Marathon Petroleum Corp (MPC) 2011 Q4 法說會逐字稿

Welcome to the Marathon Petroleum Corporation fourth-quarter 2012 earnings conference call.

My name is Sandra and I will be your operator for today's call.

(Operator Instructions).

Please note that this conference is being recorded.

I will now turn the call over to Ms.

Pam Beall.

Ms.

Beall, you may begin.

Thank you, Sandra.

Welcome, everyone, to Marathon Petroleum Corporation's earnings webcast and conference call.

Synchronized slides that accompany the call can be found on our website, MarathonPetroleum.com.

On the call today are Gary Heminger, President and Chief Executive Officer; Garry Peiffer, Executive Vice President of Corporate Planning and Investor & Government Relations; Don Templin, Senior Vice President and Chief Financial Officer; and Mike Palmer, Senior Vice President of Supply, Distribution, & Planning.

Before we get started, I'd like to direct your attention to the forward-looking statement disclaimer contained on slide two.

And in summary, it says that statements on this conference call that state the Company's or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provision under federal securities laws.

There are many factors that could cause actual results to differ from our expectations, including those we've already described in our files with the Securities and Exchange Commission.

Now, I'd like to turn the call over to Gary.

Thanks, Pam, and good morning to everyone.

Before I comment on our performance for 2011, I want to draw your attention to the announcements we made earlier today about the additional steps we are taking to enhance value for our shareholders.

Since our spinoff from Marathon Oil in June of last year, we have remained focused on completing the transition effectively and efficiently and fully implementing our business strategy.

An important aspect of our path forward has been to carefully consider, along with our Board of Directors, the best use of our cash for the benefit of our shareholders.

Given our strong balance sheet and healthy liquidity position, we believe now is the time to enhance value by returning capital to our shareholders.

We have the opportunity to do with the authorization we announced this morning to repurchase up to $2 billion of our stock over the next two years.

We are confident in our future and believe Marathon Petroleum represents a good investment opportunity, and we can think of no other company that we'd rather invest in.

In addition, today we announced a $0.25 per share quarterly dividend.

We believe this ongoing dividend yield is one of the strongest among independent refiners and also reflects our confidence in the business to generate cash through the business cycles.

The second strategic initiative to enhance shareholder value is a thorough evaluation of alternatives for our midstream assets and the potential formation and initial public offering of a master limited partnership.

The valuation will take some time, but we have already begun the process.

As you know, our number one financial priority as an independent company has been to maintain our investment-grade credit profile.

Therefore, we will need to review any midstream proposal and the credit implications with the rating agencies before we can finalize and disclose a specific approach.

If we determine we should pursue an initial public offering of an MLP, we would not expect to file a registration statement before the end of the second quarter of this year.

We will share more information with you regarding our evaluation and plans as they develop, and to the extent permitted by federal securities laws.

However, to avail our sales -- ourselves of the Safe Harbor provisions of federal securities laws, we are not in a position to provide additional information or answer further questions on this initiative during the call today.

Some of you may ask, why now or what has changed our perspective on these strategic initiatives.

The simple reason is that a return of capital to our shareholders and the potential formation of an MLP have always been part of our considerations, and we have listened carefully to the perspectives of our investors since we launched MPC just seven months ago.

The level of attention and focus these initiatives have received from our investors over the last several months has helped guide our thinking and prioritization around how best to enhance value for our investors.

Our mission continues to be value creation for our investors, and we believe that now is the appropriate time to pursue these strategic initiatives.

Now, let's turn our attention to the results for 2011.

I'm very pleased with our 2011 performance overall.

Net income of $2.4 billion, or $6.67 per share, for the full year of 2011 exceeded any of the previous four years.

And we ended the year with over $3 billion of cash and a cash-adjusted debt to capital ratio of 2%.

We remain highly focused on operations while we successfully completed our transition to an independent public company.

In addition to the strong financial performance, our employees maintained an excellent safety record, and our Detroit Heavy Oil Upgrade Project ended the year on budget and slightly ahead of schedule.

Speedway, our retail segment, performed very well and finished the year with a stronger fourth quarter than 2010, despite the fact that the comparable quarter included income for two months from the 166 convenience stores that were sold in December of 2010.

Changing crude supply patterns and growth of North American crude oil production created opportunities and challenges for the industry during 2011.

Our team executed on our capabilities to increase our throughput of WTI-priced crudes, which represented 29% of the crude we refined during the fourth quarter of 2011, up from 23% in the same quarter of 2010.

While we are pleased with the results for the full year, several factors included significant volatility in the price of crude oil and the refining business caused a small loss of $75 million, or $0.21 per share, for the fourth quarter of 2011.

As we look forward to 2012, our strategic focus will be on our allocation of capital between internal and external investments; our enhanced return of capital initiatives; the evaluation of strategic alternatives for our midstream assets, including the possible formation and initial public offering of an MLP; and a more extensive investment in our Speedway retail segment.

Our operating focus will continue to be on operating our facilities in a safe and environmentally sound manner and on the successful completion and start-up of our Detroit Heavy Oil Upgrade Project.

