Marathon Petroleum Corp (MPC) — Q2 2019 Earnings Call Transcript

Sounds great. Welcome to Marathon Petroleum's second quarter 2019 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investors tab. On the call today are Gary Heminger, Chairman and CEO; Greg Goff, Executive Vice Chairman; Don Templin, CFO; 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 results to differ are included there as well as in our filings with the SEC. Now I will turn the call over to Gary Heminger for some opening remarks and highlights on slide 3.

Thanks, Kristina, and good morning and thank you for joining our call. Earlier today, we reported adjusted net income of $1.1 billion or $1.73 per diluted share. This quarter, we executed across all aspects of our integrated business and delivered solid results, generating $2.8 billion of cash from operations. Our impressive cash generation allowed us to return roughly $850 million to our shareholders this quarter, while also funding many key strategic investments, which we expect will continue to enhance our long-term earnings profile. Our team's execution this quarter led to strong synergy capture. Combined with our first-quarter results, we have realized $403 million of synergies year-to-date. Our progress gives us great confidence in achieving our target of up to $600 million of annual gross run-rate synergies by year-end 2019 and $1.4 billion by the end of 2021. Don will provide a detailed update around synergy capture later on the call. Our retail business had an exceptional quarter and demonstrated its ability to capture value. Strong results this quarter reflect the tremendous focus by our team and management of the day-to-day business in conjunction with the integration of the new stores. We have converted over 400 stores since the combination, putting us well on track to achieve our goal of 700 stores by the end of this year. In Midstream, we simplified our structure into one public company to high-grade commercial opportunities and progressed an impressive slate of high-return projects that are expected to enhance integration across our system. Mike will speak to our execution around new projects, as well as provide an update on our overall midstream strategy shortly.

Thanks, Gary. Turning to slide 4. We are pleased to have successfully combined MPLX and Andeavor Logistics into a single entity, creating a leading large-scale diversified midstream company anchored by fee-based cash flows. As is often overlooked, our business mix has evolved to a more stable, long-dated cash flow profile. Logistics and storage makes up approximately 60% of the cash flows for MPLX, and our incremental capital programs predominantly focus on building out our integrated crude oil and natural gas logistics systems, particularly in the Permian. In addition, we continue to move our capital investments toward the L&S side of the business. At MPLX in 2018, 85% of our capital was directed to the G&P business; in 2019, we moved that ratio to about 50/50, and our expectation in 2020 is to spend the majority of our capital in the L&S business. When we think about building out our logistics systems, one of our core objectives is to invest in projects that enhance MPC's integrated value. During the quarter, three examples of projects that advance this integrated strategy are Whistler, Capline, and Wink-to-Webster pipelines. On Whistler, MPLX announced a final investment decision on this natural gas pipeline, securing sufficient firm transportation agreements with shippers. This joint venture project is being designed to transport approximately 2 billion cubic feet per day of natural gas from the Permian Basin to the Agua Dulce area in South Texas. We expect the Whistler system to eventually provide low-cost natural gas to our Galveston Bay refinery. Natural gas is a key input at our refineries, and this project creates a compelling industry solution, as well as lowers the overall cost of our system where we are currently utilizing third-party infrastructure.

Thanks Mike. Slide 5 provides a summary of our second quarter financial highlights. Adjusted EBITDA, which excludes turnaround costs was $3.2 billion for the quarter. Operating cash flow before working capital was approximately $2.8 billion. We returned $852 million to shareholders through $352 million of dividends and $500 million of share repurchases. We ended the quarter with 660 million shares outstanding. And for the year, we returned over $2 billion to shareholders.

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

Good morning, everybody, and congratulations on solid results.

Thank you, Doug.

Yeah. First, my first question is execution and synergy capture seem to be improving especially in Refining and Speedway, and returns on capital appear to be headed back to the historical trend. And this is all good news. And on this point, my question regards the opportunity set going forward. Specifically, while I realize we're only two quarters into the program, how would you characterize integration opportunities that you've seen so far? Do you sense that they're going to become stronger over time? And if so, in what areas?

