MARATHON PETROLEUM CORPORATION This section should also be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included under Item 1. Financial Statements and in conjunction with our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Disclosures Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q, particularly Management's Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, includes forward-looking statements that are subject to risks, contingencies or uncertainties. You can identify forward-looking statements by words such as "anticipate," "believe," "commitment," "could," "design," "estimate," "expect," "forecast," "goal," "guidance," "imply," "intend," "may," "objective," "opportunity," "outlook," "plan," "policy," "position," "potential," "predict," "priority," "project," "proposition," "prospective," "pursue," "seek," "should," "strategy," "target," "will," "would" or other similar expressions that convey the uncertainty of future events or outcomes. Forward-looking statements include, among other things, statements regarding: •future financial and operating results; •environmental, social and governance ("ESG") goals and targets, including those related to greenhouse gas emissions, diversity and inclusion and ESG reporting; •our plans to achieve our ESG goals and targets and to monitor and report progress thereon; •future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; •expected savings from the restructuring or reorganization of business components; •the success or timing of completion of ongoing or anticipated projects or transactions; •business strategies, growth opportunities and expected investments; •consumer demand for refined products, natural gas and NGLs; •the timing and amount of any future common stock repurchases or dividends; and •the anticipated effects of actions of third parties such as competitors, activist investors, federal, foreign, state or local regulatory authorities, or plaintiffs in litigation. Our forward-looking statements are not guarantees of future performance, and you should not rely unduly on them, as they involve risks, uncertainties and assumptions that we cannot predict. Material differences between actual results and any future performance suggested in our forward-looking statements could result from a variety of factors, including the following: •general economic, political or regulatory developments, including changes in governmental policies relating to refined petroleum products, crude oil, natural gas or NGLs, or taxation; •the magnitude, duration and potential resurgence of the COVID-19 pandemic and its effects, including travel restrictions, business and school closures, increased remote work, stay-at-home orders and other actions taken by individuals, government and the private sector to stem the spread of the virus; •our ability to realize the expected benefits of the Speedway sale within the expected timeframe or at all; •impairments; •the regional, national and worldwide availability and pricing of refined products, crude oil, natural gas, NGLs and other feedstocks; •disruptions in credit markets or changes to credit ratings; •the reliability of processing units and other equipment; •the adequacy of capital resources and liquidity, including availability, timing and amounts of free cash flow necessary to execute business plans and to effect any share repurchases or to maintain or increase the dividend; •the potential effects of judicial or other proceedings on the business, financial condition, results of operations and cash flows; •continued or further volatility in and degradation of general economic, market, industry or business conditions as a result of the COVID-19 pandemic, other infectious disease outbreaks, natural hazards, extreme weather events or otherwise; •compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations and enforcement actions initiated thereunder; 29
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•adverse market conditions or other risks affecting MPLX; •refining industry overcapacity or under capacity; •changes in producer customers' drilling plans or in volumes of throughput of crude oil, natural gas, NGLs, refined products or other hydrocarbon-based products; •non-payment or non-performance by our customers; •changes in the cost or availability of third-party vessels, pipelines, railcars and other means of transportation for crude oil, natural gas, NGLs, feedstocks and refined products; •the price, availability and acceptance of alternative fuels and alternative-fuel vehicles and laws mandating such fuels or vehicles; •political and economic conditions in nations that consume refined products, natural gas and NGLs, includingthe United States andMexico , and in crude oil producing regions, including theMiddle East ,Africa ,Canada andSouth America ; •actions taken by our competitors, including pricing adjustments, the expansion and retirement of refining capacity and the expansion and retirement of pipeline capacity, processing, fractionation and treating facilities in response to market conditions; •completion of pipeline projects withinthe United States ; •changes in fuel and utility costs for our facilities; •accidents or other unscheduled shutdowns affecting our refineries, machinery, pipelines, processing, fractionation and treating facilities or equipment, or those of our suppliers or customers; •acts of war, terrorism or civil unrest that could impair our ability to produce refined products, receive feedstocks or to gather, process, fractionate or transport crude oil, natural gas, NGLs or refined products; •adverse changes in laws including with respect to tax and regulatory matters; •political pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production, gathering, refining, processing, fractionation, transportation and marketing of crude oil or other feedstocks, refined products, natural gas, NGLs or other hydrocarbon-based products; •labor and material shortages; •the costs, disruption and diversion of management's attention associated with campaigns commenced by activist investors; and •personnel changes. For additional risk factors affecting our business, see the risk factors described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . We undertake no obligation to update any forward-looking statements except to the extent required by applicable law. EXECUTIVE SUMMARY Business Update The outbreak of COVID-19 and its development into a pandemic inMarch 2020 resulted in significant economic disruption globally. Actions taken by various governmental authorities, individuals and companies around the world to prevent the spread of COVID-19 through social distancing restricted travel, many business operations, public gatherings and the overall level of individual movement and in-person interaction across the globe resulted in dramatic reductions in airline flights and motor vehicle use in 2020 as compared to prior to the pandemic. Through the first six months of 2021, while demand remains below historical levels, we continue to see recovery in the environment in which our business operates, albeit in some markets and regions more or less than others. The increased availability of vaccinations and the corresponding reductions in travel and business restrictions appear to be driving increased economic activity, including the opening of many business and schools as well as more in-person interaction broadly. While we have seen improving results through the first six months of 2021, we are unable to predict the potential effects a resurgence of COVID-19 may have on our financial position and results. In response to this business environment, we continue to focus on three near-term priorities for our businesses: Strengthen Competitive Position of Assets We are committed to positioning our assets so that we are a leader in operational, financial, and sustainability performance and are evaluating the strength and fit of assets in our portfolio. Our goal is that each individual asset generates free-cash-flow back 30