We will also commence multiyear projects to expand the Company's distillate production and export capacity, and make investments in logistics opportunities related to the emerging oil production in the mid-continent and the Utica shale.

Now I will turn the call over to Don Templin, our Chief Financial Officer, to provide a more detailed financial update on the fourth quarter and full year.

Don?

Thanks, Gary.

Slide four provides net income both on an absolute and per-share basis.

As Gary mentioned, for the full-year 2011 we performed very well.

MPC earned nearly $2.4 billion, almost $1.8 billion over the prior year.

However, the fourth quarter was more challenging as a result of the rapid rise -- rapid increase in WTI crude oil prices.

The fourth-quarter 2011 net loss of $75 million compares to net income of $230 million in the fourth quarter of 2010.

The waterfall chart on slide five shows by segment the change in net income from the fourth quarter of 2010 to the fourth quarter of 2011.

The primary driver for the change in our net income was the decrease in refining and marketing segment income, partially offset by a reduced income tax expense.

Before I move to a discussion of the results of our operating segments, I wanted to comment briefly on the changes in income taxes and in interest and other expense.

State income tax expense changes were the primary driver of the favorable tax impact.

A combination of apportionment factor updates, primarily associated with the Company's current and forecasted level of export sales, led to the beneficial state tax provision.

Moving to interest and other items, the $50 million change quarter to quarter primarily relates to the interest expense on our $3 billion in senior notes, higher employee benefits costs, as well as costs associated with being a stand-alone company.

As shown on slide six, refining and marketing segment income from operations was a loss of $182 million in the fourth quarter of 2011, compared with income of $303 million in the fourth quarter of 2010.

The change was primarily the result of a lower refining and marketing gross margin.

We recognize that due to the rapid change in WTI and other crude oil differentials, the market indicators we have historically referenced and provided on our investor website may not have allowed for a complete understanding of this quarter's results.

To provide additional clarity around the factors affecting the refining and marketing gross margin, we have expanded the number of market indicators we are referencing.

Where applicable, the changes in market indicators have been applied to MPC actual volumes to allow for incremental analysis of the financial impact on our results.

Within the next week, we will also be posting this expanded information on our investor website.

We believe these changes provide additional transparency and will be helpful in analyzing our results.

Now let me turn to the significant items impacting our results.

First, the blended LLS 6-3-2-1 Crack spread was $0.52 per barrel lower in the fourth-quarter 2011 than in the fourth-quarter 2010, resulting in an estimated unfavorable variance of $66 million.

The rapid increase in the price of WTI impacted our Sweet/Sour differential, which accounted for an estimated unfavorable variance of $492 million.

The Sweet/Sour differential for the 2011 fourth quarter was $0.97 per barrel, which was $7.63 per barrel lower than the comparable quarter last year.

WTI-based crudes accounted for approximately 29% of the crude we processed during the fourth quarter, six percentage points higher than the fourth quarter of 2010.

This increase in volume and a $12.64 per barrel LLS to WTI differential created an estimated $428 million favorable gross margin variance between the two quarters.

The rapid increase in the price of WTI also affected the price of our LLS purchases.

On average, the delivered LLS crude cost was $6.58 higher than the Prompt LLS price during the fourth quarter of 2011 when compared to the fourth quarter of 2010.

This accounted for an estimated unfavorable variance of $154 million.

Market structure was also unfavorable during the quarter.

There was a $1.01 per barrel less of contango in the NYMEX WTI market structure in the fourth quarter of 2011 compared to the fourth quarter of 2010, with an estimated impact of $93 million.

The other gross margin column captures a number of other factors that need to be considered when reconciling the market-based metrics to the change in our gross margin.

They include items such as actual realized prices, refinery yields, other feedstock costs, and crude slate variances compared to the market indicators, as well as refinery volumetric gains and purchase for resale activity.

Slide seven provides a similar earnings walk for the refining and marketing segment on a year-over-year basis.

The blended LLS 6-3-2-1 Crack spread was $0.71 per barrel higher in 2011, resulting in a favorable variance of $349 million when compared to 2010.

Sweet/Sour differential accounted for favorable variance of $277 million as the differential was $1.54 per barrel higher than the average for 2010.

On average, we processed 5% more WTI-based crude during 2011 compared to 2010.

This increase in volume and a higher WTI to LLS differential of $14.04 per barrel resulted in an estimated $1.7 billion favorable gross margin variance between the two years.

Although it was a material factor in our fourth-quarter results, the effect of the LLS Prompt versus delivered price variance was not significant when comparing the annual results.

The total Prompt versus LLS delivered crude variance accounted for an approximately $34 million positive impact in the full-year comparison.

Market structure had an estimated unfavorable variance of $93 million.

There was $0.35 per barrel less of contango in the NYMEX WTI market structure in 2011 compared to 2010.

In addition, our average refinery throughputs were 1.358 million barrels per day during 2011, compared to 1.335 million barrels per day during 2010.