Yeah, Doug. I’ll let Don discuss specific synergies, but let me talk about integration overall. We are very pleased with our integration progress thus far. When looking at refining, specifically the turnaround activities at Los Angeles and Martinez, we have some upcoming work in St. Paul. Overall, the refining complex is exhibiting strong integration. We are developing our team by transferring personnel between Marathon and the legacy Andeavor plants. The communication and integration between refining teams is progressing well. One opportunity we previously mentioned was with the cat cracker at LA, where we could introduce a new catalyst and technology to significantly enhance output and yield. Don can provide more details later, but this is now materializing as a synergy we had not identified before the transaction. This truly exemplifies how well the integration is progressing. We recently presented a major project to our Board to define our approach for the SAP system, focusing on how to integrate all accounting and financial data. This is a significant project that we have now identified and are moving forward on, aiming for implementation over the next 18 months to two years in various phases. In retail, things are strong as well, with 400 stores completed so far, and we are on track to reach 700 by year-end. We are seeing improvements in the stores we’ve converted in the Southwest and in Minnesota and Wisconsin. This integration, along with the deployment of a common platform to manage the stores, helps control operating costs effectively. Lastly, closing the transaction with ANDX was a significant achievement. Mike Hennigan has outlined a strong team, and I commend Don Sorensen, the President of ANDX, for his outstanding work. I would have liked for Mike to remain with the team, but he wanted to move on to other opportunities. They did an excellent job in bringing this transaction together. Now, let me turn it over to Don for more details on the synergies.

Okay.

Yeah, Doug, as I said, we were really pleased with the performance of the team around synergies to $270 million this quarter. We did highlight a couple of one-time synergies. And when I think about one-time synergies, the way we've defined that is synergies that we're capturing in 2019, but are unlikely to continue into 2020 or beyond. And so, that $30 million or so is primarily around optimizing Tier 3 gasoline credits, and so that won't continue past this year. On the other hand, in the refining sector, we did highlight turnaround cost savings during the quarter of about $60 million, obviously, that won't continue every quarter, but we're going to have turnarounds over the next three years, and we're very confident that our management of those turnarounds will allow us to continue to be able to deliver them on time and on budget. So, if I think about the $270 million for the quarter, I take out the one-time, the $30 million that gets needs. And then I think about sort of the $60 million that doesn't recur every quarter, that's a $180 million for the third quarter, $60 million a month, if you will. If I annualize that $60 million a month, that's why we get really excited about and have conviction around our view that we will get to the synergy target that we communicated at our earnings call.

Sure, looks like it, Don.

At our Investor Day.

Yeah. Okay. And then also Marathon Petroleum is clearly an asset-rich company, especially post the Andeavor transaction, which suggests that divestitures could expedite streamlining and optimization of the portfolio, and this could go on for years to come as well. So, my question is, while Gary you talked about this in your comments, could you expand on how you think about this opportunity. Are there areas that are likely to become non-strategic that might not have been before? And how significant could proceeds from divestitures be if you chose to pull that lever in coming years?

Sure Doug. And we announced you need to be careful when you announce asset divestitures until you have a fully baked, I would say. But this has been part of our strategy ever since we are though even before we close the transaction with Andeavor to be able to look at assets, as you said, that may be non-strategic, and we're looking at across the entire portfolio. It's not just one segment versus another. We are looking at across the portfolio; we have identified some assets across the portfolio. And this isn’t just a one year or a short-term thing that we're going to do, this was part of our plan all along. So, we will provide more data to the investors as we go forward. We've already proceeded with a couple of our packages on some assets; it's private at this time, but we will continue on, but this is not a short-term thing, Doug, and your question certainly pieced it up correctly. We are an asset-rich company. We look at some assets that probably have more value at somebody else's portfolio than ours, and I proceed accordingly.

Okay. Thanks a lot guys.

All right Doug.

First Gary, Don, Mike in the rest of the team, thanks a lot for tons of more disclosures in reporting format. They're really helpful to the investment community, adjusted EBITDA, Slide 9 on distribution cost, exactly what we needed for modeling MPC better. So, thank you for that.

You're welcome.