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to the business and contributes to shareholder returns. With our investments we are focused on high returning projects that we believe will enhance the competitiveness of our portfolio, including our investments in sustainable fuels and technologies that lower our carbon intensity as the global energy mix evolves. Improve Commercial Performance We are focused on leveraging advantaged raw material selection, new approaches in the commercial space to be more dynamic amidst changing market conditions and achieving technology improvements to advance our commercial performance. Lower Cost Structure We are committed to achieving operational excellence by reducing costs, improving efficiency and driving operational improvements. In response to the pandemic, in March of 2020, we committed to immediately reducing our capital spending and operating expenses. In 2021, we are continuing this focus with planned reductions of over$200 million for our capital expenditures and investments as compared to 2020 (excluding capitalized interest, potential acquisitions and MPLX's capital investment plan). In connection with our commitment to lower cost and strengthen the competitive position of our assets, in the third quarter of 2020 we announced strategic actions to lay a foundation for long-term success, including plans to optimize our assets and structurally lower costs in 2021 and beyond. These actions included indefinitely idling theGallup refinery , initiating actions to strategically reposition theMartinez refinery to a renewable diesel facility and the approval of an involuntary workforce reduction plan. Our results in the first six months of 2021 reflect the favorable effects from these cost reduction actions. Many uncertainties remain with respect to COVID-19, including its resulting economic effects, and we are unable to predict the ultimate economic impacts from COVID-19 and how quickly ourU.S. and economies around the world can recover once the pandemic ultimately subsides. However, the adverse impact of the economic effects on MPC has been and may continue to be significant. We believe we have proactively addressed many of the known impacts of COVID-19 to the extent possible and will strive to continue to do so, but there can be no guarantee the measures will be fully effective. Strategic Updates OnMay 14, 2021 , we completed the sale of Speedway, our company-owned and operated retail transportation fuel and convenience store business, to7-Eleven for cash proceeds of$21.38 billion . This transaction resulted in a pretax gain of$11.68 billion ($8.02 billion after income taxes) after deducting the book value of the net assets and certain other adjustments. MPC remains committed to executing its plan to use the proceeds from the sale to strengthen the balance sheet and return capital to shareholders. In connection with the Speedway sale, our board of directors approved an additional$7.1 billion share repurchase authorization bringing total share repurchase authorizations to$10.0 billion prior to the June tender of shares discussed below. OnJune 15, 2021 , MPC completed a modified Dutch auction tender offer, purchasing 15,573,365 shares of its common stock at a purchase price of$63.00 per share, for an aggregate purchase price of approximately$981 million , excluding fees and expenses related to the tender offer. As ofJune 30, 2021 , MPC has$9.02 billion remaining under its share repurchase authorizations. During the first six months of 2021, we utilized a portion of the Speedway sale proceeds to structurally reduce debt through the following actions: •In June of 2021,we redeemed all of the$300 million outstanding aggregate principal amount of 5.125% senior notes dueApril 2024 . •In May of 2021, we repaid all outstanding commercial paper borrowings, which along with cash had been used to finance the fourth quarter 2020 repayments of two senior notes with total principal of$1.13 billion . •OnMarch 1, 2021 , we repaid the$1.0 billion outstanding aggregate principal amount of 5.125% senior notes dueMarch 2021 . OnFebruary 24, 2021 , MPC's board of directors approved our plan to strategically reposition theMartinez refinery to a renewable diesel facility. Converting theMartinez facility from refining petroleum to manufacturing renewable fuels signals our strong commitment to producing a substantial level of lower carbon-intensity fuels inCalifornia . As envisioned, theMartinez facility would start producing approximately 260 million gallons per year of renewable diesel by the second half of 2022, with a potential to build to full capacity of approximately 730 million gallons per year by the end of 2023. 31
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TheDickinson, North Dakota , renewable fuels facility began ramping operations at the end of 2020 and reached full design operating capacity by the end of the second quarter of 2021. The facility has the capacity to produce 184 million gallons per year of renewable diesel from corn and soybean oil. MPC is selling the renewable diesel into theCalifornia market to comply with theCalifornia Low Carbon Fuel Standard. Results Select results for continuing operations are reflected in the following table. Three Months Ended Six Months Ended June 30, June 30, (In millions) 2021 2020 2021 2020 Income (loss) from continuing operations by segment Refining & Marketing$ 224 $ (1,544) $ (374) $ (2,041) Midstream 977 869 1,949 1,774 Corporate (180) (195) (337) (428) Items not allocated to segments: Transaction-related costs(a) - - - (8) Impairments(b) (56) (25) (56) (9,162) LCM inventory valuation adjustment - 1,470 - (1,715) Income (loss) from continuing operations 965 575 1,182 (11,580) Net interest and other financial costs 372 341 725 673 Income (loss) from continuing operations before income taxes 593 234 457 (12,253) Provision (benefit) for income taxes on continuing operations 5 150 39 (1,801) Income (loss) from continuing operations, net of tax 588 84 418 (10,452) (a) 2020 includes costs incurred in connection with the Midstream strategic review. (b) 2021 includes impairments of equity method investments and long-lived assets. 2020 includes impairment of goodwill, equity method investments and long lived assets. Select results for discontinued operations are reflected in the following table. Three Months Ended Six Months Ended June 30, June 30, (In millions) 2021 2020 2021 2020 Income from discontinued operations Speedway$ 283 $ 426 $ 613 $ 826 Transaction-related costs(a) (23) (30) (46) (57) Gain on sale of assets 11,682 - 11,682 - LCM inventory valuation adjustment - 10 - (25) Income from discontinued operations 11,942 406 12,249 744 Net interest and other financial costs 2 4 6 10 Income from discontinued operations before income taxes 11,940 402 12,243 734 Provision for income taxes on discontinued operations 3,726 210 3,795 224 Income from discontinued operations, net of tax$ 8,214 $ 192 $ 8,448 $ 510
(a) Costs related to the Speedway separation.