This increase in throughputs was achieved despite the absence of the Minnesota refinery and related assets, which were sold at the beginning of December 2010 and which were included in the 2010 average.

On the next few slides, we include earnings walks for each of our other operating segments.

Speedway's income from operations was $73 million in the fourth quarter of 2011, compared with $65 million in the fourth quarter of 2010.

Total light product and merchandise margin increased $25 million quarter over quarter.

This increase was partially offset by the absence of the 166 convenience stores that were part of the December 2010 sale of our Minnesota-related assets.

On a same-store basis, gasoline sales decreased 0.4% and merchandise sales increased 0.7% in the fourth-quarter 2011 compared with 2010.

The lower same-store gasoline sales primarily reflect the impact of the higher absolute price of gasoline.

Speedway's average retail gasoline price was $3.20 per gallon during the fourth quarter of 2011, compared with $2.81 per gallon for the comparable quarter last year.

In January 2012, we've continued to see lower demand, with an approximately 2.5% decrease in same-store gasoline sales.

Speedway's income from operations for 2011 was $271 million, compared with $293 million in 2010.

Light product and merchandise gross margin increases were primarily offset by the absence of the Minnesota asset sale locations.

Slide nine shows fourth-quarter and full-year changes in our pipeline transportation segment income.

Income from operations was $38 million in the fourth quarter of 2011, compared with $52 million in the fourth quarter of 2010.

This decrease was primarily attributable to a decrease in earnings from equity affiliates and slightly higher operating costs.

2011 income from operations was $199 million, compared with $183 million in 2010.

This improvement is primarily attributable to the absence of non-routine maintenance and impairment expenses that were incurred in 2010, partially offset by a reduction in equity affiliate earnings in 2011.

Slide 10 presents the more significant drivers of changes in our cash flows for the fourth quarter of 2011.

At December 31, 2011, our cash balance was just under $3.1 billion.

Operating cash flow before changes in working capital and pension contributions was $121 million.

The working capital benefit of $657 million noted on the slide primarily relates to a reduction in our inventory levels at year end and the impact of higher crude prices on our ending payables and receivables balances.

Capital expenditures and investments during the quarter were $344 million, primarily related to the continuing investment in our Detroit Heavy Oil Upgrade Project.

In addition to our required pension funding of $23 million, we elected to make an incremental pension contribution of $200 million during the quarter.

This contribution was made considering multiple factors, including the impact of discount rate changes on our pension obligations, lower-than-projected plan investment returns, and anticipated employee retirement activity.

Importantly, as we announced earlier, our strong liquidity position has enabled us to enhance our return of capital with our Board's authorization to repurchase up to $2 billion of our stock over the next two years.

Slide 11 shows that at the end of the fourth quarter, we had almost $3.1 billion of cash and approximately $3.3 billion of debt.

Our cash-adjusted debt to capital ratio was 2%.

With 2011 EBITDA of over $4.6 billion, our leverage continues to be very manageable at just 0.7 times EBITDA.

Slide 12 provides outlook information on key operating metrics for MPC for the first quarter of 2012.

For comparative purposes, those same metrics for the first quarter of 2011 are also shown.

As I mentioned earlier, an expanded market data document will be published soon, but here are a few preliminary January numbers.

The Chicago and Gulf Coast LLS 6-3-2-1 Crack spreads have increased in January compared to the fourth quarter.

The preliminary January Crack spreads are $1.32 and $6.72 for Chicago and the Gulf Coast, respectively.

The Sweet/Sour differential averaged $7.57, the WTI LLS differential averaged $10.37, and the LLS Prompt price is $0.32 less than the LLS delivered cost.

Now I will turn the call back to Pam Beall.

Thank you, Don.

As we open our call for your questions, we ask that you limit yourself to one question so that we can accommodate all who wish to ask questions, and then you can follow up and re-prompt with additional questions as time permits.

With that, now we'll open the call to questions, Sandra.

(Operator Instructions).

Doug Terreson, ISI.

Good morning, guys.

Gary, my question regards return of capital, which has been an objective of the new company since day one.

And today, you guys moved forward with a plan to repurchase shares and also announced the dividend as well.

And so, my question regards the share repurchase parts, and specifically whether or not tax considerations will limit your ability to affect the plan.

That is, are there limitations on the plan?

And if not, has this changed since the analyst day in November?

Sure.

Let me ask Don Templin to cover that, please.

Yes, Doug, we have satisfied all the obligations contained in the tax-sharing agreement that we have with Marathon Oil, and that is a different position than we were in at the analyst day in November.

Okay.

Great, so there are no limitations, effectively?

That's correct.

Ed Westlake, Credit Suisse.

Good morning.

Exciting days.

I'm sure lots of people are going to ask you about the MLP, but I just wanted to actually just understand last year's earnings a little better.

Great slide on slide seven.

Obviously, there was a negative impact from buying long-haul crudes in Brent and hedging with WTI.

I would have thought there would be a correspondingly positive benefit in the first nine months of the year where WTI was falling.

I just don't see that in slide seven.

Is that your LLS Prompt versus delivered?

It seems a very low number at $34 million.