I have two quick questions: Gary, due to the lack of heavies specifically on the Gulf Coast, what we're seeing is a trend toward running more light sweet crude. But what that is also doing is creating a lot more NAFTA in NGLs, which in turn is hitting the capital rate. Your results showed relative installation from the trend, but we are seeing it in the industry. I'm trying to understand your view on this; if the industry continues to run more and more light crude, will the capture take a hit because of it?

Sure, Manav, and thank you for your comments on the additional disclosure information that we provided. We're going to ask Ray Brooks, who runs refining, to take this question as he optimizes our entire crude slate. Ray?

Sure, Gary. Manav, we fill our crude slate to optimize our process units and when we talk about light crude, this really pulls our reformers into play, and so we get ranges on our abilities to run light and heavy crude, and this is all based on what the capacity of our reformers is in that regard. Now, having said that, Marathon is a net buyer across the 16 plants of NAFTA and another light component of natural gasoline. The reason for this is we have really two octane generating machines across our system in Garyville and our Robinson refinery because we have multiple high-quality reformers at those facilities. So, I don't look at light crude as an obstacle. I look at it as an opportunity for us.

That's very good to hear. And one quick further question: A European refinery has indicated that reduced demand for high sulfur fuel oil due to IMO won't necessarily weigh on the prices of high sulfur crudes. In MPC's view, is it possible that high sulfur fuel oil price crushers and it has no impact on Maya and WCS pricing?

I will begin by addressing that question, and then I'll let Rick Hessling provide additional insights. In refining, we assess our crude values based on the offered price and the crude's value in our processes. The crude contains a significant amount of sour bottoms, specifically high sulfur fuel oil, which definitely factors into our valuation and affects our pricing decisions for the crude. Rick, would you like to add more details regarding the crude aspect?

Sure. Hi, Manav. I believe it will influence crude prices, particularly for Maya and WCS. Considering the global market, even though it's somewhat balanced by limited Iranian and Venezuelan output as well as OPEC's reduced supply, it's important to note that high sulfur fuel oil, while not directly included in the Maya pricing formula, does need to be factored in when assessing the crude composition of Maya. Therefore, I anticipate a price shift there. The same applies to WCS. We will assess that crude based on its availability and qualities, and I expect to see a change in the pricing differential as well, Manav, because it must be factored in.

Thanks, guys, and congrats on a great quarter.

Thank you.

Hi guys, thanks for taking my question. My first one is really on the West Coast, which we recently saw had an opportunity to host a tour and visit refineries there. It was impressive to see the level of integration and talent you guys have on the ground. I really want to ask about your outlook of the margin environment for rest of the year, which has been pretty soft recently. I was also hoping you'd be able to talk about your key execution focuses on the West Coast, and I think you kind of initially touched on the cracker opportunity in that way earlier.

Right. Let me have Ray take that, Benny. Let me start off so both but talk about. If you look at the West Coast crack spreads and how the market has fluctuated, there had been some downtime in some refineries early in the second quarter, which are resolved in a lot of imports coming in that ended up having too much inventory in the West Coast. We see that being a run down and the inventory situation coming back more into balance now. So, we think that was a temporary lull in the early part of the second quarter. But specifically, your question, Ray will talk about some of the things that we're doing.

Okay. Benny, it was really great to spend some time with you and some of our other investors showcasing some of our Los Angeles assets. Gary did a good job at that. Talking about the margin environment, I want to focus on the refinery. Specifically, we mentioned several times now about the catalyst opportunity on the cat cracker. But we want to make sure we optimize the asset down in California, whether it's Los Angeles or Martinez. The early indications from the cat starting up in Los Angeles look very promising versus what we were expecting. As far as areas of execution, there's two words I want to focus on: reliability and cost. From a cost standpoint, we've done a lot of work in the first nine months at both Los Angeles and Martinez doing some planned maintenance work. We're very proud of our teams on how we were able to pull that ahead of schedule and under budget. Both which have cost impacts. Now the focus is on reliability, we've got that kind of a clear plan with low maintenance ahead for California, and we want to focus on delivering reliable performance around those assets, so reliability and cost is what we're focused on.