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The following table includes net income (loss) per diluted share data.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income (loss) per diluted share
Continuing operations $ 0.45 $ (0.28) $ (0.27) $ (15.00)
Discontinued operations 12.55 0.29 12.98 0.79
Net income (loss) attributable to MPC $ 13.00 $ 0.01 Net income (loss) attributable to MPC was$8.51 billion , or$13.00 per diluted share, in the second quarter of 2021 compared to$9 million , or$0.01 per diluted share, for the second quarter of 2020 and$8.27 billion , or$12.71 per diluted share, in the first six months of 2021 compared to$(9.23) billion , or$(14.21) per diluted share, in the first six months of 2020. For the second quarter of 2021, the change was largely due to the gain on the sale of Speedway and increases in average refined product sales prices and volumes, partially offset by the absence of an LCM benefit recognized in the second quarter of 2020 and a partial period of income from discontinued operations due to the sale of the Speedway business onMay 14, 2021 . For the first six months of 2021, the change is primarily due to the gain on the sale of Speedway, the absence of impairment expenses and an LCM inventory charge in the first six months of 2020 and increases in average refined product sales prices and volumes, partially offset by a partial period of income from discontinued operations due to the sale of the Speedway business onMay 14, 2021 . See Note 4 to the unaudited consolidated financial statements for additional information on discontinued operations. Refer to the Results of Operations section for a discussion of consolidated financial results and segment results for the second quarter of 2021 as compared to the second quarter of 2020 and the first six months of 2021 compared to the first six months of 2020. MPLX We owned approximately 647 million MPLX common units atJune 30, 2021 with a market value of$19.17 billion based on theJune 30, 2021 closing price of$29.61 per common unit. OnJuly 27, 2021 , MPLX declared a quarterly cash distribution of$0.6875 per common unit payable onAugust 13, 2021 . As a result, MPLX will make distributions totaling$705 million to its common unitholders. MPC's portion of these distributions is approximately$445 million . We received limited partner distributions of$890 million from MPLX in the six months endedJune 30, 2021 and$904 million in the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , 11,929,998 MPLX common units were repurchased at an average cost per unit of$26.02 . Total cash paid for units repurchased during the six months endedJune 30, 2021 was$310 million . As ofJune 30, 2021 , MPLX had agreements to acquire 126,293 additional common units for$4 million , which settled in earlyJuly 2021 . As ofJune 30, 2021 ,$657 million remained available under the authorization for future unit repurchases. See Note 5 to the unaudited consolidated financial statements for additional information on MPLX. 33
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Liquidity
Our liquidity, excluding MPLX, totaled$22.35 billion atJune 30, 2021 consisting of: June 30, 2021 Outstanding Available (In millions) Total Capacity Borrowings Capacity Bank revolving credit facility(a)$ 5,000 $ 1$ 4,999 Trade receivables facility 100 - 100 Total$ 5,100 $ 1$ 5,099 Cash and cash equivalents and short-term investments(b) 17,249 Total liquidity$ 22,348 (a)Outstanding borrowings include$1 million in letters of credit outstanding under this facility. (b)Excludes cash and cash equivalents of MPLX of$8 million . EffectiveJune 18, 2021 , we terminated our$1.0 billion unsecured 364-day revolving credit facility due inSeptember 2021 and onJune 23, 2021 , we reduced the capacity under our trade receivables securitization facility from$750 million to$100 million . The trade receivables securitization facility expired in July of 2021, however, we plan to secure a new$100 million trade receivable facility in the third quarter of 2021. Additionally, nearly all of our tax refund of approximately$2.1 billion is expected to be received during the second half of 2021. We are working with theIRS to facilitate the refund, but we do not control the timing of this payment. MPLX's liquidity totaled$4.52 billion atJune 30, 2021 . As ofJune 30, 2021 , MPLX had cash and cash equivalents of$8 million ,$3.5 billion available under its$3.5 billion revolving credit agreement and$1.0 billion available through its intercompany loan agreement with MPC. OVERVIEW OF SEGMENTS Refining & Marketing Refining & Marketing segment income from operations depends largely on our Refining & Marketing margin, refining operating costs, refining planned turnarounds, distribution costs, depreciation expenses and refinery throughputs. Our Refining & Marketing margin is the difference between the prices of refined products sold and the costs of crude oil and other charge and blendstocks refined, including the costs to transport these inputs to our refineries and the costs of products purchased for resale. The crack spread is a measure of the difference between market prices for refined products and crude oil, commonly used by the industry as a proxy for the refining margin. Crack spreads can fluctuate significantly, particularly when prices of refined products do not move in the same direction as the cost of crude oil. As a performance benchmark and a comparison with other industry participants, we calculateGulf Coast , Mid-Continent andWest Coast crack spreads that we believe most closely track our operations and slate of products. The following are used for these crack spread calculations: •TheGulf Coast crack spread uses three barrels of MEH crude producing two barrels of USGC CBOB gasoline and one barrel of USGC ULSD. In the first quarter of 2021, we transitioned to MEH crude from LLS crude; •The Mid-Continent crack spread uses three barrels of WTI crude producing two barrels of Chicago CBOB gasoline and one barrel of Chicago ULSD; and •TheWest Coast crack spread uses three barrels of ANS crude producing two barrels of LA CARBOB and one barrel of LA CARB Diesel. Our refineries can process significant amounts of sweet and sour crude oil, which typically can be purchased at a discount to crude oil referenced in ourGulf Coast , Mid-Continent andWest Coast crack spreads. The amount of these discounts, which we refer to as the sweet differential and sour differential, can vary significantly, causing our Refining & Marketing margin to differ from blended crack spreads. In general, larger sweet and sour differentials will enhance our Refining & Marketing margin. Future crude oil differentials will be dependent on a variety of market and economic factors, as well asU.S. energy policy. 34
