Marathon Petroleum Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

Key Takeaways

  • Strong Q3 financials: Q3 EPS of $1.87, 94% refinery utilization, 96% margin capture and $3.82/barrel R&M adjusted EBITDA drove $1.9 B cash from operations (ex-working capital).
  • Durable midstream cash flow: MPLX delivered ~6% annualized EBITDA growth and boosted its quarterly distribution by 12.5%, sending $2.5 B annually to MPC to fully cover dividends and capital programs.
  • Aggressive capital returns: MPC increased its share repurchase authorization by $5 B (now $8.5 B remaining), has cut share count by over 50% since May 2021, and grown dividends at ~16% CAGR.
  • Q4 outlook assumes 2.6 M bpd throughput (90% utilization), $285 M in turnaround expense, $5.50/barrel operating costs, and $1.5 B distribution costs.
  • Focused portfolio optimization with high-return projects (e.g., ~20% IRR upgrades at LA and Galveston Bay refineries) and full Martinez renewable diesel ramp-up by year-end amid West Coast margin volatility.
AI Generated. May Contain Errors.
Earnings Conference Call
Marathon Petroleum Q3 2024
00:00 / 00:00

There are 12 speakers on the call.

Operator

Welcome to the MPC Third Quarter 2024 Earnings Call. My name is Sheila, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.

Operator

I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Speaker 1

Welcome to Marathon Petroleum Corporation's Q3 2024 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me today on the call are Mary Anne Mannin, CEO John Quaid, CFO and other members of the executive team. We invite you to read the Safe Harbor statements on Slide 2. We will be making forward looking statements today.

Speaker 1

Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I'll turn the call over to Mary Anne. Thanks, Christina, and good morning, everyone. We remain committed to peer leading operational excellence, commercial performance and profitability per barrel in each of the regions in which we operate, while being steadfast in our commitments to safely, reliably operate our assets and protect the health and safety of our employees.

Speaker 1

The global macro environment continues to exhibit refined product demand growth and we expect 2024 will be another year of record refined product consumption. Within our domestic and export businesses, we have seen steady year over year demand for gasoline and diesel and growth in demand for jet fuel. Refining margins were volatile in the Q3 as the market digested the implications of a light turnaround season, less seasonal supply interruptions than anticipated and the uncertainties around global economic growth, particularly the pace within China. By leveraging our fully integrated refining system and geographic diversification across the Gulf Coast, Mid Con and West Coast regions, our portfolio of assets is well positioned to perform in this dynamic market environment. Beyond 2024, we expect demand growth to exceed the net impact of capacity additions and rationalizations through the end of the decade.

Speaker 1

These fundamentals support an enhanced mid cycle environment for refining. The availability of low cost energy, the complexity of our facilities and our domestic and international logistical capabilities are further increase our global competitive advantage. The U. S. Refining industry will remain structurally advantaged over the rest of the world.

Speaker 1

Operational excellence and commercial execution have driven structural benefits. Our disciplined long term strategic and quick hit investments are allocated to projects that we believe will achieve attractive returns. These projects are expected to strengthen our competitiveness and position MPC well into the future. We believe prioritization of these capabilities will ensure that our assets will remain the most competitive in each region in which we operate, positioning us to deliver the strongest through cycle cash generation and lead in capital allocation. In midstream, MPLX continues to execute attractive growth opportunities anchored in the Permian and Marcellus basins.

Speaker 1

In the Q3, MPLX began operations at Preakness II, a gas processing plant located in the Permian Basin and today announced an additional processing plant in the Northeast. The Harmon Creek III project will bring Northeast gas processing capacity to 8,100,000,000 cubic feet per day and fractionation capacity to 800,000 barrels per day once completed in the second half of twenty twenty six. Executing its wellhead to water strategy, MPLX progressed its natural gas and NGL pipeline projects, including the capacity expansion of the BANGL Natural Gas Liquids Pipeline and Blackcomb Natural Gas Pipeline in collaboration with its partners. MPLX is strategic to MPC's portfolio and therefore its value proposition. Our midstream segment, which is primarily comprised of MPLX, has grown its adjusted EBITDA by over 6% on a 3 year annual compound basis through 2023.

