Marathon Petroleum Corp (MPC) — Q1 2019 Earnings Call Transcript

Welcome to Marathon Petroleum Corp.'s First Quarter 2019 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor Center tab. On the call today are Gary Heminger, Chairman and CEO; Greg Goff, Executive Vice Chairman; Tim Griffith, CFO; Don Templin, President of Refining, Marketing and Supply; Mike Hennigan, President of MPLX; as well as other members of the executive team. We invite you to read the safe harbor statements on Slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. Slide 2 also contains additional information related to the proposed MPLX transaction. Investors and security holders are encouraged to read the consent statement and registration statement to be filed with the SEC as well as other relevant documents filed with the SEC. Now I will turn the call over to Gary Heminger for some opening remarks and highlights on Slide 3.

Thanks, Kristina. Good morning, and thank you for joining our call. Our integrated business generated approximately $1.5 billion of adjusted EBITDA during the first quarter, as the stability of our Midstream and Retail segments helped to offset challenging refining market conditions. The diversification of our business model and flexibility of our refining system enabled us to generate through-cycle cash flow. Despite this being a weaker quarter, we generated nearly $1.2 billion of operating cash flow before working capital. In the quarter, we returned over $1.2 billion of capital to MPC shareholders, including $885 million in share repurchases. The beginning of the year was difficult for the entire U.S. refining industry. Inventory levels were high as the industry came off a strong fourth quarter, and a seasonal lack of demand, as well as several weather disruptions, led to challenging gasoline margins. At the same time, medium and heavy sour crude differentials compressed substantially, given geopolitical and policy changes. As the quarter progressed, however, supply reductions helped rebalance the market, and gasoline and distillate inventories are now below their 5-year averages. For April, our blended crack spread of $18.80 was more than double the first quarter average. With sweet/sour crude spreads inside $3 per barrel, we have moved towards max sweet mode but also continue to see the incentives to keep our coverage full. With our Midstream business, we continue to see tremendous opportunities. Earlier this morning, MPLX announced it had entered into a definitive merger agreement to acquire ANDX. Details on the transaction were provided this morning, and we encourage you to read the deal announcement press release for more information. Looking forward, the U.S. has become the largest producer of crude oil in the world, and natural gas and NGL volumes continue to grow as well. With this increased production, we believe that our midstream business is well positioned to participate in the infrastructure build-out opportunities. Mike Hennigan will speak to some of the key project updates later in the call. On the Retail side, strong same-store merchandise sales and legacy Speedway markets have continued into April. We expect this trend to continue as we move into the prime driving season. As we look to the remainder of 2019, our positive outlook is also supported by solid economic growth and expected contributions from the 700 store conversions. And in fact, we finished our 300th conversion yesterday. Lastly, we see opportunities to drive value creation using our technology platform. Inside the store, we continue to pursue opportunities to enhance customer interaction and drive sales. We expect positive dynamics across all three of our business segments to support growing cash flows throughout the remainder of 2019. One of our core objectives is to grow profitably and create competitive advantages through strategic and disciplined investments. On that front, we continuously assess our project portfolio to ensure our investments generate strong project returns. Based on our internal forecasts, the Garyville Coker 3 project no longer comfortably exceeds the 20% hurdle rate that we typically use for our refining projects. Thus, we have decided to stop the Garyville Coker 3 project after completing definition engineering and remove it from our capital spending plans.

Thank you, Gary. We have made notable progress integrating the two companies over the past 7 months. Multiple senior executives and other key leaders have moved to our Findlay headquarters. In April, we launched a complete redesign of our corporate website. Much of the back-office work that prompted this relaunch was driven by our aligned direction work. The focus of this work was on cultural integration and developing the framework for the company's vision, strategy, and core values. Additionally, we have launched an initiative to begin the process of integrating our technology platforms. This initiative will enable us to improve efficiencies and deploy a world-class ERP system. Related to our commercial and competitive strategy, we are also very pleased with the continued success we've had growing our integrated business into new key markets. In Western Mexico, we are currently supplying 192 sites, of which 142 are ARCO-branded. We now have the ARCO brand in five states: Baja, California; Sonora; Sinaloa; Baja California Sur; and Chihuahua. Recently, we held grand opening activities at our first ARCO site in Ciudad Juárez. The ARCO-branded sites in this area will be supplied directly from our El Paso refinery. In support of this ARCO growth, we continue to pursue additional Mexico supply capabilities through the development of our Rosarito light products terminal in Northern Baja and lease capacity being built in Sinaloa. On the other side, we announced our agreement to acquire a large light product and Asphalt thermal and 33 NOCO Express retail stores in Buffalo, New York from NOCO Incorporated in support of our Midwest product placement strategy. This builds upon prior investments, including Speedway's acquisition of 78 Express Mart locations in Western New York. This extension of our integrated business model is positioned to be supplied from the Midwest or the New York Harbor via multiple supply routes, including pipeline, truck, rail, or marine. We continue to progress additional commercial development projects related to the development of our renewables portfolio, continuing to grow the reach of our integrated business model, and optimizing our existing portfolio of integrated assets to create additional value for our stakeholders. Now let me turn the call over to Tim, who will provide a walk-through of our financial results.

