going to start with the West Coast. We understand capture can move around a bit. It should not matter that much. But when we look at the West Coast, one big refinery has closed in your backyard. Another one will most likely close in the next three to four months. And yes, there are some product pipelines that might show up, but they might not show up for three years. So I'm just trying to understand, given the setup and the upgrade you are doing at your refinery, could we see you generate above mid-cycle margins on the West Coast for next maybe 8 or even 12 quarters? Can you talk a little bit about that?

Yes. Manav, this is Rick. So you point out some very dynamic items that are happening in the West Coast. Let's maybe walk through them one by one.

So, as we look today, I think you're well aware, we're looking at a $40 crack today. And we've got one closure that's happened, one that appears that it may happen early next year. And this is just simply supply and demand. The market is efficient and the market is responding and showing you that the market is efficient.

So when we look at the overall market, there's a couple of lenses I'd like you to view it from is we optimize not only the West Coast, but along with the Pacific Northwest. So when we look at our system, it's no different than what we look at when we look at our Mid-Con region, which, as you know, is highly integrated, so is the West Coast and Pacific Northwest.

What I mean by that, Manav, is when you look at Anacortes and you look at Kenai and you look at L.A., which we have invested in and continue to invest in as the largest, most dynamic, complex, efficient refinery in the California region, we believe we have a competitive advantage that not only exists today, but will exist far into the future. And when you maybe back away even from L.A., Manav, and you look at Anacortes and Kenai, we're able to optimize those two refineries to fill the short that is in the San Francisco region. So all three of those assets are complementary to one another.

In terms of the pipelines that are rumored to come into the region, I would say that's a big if. I would say those projects, I would say, are ambitious and at earliest might be 2029. But when we look at the overall structure of the market, Manav, the incremental barrel coming into the marketplace continues to be a waterborne barrel. They have a timing and a transportation cost that we can and will beat all day long, and that does set the market and that, therefore, is an incredible incremental advantage to Marathon Petroleum, not only for the West Coast, but for the Pacific Northwest.

Manav, it's Maryann The other thing that I might add to Rick's comprehensive response to your question would be, as you know, our LAR project is coming online in the fourth quarter and intended to meet not only NOx reduction emission requirements, but also greater efficiency and improvement in EBITDA. And that project will benefit us in 2026 as well, and that comes online in the fourth quarter. That's the West Coast -- another West Coast benefit also.

Manav, maybe not to come over top of Maryann, but an item I meant to bring out, and I just -- it slipped my mind is we have a significant feedstock advantage in the West Coast. And if you look even six months ago versus where we're at today, when you look at the closure that just happened and the one that's about to happen in 2026, we are buying more local California crude today than we ever have. Actually, it's 2x greater than we had in the past. at a significant advantage. So while our advantages were great even before that happened, that just continues to stress why we're so committed to California. And the feedstock advantage is real and really helps us compete quite well with those waterborne imports.

Perfect. My quick follow-up here is I'm going to focus a little bit on MPC dividend growth. Maryann, you provided a very detailed response to John McKay's question on the MPLX call. And as you walk through the growth pipeline of projects in MPLX, it's pretty clear that MPLX could support distribution growth of 12.5% for two or maybe even three years. Now when we couple that with the buyback and how that lowers the dividend burden, would it be fair to say that at this point, if refining cracks hold even mid-cycle or maybe slightly below mid-cycle, MPC is in a very good position to raise its dividend by 10% for the next couple of years, at least, supported by distribution from MPLX and the buyback that lowered the dividend burden?

Manav, well said. The answer to that is yes. As you know, over the last few years, we've taken over 50% of the equity out through our share buyback initiative. For the last three years, we've raised the MPC dividend 10% per year and then prior to that 30%.

But as you clearly state, and our commitment to continue to use our share buyback as a critical lever to return capital to our shareholders that share count will continue to decline, making it obviously supported by our mid-cycle environment, our belief there, making that dividend opportunity clearly possible for the next several years at MPC as well. And as I mentioned on the MPLX call, we see a couple more years of 12.5% as we continue to deliver that mid-single-digit growth. So should -- both of those things should be extremely supportive.

Our next question comes from Doug Leger with Wolfe Research.