Speaker 1

This growth and the durability of its cash flow profile supported a 12.5% increase to its quarterly distribution, increasing the expected annual cash distribution to MPC to $2,500,000,000

Speaker 2

As MPLX is able to grow its distribution, the cash flow MPC receives is expected to fully cover MPC's dividend and

Speaker 1

all of our capital programs in 2025. MPLX's growing portfolio and financial flexibility is expected to support this level of annual distribution increases in the future, strengthening the value proposition to MPC. MPC's total capital return since May 2021 has reduced MPC's share count by over 50% and following last week's announced 10% increase to MPC's dividends over the past 3 years, we have grown our quarterly dividend at a compound annual growth rate of approximately 16%. We announced an additional $5,000,000,000 share repurchase authorization. This will provide us flexibility execute our peer leading capital return commitment.

Speaker 1

Given our highly advantaged refining business and the $2,500,000,000 annualized distribution from MPLX, we are positioned to lead peers in capital return through all parts of the cycle. MPC generated 3rd quarter earnings per share of $1.87 This quarter, we delivered refining utilization at 94%, reflecting our operational excellence and value chain optimization. Utilization in the West Coast and Mid Con regions was in the upper 90s, demonstrating strong reliability. Utilization in the U. S.

Speaker 1

Gulf Coast region reflected execution of turnaround activity. The team executed to deliver capture of 96%, reflecting strong commercial performance in a volatile market. Our capture improved by 2%, exceeding the rate of improvement achieved by our closest peers. This performance drove R and M segment adjusted EBITDA of $3.82 per barrel and cash from operations excluding the impacts of working capital of $1,900,000,000 And in the 3rd quarter, we continue to lead our peers in capital return. The capabilities we have built provide a sustainable advantage and we expect to continue to see the impact on our quarterly results.

Speaker 1

Let me turn the call over to John.

Speaker 2

Thanks, Mary Anne. Slide 5 shows the sequential change in adjusted EBITDA from 2nd to Q3 2024, as well as the reconciliation between net income and adjusted EBITDA for the quarter. Adjusted EBITDA was lower sequentially by approximately $900,000,000 driven by decreased results in our Refining and Marketing segment. The tax rate for the quarter was 10%, reflecting the earnings mix between our R and M and Midstream businesses. Moving to our segment results, slide 6 provides an overview of our refining and marketing segment for the Q3.

Speaker 2

Lower crack spreads reduced per barrel margin sequentially. Our refineries ran at 94% utilization, processing nearly 2,800,000 barrels of crude per day. Refining operating costs were $5.30 per barrel in the 3rd quarter, higher sequentially primarily due to lower throughputs and higher project related expenses associated with increased turnaround activity. Slide 7 provides an overview of our refining and marketing margin capture of 96% for the quarter, an improvement of 2% from the 2nd quarter. The improvement was primarily driven by our operational and commercial teams execution of value driven secondary product strategies as prices strengthened relative to gasoline quarter over quarter.

Speaker 2

This was partially offset by clean product margins declining sequentially and we also continued to see headwinds from our renewables business during the quarter. Slide 8 shows our midstream segment performance for the quarter. Our midstream segment continues to deliver cash flow growth. Segment adjusted EBITDA was flat sequentially, but increased approximately 6% year over year, primarily due to higher throughputs and rates. MPLX remains a source of durable earnings growth as it advances projects targeted to enhance our natural gas and NGL value chains.

Speaker 2

Slide 9 presents the elements of change in our consolidated cash position for the Q3. Operating cash flow, excluding changes in working capital, was $1,900,000,000 in the quarter, driven by both our refining and midstream businesses. Working capital was a $179,000,000 use of cash for the quarter, primarily driven by decreases in crude prices. This quarter, capital expenditures, investments and acquisitions were $922,000,000 including $210,000,000 for MPLX's acquisition of an additional 20 percent interest in the BANGL pipeline. MPC utilized cash to repay $750,000,000 of debt due in the quarter, which we plan to refinance.