Great. That's great detail, guys. My follow-up is really on the demand side; we've seen gasoline consumption kind of has those slow start beginning to summer rebound strongly and then at recently became soft again. Just wondering if you can provide some thoughts on what you're seeing and what you expect given your unique perspective from refinery down to the retail pump. And if you can add any thoughts on the distillate side as well, which has been pretty weak lately as well, that'd be great.

Certainly, Benny. Let's start with gasoline. As you mentioned, at the beginning of summer, the entire Mid-Con experienced very wet conditions during late spring and early summer. Only in the past month or so have things begun to dry up, allowing business to return to normal. We lost a significant amount of discretionary driving from families in the Mid-Con at the start of the vacation season. However, we have observed improvements in gasoline demand, although this was impacted by tropical storm Berry, which brought adverse weather to the Mid-Con and parts of the southeast. Overall, we expect gasoline demand to remain flat for the rest of the year. In terms of distillate, the situation is similar. From Iowa to Ohio, agricultural demand remains low, with farmers unable to work their fields effectively, resulting in only about 50% of usual agricultural activity. This will continue to put pressure on planting, cultivating, and harvesting. However, overall distillate inventories are at the lower end of the range. When looking at distillate inventories in relation to exports, they are also at lower levels relative to the five-year average, which is a positive sign for our business. As we have noted, we are beginning to see early signs of incremental demand related to IMO, and we still anticipate that distillate demand will be strong in the second half of the year.

That's great thoughts, guys. Thank you very much.

Yeah. Thank you and good morning. And while not one of my questions, I do want to say thanks for the detail on the synergies and congratulations on the progress so far. I'd like to kind of ask you though about Tier 3. Obviously, we've heard some comments from other companies about issues with naphtha and given its low octane component, difficult to get rid of in this market. So I'm just kind of curious how you believe you set up with Tier 3; if to the extent that you can offer it maybe how that compares to the industry and then what you might be able to do in 2020 and beyond in terms of taking advantage of your own system to make more octane or acquire octane cost-effectively.

Hey, Roger, this is Greg. And I'll talk about that. First, we're very well positioned with regards to Tier 3, and I am going to talk about it from a 2019 standpoint when we came together with Endeavor. We had the flexibility from a sulfur credit standpoint to optimize that across our 16-plant system, and really for this year has allowed us to run a couple of refineries more aggressively with regards to octane and sulfur standpoint. Additionally, we have two capital projects, one at Mandan, one at Galveston Bay that will be completing in the next couple of months that give us the capability going forward to meet the Tier 3 demand for 2020. Now, your question on octane: in the previous question, I mentioned that we have a lot of octane generation capacity. So we will continue to use that. We feel good with our plan for Tier 3 and don't see an octane imbalance at this point.

Thanks for the update. Shifting topics, I'm interested in your perspective on crude differentials, particularly concerning heavy crude and the situation in Alberta. What is your outlook for heavy crude, and do you have any additional insights regarding WTI for the latter half of 2019? This also relates to Manav's question about the effects of IMO regulations on heavy versus light or sweet versus sour crude as we approach early 2020.

Hi, Roger, this is Rick Hessling. I guess I'll start with heavy crudes on the Canadian side as a reference; we ran approximately 600,000 barrels a day combined heavy and light Canadian crude, and that's somewhat consistent with what we've planned in the past. When you look at us versus our competitors, I think you'll see that we have incredible pipeline capabilities, and we're not married to any one crude. And so we didn't really have a significant shift change. I would tell you looking forward from a Canadian perspective, we're bullish; here recently within the last week, the mandate again was reduced another 25 a day. You have the potential assignment of the rail contracts, which we believe may be married up with the deals with producers that could allow them the flexibility to produce more crude. And then if you look at the increase in rail movements month over month and the dropping of the Canadian inventories, all this is a positive sign certainly for differentials reaching that $20 a barrel mark on the heavy side. On the WTI side, what I would tell you is you're seeing a little bit of dislocation between WTI and WTI light. We're a buyer of the light; that's a discounted crude that we're running at Galveston Bay and then throughout our PADD II system. So we continue to see that dislocation happen. Certainly, I think it's been well-publicized, at the end of this year, you're going to see a lot of volatility as increased pipes come online, and the dock capacity struggles to keep up. So, we'll be watching that volatility as well.