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The following table provides sensitivities showing an estimated change in annual net income due to potential changes in market conditions. (In millions, after-tax) Blended crack spread sensitivity(a) (per$1.00 /barrel change)$ 838 Sour differential sensitivity(b) (per$1.00 /barrel change) 396 Sweet differential sensitivity(c) (per$1.00 /barrel change) 381 Natural gas price sensitivity(d) (per$1.00 /MMBtu) 275 (a)Crack spread based on 40 percent MEH, 40 percent WTI and 20 percent ANS withGulf Coast , Mid-Continent andWest Coast product pricing, respectively, and assumes all other differentials and pricing relationships remain unchanged. (b)Sour crude oil basket consists of the following crudes: ANS, Argus Sour Crude Index, Maya and Western Canadian Select. We expect approximately 51 percent of the crude processed at our refineries in 2021 will be sour crude. (c)Sweet crude oil basket consists of the following crudes: Bakken, Brent, MEH, WTI-Cushing and WTI-Midland. We expect approximately 49 percent of the crude processed at our refineries in 2021 will be sweet crude. (d)This is consumption-based exposure for our Refining & Marketing segment and does not include the sales exposure for our Midstream segment. In addition to the market changes indicated by the crack spreads, the sour differential and the sweet differential, our Refining & Marketing margin is impacted by factors such as: •the selling prices realized for refined products; •the types of crude oil and other charge and blendstocks processed; •our refinery yields; •the cost of products purchased for resale; •the impact of commodity derivative instruments used to hedge price risk; •the potential impact of LCM adjustments to inventories in periods of declining prices; and •the potential impact of LIFO liquidation charges due to draw-downs from historic inventory levels. Refining & Marketing segment income from operations is also affected by changes in refinery operating costs and refining planned turnaround costs in addition to committed distribution costs. Changes in operating costs are primarily driven by the cost of energy used by our refineries, including purchased natural gas, and the level of maintenance costs. Refining planned turnarounds, requiring temporary shutdown of certain refinery operating units, are periodically performed at each refinery. Distribution costs primarily include long-term agreements with MPLX, which as discussed below include minimum commitments to MPLX, and will negatively impact income from operations in periods when throughput or sales are lower or refineries are idled. We have various long-term, fee-based commercial agreements with MPLX. Under these agreements, MPLX, which is reported in our Midstream segment, provides transportation, storage, distribution and marketing services to our Refining & Marketing segment. Certain of these agreements include commitments for minimum quarterly throughput and distribution volumes of crude oil and refined products and minimum storage volumes of crude oil, refined products and other products. Certain other agreements include commitments to pay for 100 percent of available capacity for certain marine transportation and refining logistics assets. Midstream Our Midstream segment transports, stores, distributes and markets crude oil and refined products, principally for our Refining & Marketing segment. The profitability of our pipeline transportation operations primarily depends on tariff rates and the volumes shipped through the pipelines. The profitability of our marine operations primarily depends on the quantity and availability of our vessels and barges. The profitability of our light product terminal operations primarily depends on the throughput volumes at these terminals. The profitability of our fuels distribution services primarily depends on the sales volumes of certain refined products. The profitability of our refining logistics operations depends on the quantity and availability of our refining logistics assets. A majority of the crude oil and refined product shipments on our pipelines and marine vessels and the refined product throughput at our terminals serve our Refining & Marketing segment and our refining logistics assets and fuels distribution services are used solely by our Refining & Marketing segment. As discussed above in the Refining & Marketing section, MPLX, which is reported in our Midstream segment, has various long-term, fee-based commercial agreements related to services provided to our Refining & Marketing segment. Under these agreements, MPLX has received various commitments of minimum throughput, storage and distribution volumes as well as commitments to pay for all available capacity of certain assets. The volume of crude oil that we transport is directly affected by the supply of, and refiner demand for, crude oil in the markets served directly by our crude oil pipelines, terminals and marine operations. Key factors in this supply and demand balance are the production levels of crude oil by producers in various regions or fields, the availability 35
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and cost of alternative modes of transportation, the volumes of crude oil
processed at refineries and refinery and transportation system maintenance
levels. The volume of refined products that we transport, store, distribute and
market is directly affected by the production levels of, and user demand for,
refined products in the markets served by our refined product pipelines and
marine operations. In most of our markets, demand for gasoline and distillate
peaks during the summer driving season, which extends from May through September
of each year, and declines during the fall and winter months. As with crude oil,
other transportation alternatives and system maintenance levels influence
refined product movements.
Our Midstream segment also gathers and processes natural gas and NGLs. NGL and
natural gas prices are volatile and are impacted by changes in fundamental
supply and demand, as well as market uncertainty, availability of NGL
transportation and fractionation capacity and a variety of additional factors
that are beyond our control. Our Midstream segment profitability is affected by
prevailing commodity prices primarily as a result of processing or conditioning
at our own or thirdparty processing plants, purchasing and selling or gathering
and transporting volumes of natural gas at indexrelated prices and the cost of
thirdparty transportation and fractionation services. To the extent that
commodity prices influence the level of natural gas drilling by our producer
customers, such prices also affect profitability.
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RESULTS OF OPERATIONS
The following discussion includes comments and analysis relating to our results
of operations. This discussion should be read in conjunction with Item 1.
Financial Statements and is intended to provide investors with a reasonable
basis for assessing our historical operations, but should not serve as the only
criteria for predicting our future performance.