Speaker 2

MPC returned $2,700,000,000 through share repurchases and $273,000,000 in dividends during the quarter. And in October, we repurchased $500,000,000 of MPC shares. At the end of the Q3, MPC had approximately $5,100,000,000 in consolidated cash and short term investments, including MPLX cash of $2,400,000,000 Turning to slide 10, our capital allocation priorities remain consistent. Our number one priority is sustaining capital. We remain steadfast in our commitment to safely operate our assets and protect the health and safety of our employees and the communities in which we operate.

Speaker 2

We are committed to paying a secure, competitive and growing dividend. We will invest where we believe there are attractive returns, which will enhance our competitiveness and position MPC well into the future. After meeting those requirements, we will return all excess capital through share repurchases, even as we approach a more normalized balance sheet. And including the additional $5,000,000,000 announced this morning, we currently have $8,500,000,000 remaining under our share repurchase authorizations, highlighting our commitment to superior shareholder returns. As Mary Anne highlighted earlier, with our highly advantaged refining business and the $2,500,000,000 annualized distribution from MPLX, we are positioned to lead peers in capital returns through all market cycles.

Speaker 2

Turning to guidance on slide 11, we provide our 4th quarter outlook. We are projecting crude throughput volumes of just over 2,600,000 barrels per day, representing utilization of 90%. Turnaround expense is projected to be approximately $285,000,000

Speaker 3

in

Speaker 2

the 4th quarter with activity focused in the Mid Con region. Operating costs are projected to be $5.50 per barrel. Distribution costs are expected to be approximately $1,500,000,000 and corporate costs are expected to be $200,000,000 in the quarter. In summary, on slide 13, this quarter our R and M segment generated $1,100,000,000 of adjusted EBITDA and our midstream segment delivered $1,600,000,000 of adjusted EBITDA. We invested $922,000,000 in the business and returned $3,000,000,000 of capital.

Speaker 2

With that, let me pass it back to Mary Anne.

Speaker 1

Thanks, John. We are unwavering in our commitment to safe and reliable operations. Operational excellence, commercial execution and our cost competitiveness yield sustainable structural benefits and position us to deliver peer leading financial performance in each of the regions in which we operate. To deliver this, we will optimize our portfolio to deliver outperformance now and in the future. We'll leverage our value chain advantages and ensure the competitiveness of our assets while continuing to invest in our people.

Speaker 1

Our execution of these commitments position us to deliver the strongest through cycle cash generation. Durable midstream growth is expected to deliver cash flow uplift. Investing capital where we believe there are attractive returns will enhance our competitiveness now and for the future. We are committed to leading capital allocation and will return excess capital through share repurchases. MPC is positioned to create exceptional value through peer leading performance, execution of our strategic commitments and its compelling value proposition.

Speaker 1

Let me turn the call back to Kristina. Thanks, Marianne. As we open the call for questions, as a courtesy to all participants, we ask that you listen to yourself to one question and a follow-up. If time permits, we'll be prompt for additional questions. Sheila, we are ready.

Operator

Thank you. We will now begin the question and answer session. Our first question will come from Neil Mehta with Goldman Sachs. Your line is open.

Speaker 4

Good morning, Mary Anne and team. Thanks for the rundown and good quarter here. I thought the first topic, it'd be good to get your perspective on was capital returns. As you As we thought about 2024, you've been kind of run rating $2,500,000,000 of buybacks a quarter. And as we as you think about 2025, the forward curve and your view of enhancement cycle relative to your cash balances, just curious on your perspective on the level for 2025.

Speaker 4

It seems like $1,500,000,000 is what most investors are calibrating to and that ties into the $500,000,000 you did in October. But just your perspective on the quarterly run rate of buybacks would be helpful.