Thanks. Maybe just one little add-on to that, in terms of moving crude out of the U.S., is there any update on your project? I guess it's – I can't remember the exact little place in Louisiana, but down the Peninsula there, any timing updates there?

Hey, Roger, it's Mike Hennigan. Yeah. So we continue to progress; LOOP is the name you were looking for. It's Louisiana Offshore Oil Port, and we're trying to get more information into the market that explains LOOP's capabilities. It is the only VLCC capable port in the U.S. today. It has terrific capabilities. We've talked about the capability to load several VLCCs within a week. So we anticipate more and more opportunity there going forward, and the LOOP people are trying to get the message out as to what our capabilities are.

Great, thank you.

Hey guys, good morning.

Hey, Paul, welcome back.

Thank you. Two questions: one relates to the IMO, the one related to the Philadelphia energy solution shutdown and your impact. On the IMO 1, Gary and Ray, wondering if you can talk about how easy or that how much is your capability to run the high sulfur fuel oil as a feed directly into your coker, and what is the pricing need to be in order to make that economic? And also if you can talk about your post Tier 2 brand into the VLSFO as you would you intend to use primarily to VGO or are you trying to attempt directly branding the high sulfur fuel oil? And then along on that you probably have seen the pattern from Exxon and Shell and just curious is that when your legal team that how they look at and how easy or difficult just for the industry to be able to brand their compliance fee while you are finishing those pendants?

Okay. Sure, sure Paul, I'm going to turn this over to Ray. But I am glad to see you haven't changed; you were able to get six questions in your first question.

Paul, I will begin addressing the patent aspect of your inquiry. We consistently monitor the current patents in our industry and are implementing the necessary intellectual property strategies to safeguard our interests and operations in areas where we plan to sell low-sulfur fuel oil products. I want to stress that this is just a small element of our IMO strategy. You mentioned high sulfur fuel oil in our Coker, which ties into our broader plan focused on resid destruction and asphalt sales. We've invested significantly in these systems and aim to leverage that investment. Regarding high sulfur fuel oil, we've established infrastructure at several refineries not only to process our internal materials but also to handle materials from other refineries and third parties. For instance, we've set up receiving logistics in Garyville to process Catlettsburg and Rouge unit pitch in the Garyville Coker, and we have similar capabilities with our California refineries, allowing us to process materials from Anacortes and Kenai. We are confident in this approach, but our objective is not to regularly sell high sulfur fuel oil components. There has been considerable conversation about the future of low-sulfur fuel oil, including low-sulfur vacuum gas oil blending versus ULSD. Many opinions exist, and from a sulfur blending perspective, ULSD offers better value due to its lower sulfur content. Nevertheless, we will adapt to market demands. We have the capacity to produce a significant amount of ULSD, and we can also adjust our output from our cat crackers to meet market needs.

Thank you. And the second one, Gary, for Philadelphia Energy Solution bandwidth, see and how that may impact how you run or plan for your Midwest operation?

Sure. Well, let me turn this over to Dave. We just had a big discussion internally yesterday about this as we look at our, we have many different supply wheels. And as we look at the European ORB versus the Gulf Coast ORB and how that is really changing some of the flow of the barrel. So I'll turn this over to Dave Whikecart and he can get into more detail.

Yeah. This is Dave Whikehart. It appears that the ORB has been opened from Europe, and we've seen the import volumes on gasoline come into the East Coast, and July might actually turn out to be a high in import volume numbers probably for the last couple of years. So that seems to be the way that the markets are responding at this time. Interestingly, what we've seen in terms of impacts to our supplier situation is we've seen demands on the Gulf Coast actually increase. We think it's because of these barrels have been directed to the East Coast, and that's really freed up some opportunities for us to use our system to export more out of the Gulf Coast.

Dave, do you have more capability or capacity in the Colonial pipeline to do it, and does it in any share will form impacting the pending there?