Maryann, congrats from me as well. Please pass our best regards on to Mr. Hennigan as he officially moves into retirement.

I have two quick ones, hopefully. Can you address the CapEx specifically for refining relative to the guidance you gave at the beginning of the year? It seems you're running a little hot. I'm just wondering if something is changing there or if it was cadence or if there's some other explanation as to why we should or should not be paying attention to that.

And my follow-up is a simple one. I want to hark back to the balance sheet and buybacks and just get your simple perspective. Obviously, we've had extraordinary share performance from MPC. One could argue elevated valuations certainly elevated margins for the time being. and a slowdown in the buyback, I believe the slowest in the fourth quarter of 2021, I think, might be weighing on your shares today. So my question is simply, are you prepared to lean on your balance sheet to buy back your shares?

So, Doug, let me try to address some of those, and then I'll pass it to John to give you a little more color.

I think we've probably said this before, but at the risk of maybe repeating, no one quarter or for that matter, any one given month is meant to be indicative of the way that we view share buyback. And frankly, if you look consistent with what we've shared, we are comfortable with roughly $1 billion on our balance sheet. Last quarter, for a lot of reasons, we ended lower than that. And you know we delivered strong share buyback performance. So, again, no one quarter should be indicative of how we view that. We remain committed to using share buyback as the element of return of capital, and we'll consistently do that. As I shared earlier, the benefit of that growing distribution from MPLX two years now at 12.5% and growing should also be supportive for us to be able to lead in the return of capital.

I think the other part of your question was, would we use our balance sheet? In other words, would we take on debt? And we don't see taking on debt at MPC to buy back stock as something that we would do. Having said that, we do believe that our margin delivery will allow us to continue to lead in share repurchases.

I'm going to pass the question back to John, and he can give you some color on capital, and then I'll follow up.

Doug, so yes, certainly looking at capital, I think what you're seeing there is as we're looking across our value chains and where we're positioned, we're finding really good opportunities to drive investments, whether it's operationally or commercially to drive reliability, drive mix and yields and really drive margin and capture.

So I think that's partly what you're seeing in the numbers this year. And maybe I'll turn it back to Maryann because I know she had a comment to follow up there as well.

Yes, thanks. And thanks, John. The one thing that I wanted to be clear, we have not given guidance yet for 2026. And as you know, consistent with the way that we always have, we'll provide you full year guidance. But I think as you are thinking about planning, you should assume that 2026 capital will be below 2025. And we'll give you incremental color on the next quarter call, but you should assume capital will be below 2025.

Our next question comes from Sam Margolin with Wells Fargo.

Maybe we could drill into this jet to diesel dynamic because it seems like it was pretty influential. And you said it's normalized now. But if you just look at the shape of sort of what underlying crack spreads did for the quarter, it was volatile, right? There were a few like sort of big pulses higher and then it came in. I mean how much of the, I guess, abnormal jet to diesel relationship in the quarter, would you attribute to kind of unusual volatility across the array of commodities versus something more structural or any other macro effect you want to call out?

Sam, it's Rick. So we have not seen a volatility between the jet, diesel differential to this extent. I can tell you throughout the length of my career, Sam, it was unprecedented. And I really think it was a combo of inventory and supply driven. We did have some inventory switches on the diesel side and then jet took the opposite position, and it just caused an imbalance for the better part of a month, 1.5 months, and it's certainly corrected itself, but we do not see it structural whatsoever.

Okay. That's helpful. And then maybe taking a step back, just to the macro because nobody has asked about demand yet given all the moving parts of the quarter. But what's interesting about this environment is that a lot of indicators that normally correlate to demand don't look that strong. Consumer sentiment is very low. PMIs are basically below 50 everywhere. And yet refining margins are still very high.

And so I guess this is a question about kind of the conditions you're seeing today and what that means for kind of what a real mid-cycle margin environment looks like. It looks very much like the mid-cycle might be lifting higher based on kind of long-term capacity trends and indicators today, but would love your perspective on that.