Thanks, Greg. Slide 4 provides a summary of our first quarter financial highlights. We reported a $7 million loss attributable to MPC in the quarter. Income from operations was $669 million. Adjusted EBITDA was nearly $1.5 billion for the quarter, which includes $186 million of turnaround costs incurred during the quarter. Operating cash flow before working capital was approximately $1.2 billion. Capital spending for the quarter was just over $1.3 billion. Share repurchases and dividends totaled over $1.2 billion in the quarter, including $885 million in share repurchases and $354 million in dividends, reflecting the 15% increase in MPC dividends announced in January. We ended the quarter with 667 million shares outstanding and consolidated leverage of 39% of book capitalization or 1.4x adjusted EBITDA on a parent-only basis. To allow additional time for questions, we've streamlined the information on the call for this quarter. The more detailed segment earnings walks have been provided in the appendix of the presentation. The new format on Slide 5 captures our segment results and the walk of income by segment from the first quarter of 2018. Refining and marketing segment income decreased $201 million versus the same quarter last year as the addition of Andeavor's refining and marketing system was offset by narrow crude discounts across our medium and heavy sour categories. Additionally, high industry gasoline inventories following the fourth quarter's strong production environment resulted in weaker-than-expected gasoline margins and price realizations. Quarterly segment results were also impacted by one extra month of incremental cost from the February 1 drop-down transaction. Refinery capacity utilization was 95%, resulting in total throughputs of 3.1 million barrels per day from the first quarter, which was 1.2 million barrels per day higher than the first quarter last year due to the addition of the legacy Andeavor refineries. During the quarter, we completed planned maintenance work at our Robinson refinery and the Wilmington portion of the Los Angeles refinery. Looking at our midstream segment, income increased $341 million versus the first quarter of 2018. The increase was due to contributions of $220 million from Andeavor Logistics and a $121 million increase in results driven primarily by growth across MPLX's businesses. Moving to our retail segment, income increased $75 million versus the same quarter last year, primarily due to the addition of Andeavor's retail and direct dealer operations, as well as a $24 million increase in MPC legacy Speedway segment earnings. Retail fuel margins averaged $0.1715 per gallon in the first quarter of 2019. Same-store merchandise sales increased by 5.4% year-over-year, and same-store gasoline sales volumes decreased by 3.2% year-over-year. Items not allocated to segments had a favorable impact of $14 million versus last year, primarily due to a $207 million noncash gain related to the exchange of MPC's undivided joint interest in the Capline system for an equity ownership in the newly formed joint venture. This benefit was partially offset by $91 million of transactions-related costs primarily associated with adopting MPC's vacation accrual policies across the legacy Andeavor employee base, as well as higher corporate costs and expenses for the combined company. Interest and financing costs were $123 million higher during the first quarter of this year primarily due to higher combined debt balances as a result of the combination. Income tax increased to $82 million due to higher income from operations, as well as a $36 million prior period state tax adjustment. We expect our effective income tax rate to be 2 to 3 percentage points lower than the statutory rate over the long term. Noncontrolling interest increased $68 million, primarily driven by higher earnings in MPLX and the addition of Andeavor Logistics and the allocation of those earnings to the public unitholders of both partnerships. Slide 6 presents the elements of changes in our consolidated cash position for the first quarter. Cash at the end of the quarter was just under $900 million. Core operating cash flow before change to working capital was a $1.2 billion source of cash in the quarter. Working capital was a $470 million source of cash in the quarter largely due to the effects of rising commodity prices and the shorter terms on refined products compared to the longer terms on the purchase of crude oil. Return of capital to MPC shareholders by way of share repurchase and dividends totaled over $1.2 billion, with $885 million worth of shares acquired during the quarter. Distributions to public unitholders of MPLX and ANDX were $230 million in the quarter. At quarter-end, we had approximately $28 billion of total consolidated debt, including $13.8 billion of debt at MPLX and $5.1 billion at ANDX. With that, let me turn the call over to Don.