Speaker 1

Yes. Good morning, Neil, and thank you. First and foremost, we are committed to leading our peers in capital returns through all parts of the cycle. And that means returning all cash after our requirements to shareholders. When we think about mid cycle, there's no doubt we see volatility.

Speaker 1

We've seen it in the last quarter, and that volatility could continue. But we remain constructive on the long term when we look at the demand profile over the next decade, we look at the net, if you will, between capacity additions that are coming online. We don't see anything beyond 2026. And you look at sort of the capacity that's actually coming offline as well. We think over the long term that remains an extremely constructive environment for us to operate.

Speaker 1

You mentioned a comment about sort of how we think about share repurchase beyond that period. Look, one of the things that we are trying to achieve is our peer leading performance in all of the regions we operate. We're going to do that through commercial performance. We're going to do that through our operational excellence. Therefore, we should have the strongest cash flow through cycle.

Speaker 1

And when we do that, we should then have the ability to lead our peers in capital allocation.

Speaker 5

Contributing to that, as

Speaker 1

I was mentioning in my Contributing to that, as I was mentioning in my comments, is the durability of that midstream business. We saw the 12.5% increase in the distribution that we announced a few days

Speaker 3

ago, and that brings

Speaker 1

about 2,500,000,000 to, And that brings about $2,500,000,000 to MPC on an annual basis, covers the MPC dividend, which as you know, we just increased. And the capital, although we haven't given our capital guidance for 2025, highly likely it's going to cover our capital for 2025 as well. So again, just summarizing here, we expect that when we perform in this manner, we will have the strongest through cycle cash flow and we'll be able to lead our peers in our capital allocation through share repurchase.

Speaker 4

Okay, Maryann. We'll stay tuned. Thanks. And then the follow-up is just on the West Coast, very volatile, tough environment in Q3. Things seem to be

Speaker 1

getting better in Q4 and

Speaker 4

then you had the big announcement in LA around retirement. So how do you think about the West Coast setup and some of the moving pieces as we go into the next year?

Speaker 1

Yes. Thanks, Neil. First, I think as we've been sharing over the last several quarters, we believe in our West Coast, we have one of the most competitive assets in the region. If you take a look at our performance in this quarter, we think the results on the West Coast demonstrate that. We've got a fairly sophisticated set of assets in that region.

Speaker 1

It's a region where we have been monitoring for a long period of time. Frankly, if you go back to as early as 2020, we have been assessing the performance in that region and our ability to be profitable. We made a decision at that point in time to shutter the Martinez asset as a traditional fossil fuel refinery. So again, when we look at the capability of that asset, we look at the access waterborne, we look at our crude sourcing, we look at the capability for Canadian coming out of TMX. We think over the long term, those decisions that others are making as well bode well for us and we remain committed to that West Coast region.

Speaker 4

Thank you, Mary.

Operator

Next, we will hear from Doug Leggate with Wolfe Research. You may proceed.

Speaker 6

Thank you. Good morning, everyone. Thanks for taking my questions. Marianne, I apologize for following up on the cash return question, but post-twenty 26 is 2 years away for a rebalancing of global capacity. Let's assume things remain soft on a margin outlook for a period of time.

Speaker 6

How much tolerance are you prepared to have on your balance sheet at the MPC level to fund your cash returns? I wonder if you could put a limit on where you would allow your balance sheet to get to?

Speaker 1

Yes. Good morning, Doug. One of the things we've shared for a period of time is the comfort that we have with our cash balance. And we remain comfortable, as we've shared in the past, that about $1,000,000,000 is where we think our cash balances need to be on the MPC side. And again, part of that comfort comes from historically as we weathered other things like COVID, etcetera, and liquidity evaluations.