What benefit did MPC get last year on average through the whole year from the long-haul crude hedging?

Ed, this is Garry Peiffer.

In the -- that benefit or cost is included in our -- what we calculate our Sweet/Sour differential that you see on the slides that Don showed.

We included that in the laid-in cost for our Saudi barrels, our Kuwaiti barrels, so it's all included there.

But to specifically answer your question, in the fourth quarter we would have estimated that had we used Brent versus WTI to hedge the long-haul crude, we would've made about $150 million more, or conversely it cost us about $150 million.

For the year, we think that using WTI versus using a Brent to hedge our long-haul crudes was a positive of about $100 million.

Okay, thanks very much.

Very clear.

Chi Chow, Macquarie Capital.

Great, thank you.

Just a real quick follow-up on Ed's question that, Garry, that $100 million for the year, do you have that broken out by the rest of the quarters on the long-haul crude hedges?

I don't, Chi.

But I think probably the -- just eyeballing here that the first quarter we would have had a bit of a loss versus using Brent.

The second and third quarters would have been positive.

But obviously, that's about $250 million or so that we would've had before the fourth quarter, so I'll find out those details, but I guess just eyeballing it here -- I'll have to find that out.

I don't have it precisely.

That's fine.

And then, my question is just a couple of cash flow items.

Don, did you make the $400 million cash tax payment in the quarter?

And then, do you have any updates on 2012 CapEx that differs from your analyst day?

Yes, Chi, we did make our tax payments in the fourth quarter, and the combination of federal and state taxes was roughly $560 million that were paid in the fourth quarter.

And then, your question about capital expenditures, our approved capital expenditure budget is $1.419 billion.

That is up about $170 million or so from our conversation in November when it was about $1.250 billion.

Paul Cheng, Barclays Capital.

Hey, guys.

Good morning.

Gary, have you guys been able to -- I don't know whether you already have debt.

In the past, you have no internal transfer pricing set up for your [perfect] pipe [by] in the terminal.

Any rough idea the potential magnitude of the annual EBITDA on those two pieces of the business, which you currently include as a cost center in your refining business?

This is Garry Peiffer.

You know, I think, as we've said before, we don't have any of those estimates.

We basically don't calculate GAAP-quality profit-and-loss statements for those segments of our business, so we really can't give you an EBITDA for the segments that aren't in our pipeline segment.

Okay.

If I could, just a quick follow-up.

In the past that you're using the WTI to hedge your long-haul crude, which is typically price of Brent, any -- what's the thinking of management today?

Is that going to continue to be the process or are you going to switch over to Brent?

And also that on the LLS physical contract, which is the WTI plus a differential for the next month, is there any plan to put in hedges, that to hedge a way the differential changes from one month to another?

All right, let me have Mike Palmer cover this.

Palm?

Yes, Paul, with regard to whether we're going to use WTI or Brent to hedge our cargoes, you know, I think it's -- you have to kind of put this in perspective.

If you go back prior to 2011, whether you use WTI or Brent really didn't make a lot of difference.

And then, as Garry has also pointed out, for 9.5 months of this year WTI was a better hedge than was Brent.

There was a period of about a month between mid-October and mid-November when the spread collapsed that you would've been better off in Brent.

Since that time, the arbitrage, the Brent/WTI spread, has traded between about $8 and $12.

And in fact, it's breaking out to the wider side today, over $13.

We continue to be in WTI now, but we are always looking at the business fundamentals, we're looking at the spreads, and we will make a decision whether or not Brent or WTI is the better hedge instrument.

And we'll continue to do that into the future.

How about the LLS physical contract, the [row]?

I'm sorry, repeat that question (multiple speakers)

The LLS physical contract, which is the WTI plus the differential for the next month, so that when the differential that widen or decline, you have a corresponding benefit or have a loss.

So is there any plan to try to hedge that away?

Paul, this is Garry Peiffer.

You know, we've consistently said that we've been trying to price our crude as close as we can to the time we run it, and that's the way you do it.

That's the only way you can attempt to price your crude is closest to the time you run it as possible, and we've historically used a calendar-month approach to do that with, and that's the way we've done it.

So at this point, we aren't changing our strategy on how we price our crudes.

That's kind of consistent with how we do our foreign crude purchases.

That's why we use derivatives to refloat the price because we're trying to price not only our domestic, but our foreign crudes, as best we can, as close as we can, to the time we run those crudes.

All right.

Thank you.

Just a quick comment.

I hear what Mike said about the Brent/WTI different hedges, but the truth, though, is that they're hedges.

You're not trying to make money, you're just trying to protect the spread.

And if your long-haul crude is based price off Brent, it doesn't seem logical to use WTI to hedge it.

Thank you.

Go ahead.

Yes, I think the one point I would make there, Paul, is that there is a fair amount of that cargo crude that actually is priced off of a domestic marker.

So, we take everything into consideration when we're deciding which hedge instrument to use.

We're a fairly conservative company when it comes to our hedge philosophy, but we still do look at which instrument we think will yield us better results.

And Paul, this is Gary.