Yes, Sam. So let me start by saying we tend to believe we have some of the best indicators in the United States with the breadth and depth of our refining and marketing business throughout the United States. Every day we're demand signals. So while there are a lot of surveys out there, I would tell you we have what we would call hard facts, and we feel very good about what we're seeing today and going forward. But if I were to take a step back just for a moment, I mean, as you know, global demand continues to grow, whether it's the IEA or OPEC or almost any institution, everyone continues to upgrade their global demand views by several hundred thousand barrels a day.

But more so closer to home here, Sam, when we look at diesel and jet, we continue to see modest growth and saw that in the third quarter, and we're seeing that here again to start the fourth quarter. And gasoline, it depends on the region within gasoline, but gasoline is flattish to slightly lower to prior year, which to us is a very strong signal. And as you know, we're in max diesel mode everywhere, driven by the diesel crack, and we are seeing strong signals not only on over-the-road, but container business as well, harvest season. So we're getting a lot of positive signals today, Sam, that would lead us to be very bullish looking forward here into the near term.

And then if I even zoom out a little bit further, Sam, you continue to see the slightest bit of disruption in a region that is causing cracks to blow out greater than what they have in the past. A good example is the West Coast today. You know there's operating issues out on the West Coast as well as a closure. But then even go to the Mid-Con where we're seeing outsized cracks for this time of year because of a disruption.

To me, as -- if an outsider is looking in, I would say this is a primary example of how tight this market is from a U.S. perspective. And then globally, when you look at drone attacks, I woke up and read another article yet this morning on a Russian refinery getting hit with another drone. That's sending the market in turmoil, especially from a diesel perspective.

We're having good success, Sam, taking diesel to Europe because the whole Russian product export portfolio has been turned upside down. So that is advantaging U.S. refiners like us who have a really strong appetite to export on the Gulf Coast.

Our next question comes from Paul Cheng with Scotiabank.

Maryann or maybe this is for John. You guys have mentioned that the third quarter, one of the impact on the margin capture is on butane inventory build. Can you give us some idea that how big is that impact, whether it is in the dollar per barrel or percent of capture rate?

Secondly, that I want to go back into California. With the new pipeline proposal and all that, we know that, I mean, not all of them probably will be materialized, but I suppose that at least one may be materialized. And so how you guys will position yourself? And also that I think Rick has said that you believe the main import avenue is going to be waterborne. Will MPC be an active and aggressive player in that market and already organized a range imports coming in given your L.A. logistics that you will be able to easily bring import. So trying to understand that how you have positioned yourself.

Paul, it's John. I'll start with the inventory question you had on capture. Rick mentioned earlier, there were a few different inventory changes, I would say, that affected capture. One that Rick mentioned earlier, you would expect every season, right, as we're building LPGs to get ready for blending season. We also had some VGO we built ahead some FCC turnarounds that kind of bridge the quarter and then probably some other pieces as well, Paul. But I mean, it was -- if you add all those up, it's -- it gets you to a pretty good effect on capture quarter-to-quarter.

John, do you -- can you quantify? Is it, say, 3%, 4%, 1%, and any kind of color?

Yes, it's probably closer to 3% to 5%, Paul.

Paul, it's Rick. So let me start with the pipeline question. So, there are, as you mentioned, several announcements out there. And if one of them goes through, I would say that's if. If one does and it comes -- the origin comes out of the Mid-Con, I would say, Paul, that's extremely positive for us. Most pundits on the one coming out of the Mid-Con would say that about 100,000 to 200,000 barrels per day could come out of the Mid-Con. And as you know, Paul, we've got about 800,000 barrels per day through our 4 plants that come out of the Mid-Con. So we feel like we would benefit significantly with that draw coming out of the Mid-Con.

Now I will pause though and say that's a big if because when you look at a tariff that's yet to be set on if a line comes out of the Mid-Con. As best we can tell, it's about 1,000-mile pipe that would need to be laid across several states. It's long haul, and it would most likely or potentially cross governmental administrations. So there's a wildcard there. So there are a lot of ifs on the cost and the likelihood of it happening. But if one would come out of Mid-Con, we see it as quite bullish for us.