Speaker 1

2nd, as I mentioned, we do have the benefit of our mid stream cash flow, that durability of that stream $2,500,000,000 coming to MPC. When we think about cash allocation, therefore, capital allocation, again, we intend to lead in capital allocation as we execute on the things that I mentioned. We should be able to have the strongest performance peer leading in each of the regions we operate, generating strongest cash flow and then we'll return that cash, not necessary for other requirements, via share buyback. So again, while the total may look different, the commitment and the framework that we have been implementing doesn't change as we watch that mid cycle return.

Speaker 6

So just to be clear, where would you like to see your net debt? Is there a limit?

Speaker 1

Yes. On the MPC side, we've always talked about being in a range of 25% to 30% debt to capital and that's a gross number. And we remain comfortable in that position. Today, we're sitting on under $6,500,000,000 of debt. That's simply because we've got about a $750,000,000 refinance and we intend to refinance that.

Speaker 1

We felt like when we looked at market environment and other volatility happening, it was beneficial for us to evaluate that. So that $750,000,000 is intended to be refinanced. It was a shorter term decision as we look for opportunities to put that debt back on the balance sheet at better rates.

Speaker 6

Thanks for the clarification, Mary Anne. I guess my follow-up is related to your prepared remarks. I don't think I've heard you say this before, so I wonder if I could ask you to elaborate. We will optimize our portfolio to obviously maximize returns. It sounds like under your leadership, there is a is there a portfolio review underway?

Speaker 6

Is there something that you're not happy within the asset base? And I guess specifically, you still have a decent amount of equity interest in multiple pipelines that I guess could potentially be monetized. So I wonder if you could just elaborate on what you meant by optimize our portfolio?

Speaker 1

Yes. Certainly, Doug. No, nothing different. One of our strategic pillars for a long time is ensuring the competitive nature of all of the assets in our portfolio. And so my comment there is our commitment that we are going to continue to evaluate those assets in the portfolio.

Speaker 1

Today, all of those assets are cash flow positive, but we'll ensure that, that competitive nature of those assets continues both today

Speaker 5

and

Speaker 1

in the future. So it is merely our commitment to ensure the competitive nature of our assets, not anything different intended by that comment.

Speaker 6

Great stuff. Thanks so much.

Speaker 1

You're welcome, Devin.

Operator

Our next question will come from Manav Gupta with UBS. Your line is open.

Speaker 5

Good morning. My question is around the capital investment you're making. You've highlighted high return My question is around the capital investment you're making. You highlighted high return

Speaker 3

investments in Los Angeles and Galveston Bay refineries. Can you help us

Speaker 5

remind exactly what kind of projects you're doing over there? And obviously, to follow-up a little bit on the Neil's question, your competitors are looking to shut refineries on the West Coast and you're actually making an investment in Los Angeles. So help us understand that.

Speaker 1

Certainly. Good morning. So let me start with the West Coast. We talked earlier this year about an investment that we are making in our LA assets. We think that investment with roughly a 20% return, 1, helps us reduce Scope 1, Scope 2 emissions gives us operational efficiency, reduces cost and ultimately will

Speaker 5

improve

Speaker 1

our competitiveness in that region in addition to giving us compliance for NOx submissions. But a 20% return given the strength of that asset in the West Coast and what we believe to be certainly a competitive asset, we think is an appropriate commitment to capital in that region. The other question that you were referencing or project excuse me Manav was the project, the DHT in Galveston Bay. And again, another one that we talked about this year, follow on to our star project. This allows us with a similar return in that 20% range, allows us to convert high sulfur diesel to ultra low sulfur diesel.

Speaker 1

And particularly when you look at the curves going forward, again, we think will give us further competitive advantage on the U. S. Gulf Coast given the strength of our asset there in that region. Let me pause and see if that answers your question.

Speaker 5

No, that's perfect, Mary. And my follow-up is a little bit on the midstream side. 12% 12.5% distribution growth, it kind of is getting you to a point where you can grow MPC distribution as well as cover the CapEx. Just I'm trying to understand, are the opportunities you're looking in exclusively organic? Your press release is saying you can grow that 5% EBITDA organically, but are you also open to small bolt on deals or JVs in minority interest in projects to grow your midstream business?