Consolidated Results of Operations
Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2021 2020 Variance 2021 2020 Variance
Revenues and other income:
Sales and other operating revenues(a) $ 29,615 $ 12,195
93 79 14 184 (1,154) 1,338
Net gain on disposal of assets - 2 (2) 3 5 (2)
Other income 119 24 95 196 47 149
Total revenues and other income 29,827 12,300 17,527 52,709 33,297 19,412
Costs and expenses:
Cost of revenues (excludes items below) 27,177 11,502 15,675 48,261 31,844 16,417
LCM inventory valuation adjustment - (1,470) 1,470 - 1,715 (1,715)
Impairment expense - 25 (25) - 7,847 (7,847)
Depreciation and amortization 871 833 38 1,715 1,696 19
Selling, general and administrative
expenses 625 665 (40) 1,200 1,407 (207)
Other taxes 189 170 19 351 368 (17)
Total costs and expenses 28,862 11,725 17,137 51,527 44,877 6,650
Income (loss) from continuing operations 965 575 390 1,182 (11,580) 12,762
Net interest and other financial costs 372 341 31 725 673 52
Income (loss) from continuing operations
before income taxes 593 234 359 457 (12,253) 12,710
Provision (benefit) for income taxes on
continuing operations 5 150 (145) 39 (1,801) 1,840
Income (loss) from continuing operations,
net of tax 588 84 504 418 (10,452) 10,870
Income from discontinued operations, net
of tax 8,214 192 8,022 8,448 510 7,938
Net income (loss) 8,802 276 8,526 8,866 (9,942) 18,808
Less net income (loss) attributable to:
Redeemable noncontrolling interest 21 21 - 41 41 -
Noncontrolling interests 269 246 23 555 (758) 1,313
Net income (loss) attributable to MPC
(a)In accordance with discontinued operations accounting, Speedway sales to retail customers and net results are reflected in Income from discontinued operations, net of tax and Refining & Marketing intercompany sales to Speedway are now presented as third party sales through the close of the sale onMay 14, 2021 . Second Quarter 2021 Compared to Second Quarter 2020 Net income attributable to MPC increased$8.50 billion in the second quarter of 2021 compared to the second quarter of 2020 largely due to the gain on the sale of Speedway, increases in refined product sales volumes and prices, partially offset by the absence of an LCM inventory benefit in the second quarter of 2020 and a partial period of income from discontinued operations due to the sale of the Speedway business onMay 14, 2021 . Revenues and other income increased$17.53 billion primarily due to: •increased sales and other operating revenues of$17.42 billion primarily due to increased Refining & Marketing segment average refined product sales prices of$1.06 per gallon and increased refined product sales volumes of 611 mbpd; and •increased other income of$95 million primarily due to higher income on RIN sales. 37
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Costs and expenses increased$17.14 billion primarily due to: •increased cost of revenues of$15.68 billion mainly due to higher refined product raw material and crude oil costs; •the absence of an LCM benefit of$1.47 billion resulting from a lower LCM reserve as ofJune 30, 2020 as compared toMarch 31, 2020 ; and •decreased selling, general and administrative expenses of$40 million largely due to cost reductions realized from our 2020 workforce reduction and other cost control efforts. Net interest and other financial costs increased$31 million largely due to pension settlement losses of$49 million , partially offset by decreased interest expense due to lower MPC and MPLX borrowings. We recorded a combined federal, state and foreign income tax provision of$5 million for the three months endedJune 30, 2021 , which was lower than the tax computed at theU.S. statutory rate primarily due to permanent tax differences related to income attributable to noncontrolling interests. We recorded a combined federal, state and foreign income tax provision of$150 million for the three months endedJune 30, 2020 , which was higher than the tax computed at theU.S. statutory rate primarily due to impacts attributable to noncontrolling interests, state taxes and the tax rate differential resulting from the expected NOL carryback provided under the CARES Act. Noncontrolling interests increased$23 million primarily due to an increase in MPLX's net income. Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020 Net income attributable to MPC increased$17.50 billion in the first six months of 2021 compared to the first six months of 2020 primarily due to the gain on the sale of Speedway, the absence of impairment expenses and an LCM inventory charge in the first six months of 2020 and increases in average refined product sales prices and volumes, partially offset by a partial period of income from discontinued operations due to the sale of the Speedway business onMay 14, 2021 . Revenues and other income increased$19.41 billion primarily due to: •increased sales and other operating revenues of$17.93 billion primarily due to increased average refined product sales prices of$0.63 per gallon and increased Refining & Marketing segment refined product sales volumes, which increased 46 mbpd; •increased income from equity method investments of$1.34 billion largely due to impairments of equity method investments of$1.32 billion recorded in the first six months of 2020 primarily driven by the effects of COVID-19 and the decline in commodity prices; and •increased other income of$149 million primarily due to higher income on RIN sales. Costs and expenses increased$6.65 billion primarily due to: •increased cost of revenues of$16.42 billion primarily due to higher crude oil and refined product raw material costs; •the absence of an LCM charge of$1.72 billion primarily driven by the effects of COVID-19 and the decline in commodity prices in the prior year; •decreased impairment expense of$7.85 billion due to impairments recorded for goodwill and long-lived assets in the in the first six months of 2020 primarily driven by the effects of COVID-19 and the decline in commodity prices in the prior year; and •decreased selling, general and administrative expenses of$207 million largely due to cost reductions realized from our 2020 workforce reduction and other cost control efforts. Net interest and other financial costs increased$52 million largely due to pension settlement losses of$49 million . We recorded a combined federal, state and foreign income tax provision of$39 million for the six months endedJune 30, 2021 , which was lower than the tax computed at theU.S. statutory rate primarily due to permanent tax differences related to income attributable to noncontrolling interests. We recorded a combined federal, state and foreign income tax benefit of$1.80 billion for the six months endedJune 30, 2020 , which was lower than the tax computed at theU.S. statutory rate primarily due to a significant amount of our pre-tax loss consisting of non-tax deductible goodwill impairment charges, partially offset by the tax rate differential resulting from the expected NOL carryback provided under the CARES Act. Additionally, our non-controlling interest in MPLX generally provides an effective tax rate benefit since the tax associated with those ownership interests is paid by those interests, but this benefit was lower for the six months endedJune 30, 2020 due to impairment charges recorded by MPLX. Net income attributable to noncontrolling interests increased$1.31 billion primarily due to an increase in MPLX's net income largely due to impairment expense recognized during the first six months of 2020. 38
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Segment Results Refining & Marketing The following includes key financial and operating data for the second quarter of 2021 compared to the second quarter of 2020 and the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 .
[[Image Removed: mpc-20210630_g1.jpg]][[Image Removed: mpc-20210630_g2.jpg]]
[[Image Removed: mpc-20210630_g3.jpg]][[Image Removed: mpc-20210630_g4.jpg]] (a)Includes intersegment sales to Midstream and sales destined for export.