Yeah. On Colonial, just a comment there: initially, you saw the line space increase in value. I think that with the imports coming in, that's tamped that down a bit, but you would think that the shorter position in the Northeast would pull up the line space value, and we would benefit from that given our position there. And just a general response, Gary, concerning our daily activities of trying to assess the opportunities to connect our refineries to markets, looking for those infrastructure investments that will enhance the return back to the refineries and put those supply options in position. That's an everyday activity for us, and this opportunity is no different.

Thank you.

Thank you, everyone, and appreciate the incremental disclosure it goes a long way, and congrats on a good quarter here. The first question I had was just on Speedway; it's a really good quarter at Speedway, and so I guess the big-picture strategic question is, how is the operational integration going with the West Coast retail assets that you picked up and getting them to the same EBITDA per store level as your East Coast footprint? And then the more tactical question around Speedway is: should we expect a strong financial performance that you saw in Q2 to carry on here in Q3, given what we've seen with crude prices?

Thanks, Neil, it’s Tim. On the integration side, things are progressing well. You've heard about the advancements in the conversions, and we will likely focus on the West Coast for conversion in the fourth quarter. We will keep an eye on the EBITDA per store per month metric. Many locations on the West Coast have different footprints compared to those in the Midwest, which might lead to some variances. However, this remains a priority. Most of these locations were built with a primary focus on fuel volumes rather than merchandise and store layouts. We will assess the opportunities for investment in expanding these areas as we move forward. Regarding performance, compared to the previous quarter, the second quarter benefited from fuel margins; we noticed some softness in crude prices late in the second quarter. As you know, retail prices tend to be somewhat sticky and we captured some effects in that environment. Future performance will depend on the price environment and commodity prices as we head into the third quarter. From both an operational and merchandising standpoint, we expect performance to be equal to or better than before. We reported synergy capture for the quarter of over $30 million, and that is set to increase as conversions progress, which we anticipate will help maintain or improve performance. Fuel margins will depend on the commodity price landscape and what we can capture throughout the quarter.

Neil, as you recall, the way we organized the synergy capture indicates that Retail will lag behind some other segments due to the time required to convert and re-merchandise the stores. However, as Don pointed out, we are ahead of our plan with Speedway, and we anticipate a much stronger performance starting in the fourth quarter.

I appreciate it. Look, the follow-up question is as it relates to the Northeast part of the mark, the legacy MarkWest assets and your MPLX business, there are a lot of questions that we're getting about the health of your customers out there and the challenges around NGL prices. So can you help again frame the commodity risk that we're thinking about as we think about this midstream business and how we should get comfortable around some of those risks that might exist out there?

Hey Neil, this is Mike. Yeah. First off, we’re keenly aware of all the rhetoric around the Northeast Appalachia situation. What I think you're seeing from the producers, however, is a response that is positive and moving toward staying within cash flows to make sure that they have a strong financial position. A couple of our largest customers have come out and released our earnings, and they're showing that they are directionally moving toward that mode. I mean, what that means for us, however, is a little slower volume up there, but that kind of fits what we're trying to accomplish. One of our goals is to diversify our asset base, very much like our Northeast position, but we're trying to diversify a little bit more into the Permian and some other assets on the O&M side of the business, the long-haul pipelines that we've talked about previously. So to the extent that the Northeast producers live within cash flow, blow down capital a little bit, which is a little slower growth that's been there in the past, that kind of fits what we're trying to accomplish. So that we can redeploy capital in another area and still enjoy strong free cash flow generation out of the Northeast. We've been putting a lot of capital to work up in that area, and the fact that if it slows a little bit will put us in a free cash flow generation position. So harvesting cash out of the Northeast and deploying it in other areas fits the strategy that we want to accomplish.

Thanks everyone.

You're welcome.

Good morning. Following up on the conversation about streamlining asset sale opportunities and reducing capital spending, how does Gary view the appropriate long-term level of financial leverage on the balance sheet? A significant portion of your debt is at the MLP level, but reflecting on the Analyst Day, considering the $2.5 billion in buybacks you've committed to and are executing year-to-date, should there be any priority for the balance sheet in future capital allocation? Thank you.