One of the things that I want to make sure you don't miss, as Mike said earlier here, just because it's cargo crude doesn't mean it's off of Brent.

So that is a key point.

We can't -- for proprietary reasons, we can't get into how we buy cargo crude and from whom and how it's priced.

But the strong position here is not all of our cargo crude is priced off of Brent.

Evan Calio, Morgan Stanley.

Good morning, everybody.

Great announcement this morning on the strategic review and the buyback authorization.

I'll try one question on the strategic review.

Gary, I know you specifically mentioned examining the potential rating's impact as a consideration in your review.

But you didn't mention potential tax impacts.

I was just curious if that omission meant anything, as you didn't believe there could be a potential tax issue here on a formation and a tax redistribution of MPC from Marathon and a tax indemnification agreement.

And then, a little bit more just on potential timing.

You said you couldn't file a registration statement, I think -- believe, before the end of Q2 2012.

I guess, is that when we should think about hearing, in mid-year, the outcome of this review?

All right, Don is going to take your tax question first.

I guess on the tax question, I believe the question you're asking is around, once again, the tax-sharing agreement, and you know, we -- before we made this announcement, we have satisfied all the obligations that were contained in the tax-sharing agreement with Marathon.

So that should not be a limiter in terms of our ability to move forward based upon what we believe is our strategic evaluation and the process we'll take or the approach that we will take.

I think with respect to -- you asked the question about the second quarter of 2012 and filing an S-1 or an IPO document, if we go that route.

I think our expectation is that when we come to our earnings call at the end of the first quarter, we will be in a much better position to describe the progress that we've made in that evaluation, Evan.

If I could just sneak in a follow-up.

If -- I mean, can you update us on the midstream CapEx for 2012?

I believe it was close to $300 million in CapEx, as you were refocusing CapEx in the midstream after your significant growth projects in refining.

Any thoughts about how that portion of your investment could grow, particularly given your unique position in the Utica and overall Midcon growth?

Thank you.

I guess in terms of our budget for pipeline -- the segment that we call pipeline transportation, Evan, that number is $230 million for 2012.

That's our budget.

Our refining and marketing budget has actually come down from $900 million in 2011 to $745 million in 2012, I would say largely reflecting a decrease in our investment requirements for DHOUP.

And I mean, do you think that trend is -- I guess, looking forward, that is the trend you would expect, i.e., more opportunity to invest there in the midstream or your pipe segment?

Well, Evan, as we laid out in November, we have some very good organic projects across the board in our three segments and we will continue to follow those.

It is too early, and while I share your enthusiasm about what we may or may not be able to do, we have to be very careful.

We are constrained by securities laws from getting out ahead of ourselves, so I really can't give you any more information at this time.

Great.

Great announcement.

I appreciate it, guys.

Thank you.

Blake Fernandez, Howard Weil.

Good morning, guys.

Congratulations on the announcements.

Obviously being well received.

Gary, I'm trying to honor your requests not to ask on the MLP.

I am hopeful that this is broad enough to where maybe you can answer it.

But I'm just trying to understand, when you evaluate the potential for this suite of assets that could be potentially involved, is it fair to just look at the pipeline transport segment or are there additional assets that are also embedded in other segments, like the R&M division, which could be potentially evaluated as well?

Blake, I can share this with you that we're going to look at our entire midstream.

Okay, fair enough.

All right, I guess I'll leave it there.

Thank you.

Mark Gilman, The Benchmark Company.

Folks, good morning.

Don, can you say whether you have a private letter ruling from the IRS regarding the tax consequences of the buyback authorization?

Say, Mark, what we've said -- this is Gary.

What we've said is that we got all the tax rulings that we require to meet the tax managed agreement.

One of those -- and if you go to -- I think it's page 109 in the Form 10, it outlines what those requirements are.

One of them could've been a private letter ruling, but we also needed Marathon's approval, and as we said, we have all the requirements in place.

Let me just try it another way, Gary, to see if I can get to where I need to get.

And that is have you satisfied yourself that the tax consequences of that action are either de minimis or nonexistent via a private letter ruling from the IRS?

Go ahead, Don.

I guess we have satisfied ourselves that we, from a tax -- this is Don, Mark.

From a tax perspective, we are comfortable and we have had conversations and reviewed it, as we were required to in the tax-sharing agreement with Marathon, where we're both comfortable with the tax consequences of both of the announcements that we made today.

Okay.

If I could just sneak in just one other, restructuring oriented, and this is strictly at the conceptual level.

Gary, for some time now, including both the life of the company on an independent basis and previously, one of the advantages that has been stressed by you and your colleagues of the system is the integrated aspect of it.

Does the process with respect to the evaluation of a spinoff weaken that argument in any way, in your mind?

Well, you know, as you look at -- we've been integrated downstream forever and I expect we'll continue to be able to enjoy some of those synergies on an integrated downstream, if we were to go forward with the valuation we're talking about today.

We have done a tremendous amount of work to get ourselves comfortable on the control issues that I've talked about before and we will continue to evaluate those synergies as we go through this process.