On the second part of your question, on the waterborne market, from a commercial perspective, we absolutely have a significant advantage with our L.A. asset and our Pacific Northwest assets. However, Paul, if we see a trading opportunity in the waterborne market, we will look at it just like we look at every other market. But I would tell you at this 10 seconds, that would not be a primary focus of ours. Our focus is to really bring the value out of our fully integrated value chain between the West Coast and Pacific Northwest.

Okay. So if I interpret you correctly, it means that you do not have planned to be a consistent and active importer of product into California market?

Paul, I wouldn't tell you if I was or wasn't, but it's a nice try, Paul, but I won't tell you that. We look at every opportunity to make money.

You're welcome, Paul. Maybe just one last wrap on the capture question, just to be sure. As you know, over the last several quarters, one of the things that we've been trying to do is continue to provide color on the things that are sustainable, that -- which Rick and his team are working on to provide that sustainable excellence in terms of our commercial performance. And the lion's share of that change that we talked about this particular quarter was really market-driven. That's the volatility I talked about the jet versus diesel, the clean product margins, et cetera. And then as you know, as a result of that volatility, then the secondary product headwinds can be significant for us. And you know that they are obviously largely not within our control as well.

The one that was, and that's where we've shared with you the progress was the Gulf Coast part of that, and that was the downtime that we experienced on our RHU and Mike shared with you the intent to bring that back up and obviously expect to have that operational for much of the fourth quarter. That would be the piece that I would tell you was sort of ours. But largely, when you look at the change quarter-over-quarter, it was largely market-driven for all of the reasons that I shared. I hope that's helpful for you as well.

Our next question comes from Theresa Chen with Barclays.

Building off of Rick's comments about how Mid-Con product margins would likely improve if Kinder and Phillips 66 pipeline gets built. Is the same true for PADD 4 if [ Dyno ] project -- the [ Dyno ] project goes through considering that you do also have a Salt Lake facility and given the relatively low CapEx and minimal looping that, that would require, would that also improve netbacks for you in that region?

That one is a little tougher to call, Theresa. This is Rick, by the way. But I would tell you where we see our significant advantage in Salt Lake City is we are the largest refiner in Salt Lake, and we have a significant feedstock advantage with the amount of black and yellow wax we run in that region. And so regardless, if something comes in and/or out of that region, the project that you're referencing is of such de minimis volumes, we don't see it affecting us really negatively. And so we really like where our assets at because of the reasons I've mentioned and our ability to clear our product to other areas of the country, i.e., Vegas, Arizona, et cetera.

Understood. And on the light heavy outlook, what are your expectations on how those differentials evolve from here? What do you think are the key drivers and keeping the geopolitical instability and general macro volatility in mind?

Yes. Up until now, Theresa, I would tell you that TMX has been the key driver. I would say most have been projecting the differentials to get wider, but increased Far East demand through TMX pipeline has really kept Canadian inventories low and differentials tighter than expected. However, as Far East demand appears to be waning, we believe this could provide some relief to those differentials. So we expect sour differentials to widen slightly in Q1 on incremental OPEC production and incremental Canadian production, especially as we enter the diluent blending season and production grows.

The one area that I would like to point out is we've certainly seen depressed ASCI prices as grades are under pressure due to more challenging export environments, both within the U.S. and China. So we believe this is extremely positive. As you know, we're a big player in the ASCI market. We have a ton of exposure of our barrels priced against an ASCI benchmark. And just as a reference, ASCI prices are $2 weaker than earlier in the year, and the forward curve is one of the weaker 4Q, 1Q ASCI curves that I've seen and we've seen in the last five years as offshore production continues to be quite bullish. The latest number I looked at is it looks like it's slightly above 2 million barrels a day for the first time since 2020, a lot of big exploration projects coming online. So we're quite bullish on the AI as we're seeing that not only in current ASCI markets, but in the future forward curve. I hope that helps answer your question.

Our next question comes from Jason Gabelman with TD Cowen.

I wanted to start on the West Coast. It's been a heavier turnaround year in that region, and it seems like that's going to continue into 4Q. So just wondering what's driving that? And then more broadly, it looks like turnaround spend is going to be a bit higher than what you had previously guided to. So wondering if that's related to what's specifically going on in the West Coast? And then I have a follow-up.