Speaker 1

Yes. Thank you for the question. So you're correct. We increased that MPLX distribution, as you say, 12.5% just a few days ago, really on the strength, the durability of our cash flows based on over the last 3 years, we've seen EBITDA grow at just under 7%. We've seen our distributable cash flows just under 8%.

Speaker 1

We believe there are a series of organic projects that can help us fuel that mid single digit growth. One of the things that we you don't see necessarily when you look at the amount of capital that we're putting to work in MPLX is the strength of our JVs. And as we grow those JVs that allocation is not included in the capital. So that's another source of continued growth for us. The other comment that you made also was really around our growth strategy that what we call our wellhead to water strategy.

Speaker 1

And we think we've provided examples here. The increase in the BANGL ownership as we're looking at our NGL and nat gas and frankly crude value chains as well. That wellhead to water strategy is anchored in the Permian. We think those opportunities there to continue to capture the full value chain are extremely supportive of our ability to continue to support mid single digit growth in MPLX. And then the comment about whether or not we would look at other bolt ons.

Speaker 1

If you look at the decision we made in the Utica, we think the opportunity for the Utica to increase utilization. We made we did a transaction to buy out rest of our JV partner there in the Q1 summit. So we think we've got good examples of where we can continue to grow in mid single digit growth.

Speaker 5

Thank you so much.

Speaker 1

You're most welcome.

Operator

Next, we will hear from Paul Cheng with Scotiabank. Your line is open.

Speaker 7

Thank you. Good morning, guys.

Speaker 1

Good morning, Paul.

Speaker 7

Marianne, it looks like in the Q3, your throughput is really good, much better than your previous guide. And then your turnaround expenses, I was just curious that do you have a breakdown? How much of the better than expected throughput is due to better executed turnaround? And how much is just the base operation or lesser untrained downtime than you expected? And also from that standpoint, is the turnaround, have you changed the process how you're doing it?

Speaker 7

In other words, that the improvement we see in the Q3, is that repeatable?

Speaker 1

Yes. Thanks for the question, Paul. One of the things that I wanted to be sure that we talk about is our commitment to our operational performance. And you can see as we've shared our commitment to peer leading operational performance as well. We talk about commercial performance giving us sustainable benefits.

Speaker 1

Clearly, our operational performance, including our safe and reliable operations has given us sustainable benefits as well. I'm going to ask Tim to talk a little bit about the strength of those capabilities and what it's done frankly with respect to our turnaround capabilities?

Speaker 8

Hello, Paul. Hey, we're routinely in the 1st quartile of Solomon on the turnaround performance. I think you probably recognize that from the past. And that's really based on our best in class procedures and processes that we have. But we're not standing still at all.

Speaker 8

We're continuing to improve and tweak these processes over time. And what we found really is that our when we execute our turnaround outages using this consistent approach, we do so across all of the facilities and that leads to good results. I'd also point out that our large scale really allows us to assist the smaller plants, which then enables us the consistent performance regardless of the location. So I think that's another key benefit that you're seeing come through. And I'd also like to maybe take the opportunity to give a shout out to our teams as we had outstanding safety and environmental performance during our 4 fall turnarounds.

Speaker 8

So we had like 0 OSHA recordables, 0 lost time injuries, no significant environmental events all during these turnarounds this fall. So I think this is just yet another example of our safe and reliable focus and our operational excellence mindset. So hopefully that helps.

Speaker 7

That's great. Mary Anne, can I ask the renewable diesel business? I think you are probably not making money in Matinsa at least. And if we assume the margin environment remains flat at this level, What's the and after we take into consideration of the margin loss due to from BTC transition to PTC, what's the path to profitability? I mean, what internally you are doing that will be able to allow you to actually bridge the gap and be able to push it back up to making money?

Speaker 1

Yes. Thanks for the question, Paul. So on Martinez, first of all, as we have shared, we expect that by the end of the Q4, we will have Martinez returning to full nameplate capacity on plan, right? And that's a range of about 48,000 barrels a day. When you talk about profitability, I actually make a comment here on the West Coast.