But we have done a lot of work to ensure we would retain those synergies.

Okay, guys.

Thanks very much.

Sam Margolin, Global Hunter.

Good morning.

Thanks for taking my question.

I just have a quick question on the buyback.

I noticed there is a relatively long-dated authorization.

Does that have anything to do with the Detroit schedule or any kind of budgetary consideration for the forward, call it, 12 months?

And I guess with respect to the deployment, would you be aggressive with it coinciding with whatever spend is associated with Detroit or other large-scale projects at the same time, or are you trying to time it so that it's one thing at a time, essentially?

Yes, it has nothing to do with Detroit.

Don has laid out in detail our capital budget, and specifically in our press release on the share repurchase program that has been authorized by the Board, we highlighted what vehicles we may use in that, and I think that is quite clear.

Paul Sankey, Deutsche Bank.

Hi, guys.

Just a follow-up on that, which might not count as my question, I guess, which is, do you have a target debt to capital or a notion of where you want that to go that can give us an idea of how far you want to take the buyback?

Thanks.

Paul, this is Don.

I guess we felt very comfortable when we went to our Board, given our financial position currently.

We felt very comfortable in seeking an authorization for the $2 billion.

Obviously, that considers our current cash position and our view around our ability to generate cash going forward.

But I don't have a specific target, per se.

Do you have a credit rating target?

I think, as we've always said, Paul, that we are committed to our investment-grade credit profile and we're very comfortable in our BBB position currently, and we wouldn't take actions that we believe would be detrimental to that credit rating.

What would be the sort of range, do you think, of the limit on how far you could go on debt to cap before it became an issue for the credit rating?

I guess we -- we didn't -- weren't speculating how far we could go.

We felt very comfortable with the $2 billion authorization that we went to our Board with, and we feel that that's very comfortably within the parameters that we need to maintain our investment-grade credit profile.

Right, I've got you.

And then, finally, the buyback would typically be done ratably or would you do it actively?

Paul, as I just answered (multiple speakers)

I knew you might say that, Gary.

Carry on, sir.

-- on the prior question, where we may -- I highlighted in that press release all the vehicles that we have at our disposal.

Yes, okay, I was just slightly chancing my [own] there.

Okay, thanks, guys.

Doug Leggate, Bank of America Merrill Lynch.

Thanks.

Good morning, everybody.

Congratulations, Gary.

Thank you.

I wanted to get back to the share buybacks also.

Gary, you've indicated in the past, and I guess at the analyst day, that the first priority in terms of growth outside of Detroit was on the retail business in terms of potential opportunities there.

With the share buybacks, what does that tell us about, first of all, project depth organically and, secondly, acquisition appetite, thinking specifically about some of the assets that may be for sale, including Texas City from BP.

Are you basically signaling here that that's just off the table for now?

No, this share buyback was not meant to send any signal other than to return capital to the shareholders.

At the many meetings that we've had with all of our investors over the short seven months that we've been a public company, we've listened very carefully to the shareholders and very carefully to their outlook in the future, one of them being return of capital to the shareholders.

When I look at using that capital vis-a-vis further capital expenditures, as Don outlined, we think we have a very strong capital budget this year.

Some of that means continued growth in Speedway.

You recall that, I believe shortly after we went public, we acquired some stations in south Chicago.

That was part of our strategy.

And we will continue to look for opportunities going on the forward, which all -- bringing all that back to remember the key word I had at our November 30 analyst meeting was balance.

And so, returning capital to shareholders, looking at the strategic alternative that we have highlighted and our future capital, as I've mentioned, the four or five bullets I gave you, our plans going forward.

One of them are internal and external growth opportunities.

So we will continue to do all of those.

Doug, this is Don.

I might also point out that in the supplementary slides to our presentation today in which we lay out our capital budget for 2012, our Speedway capital budget is $353 million compared to $164 million last year.

So, we're clearly committed to expanding and growing retail.

Gary, if I may risk a quick follow-up, and again I'm not going to get into details on the MLP announcement, but you lived through what happened with Marathon Oil a couple of years ago when they made the announcement to separate, and then didn't, and you saw the way the market treated the share price and, I guess, the relative disdain that came along with management for a while.

Can you explain, prior to having completed your review, why you've opted to actually announce that you might do something?

And what's your level of conviction that you might end up actually -- this might actually end up leading to a restructuring as opposed to, dare I say, a risk that you end up doing nothing and we get a repeat of Marathon all over again?

First of all, Doug, I was part of that management team that was doing that work back then and recall those discussions as well.

But, look, I share your enthusiasm, everyone's enthusiasm, and all of our investors' enthusiasm that have been so far reaching out to us this morning.

But in order to be able to avail ourselves of the Safe Harbor and the constraints we have by securities laws, I can't get into any more -- the term I like to use, we can't get out over our skis in talking about this.

All right.

I'll leave it there.

Thank you, Gary.

Faisel Khan, Citigroup.

Thanks.

Good morning.

I wonder if you could just remind us or let us know how much terminal or storage capacity do you guys control or own, actually, in the R&M segment that is related to products and crude oil?