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Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Refining & Marketing Operating Statistics
Net refinery throughput (mbpd) 2,854 2,276 2,710 2,635
Refining & Marketing margin per
barrel(a)(b) 12.45 7.64 11.37 10.04
Less:
Refining operating costs per barrel, excluding winter storm effect(c) 4.59 6.13 4.86 6.06 Winter storm effect on refining operating cost(d) - - 0.06 - Distribution costs per barrel 5.04 5.87 5.11 5.23 Refining planned turnaround costs per barrel 0.24 0.78 0.35 1.02 Depreciation and amortization per barrel 1.80 2.24 1.93 1.95
Plus:
Other per barrel(e) 0.08 (0.07) 0.18 (0.04) Refining & Marketing segment income (loss) per barrel$ 0.86 $ (7.45) $ (0.76) $ (4.26) Fees paid to MPLX included in distribution costs above$ 3.33 $
4.06
(a)Sales revenue less cost of refinery inputs and purchased products, divided by
net refinery throughput.
(b)See "Non-GAAP Measures" section for reconciliation and further information
regarding this non-GAAP measure.
(c)Includes refining operating costs and major maintenance costs. Excludes
planned turnaround and depreciation and amortization expense.
(d)Winter storms in the first quarter of 2021 resulted in higher costs,
including maintenance and repairs.
(e)Includes income (loss) from equity method investments, net gain (loss) on
disposal of assets and other income.
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The following table presents certain benchmark prices in our marketing areas and market indicators that we believe are helpful in understanding the results of our Refining & Marketing segment. The benchmark crack spreads below do not reflect the market cost of RINs necessary to meetEPA renewable volume obligations for attributable products under the Renewable Fuel Standard. Three Months Ended Six Months Ended June 30, June 30, Benchmark Spot Prices (dollars per gallon) 2021 2020 2021 2020 Chicago CBOB unleaded regular gasoline$ 2.07 $ 0.78 $ 1.86 $ 0.99 Chicago ULSD 2.04 0.88 1.89 1.15 USGC CBOB unleaded regular gasoline 1.99 0.81 1.84 1.03 USGC ULSD 1.95 0.91 1.82 1.19 LA CARBOB 2.22 0.95 2.03 1.24 LA CARB diesel 1.99 0.97 1.89 1.30 Market Indicators (dollars per barrel) WTI$ 66.17 $ 28.00 $ 62.22 $ 36.82 MEH 66.90 - 63.26 - LLS - 30.39 - 38.95 ANS 68.51 30.57 64.85 40.72 Crack Spreads: Mid-Continent WTI 3-2-1$ 12.30 $ 4.72 $ 10.10 6.05 USGC MEH 3-2-1 7.96 - 7.32 - USGC LLS 3-2-1 - 2.75 - 4.60 West Coast ANS 3-2-1 13.42 7.44 12.05 10.04 Blended 3-2-1(a) 10.79 4.62 9.38 6.45 Crude Oil Differentials: Sweet$ (0.27) $ (1.70) $ (0.64) $ (1.20) Sour (3.09) (3.78) (3.10) (4.34) (a) Blended 3-2-1Mid-Continent/USGC/West Coast crack spread is 40/40/20 percent in 2021. Blended 3-2-1Mid-Continent/USGC/West Coast crack spread is 38/38/24 percent in 2020. These blends are based on our refining capacity by region in each period. Beginning in the first quarter of 2021, the prompt price for USGC was transitioned from LLS to MEH. Second Quarter 2021 Compared to Second Quarter 2020 Refining & Marketing segment revenues increased$17.19 billion primarily due to increased average refined product sales prices of$1.06 per gallon and increased refined product sales volume of 611 mbpd. Net refinery throughputs increased 578 mbpd during the second quarter of 2021, primarily due to continuing industry recovery from the impact of COVID-19 in 2020. Refining & Marketing segment income from operations increased$1.77 billion primarily due to higher blended crack spreads and reduced refining planned turnaround and refining operating costs. Refining & Marketing margin was$12.45 per barrel for the second quarter of 2021 compared to$7.64 per barrel for the second quarter of 2020. Refining & Marketing margin is affected by our performance against the market indicators shown earlier, which use spot market values and an estimated mix of crude purchases and product sales. Based on the market indicators and our crude oil throughput, we estimate a net positive impact of approximately$1.3 billion on Refining & Marketing margin for the second quarter of 2021 compared to the second quarter of 2020, primarily due to higher crack spreads. Our reported Refining & Marketing margin differs from market indicators due to the mix of crudes purchased and their costs, the effect of market structure on our crude oil acquisition prices, the effect of RIN prices on the crack spread, and other items like refinery yields, other feedstock variances and fuel margin from sales to direct dealers. These factors had an estimated net positive effect of approximately$300 million on Refining & Marketing segment income in the second quarter of 2021 compared to the second quarter of 2020. 41
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For the three months endedJune 30, 2021 , refining operating costs, excluding depreciation and amortization, decreased$77 million , or$1.54 per barrel, compared to the three months endedJune 30, 2020 as we took actions to reduce costs in response to the economic effects of COVID-19, including idling portions of our refining capacity. The per barrel cost also decreased as a result of higher throughputs during the quarter. Distribution costs, excluding depreciation and amortization, increased$94 million and include fees paid to MPLX of$866 million and$841 million for the second quarter of 2021 and 2020, respectively. On a per barrel basis, distribution costs, excluding depreciation and amortization, decreased$0.83 per barrel as increased costs were offset by higher throughput. Refining planned turnaround costs decreased$101 million , or$0.54 per barrel, due to the timing of turnaround activity. Depreciation and amortization decreased$0.44 per barrel primarily due to higher throughput. Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020 Refining & Marketing segment revenues increased$17.57 billion primarily due to increased average refined product sales prices of$0.63 per gallon and higher refined product sales volumes, which increased 46 mbpd. Net refinery throughputs increased 75 mbpd in the first six months of 2021, primarily due to continuing industry recovery from the impact of COVID-19 in 2020. Refining & Marketing segment loss from operations decreased$1.67 billion primarily driven by higher blended crack spreads and reduced refining operating and refining planned turnaround costs, partially offset by narrower sweet and sour differentials. Refining & Marketing margin was$11.37 per barrel for the first six months of 2021 compared to$10.04 per barrel for the first six months of 2020. Refining & Marketing margin is affected by the market indicators shown earlier, which use spot market values and an estimated mix of crude purchases and product sales. Based on the market indicators and our crude oil throughput, we estimate a net positive impact of approximately$700 million on Refining & Marketing margin for the first six months of 2021 compared to the first six months of 2020, primarily due to higher crack spreads partially offset by narrower sweet and sour differentials. Our reported Refining & Marketing margin differs from market indicators due to the mix of crudes purchased and their costs, market structure on our crude oil acquisition prices, RIN prices on the crack spread, and other items like refinery yields, other feedstock variances and direct dealer fuel margin. These factors had an estimated net positive effect of approximately$100 million on Refining & Marketing segment income in the first six months of 2021 compared to the first six months of 2020. For the six months endedJune 30, 2021 , refining operating costs, excluding depreciation and amortization and the winter storm effect, decreased$525 million , or$1.20 per barrel, compared to the six months endedJune 30, 2020 as we took actions to reduce costs in response to the economic effects of COVID-19, including idling portions of our refining capacity. Distribution costs, excluding depreciation and amortization, were$2.51 billion in both periods and include fees paid to MPLX of$1.71 billion and$1.70 billion for the first six months of 2021 and 2020, respectively. On a per barrel basis, distribution costs, excluding depreciation and amortization, decreased$0.12 per barrel due to higher throughput. Refining planned turnaround costs decreased$318 million , or$0.67 per barrel, due to the timing of turnaround activity. Depreciation and amortization decreased$0.02 per barrel as increased costs were offset by higher throughput. 42
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Supplemental Refining & Marketing Statistics
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Refining & Marketing Operating Statistics
Crude oil capacity utilization percent(a) 94 71 89 81
Refinery throughputs (mbpd):
Crude oil refined 2,713 2,165 2,548 2,475
Other charge and blendstocks 141 111 162 160
Net refinery throughput 2,854 2,276 2,710 2,635
Sour crude oil throughput percent 48 53 48 50
Sweet crude oil throughput percent 52 47 52 50
Refined product yields (mbpd):
Gasoline 1,436 1,114 1,380 1,301
Distillates 984 834 933 927
Propane 54 45 50 52
Feedstocks and petrochemicals 301 217 262 284
Heavy fuel oil 27 27 31 32
Asphalt 91 76 94 78
Total 2,893 2,313 2,750 2,674
Refined product export sales volumes
(mbpd)(b) 231 219 237 301
(a)Based on calendar-day capacity, which is an annual average that includes down time for planned maintenance and other normal operating activities. (b)Represents fully loaded export cargoes for each time period. These sales volumes are included in the total sales volume amounts.
Midstream
The following includes key financial and operating data for the second quarter of 2021 compared to the second quarter of 2020 and the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 .
[[Image Removed: mpc-20210630_g5.jpg]][[Image Removed: mpc-20210630_g6.jpg]]
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[[Image Removed: mpc-20210630_g7.jpg]][[Image Removed: mpc-20210630_g8.jpg]][[Image Removed: mpc-20210630_g9.jpg]][[Image Removed: mpc-20210630_g10.jpg]][[Image Removed: mpc-20210630_g11.jpg]] (a)On owned common-carrier pipelines, excluding equity method investments. (b)Includes amounts related to unconsolidated equity method investments on a 100 percent basis.
Three Months Ended Six Months Ended
June 30, June 30,
Benchmark Prices 2021 2020 2021 2020
Natural Gas NYMEX HH ($ per MMBtu) $ 2.97 $ 1.76 $ 2.85 $ 1.81
C2 + NGL Pricing ($ per gallon)(a) $ 0.75 $ 0.34 $ 0.74 $ 0.37
(a)C2 + NGL pricing based on Mont Belvieu prices assuming an NGL barrel of
approximately 35 percent ethane, 35 percent propane, 6 percent iso-butane, 12
percent normal butane and 12 percent natural gasoline.
Second Quarter 2021 Compared to Second Quarter 2020
Midstream segment revenue and segment income from operations increased $336
million and $108 million , respectively. Results for the quarter benefited from
higher revenue, primarily due to higher pipeline and terminal throughputs and
higher natural gas prices, in addition to lower operating expenses.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Midstream segment revenue and segment income from operations increased $424
million and $175 million , respectively. Results benefited from higher revenue,
primarily due to higher pipeline and terminal throughputs and higher natural gas
prices, in addition to lower operating expenses in the first six months of 2021.
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Corporate
Key Financial Information (in Three Months Ended Six Months Ended
millions) June 30, June 30,
2021 2020 2021 2020
Corporate(a) $ (180) $ (195) $ (337) $ (428)
(a)Corporate costs consist primarily of MPC's corporate administrative expenses
and costs related to certain non-operating assets, except for corporate overhead
expenses attributable to MPLX, which are included in the Midstream segment.
Second Quarter 2021 Compared to Second Quarter 2020
Corporate costs decreased $15 million largely due to cost reductions realized
from our 2020 workforce reduction and other cost control efforts.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Corporate costs decreased $91 million largely due to cost reductions realized
from our 2020 workforce reduction and other cost control efforts.
Items not Allocated to Segments
Three Months Ended Six Months Ended
Key Financial Information (in millions) June 30, June 30,
2021 2020 2021 2020
Items not allocated to segments:
Transaction-related costs(a) $ - $ - $ - $ (8)
Impairments (56) (25) (56) (9,162)
LCM inventory valuation adjustment - 1,470 - (1,715)
Total items not allocated to segments: (56) 1,445 (56) (10,885)
(a)2020 includes costs incurred in connection with the Midstream strategic
review. Costs incurred in 2020 in connection with the Speedway separation are
included in discontinued operations. See Note 4 to the unaudited consolidated
financial statements for additional information on discontinued operations.
