01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
Marathon Petroleum Corporation (MPC) reported a strong 2012, with net income attributable to MPC of $3.39 billiona, or $9.89 per diluted share, up from $2.39 billion ($6.67 per diluted share) in 2011.
The improvement was driven almost entirely by the Refining & Marketing segment, whose income from operations rose to $5.10 billionb from $3.59 billion. The refining and marketing gross margin increased to $10.45 per barrel from $7.75, helped by wider LLS 6-3-2-1 crack spreads and a wider sweet/sour differential. Speedway and Pipeline Transportation each posted modest gains, and revenues rose to $82.2 billion.
The balance sheet and capital return picture is central for investors. MPC ended 2012 with $4.86 billionc of cash, $3.36 billion of debt (a 22% debt-to-total-capital ratio), and $7.86 billion of total liquidity. The company returned capital through dividends (quarterly dividend raised to 35 cents, $1.20 per share for 2012) and $1.35 billion of share repurchases via two accelerated share repurchase programs, which retired roughly 8% of outstanding shares.
A total of $2.65 billiond remains under repurchase authorization through December 2014. Looking forward, the February 1, 2013 acquisition of the 451 mbpcd Galveston Bay (Texas City) refinery from BP, for about $598 million plus roughly $900 million of inventory and a contingent earnout of up to $700 million, lifts crude refining capacity to about 1.7 mmbpd and adds Texas Gulf Coast capacity. Key risks flagged in the filing include refining margin volatility, tightening environmental and renewable fuel (RFS2) rules, pending litigation including a Kentucky emergency pricing suit seeking $89 million, and tax-sharing and indemnification exposure tied to the 2011 spinoff from Marathon Oil.
02—Key points
Key Highlights
- Net income attributable to MPC rose 42% to $3.39 billion ($9.89 diluted EPS) in 2012, up from $2.39 billion ($6.67) in 2011.
- Refining & Marketing income from operations reached $5.10 billion, up from $3.59 billion, as the gross margin per barrel climbed to $10.45 from $7.75.
- Speedway contributed $310 million of income from operations and Pipeline Transportation $216 million, both up modestly year over year.
- Liquidity stood at $7.86 billion at year-end 2012, including $4.86 billion of cash and an undrawn $2.0 billion revolver (expanded to $2.5 billion in February 2013).
- MPC repurchased about 8% of outstanding shares in 2012 through $1.35 billion of ASR programs and has $2.65 billion of repurchase authorization remaining through December 2014.
- Quarterly dividend increased to $0.35 per share (up 75% since the June 2011 spinoff), with $1.20 per share paid in 2012.
- The February 2013 acquisition of the 451 mbpcd Galveston Bay refinery raises crude refining capacity to about 1.7 mmbpd, roughly a 36% increase, and adds about 1,200 branded jobber retail sites.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $82.24B$78.64B | +4.6% |
| SG&A Expenses | $1.22B$1.06B | +15.5% |
| Operating Expenses | $77.14B$75.01B | +2.8% |
| Operating Income | $5.35B$3.75B | +42.8% |
| Interest Expense | $191.00M$164.00M | +16.5% |
| Net Income | $3.39B$2.39B | +41.9% |
| EPS (Basic) | $4.97$3.35 | +48.5% |
| EPS (Diluted) | $4.95$3.33 | +48.3% |
| Shares Outstanding (Basic) | 680.00M712.00M | −4.5% |
| Shares Outstanding (Diluted) | 684.00M714.00M | −4.2% |
05—Questions
Frequently Asked Questions
What drove the large increase in MPC's 2012 earnings?
Earnings growth came mainly from the Refining & Marketing segment, where gross margin per barrel rose to $10.45 from $7.75. Wider LLS 6-3-2-1 crack spreads (up about $3.36 per barrel) and a wider sweet/sour crude differential (also about $3.36 per barrel) were the main contributors, partly offset by higher turnaround and depreciation costs. The company estimated the crack-spread and sweet/sour improvements added roughly $1.68 billion and $870 million to gross margin, respectively.
How is MPC returning capital to shareholders, and how much authorization remains?
In 2012 MPC paid $407 million in dividends and repurchased $1.35 billion of stock through two ASR programs, retiring about 8% of shares outstanding. On January 30, 2013, the board extended the remaining $650 million authorization and approved a new $2.0 billion program, leaving $2.65 billion available through December 2014. Future repurchases depend on market conditions, liquidity and share price, and may be discontinued at any time.
What is the Galveston Bay acquisition and what does it cost?
On February 1, 2013, MPC acquired from BP the 451,000 barrel-per-day Texas City refinery, three NGL pipelines, four light product terminals, branded-jobber contracts covering about 1,200 sites, and a 1,040 MW cogeneration facility. The base price was about $598 million plus roughly $900 million for inventory, funded with cash on hand. BP may also receive a contingent earnout of up to $700 million over six years. MPC expects about $400 million of 2013 refining capital for synergy and infrastructure projects at the site.
What are the main risks investors should watch in this filing?
Key risks include the volatility of refining margins tied to crude prices and crack spreads; rising compliance costs from greenhouse gas, Boiler MACT, refinery sector and Tier 3 gasoline rules; RFS2 renewable fuel mandates that may depress refined product demand or require costly credit purchases; and labor contracts expiring in 2014 and 2015. Litigation includes a Kentucky emergency pricing suit alleging $89 million in overcharges. Because of the 2011 spinoff, MPC also has uncapped indemnification and tax-sharing exposure to Marathon Oil if the spinoff is found taxable.
How strong is MPC's balance sheet?
At December 31, 2012, MPC had $3.36 billion of total debt, a debt-to-total-capital ratio of 22% (down from 26%), and cash of $4.86 billion, which gives it a net cash position. Its senior unsecured debt was rated Baa2 by Moody's and BBB by S&P, both with stable outlooks. The company reported compliance with its credit agreement covenant, with a Consolidated Net Debt to Total Capitalization ratio of -0.1 to 1.00 against a 0.65 maximum. The planned 2013 capital budget of $1.62 billion, excluding the Galveston Bay acquisition, is expected to be funded from internal cash flow and liquidity.
06—Continue