Thanks, Tim. As Greg mentioned, we are pleased with the significant progress we have made integrating our assets and operations. One example is the continued success we've had delivering synergies. As seen on Slide 7, we realized $133 million of synergies in the first quarter, with $89 million in refining and marketing, $29 million in corporate, and $15 million in retail. We continue to have confidence in our ability to deliver on the significant opportunity set available to us, as most of these realized synergies are recurring or run-rate synergies. Within the refining business, we realized approximately $55 million of synergies during the quarter. Examples include utilizing turnaround best practices to lower costs and accelerate the completion date for the Los Angeles, Wilmington turnaround; catalyst reformulation changes; and optimizing Tier 3 gasoline compliance. Crude oil supply and logistics delivered approximately $30 million of realized synergies during the quarter. The majority of these synergies were driven by our ability to again leverage our scale to optimize access to Canadian crudes in our Mid-Continent region and foreign spot crude oil purchases as a combined business. The $29 million in corporate synergies represents continued contract renegotiations made possible by the combination. Moving on to Slide 8. As we discussed at our 2018 Investor Day in December, we listened to investor feedback and are now providing R&M margin on a regional basis. An important point to note is that because of differences in our margin calculation method and different composition of our regions for the combined company, our reported margins are not directly comparable to historical margins reported by Andeavor. Some of the reasons include cost allocation between cost of sales and SG&A as well as expenses that are not allocated to any specific region such as fees paid to MPLX and ANDX. For the first quarter, our Gulf Coast refining margin was $7.82 per barrel. Our Mid-Con refining margin was $15.26 per barrel. And our West Coast refining margin was $10.94 per barrel. Slide 9 provides updated outlook information on key operating metrics for MPC for the second quarter of 2019. As we look through 2019, we continue to expect our turnaround slate to be later than 2018. With that said, in the second quarter, we do have plant maintenance work at our Garyville, Martinez and Los Angeles refineries. The most significant of these activities is at Los Angeles, where we are nearly complete with the 50-day outage on the FCC and alkylation units. Inclusive of these events, we expect total throughput volumes of approximately 2.9 million barrels per day. Our average total direct operating cost is projected to be $8.70 per barrel, and our corporate and other unallocated items are projected to be $200 million for the quarter. With that, let me turn the call over to Mike Hennigan to briefly discuss our Midstream business and projects.

Thanks. We continue to see tremendous opportunities across our midstream portfolio. We have recently progressed on several key midstream projects across our companies. First, today, MPLX announced its participation in the Wink-to-Webster crude pipeline. Although our prior project had sufficient commitments, we made the decision to join this project to enhance our capital efficiency and achieve a much higher return. Second, MPLX completed a binding open season for a pipeline, which is partially owned by MPC, where we see significant shipper interest for both light and heavy crude, providing the opportunity to move forward with plans to start light oil deliveries in September 2020 and heavy oil deliveries in 2022. This project will allow Cushing supply to reach the Eastern Gulf and open the ability to export crude via the Louisiana Offshore Oil Port, commonly referred to as LOOP. Lastly, as Gary mentioned early this morning, MPLX announced a recent agreement to acquire ANDX. We are incredibly excited about the announcement. This deepens our presence in the Permian, has natural synergies and integration with MPC's refining business, and it creates tremendous opportunity to expand the logistics footprint focused on regions of the U.S. Now I'll turn it back to Kristina.

Thanks, Mike. We will now open the call to questions.

First question for Gary. Just looking at your guidance for the second quarter and thinking back to your guidance back in December for the full year EBITDA, how are you thinking about that today in terms of whether the macro environment that we're seeing right now, with 1Q in the rearview, would still be supportive of your full year EBITDA guidance?