This is Garry Peiffer.

That's -- we just haven't disclosed this data to this point, so I guess, given all the other considerations we have around our midstream assets, now is not the time to start disclosing that, I guess.

Okay.

And then, can you give us an update on where you are with Utica volumes?

I know it was fairly small in the fourth quarter, but can you give us an update in terms of if there is any change in the outlook of what those volumes could look like at the -- through this year?

Yes, I think it's probably still too early to provide any kind of forecast for the year.

You know, the game plan that we laid out in November is still intact.

We're buying the oil from all the wells that are being produced today and we're still able to handle that within our Canton truck rack.

But I think that what we laid out before is still intact.

Jeff Dietert, Simmons & Company.

My questions have been asked and answered.

Appreciate the shareholder focus.

Thanks.

Ed Westlake, Credit Suisse.

Yes, I guess I'll try two questions, and congratulations on the MLP, again.

But I mean, have you done any thoughts as to what you might do differently in logistics in terms of if that was a separate company?

I mean, I think new opportunities would open up for people to work in a slightly different way.

And my second question is around Speedway sales and local demand.

It was obviously, I think, down 4% year over year, Speedway sales of gasoline and distillate, but we just had really ugly DOE data again.

So, would do you think is really going on in terms of gasoline demand at the moment?

Okay, to your question, first, Ed, on might we do anything different.

You know, the logistics space is an ever-changing space, and with all of the work with the Bakken, the Niobrara, Eagle Ford, now Utica, I think there are tremendous opportunities, tremendous opportunities as you see the changes in the East Coast and the refinery changes, and then, therefore, how the supply patterns, not only supplying through pipelines but supplying through shipping, how that might change going into the future.

So we, prior to this announcement, have been very focused on those opportunities and we will continue to be very focused on those going forward.

But we -- as I said, I think it's a very transparent part of the business in how the logistics fits into the entire energy system.

As far as Speedway, and I want to make sure we have the numbers right, for the fourth quarter it was 0.4%.

Maybe I just didn't hear you right, but it was 0.4% on a same-store basis for gasoline.

So, we were basically flat to down less than 0.5%.

And for the full year, Speedway volume was down 1.7%, but if I look at PADDII, the -- if you look at the overall market, PADDII is supposedly down or is estimated to be down about 2.4%, so we outperform the market in Speedway.

As we start up January here, we are seeing we're about -- average retail, I think, about $3.40 to $3.45 for the first month here, and so we've seen a little bit of decline on a same-store basis in volume, but also we've had some weather-related issues as compared to last year.

But the key is, if you look at last year, the retail margins have continued to strengthen, and the retail margin is much more important than the slight decrease in the overall volume.

Yes, no, I'm just looking at the DOE, down 7% over last year in gasoline demand, and I know that is an initial reporting, but it does feel a little bit aggressive.

Ed, I share your concern, too.

The DOE, there's a tremendous amount of noise in those numbers and trying to reconcile those numbers.

We don't see those types of numbers in our markets.

You know, the other key thing is how exports, if you go over to the heavier end of the barrel, the distillate, how exports have really improved out of the Gulf Coast.

And now, as I said earlier, I believe it was to Faisel's question, if you look at how the East Coast may be resupplied, I see a lot of change in exports and how the industry may export into South America, Latin America, and Europe, and then how some of those blunt components might come back from Europe to hit the New York harbor.

So I see a lot of change there, but the exports are a very, very big part of our business.

Evan Calio, Morgan Stanley.

Just a quick question.

On a run basis, could you remind me the amount of crude slate that is WCS run potential in the Midcon, with WCS a record 24 under as a pretty attractive price for February purchases?

And unrelated, did MPC enact a share of rights plan or does that require shareholder ratification in your next proxy?

Thanks.

Yes, Evan, this is Mike Palmer.

You know, with regard to the heavy Canadian, I'm sure you saw that we did not break that out in the slides.

Yes.

Frankly, the business is just very, very competitive, and we've decided that it's not in our best interest or our shareholders' best interest to provide that sort of detail.

We continue to be focused on the price advantage to crudes that are in the marketplace.

That's something we work on every day, and I can assure you that we're working toward trying to maximize those volumes.

Okay, so it's somewhere in between the mix of those two big bars you have?

Yes, it's within the other sour category.

Great.

And Evan, on your other question, we have not adopted a shareholder rights plan.

Paul Cheng, Barclays Capital.

Hey, guys.

Don, can I get some simple balance-sheet item?

Do you have the market value of inventory in excess of [both] and your working capital at the end of the year?

Let me get that for you in a second, Paul.

I don't have that information (multiple speakers)

We get it and then call you, okay, Paul?

Okay.

And Gary, can I ask just clarification?

In the presentation, you indicate that this quarter -- in the fourth quarter, you run 29% WTI type, and in comparing to the fourth-quarter 2010 of 23%.

But I thought in the third-quarter 2011, we were talking about 38%.

I presume that we are not talking apples to apples.

Can you clarify for me that what is now that in this 29% was not included comparing to when we were talking about 38% in the third quarter before?