Second Quarter 2021 Compared to Second Quarter 2020
Total items not allocated to segments included impairment expense of $56 million
in the second quarter of 2021. During the second quarter of 2020, we recognized
an LCM benefit of $1.47 billion and impairment expense of $25 million .
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Total items not allocated to segments included impairment expense of $56 million
in the first six months of 2021. During the first six months of 2020, we
recorded impairment charges of approximately $9.16 billion , which includes $7.85
billion related to goodwill and long-lived assets and $1.32 billion related to
equity method investments, and an LCM charge of $1.72 billion primarily driven
by the effects of COVID-19 and the decline in commodity prices.
Items not allocated to segments also include transaction-related costs of $8
million for the first six months of 2020 associated with the Midstream strategic
review and other related activities.
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Non-GAAP Financial Measure
Management uses a financial measure to evaluate our operating performance that
is calculated and presented on the basis of a methodology other than in
accordance with GAAP. We believe this non-GAAP financial measure is useful to
investors and analysts to assess our ongoing financial performance because, when
reconciled to its most comparable GAAP financial measure, it provides improved
comparability between periods through the exclusion of certain items that we
believe are not indicative of our core operating performance and that may
obscure our underlying business results and trends. This measure should not be
considered a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP, and our calculation thereof may not be
comparable to similarly titled measures reported by other companies. The
non-GAAP financial measure we use is as follows:
Refining & Marketing Margin
Refining & Marketing margin is defined as sales revenue less the cost of
refinery inputs and purchased products and excludes other items as reflected in
the table below.
Reconciliation of Refining & Marketing income from operations to Refining &
Marketing gross margin and Refining & Marketing margin
Three Months Ended Six Months Ended
June 30, June 30,
(in millions) 2021 2020 2021 2020
Refining & Marketing income (loss) from
operations(a) $ 224 $ (1,544) $ (374) $ (2,041)
Plus (Less):
Selling, general and administrative
expenses 499 502 955 1,058
LCM inventory valuation adjustment - 1,470 - (1,715)
(Income) loss from equity method
investments (14) 19 (19) 22
Net gain on disposal of assets - 1 (3) 1
Other income (89) (4) (143) (8)
Refining & Marketing gross margin 620 444 416 (2,683)
Plus (Less):
Operating expenses (excluding depreciation
and amortization) 2,305 2,240 4,580 5,073
LCM inventory valuation adjustment - (1,470) - 1,715
Depreciation and amortization 466 463 944 936
Gross margin excluded from Refining &
Marketing margin(b) (198) (75) (377) (184)
Other income included in Refining &
Marketing margin 82 - 82 -
Other taxes included in Refining &
Marketing margin (42) (19) (66) (43)
Refining & Marketing margin(a) 3,233 1,583 5,579 4,814
(a)LCM inventory valuation adjustments are excluded from Refining & Marketing
income from operations and Refining & Marketing margin.
(b)Reflects the gross margin, excluding depreciation and amortization, of other
related operations included in the Refining & Marketing segment and processing
of credit card transactions on behalf of certain of our marketing customers.
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LIQUIDITY AND CAPITAL RESOURCES Cash Flows Our consolidated cash and cash equivalents balance for continuing operations was approximately$11.84 billion atJune 30, 2021 compared to$415 million atDecember 31, 2020 . Cash and cash equivalents for discontinued operations was$140 million atDecember 31, 2020 . Net cash provided by (used in) operating activities, investing activities and financing activities are presented in the following table. Six Months Ended June 30, (In millions) 2021 2020 Net cash provided by (used in): Operating activities$ 1,834 $ (230) Investing activities 15,403 (2,077) Financing activities (5,954) 1,871
Total increase (decrease) in cash
Net cash provided by operating activities increased$2.06 billion in the first six months of 2021 compared to the first six months of 2020, primarily due to a favorable change in working capital of$1.31 billion when comparing the change in working capital in both periods and an increase in operating results. Changes in working capital exclude changes in short-term debt. The favorable continuing operations changes were partially offset by a decrease in cash provided by discontinued operations of$757 million which reflect the results of the Speedway business. The decrease in cash provided by discontinued operating cash flows is due to tax payments related to the gain on sale and working capital changes. Changes in working capital, excluding changes in short-term debt, were a net$347 million use of cash in the first six months of 2021 compared to a net$1.66 billion use of cash in the first six months of 2020. For the first six months of 2021, changes in working capital were a net$347 million use of cash primarily due to the effects of increasing energy commodity prices and volumes at the end of the period on working capital. Accounts payable increased primarily due to increases in crude prices and volumes. Current receivables increased primarily due to higher crude and refined product prices and volumes. Inventories increased primarily due to increases in refined product and crude inventories. For the first six months of 2020, changes in working capital, excluding the LCM reserve and changes in short-term debt, were a net$1.66 billion use of cash primarily due to the effects of decreasing energy commodity prices and volumes at the end of the period on working capital. Accounts payable decreased primarily due to decreases in crude prices and volumes. Current receivables decreased primarily due to lower crude and refined product prices and volumes. Excluding the LCM reserve, inventories decreased due to decreases in crude and refined product inventories. Net cash provided by investing activities was$15.40 billion in the first six months of 2021 compared to net cash used in investing activities of$2.08 billion in the first six months of 2020. The change from 2020 is primarily due to proceeds from the sale of Speedway of$21.38 billion and a decrease in additions to property, plant and equipment of$1.09 billion , partially offset by purchases of short-term investments of$5.42 billion . 47
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The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. A reconciliation of additions to property, plant and equipment per the consolidated statements of cash flows to reported total capital expenditures and investments follows.
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