Well, Phil, as you know, the first quarter ended up dramatically different for the entire industry, not just for us. And particularly, West Coast margins were weaker than we had anticipated. But the first quarter is in the rearview mirror, and as I stated in my comments, we're bullish on the balance of the year. As I stated, our margin here quarter-to-date is $18.80, which is about twice what it was in the first quarter. And more importantly, following what I stated in the fourth quarter call, we had predicted that inventories were going to start to fall by about 6 million to 7 million barrels per day, and they did. We see right now inventories are at the low end. Gasoline is at the low end. If you look by region, really PADD III is the only area that inventories are a little bit on the high side. That's also the big export region of the country, and those were also got back in line quite quickly. We remain very bullish on where inventories are across the board, PADD V, PADD II, even PADD I inventories. I look at it and see it as a very light turnaround year for us. Don just mentioned that we made tremendous progress and we're going to complete the LA turnaround ahead of schedule and below budget. This is one of the key synergies that Greg and I spoke about when we discussed this combination. So I would say that with the first quarter being in the rearview mirror, we remain very bullish on the balance of the year.

Okay. Great. And then a second question, you made some comments in your prepared remarks about the rationale for canceling the Garyville Coker project. I had two questions about that. One is whether we should read into that that perhaps you're less bullish on light-heavy spreads, specifically around IMO 2020? Or is it more just a longer-term comment since the project doesn't come online until 2021? And then secondarily, what does this mean for capital spending at the parent company level? I think you said $2.8 billion annually in '19 and '20. Should we see that come down ratably each year with canceling that project? Or are there other offsets?

No. As you recall, Phil, when we talked about this project to begin with, we stated it was not an IMO 2020 project. This was subsequent to the initiation and implementation of IMO 2020. So this has nothing to do with our view on that. We're very positive about IMO 2020. And you've noticed all of the discussions in D.C. and in and around the international markets. I specifically went over to Singapore and some Asian markets to really understand the real situation and came away very positive that even those markets are going to be in compliance with IMO 2020 going forward. So this project was clearly about the longer-term outlook on light-heavy spreads today. Let me turn over to Don to provide more color on that.

Yes, Phil. I mean, I think Gary explained it right. We're very bullish on IMO. So our view hasn't changed there. This was really a longer-term view around what was happening with the light-heavy differentials. And regarding your question about capital spending, we indicated at Investor Day that this was very much back-ended in terms of the spending. 2019 was primarily an engineering year. We had about $70 million or so in the budget in 2019 related to this project. A significant proportion of this spend was actually in 2021. I think as we sit here, we're very comfortable with the guidance that we gave for 2019 and do not expect it to exceed that. We are very comfortable being flat into 2020. As we approach the end of the year, we'll provide more color around our 2020 budget, but I don't anticipate dramatic changes in 2019.

Phil, I'll just add one more thing. We've talked several times about capital discipline. This illustrates how disciplined we are. Ray came to us and said as we looked at our internal forecasts, the spreads weren't there. It was still a good return project, but we have better projects down the road. So we are very disciplined and decided that now's not the time.

And let me say thanks for the additional disclosure at the regional level. I think that'll be very helpful going forward. Just jumping in here with two main questions. One, if you could help us to understand, on the synergy progress, how that compared to sort of your expectations, not just in the $133 million relative to the $600 million-plus run rate by year-end, but also kind of by segment and how that's progressing? And then my other question, dovetailing with that, as you generate more cash flows out of the synergies, what should be a better overall outlook for the remainder of the year, how the share repurchase program should be thought of here? The pace we saw in Q1, maybe some deceleration to match cash flows from here. Just how you envision that moving forward?

Yes, Roger. I want to point out that the $133 million this quarter adds to the $165 million or $166 million in synergies we achieved during the first three months. So, if you combine these figures, it's approximately $300 million in total. It's important to understand that this isn't just about the $133 million alone; we need to consider our previous accomplishments as well. Don will provide more details on this, and then Tim will discuss the share repurchase.

Yes, Roger, it's fair to say that we are well ahead of our plan in each of the segments regarding the realization of synergies. So you'll recall that our original guidance was $480 million for the year and up to $600 million by year-end. That implies $40 million a month at the $480 million level and higher than that at the $600 million level. We're already above $40 million a month averaging for the first quarter, and that's across all of the different business segments. I feel very comfortable with our ability to show that ramp up in the plan, and you definitely see that in areas like Retail, where we're doing the conversions and realizing those synergies. The other thing that happens is as we collect synergies, we see more months of capturing those synergies. So if we capture a synergy in March, we would have only had one month of that synergy in the first quarter, but we're going to have three months of that synergy in the second quarter. So we feel very good about our positioning.