Sure. I will ask Don to address that. One of the key points is that when analyzing the balance sheet leverage for both MPC and MPLX, we believe the correct approach is to incorporate the distributions back into MPC. Don highlighted this in his comments. Let me turn it over to Don for more detailed insights on the leverage.

Yeah, so Phil, I think both on the MLP side, in that the corporate level, we're going to defend our investment-grade credit profile. And when we think about defending our investment-grade credit profile, what we really look at is the risk around the cash flows and the volatility of those cash flows and the consistency that you have. So as we think about that informs our decision about how much leverage we want to have as we think about the Midstream to date, sort of that four times debt to EBITDA leverage has been one that we think is appropriate and continues to support an investment-grade credit profile. And if we take a view that the risk has changed in the future, I think that will inform our view about how much leverage we want at the MLP. And the same thing as we think about what's going on at a corporate level, and I think it's appropriate to really look at MPC and think about sort of the $9 billion of debt. It's responsible for that; it's not responsible for the debt of the MLPs. And when I think about that $9 billion of debt and our cash flow generation capability, if you think if you take the distributions that we get from the MLP back, it's sort of a 1.1 times kind of leverage metric; we feel very comfortable with that, especially, given the really strong performance of Speedway more than $600 million of EBITDA in the quarter. So the cash flow profile, the risk that we think is attendant to that part of the business is what's going to really influence where our leverage goes and how we manage it.

Okay.

And Phil, a couple more comments I stated in my remarks earlier that as we look at optimizing assets, Mike Hennigan has talked about several key projects of high-grade his portfolio; we have the opportunity to use some of the proceeds to invest in those high-return projects. We certainly can reduce some debt, if that makes sense on either side of the business. So we have many options and many triggers that we can pull as we look at our capital plan going forward.

Thank you for your insights. My final question is for Gary. Many of the inquiries regarding the macro environment have focused on demand, but I've noticed some cautious remarks from a European competitor regarding supply, specifically with more refineries returning from maintenance in the second half, which could lead to capacity increases. I'm interested in your perspective on the supply dynamics. Additionally, I would like to ask Don about the capture rate for the second quarter, which was 82%, and the normalized rate of 90% you've mentioned due to fewer turnarounds planned for the second half. Is there any reason to believe that you won't be able to return to that normalized run rate? Thank you.

Right. Regarding the market outlook, particularly for the West Coast, performance has been improving since the latter part of July. There were some imports that affected margins, but that situation seems to be resolving and margins are getting better on the West Coast. Similarly, the Mid-Con region experienced substantial movement of barrels due to turnarounds, resulting in improved margins recently. However, the Gulf Coast has lagged significantly this year across the entire industry, and we may see some disruptions due to storms and tropical depressions. Nevertheless, I expect the Gulf Coast to strengthen in the third quarter. Additionally, with the PES closure, supply dynamics are shifting, which will draw more barrels from the Gulf Coast and increase capacity to the Northeast along with additional export volumes. Overall, from a macro perspective, I anticipate margins will be slightly better than they were in July. Don will address your next question.

Yeah, Phil, with respect to capture rate, you're right to point out that in the second quarter there was turnaround, and that obviously impacted that. The other thing that just to remind you is that the correlation between gas prices, gasoline prices, and some of the other products that we sell. So, you know the propanes and the specialties and everything else that also impacts capture rate. So, assuming we get back to sort of a normal correlation between those, then we would expect that our capture rate will be very consistent with our historical rates. If gasoline cracks run-up, that's good for our business, and if the other commodities don't keep pace with that, I'm not bothered by that because the gasoline cracks have been running up. So, capturing is important, but we are looking to try to maximize the value from all of the products that we sell. And to the extent that we see something that impacts that we will try to highlight it to you and communicate it to you in advance.

Okay, thanks.

Great, well, we passed a little bit past the operator, hour mark, So, Operator. All right, well, thank you for your interest in Marathon Petroleum Corporation. Should you have any additional questions or would you like clarification on topics discussed this morning, we will be able to take your calls. Thank you for joining us today.