Speaker 1

As we are ramping up, the challenges of profitability are there. If you exclude the impact of Martinez in our West Coast performance, our West Coast performance is actually positive in the quarter. As we go forward, we certainly believe that at full nameplate, we will be profitable, frankly, one of the more profitable renewable diesel facilities. I'm going to pass it to John because I think you had some questions also around BTC, and John's going to take you through that.

Speaker 2

Yes. Thanks, Mary Anne. Good morning, Paul. I mean, Mary Anne really hit on it. The main factor for our Martinez facility, and we're on track to do this, is to get it back up to full capacity, again running the advantaged feedstocks we can run there.

Speaker 2

So and Paul, as we look at that transition rate as BTC right now is set to expire, here comes PTC. We're still waiting on regulations, etcetera. We'll prepare for all scenarios, but we would see longer term, the market will balance that out. But the key for us to be profitable on the West Coast is where we are now and being on track to getting back up to full capacity. Thanks.

Speaker 2

I

Speaker 4

hope that helps. You're welcome.

Operator

Our next question will come from Roger Read with Wells Fargo. You may proceed.

Speaker 9

Yes, thanks. Good morning. Maybe a couple of operational questions with some of the changes here. As we look at the West Coast and the changes coming here in, I guess, early 'twenty six, but maybe even a little sooner with some sort of unplanned downtime type items. How do you think about the incremental barrels coming to California?

Speaker 9

We've heard talk about it would be an Asian barrel. Historically, we would have said maybe Gulf Coast or even parts of Europe can bring California spec in, but we've got closures coming in both of those locations. California though relative to the rest of your fleet and really the U. S. In general is pretty expensive place to operate.

Speaker 9

So what do you think about in terms of an incremental margin as California becomes more dependable or more dependent, excuse me, on an imported barrel?

Speaker 10

Yes. Hey, good morning, Roger. It's Rick. So if you I won't speak for our competitors, but when you look at what has happened in the past, we believe it will most likely be an Asian barrel. South Korea is a logical choice.

Speaker 10

And I will tell you, Roger, that that will introduce some new nuances to the State of California. We believe that could cause more volatility. You have increased transit time and you have market disruptors in terms of additional transportation costs to bring a barrel in. But specifically, I would tell you South KoreaAsia will be the primary market where we believe imports would come from.

Speaker 9

Okay. And then, on the Gulf Coast, we do have a company that's going to be closing one of their units in January. They've pretty much confirmed that here in the last few days. Any thoughts on what that means for crude availability on the Gulf Coast? I mean, generally a heavy crude unit, you've got heavy crude units on the Gulf Coast.

Speaker 9

Does it matter? Does the crude just go elsewhere and it doesn't really affect differentials? Just any thoughts along those lines?

Speaker 10

Yes. Great question, Roger. So they are a big buyer of Canadian crudes. And as you know, the Gulf Coast market has a large appetite for it. When you rebalance a market, there will be winners and losers.

Speaker 10

And I will say that more incremental capacity into the Gulf Coast is a very good thing for the spread, we believe. And we should reap the benefits of that, especially at our Galveston Bay refinery.

Speaker 3

Okay. Thank you.

Speaker 10

You're welcome. Thank you, Roger.

Operator

Our next question comes from John Royall with JPMorgan. Your line is open.

Speaker 3

Hi, good morning. Thanks for taking my questions. So my first question is just on seasonality within capture rates. You're tracking somewhere in the mid-90s on capture year to date. And when I look at the past couple of years, there's obviously always some quarter to quarter volatility, but that's not out of the ordinary for 1Q through 3Q.

Speaker 3

But 4Q has historically tended to be a big quarter from a capture perspective. So my question is, do you consider the year to date capture to be generally in line with what you would typically expect? And recognizing that there are a lot of moving pieces, but if you have a more kind of seasonally normal 4Q, could we expect the full year to average somewhere around that 100% range still?