Yes, Roger. Thanks for the question. As we laid out at Investor Day, our commitment around the return of capital is going to be 50% of discretionary consolidated free cash flow, and we're going to remain steadfast to that commitment. We had $885 million in the first quarter, perhaps had a little concentration to it, but we'll assess it throughout the year. We've built this metric as a direct tie to operating cash flow less the maintenance capital we need to support the business. So from that point, I want to emphasize that we're viewing return on capital on par with capital by that structure. But we remain steadfast. We’ll see how the rest of the year plays out to the extent that synergies yield additional cash flows through operating cash flow. It's part of that formulation. We will remain committed to that for the long term and will measure it over the calendar period.

And another thing, Ray, I want you to talk about Ray just updated us this week on the turnaround that we've just completed at LA and some of the catalyst formulations that you will see benefiting these synergies in the subsequent months. So please talk about what you're seeing there.

Sure, Gary. At LA, as you alluded to earlier, we're completing a significant turnaround on the cat and alkylation unit in Carson. Right now, one of the synergies we have close to being realized is from the turnaround management side. We expect to finish that turnaround nearly a week ahead of schedule and under budget. However, I believe the real value comes once we start the unit up. We'll transition to a different catalyst formulation in the cat cracker. This is a true synergy with how we operate our Garyville refinery as we're deploying a formulation that mirrors Garyville's output and will result in a substantial yield benefit once we start that unit up. We are transferring about 750 tons of spent catalyst from Garyville so that when we start that unit up in a week or two, we'll gain immediate benefits.

I wanted to pick up on that a little bit, Ray, on the LA turnaround. Given that PADD V gasoline prices are obviously very strong, how should we think about capturing that production once you come out of maintenance? And looking more broadly, as we enter positions to transfer gasoline nationwide versus where we started the year, would you say that the mentality has changed dramatically? Looking forward to IMO 2020, where do you see potential benefits in the global gasoline market, and are you more bullish now than a few months ago?

Prashant, this is Gary. I would say we are definitely more bullish on the global gasoline market than we were three months ago. Let’s backtrack for a moment to make sure everybody understands what happened over the last six months. The fourth quarter was very strong due to wide crude differentials and a rapid decline in the crude market, which led to wide crack spreads as well as strong gasoline margins in Retail. All of these factors led refineries to run to keep up. Then we came to the first quarter and there was ample inventory. That inventory has come back in check, both here in the U.S. and globally. One reason I went to Asia was to understand how those markets were performing. The West refining industry is positioned well for both gasoline and distillate expectations. We’ve been running in max distillate mode for most of the first quarter, but I believe there is a good chance we will run in max gasoline mode during the second and third quarters. Ray can provide further detail by region on that. While the first quarter saw PADD V margins challenged, they have significantly improved in February and March and have remained strong in April and early May. PADD II is also performing strongly. As I mentioned, PADD III is the major export market, and those inventories are getting back in line quickly.

Sure. And it varies as to which region we're in and where we are with our streams. On the West Coast, back in March, we saw an incentive to prioritize gasoline, and we did that. In the Mid-Con area in early April, we did the same. However, the Gulf Coast is slightly different. On the Gulf Coast, we've seen stronger diesel prices relative to gasoline, which supports remaining in diesel mode. Additionally, it’s not just about diesel and gasoline prices; it involves intermediates also. The weakness of the NAFTA market has compelled us to stay in diesel mode on the Gulf Coast. What I emphasize is that this is not a two-variable equation; we’re continuously observing prices and running our LP models to assess our cut points for gasoline and diesel. We're witnessing changes in California; while gasoline remains strong, diesel is showing strength compared to gasoline, and we will pivot again if necessary. We're not set in stone; we’re going to adapt based on market conditions. One last point regarding California and the LA-Carson cat cracker: that's a large cat cracker, processing about 100,000 barrels a day. Our catalyst reformulation is designed to maximize the LARIC project implemented by Andeavor, which closed a cat cracker but retained two alkylation units. Our catalyst formulation will ensure we utilize those two alkylation units to produce a premium gasoline blend.

I appreciate all the details, and one more thing: Circling back on the Garyville Coker 3. Thank you for explaining the thought process regarding the change in strategy. In the longer term, are you anticipating a normalization in light-heavy differentials, or do you think the current tightness could persist possibly into 2020?

