Why did MPC's earnings and margins decline so sharply in Q4 2023?

The decline was driven primarily by lower market crack spreads. R&M margin fell to $17.79 per barrel from $28.82 a year earlier, and R&M segment adjusted EBITDA dropped to $2.2 billion from $4.6 billion. Refining operating costs were roughly flat at $5.67 per barrel, so the drop was almost entirely a pricing and margin effect rather than a cost problem.

How is MPC still returning so much capital despite lower earnings?

Full-year 2023 operating cash flow of $14.1 billion exceeded the $12.8 billion returned to shareholders. Returns were partly funded by drawing down cash: cash and equivalents fell from $8.5 billion at September 30 to $5.4 billion at December 31, 2023, though total liquidity remained at about $10.2 billion including short-term investments. Share count also fell sharply, from 386 million to 368 million shares outstanding in one quarter, which supports per-share results.

What are MPC's main capital projects and spending priorities for 2024?

MPC plans $1.25 billion of standalone capital spending in 2024, including $475 million of traditional growth, $350 million of low-carbon growth, and $375 million of maintenance in refining and marketing. Major projects include modernizing the Los Angeles refinery's utility systems and energy efficiency (completion by end-2025) and building a 90,000 barrel-per-day high-pressure distillate hydrotreater at Galveston Bay (completion by end-2027). The company says these projects aim to enhance margins, reduce costs, and address emissions regulations.

What does the Q1 2024 outlook suggest about near-term operations?

The guidance points to total refinery throughput of about 2.685 million barrels per day, refining operating costs of $5.85 per barrel (excluding turnarounds and D&A), $600 million of planned turnaround costs, and corporate expenses of $185 million. The elevated turnaround spending and higher per-barrel operating costs relative to Q4 2023 ($5.67) suggest a heavier maintenance period in the first quarter, which could weigh on near-term earnings and cash flow.

MPC 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed January 30, 2024. Cited figures are marked; the original filing is the authoritative source.

Marathon Petroleum (MPC) reported fourth-quarter 2023 net income attributable to MPC of $1.5 billion^a, or $3.84 per diluted share, versus $3.3 billion ($7.09) a year earlier.

Adjusted net income was $1.5 billion^b ($3.98 per adjusted diluted share), compared with $3.1 billion ($6.65) in Q4 2022. Adjusted EBITDA fell to $3.5 billion from $5.8 billion, driven mainly by lower market crack spreads that compressed Refining & Marketing (R&M) margins to $17.79 per barrel from $28.82. Midstream was a relative bright spot, with segment adjusted EBITDA rising to $1.6 billion from $1.4 billion on higher throughputs and rates.

For full-year 2023, net income attributable to MPC was $9.7 billion^c, or $23.63 per diluted share, down from $14.5 billion ($28.12) in 2022, while adjusted EPS fell to $23.63 from $26.16. Adjusted EBITDA was $19.0 billion versus $24.3 billion. Operating cash flow was $14.1 billion, which funded $12.8 billion of shareholder returns.

Management highlighted this as evidence of strong through-cycle cash generation. Liquidity was $10.2 billion^d of cash and short-term investments plus $5 billion of undrawn revolver capacity at year-end. Diluted share count fell meaningfully, with weighted average diluted shares down from 516 million to 409 million year over year, reflecting heavy buybacks.

Looking ahead, MPC guided to 2024 standalone (excluding MPLX) capital spending of $1.25 billion, about 65% growth and 35% sustaining, with $825 million of growth capital aimed at margin-enhancing and cost-reducing projects. Key projects include a Los Angeles refinery modernization (completion by end-2025) and a 90,000 barrel-per-day distillate hydrotreater at Galveston Bay (completion by end-2027).

MPLX guided to $1.1 billion of capital, focused on Marcellus and Permian growth. For Q1 2024, the company expects refining operating costs of $5.85 per barrel, planned turnaround costs of $600 million, and total refinery throughput of about 2.685 million barrels per day.

02—Key points

Key Highlights

Q4 2023 net income attributable to MPC was $1.5 billion ($3.84 per diluted share), down from $3.3 billion ($7.09) in Q4 2022, a decline of roughly 46% on a per-share basis.
Adjusted EBITDA was $3.5 billion in Q4 2023 versus $5.8 billion a year earlier, with full-year adjusted EBITDA of $19.0 billion versus $24.3 billion in 2022.
R&M segment adjusted EBITDA fell to $2.2 billion ($8.02 per barrel) from $4.6 billion ($17.39 per barrel), driven by lower market crack spreads; crude capacity utilization was about 91%.
Midstream segment adjusted EBITDA rose to $1.6 billion from $1.4 billion year over year, supported by higher throughputs and rates.
Full-year operating cash flow of $14.1 billion funded $12.8 billion of shareholder returns; Q4 alone returned $2.8 billion ($2.5 billion buybacks, $311 million dividends), and $5.9 billion remained under repurchase authorizations.
2024 standalone capital spending outlook is $1.25 billion (65% growth, 35% sustaining), with MPLX guiding to $1.1 billion focused on Marcellus and Permian projects.
Q1 2024 guidance calls for refining operating costs of $5.85 per barrel, $600 million of planned turnaround costs, and total refinery throughput of 2.685 million barrels per day.

03—Questions

Frequently Asked Questions

Why did MPC's earnings and margins decline so sharply in Q4 2023?
The decline was driven primarily by lower market crack spreads. R&M margin fell to $17.79 per barrel from $28.82 a year earlier, and R&M segment adjusted EBITDA dropped to $2.2 billion from $4.6 billion. Refining operating costs were roughly flat at $5.67 per barrel, so the drop was almost entirely a pricing and margin effect rather than a cost problem.
How is MPC still returning so much capital despite lower earnings?
Full-year 2023 operating cash flow of $14.1 billion exceeded the $12.8 billion returned to shareholders. Returns were partly funded by drawing down cash: cash and equivalents fell from $8.5 billion at September 30 to $5.4 billion at December 31, 2023, though total liquidity remained at about $10.2 billion including short-term investments. Share count also fell sharply, from 386 million to 368 million shares outstanding in one quarter, which supports per-share results.
What are MPC's main capital projects and spending priorities for 2024?
MPC plans $1.25 billion of standalone capital spending in 2024, including $475 million of traditional growth, $350 million of low-carbon growth, and $375 million of maintenance in refining and marketing. Major projects include modernizing the Los Angeles refinery's utility systems and energy efficiency (completion by end-2025) and building a 90,000 barrel-per-day high-pressure distillate hydrotreater at Galveston Bay (completion by end-2027). The company says these projects aim to enhance margins, reduce costs, and address emissions regulations.
What does the Q1 2024 outlook suggest about near-term operations?
The guidance points to total refinery throughput of about 2.685 million barrels per day, refining operating costs of $5.85 per barrel (excluding turnarounds and D&A), $600 million of planned turnaround costs, and corporate expenses of $185 million. The elevated turnaround spending and higher per-barrel operating costs relative to Q4 2023 ($5.67) suggest a heavier maintenance period in the first quarter, which could weigh on near-term earnings and cash flow.

04—Continue

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