Speaker 1

Yes. Good morning, John. Thanks for your question. I think when we talk about capture, we think our commercial performance is a key deliverable, particularly as we try to execute to be the most competitive in each region where we operate. To your point, if you look at the last several 4th quarters of our performance, our capture in the Q4 has been greater than the capture in the prior three quarters.

Speaker 1

There is nothing in the Q4 of 2024 that would tell us that that behavior should be anything different at this point in time.

Speaker 3

Great. That's exactly what I was looking for. Thank you. And next one is maybe for John. If you could maybe talk a little bit about the potential timing for refinancing of the debt that you took out at the MPC level and what the use of proceeds could be there.

Speaker 3

Should we think about the 3Q buyback as maybe being held back a bit by that cash outflow and therefore by the same token maybe we can expect the proceeds to go back to the buyback?

Speaker 2

Yeah. Thanks for the question, John. I mean, as we discussed before, that was a maturity. We took the advantage of the flexibility of our balance sheet to opportunistically look to refinance that at the right time. We want to get maybe past an election and some other things before we look to do that, but we'll do that at the right time.

Speaker 2

Again, to the earlier comments, we'll be comfortable with that level of debt as we look out longer term. So again, just trying to leverage some of the flexibility of the balance sheet to get the most optimal cost of that debt when we look to refinance it.

Speaker 3

Thank you.

Speaker 5

You're welcome, John.

Operator

Our next question will come from Jason Gabelman with TD Cowen. You may proceed.

Speaker 11

Good morning. Thanks for taking my questions.

Speaker 1

Good morning, Jason.

Speaker 11

I wanted to go back to the shareholder returns and focus on this minimum $1,000,000,000 of cash balance. And I guess the question is more about timing of getting to that $1,000,000,000 And as we think about heading into a weaker environment next year, are you looking to maybe retain a bit more cash above that cash balance so that you can deploy the excess cash on the balance sheet towards the buyback in a weaker environment? Or how do you exactly think about the timing of drawing that down? Thanks.

Speaker 2

Hey, morning, Jason. It's John. I'll take that. Look, when we look at that $1,000,000,000 target, that's what we look at minimum cash through a down cycle, right? That's what we're analyzing.

Speaker 2

So we remain very comfortable with that amount and there's a couple of reasons why. You've heard a lot on the call today how we're confident in the competitiveness of our operations in each of the regions we operate and the things we are working on to drive positive cash flow. And then we have got this fantastic midstream investment in MPLX that continues to grow its distribution and drive $2,500,000,000 right now of annualized distributions back to MPC. So, all of those factors are why we're very comfortable with that $1,000,000,000 and it might differentiate us from maybe some of our peers that don't have that same business set. Hopefully, that helps.

Speaker 2

Yes, it does. Thanks. You bet. The other

Speaker 11

Yes, it does. Thanks. The other question just on the quarterly results, you had mentioned that your capture trended better than peers. Just wondering if there's anything specific that drove that that you could call out in the quarter or if it's something more structural? Thanks.

Speaker 10

Hi, this is Rick. I really would have to give a huge shout out to our Specialty Products teams. So oftentimes Specialty Products is a headwind, but when a market turns, it's only as good as your team executing on the market turning. And when I think of some specific commodities that we don't often talk about, when I think of asphalt pet chems, butane and propane, we really did a great job. The team was phenomenal at capturing that market when it was there within the quarter.

Speaker 10

And I really am proud of them and I truly believe they outperformed our competition. That I would say is the largest single call out.

Speaker 11

Okay. Sounds good. Thanks.

Speaker 4

You're welcome, Jay.

Operator

And that is all the time that we have for questions today.

Speaker 1

Great. Thank you so much for joining us on our call today. If you should have follow-up questions, please reach out. The IR team is available all day to help you with your questions. Thank you, everybody.

Operator

That does conclude today's conference. Thank you for participating. You may disconnect at this time.

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