Yes, Prashant, this is a long-term project. If we thought this was just a one-year anomaly, we would have continued with the project. Our concerns about the geopolitical shifts and issues in Venezuela, a major heavy crude supplier, led us to believe that the Middle Eastern producers will likely swing back into this market. This indicates that we expect these differentials to remain tighter for an extended period. However, we will complete the conceptual engineering; it's done. If we determine the market dynamics improve, we can swiftly reinstate the project. But it’s about timing, capital allocation, and being disciplined in our approach.

My first question pertains to earnings consistency, Gary. In reviewing the past five years, you've beaten consensus around 50% of the time while the S&P large-cap average is closer to 75%. What steps can the company take to achieve a more consistent earnings performance?

Neil, I'm in agreement with you. I wish we were perfect in providing forecasts based on a simple model. However, we operate a dynamic model, and we've entered a period with significant transactions just behind us. I commend the team for their achievements in synergy and integration thus far. We've taken measures to provide market guidance, including detailed regional disclosures. With time, we will improve the predictive capabilities of our models.

Neil, we are committed to providing information that allows constructive modeling. More detailed data regarding our turnarounds and their current impact will enable better forecasting.

The stock is trading at a discount on a sum-of-the-parts basis. However, the first quarter’s performance of MLP aligns with expectations. Return of capital has been strong in retail, maintaining good same-store merchandise sales. We are actively repurchasing shares at this low valuation level and anticipate bolstering this activity throughout the remainder of the year as we grow. I’d prefer to invest in a company with a diversified portfolio like ours, provided we are achieving good performance from all segments. I think Greg can add insights on that.

What I want to add is that we are only seven months into integrating this significant shift from how we traditionally operated. Our goal is to create competitive advantages through this integrated business strategy, which we firmly believe will enhance earnings and cash flows. The market needs to recognize that we are in the early phases of tracking our performance, and we intend to build value over time.

Reflecting on the past, you transformed the Galveston Bay operation from a high-cost asset to a competitive one. In contrast, the West Coast’s OpEx guidance seems elevated right now. When can we expect improvements in operating expenses there?

You're right, Manav. If you refer to our Analyst Day slides, you’ll see the Solomon Index comparisons between Marathon and Andeavor refineries. We aim to improve our ranking substantially. We're very focused on cost management. Our new plant manager from Catlettsburg has a strong track record, and we along with the teams at LA are focusing significantly on reducing operating expenses. We anticipate that our recent contract negotiations will yield significant cost reductions across our West Coast operations.

Our guidance regarding distributions from Midstream projects remained robust. While the recent acquisition may alter some figures, we are not experiencing a decline in operating cash flow due to MPLX’s contributions.

Gary, the MPLX deal addresses complexity, but you seem dissatisfied with the MLP's current yield. What actions can you pursue to enhance the market perception of MPLX as valued within the sector?

You're right; this overhang caused by having two MLPs has been challenging for us. We aim to improve how the market views our structure over time, as our project backlogs are leading to robust growth in third-party revenue, especially after this integration. I encourage patience as we allow performance to dictate renewed market interest.

As a follow-up, could you clarify whether you are achieving synergies faster than anticipated or if you're finding additional opportunities for efficiencies?

The answer is yes to both aspects. We are finding new opportunities and accelerating our realization of existing synergies. We are very pleased with the progress we’ve made in achieving those goals.

While the entire refining industry faced challenges this past quarter, our synergy announcements were overshadowed by market conditions. We will continue to compute alongside our competitors and offer operational excellence through this integration.

Are there opportunities to divest underperforming or noncore assets to enhance your overall multiple?

We are currently reviewing specific assets across Midstream for potential divestment if they make more sense for another party. While we are content with our refining side, we are looking at areas of potential value transformation in our Retail segment.

The increase in other OpEx in refining compared to Q4 is primarily from cumulative drop activity and some reclassified transportation costs from Andeavor, which will set a new guideline for continued future sustainability in that area.

On crude supply, how do you see the increasing amounts of higher gravity materials impacting operations?

At a high level, we're running nearly 60% sweet crude, which is a notable increase from the previous year. We are maximizing light sweet inputs wherever possible; the differentials make this advantageous across our refinery operations.

Thank you, Operator. Thank you for your interest in the Marathon Petroleum Corp. Should you have additional questions or would you like clarification on topics discussed this morning, we will be available to take your calls. Thank you for joining us.