Jason, this is Mike. On the West Coast, primarily, we're running the refinery currently, but we do have our FCC and our alky down. We started that turnaround in the third quarter. And then we're coming up with the project that Maryann talked about, our [indiscernible] project will come up here in the next few weeks. So we should be in a good position to capture that in the West Coast. So at this point, we'll be able to run hard on the LAR refinery.

From the turnaround cost side, some of it has went up, specifically at LAR GBR. That was primarily around opportunities on growth projects and ER projects, mainly around some reliability, which allows us -- put us in a position for better capture, both on the West Coast and the Gulf Coast.

And Jason, it's John. I might just kind of add on to Mike's comments. So certainly, you're seeing the number, you can add the fourth quarter to get to a number for the year. But as we look to '26, that's a number we see coming down. And after '26, we see that trend continuing as well, just to give you a little bit of a forward look.

Great. And my follow-up is maybe just on margin capture. And your indicators don't include some regions that were really strong in 2Q and 3Q, the Pacific Northwest and the Rockies. And I suppose some had thought that strength would offset some of the headwinds that you had mentioned.

So can you just talk about your ability the past couple of quarters to capture the strength in the Pacific Northwest and the Rockies. Has that driven that distribution cost number higher, which came in above estimates? Or do you feel like your system is kind of well situated at this point to capture those dislocations in the market?

Jason, it's John. I'll start with distribution costs and then turn it over to Rick to talk about kind of those regional cracks as you noted. So again, just to take a step back, right, this is our cost that we look at to kind of get our product to markets across all our refinery systems, again, a little bit of a different convention for us. Certainly, like you said, the number is a little bit higher than our guidance, but that really reflects commercial decisions Rick's team is making every day about products, which markets we go to and where we see the most margin opportunities. Some of those might have higher distribution costs, if you will, but we're going after relatively higher margin.

And the only other thing I would offer, again, that can move quarter-to-quarter based on those decisions. But if you look at it on a barrel sold basis versus our normal throughput basis, you look year-to-date, this year, year-to-date last year, it's pretty much the same number, but it can move quarter-to-quarter, but it reflects those commercial decisions Rick and his team are making.

And I'll turn it over to Rick to talk about kind of your regional question.

Yes, Jason, the regional question is a dynamic one because as we look, and I'll just talk about California for a moment. So, in California, especially in 3Q, you had the dynamic between the cracks between San Fran and LAR. Now we would -- we will and can take some of our Anacortes product and take it and back it into San Francisco and backfill the San Francisco market. But the swings that we have seen between the PNW and the California market, which I always break into two, San Francisco and LAR are quite significant. So in any one given quarter, there are times when one region is outclipping the other, but it's a tough call to make consistently throughout the quarter. And in a lot of cases, in 3Q, I would tell you the PNW actually trailed parts of California for a negative for our margin pull-through.

So it's quite dynamic, and we do all we can to move around and optimize it to take advantage of the highest margin areas within that region.

Our next question comes from Matthew Blair with TPH.

Could you give your thoughts on the RD market going forward? Given these losses, are you considering shutting your California RD asset? And do you have any explanation on why D4 RINs aren't at stronger levels now on our supply/demand, it looks like D4 is in shortage this year. We see a lot of companies operating at pretty low utilization, implementing economic run cuts and yet the D4 market still seems pretty depressed. So if you have any thoughts on that, that would be great.

Yes. So maybe just a couple of comments, and then I'll pass it to John to give you some of the specifics to your questions with respect to our renewable diesel segment.

As you know, in the very beginning of the year, one of the things that we said was in terms of operation, the only investment that we were considering was anything to ensure reliability, and that really hasn't changed. As you know, there's been a tremendous amount of backdrop as we think about the regulatory environment that continues to ebb and flow, still decisions that are pending with respect to how resolution will happen, et cetera. So it is a place where we are ensuring that our operations are running as efficiently as possible, but there's certainly some headwinds when we look at margins, feedstock, et cetera.

And as we went out to work on this project, we felt like we had some very favorable, I'll call it, metrics with respect to this project when we look at its location, we look at the center of demand, logistics, et cetera. Feedstock was a place where we felt strongly that we wanted to further optimize as well. So very small part of the portfolio. We're ensuring that we can run it as efficiently as possible, but you don't really see us putting capital to work in this space.