Right, Paul.

If you look at the third quarter, that included other crudes that were priced off of WTI, and what we're showing here in the slide is just WTI versus WTI.

And for proprietary reasons, we've decided not to break out the other crude, and Garry may have something to answer as well.

(Multiple speakers) primarily WCS was in that 38%, 39% number you're referring to, Paul.

And for the reasons that Mike just related here, from a competitive standpoint we don't feel it's in our best interest or, as he said, our shareholders' best interest to get into that level of detail on our crude acquisitions.

And I think on your other question regarding excess value, Don has that information now.

It's $5 billion, Paul.

$5 billion, and what's the working capital?

We're getting that right for you in a second.

Garry, you're saying that the main difference is WCS, right?

Correct.

We do -- the WTI percentage we're reporting there includes WTI and all those crudes that use WTI in their formula to price them.

So, it's -- but it excludes now the WCS which we included previously.

Right, and I presume that you're not also -- you're also not including LLS even though the physical contract is actually WTI (multiple speakers)

Correct.

You're correct.

It does not include LLS.

And Paul, on your question on working capital, total current assets were $12 billion and current liabilities were $9.6 billion.

Oh, yes, $2.4 billion.

$2.4 billion.

Thank you.

Chi Chow, Macquarie Capital.

(Operator Instructions).

Yes, sorry about that.

Thanks.

Back on the Utica crudes, I think at the investor day you mentioned you took your first batch of Utica.

Can you tell us how that crude performed on yields when you processed it and whether it's priced on a WTI or LLS basis?

Yes, I sure can.

This is Mike Palmer.

The emphasis so far in the Utica has been on the production of the lighter crudes.

These are crudes that are 55 degrees or even a little higher.

So, they are very light crudes, and they are priced off of WTI with a discount.

Okay.

So are you saying you need to blend those down, then, with some other crudes?

(Multiple speakers).

In our typical operation there, in most refineries, in fact, we do blend our crudes to the crude unit, so yes.

These would be blended into the crude unit, sure.

And Chi, this is Garry Peiffer again.

I do have the answer to your question earlier, asking about the Brent/WTI effect by quarter?

Yes.

In the first quarter of 2011, we would have had about a $70 million benefit by using WTI versus Brent; about $80 million, $85 million in the second-quarter positive effect.

Another $80 million or so positive effect in the third quarter of 2011.

So, you had to get it at about -- roughly $250 million of positive effects in the first nine months versus the $150 million negative effect in the fourth quarter.

That gets you to the about $100 million overall positive effect.

Great, that's perfect.

And then, Don, I don't know why I didn't ask this on the earlier question, but the increase in the 2012 budget, what was the cause of that?

That was in Speedway, Chi.

Primarily in Speedway.

Great.

Thank you.

Paul Sankey, Deutsche Bank.

Hi, guys, very briefly.

I've got my eye on the clock here.

I really had the impression from your language certainly at the analyst meeting and then at our conference that you wouldn't do an MLP because of the benefits of integration, that the buyback was very unlikely but that you might do mergers and acquisitions.

I just wondered now that you've said MLP buyback, does that mean mergers and acquisitions are effectively off the table?

Thanks.

No, Paul.

As I said earlier and pointed out in my comments on -- one of the first bullet points I stated in my comments was that we will look at internal and external growth opportunities.

So as we've positioned with this buyback and the strategic alternatives that we're studying, we're very comfortable doing our budget, capital budget, as Don has outlined.

We're very comfortable finishing Detroit, as we've talked about, and we see -- we will continue to look at opportunities and we think that there will be some opportunities in the future.

Great.

Thank you again.

Cory Garcia, Raymond James.

Good morning, fellas.

And I recognize sort of the competitive nature behind sourcing crudes and all, but I was wondering if you'd be able to give an update in how much Canadian you're actually capable of barging down your Garyville facility.

I believe it was 50,000 or so at the time of your analyst day.

So just wondering if you can update us on that capability and where you take that over the next year or two?

Cory, I don't think that anything has changed from that standpoint.

We said it was around 50,000 before and that's where it continues to be.

And is there any sort of bottleneck there?

Can you take it up higher?

Can you comment on that?

You know, there might be some room left in that number, but it's probably not a lot.

Okay.

Thank you.

Mark Gilman, The Benchmark Company.

Thanks.

Don, I think in your remarks when you were discussing working capital, you mentioned inventory reduction in the fourth quarter.

Were there any LIFO inventory benefits recorded in the quarter?

No, there were not.

One other quick one on turnaround accounting.

You're now breaking out the turnaround costs.

Is this the amortization of previous cash turnaround expenses or are you accounting for turnarounds on a current cash basis?

We account for turnarounds on a current cash basis, Mark.

Okay, great.

Thanks, Don.

At the time, we have no further questions.

This is Pam Beall.

Thanks for joining us on the call today.

If you have any follow-up questions, both Beth Hunter and I will be available this afternoon to take your call.

So thanks, and appreciate your interest in Marathon Petroleum.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.