But let me pass it to John, and he can answer some of the specifics for you.

Matthew, it's John. Maybe just building off some of Maryann's comments, and I'm sure you've heard similar comments from some of our peers. On some of those regulatory items, there's probably more unknowns than knowns right now. Lots of things need to play out there. We're looking at that D4 RIN just like you are as well as maybe LCFS credits, and you could kind of go down the stack there. Certainly seeing margins improve some in the fourth quarter, but it really feels like we got to get into 2026 before we're going to get some clarity there.

As Maryann noted, we're going to work on driving the most value out of the assets we have given where we are in Martinez and what we can do there. So we'll keep focused on that. But I think there's just a lot of uncertainty. You're seeing other players come out of the market, and we'll just have to keep an eye on it as we go into 2026.

Great. And then maybe just to expand the conversation on crude dips. You talked about favorable dynamics on WCS and ASCI. We're also seeing wider moves in areas like ANS, Bakken and Syncrude so far in the fourth quarter. So I guess, fair to say that this would be an additional tailwind on capture this quarter. And do you have any sort of -- any other insights on what's pushing these other grades wider as well?

Yes. Matthew, it's Rick. So I'll start with ANS. That is the one that is the most logical to explain because when you look at the TMX barrels that have entered the market there and the closures, the demand for ANS has gone down significantly. So the differential has had to widen out to compete. And then we're seeing stronger than what we would have expected Bakken production and Syncrude production. So quite nice tailwinds, both from a production perspective in those two fields that is driving those differentials wider for us.

And Matthew, it's John. Just to add on one more thing kind of when you think about for modeling purposes, the way we do our blended crack numbers and our market metrics, we include those dips in those numbers. So when we do capture, it's above and beyond what's going on here. It would certainly drive margin, but it's not going to be a capture tailwind. I just -- we're a little different than what some of our peers do around their indicators. So I just wanted to remind you.

Our next question comes from Phillip Jungwirth with BMO.

The Gulf Coast and Mid-Con are expecting to run a higher percentage of sweet crude in the fourth quarter than they have in prior quarters. Just given what should be increased availability of crude, I was hoping you could talk through the planned crude slate and also just what you're seeing in the market as far as sourcing more advantaged barrels.

Yes. Phillip, it's Rick. So from a sweet perspective, GBR really sits right at the mouth of incredible amounts of sweet discounted crude. So we're highly advantaged to run it at GBR. And then at Garyville specifically, we will toggle between sweet and sour depending on the price and the economics. I will tell you, we're starting to see a few more looks at what we see as Iraqi barrels that are becoming more promising and getting a slight hint that we might lean into those a little bit more so. But generally, the increased sweet and the amount of sweet you're seeing is just because of where we're logistically set up and the toolkit for Garyville is really well positioned to run a lot of sweet barrels.

In addition to that, we do run, I think, as you know, a lot of Canadian heavy barrels that we feed into the RHU that are highly discounted as well, and we see that discount becoming slightly larger in the coming quarter. I hope that helps you, Phillip.

Yes. No, that's helpful. And then when you look at the need for waterborne refined product imports into California, can you touch on available dock space just to bring volumes in? I know you're utilizing some of this through your other refineries. But from an industry's perspective, how much of dock space you view is utilized? And is that at all a bottleneck to future supply as additional refineries close?

Phillip, you've identified something that certainly is a deterrent and headwind for waterborne imports. Even prior to imports needing to go up significantly because of the recent announced closures and one to come. the docks have always been the wildcard on the West Coast. And the reason is you have fog, you have delays, you have unexpected waterborne incidents that are far less ratable than having a refinery in the state.

So when we look at not only the docks, but when we look at weather concerns, when we look at high freight rates today, which is also causing the arb to be where it's at and cracks be where it's at, we see all of these as significant tailwinds for us.

Our final question comes from Ryan Todd with Piper Sandler.

Maybe a couple of follow-ups on earlier ones. On the renewable diesel side, the -- you mentioned a lot of the uncertainty that -- which there's still a ton of uncertainty out there regarding various policies, one of which is the treatment of foreign feedstocks. What sort of impact could this have on your access to or approach to feedstock at Martinez if you continue to see penalties there?

And maybe on the RD side as well, are you at a ratable run rate at this point in terms of kind of monetization or booking of PTC credits? Or is there still movement one way or the other there?

Yes, Ryan, thanks for the question. So really on foreign feedstock, that is still being debated. But as we know right now, there is a potential for a 50% limitation on that from foreign feedstocks. As I mentioned earlier, one of the things that we were really focused on was ensuring that we could optimize our feedstock when we ran our initial economics on the Martinez project, we were looking at largely a soybean-only feedstock. And then as we did our transaction with Neste and had access to other foreign feedstocks as well as other local advantaged feedstocks, we saw that as a benefit and actually improved the economics of the project. Today, I think we can largely source and have benefit with our partner, Neste and our access. So we don't see this as necessarily being significantly limiting to us.

I think the question longer term is what does the administration do and whether or not that 50% stays in place and would have obviously broader market impact or whether or not they are able to delay the implementation of that as they are resolving the RVO issue and also other elements associated with go forward as well as the historical review of that. So, for us, less of an impact, but it will be obviously a market-driven decision as they decide how they're going to implement that 50% foreign feedstock.

And then Ryan, it's John. Just to add on to that, as Maryann said, we've got really strong logistics, not just water for international, but actually rail offload for domestic coming in at Martinez. That puts us in a good spot to pivot wherever the market goes.

And then on your -- I figured we couldn't get off the call without a 45Z question. Again, as a reminder, we made some changes to our structures there back in April, and that really got us a big chunk of those credits. There's some little pieces here and there we're still pursuing. There's a piece back in Q1 we haven't given up on kind of getting, but I think you're largely seeing the production tax credit in the numbers right now.

Great. Maybe one CapEx or a question overall on the overall business. I appreciate the provided details in the release on many of the projects that you have going on, either on the refining or the midstream side. Can you talk about some of the macro opportunity set that has you leaning in a little more here in the near term into some of the project spend, particularly on the midstream side? And then should we see that trend back towards a more normal level as we look out a couple of years?

Yes, Ryan, sure. Thank you. So when we look at the midstream, our growth opportunities are focused in the Permian, as you see, really trying to build out our nat gas and our NGL value chain. So most recently, we put some capital to work to acquire a sour gas treating set of assets. And the reason why we think that's so important is we believe that this is some of the best rock in the Permian in this Delaware Basin, Lea County. The challenge with that is producers move into that region is it is a sour gas, high H2S CO2 and requires a certain level of treatment to blend it down to be able to further process. But in this area, this is very close, adjacent and complementary to the assets that we are currently operating and fit very nicely with the producer customers that we are currently supporting.

That EBITDA will improve in 2026 as the second follow-on amine treating plant comes online, bringing our EBITDA to its projected run rate by the end of 2026. So contributing in 2026, frankly, and beyond to incremental EBITDA. Additionally, we talked about some other projects. First of all, BANGL we took the remaining ownership, an incremental 55%. And so that ownership will be another EBITDA growth into 2026.

Similarly, the full year benefit of our Preakness II plant. And then Secretariat, another processing plant in the Permian, bringing our processing capability to 1.4 will come online at the end of this year and therefore, be incremental. And then if we look at even longer term, we talked about our fractionation and LPG export dock.

So two fracs coming online, one each in 2028 and 2029 along with our export dock, and that will add incremental EBITDA in both of those years. As we look at nat gas and NGL demand, frankly, you look at the growth of NGL, you look at gas to oil ratios, we see demand, LPG pool, the strength of the producer customers in that region really as all very supportive long term to that growth as well.

And then that growth allows us the ability to increase the MPLX distribution, bringing back at least this year about $2.8 billion, which supports MPC's ability to lead in capital return. Again, as we bring that back, our goal, as we've always said, is to lead in the return of capital through all parts of this cycle, and that is extremely supportive of -- we think extremely supportive of our ability to do so.

Let me pause there and see if I've answered your question.

All right. With that, thank you for your interest in MPC. Should you have more questions or want clarifications on topics discussed this morning, please contact us. Our team will be available to take your calls. Thank you for joining us this morning.

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.