Marathon Petroleum Corp (MPC) 2012 Q1 法說會逐字稿

Welcome to the Marathon Petroleum Corporation's first-quarter 2012 earnings conference call.

My name is Christine and I will be your operator for today's conference.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Please note to today's conference is being recorded.

I will now turn the call over to Pam Beall.

You may begin.

Thank you, Christine.

Good morning, everybody, and welcome to Marathon Petroleum Corporation's first-quarter 2012 earnings conference call.

The synchronized slides that accompany this call can be found on our website, MarathonPetroleum.com.

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

Please read the Safe Harbor statement on Slide 2.

It's a reminder that we will be making forward-looking statements during this presentation and during the question-and-answer session.

Actual results may differ maturely from what we expect today, and factors that could cause actual results to differ are included here as well as in our filings with the Securities and Exchange Commission.

Now I will turn the call over to Gary Heminger for opening remarks.

Gary?

Thanks, Pam, and good morning to everyone.

We had a strong first quarter with $596 million of net income, representing a 13% increase over the same quarter last year.

Our strong results are primarily due to the improvement in the US Gulf Coast crack spread and our ability to capture value using our extensive logistics assets.

Our team executed on our capabilities to increase our throughput of WTI priced crudes, which represented 30% of the crude we refined during the first quarter of 2012, up from 25% in the same quarter of 2011.

We are delivering on our commitment to return capital to shareholders through an $850 million accelerated share repurchase program as part of the $2 billion authorization we received earlier this year from our Board of Directors.

We have already received a majority of the shares and we expect to receive the remaining shares over the coming months.

Our mission continues to be value creation for our investors, incorporating a balance between internal and external investment and the return of capital to shareholders.

Our cash balance at quarter and was just over $2.2 billion, supported by strong earnings but down from year-end 2011 primarily due to our share repurchase program.

In total, we have spent about $950 million on our accelerated share repurchase program and dividends during the first quarter of 2012.

Our strong financial position is also reflected in our debt-to-capital ratio of 26%.

Upgrades to our Detroit refinery as part of the DHOUP project were approximately 92% complete as of March 31, 2012 and remain on budget and on schedule for completion in the third quarter of this year.

Immediately following, there will be a 70-day turnaround to tie in the new units, and we expect the upgraded and expanded refinery to be online by year-end.

When completed, these upgrades should allow us to lower feedstock costs and cash or value from crude oil differentials.

We will be able to process an incremental 80,000 barrels per day of heavy Canadian crude and increase Detroit's crude oil refining capacity about 15% to 120,000 barrels per day.

We're also moving decisively to position MPC to be able to transport and process the new Utica Shale crude oil and condensate coming online in eastern Ohio.

Initially, the volumes from Utica are being processed at our Canton refinery and as production increases, our Catlettsburg refinery.

Our project to construct a permanent truck unloading facility at our Canton refinery will be in service this summer.

In addition, we are expanding our transport operations to include crude oil trucking and a truck-to-barge offloading facility.

We believe that we can run about 20,000 to 30,000 barrels per day of Utica condensate at our Canton and Catlettsburg refineries with minimal capital improvements.

In addition, depending on the quality of Utica crude alternately produced, we could run in excess of 50% of our crude capacity with Utica crude at our 78,000 barrel per day refinery in Canton and the 233,000 barrel per day plant in Catlettsburg.

Our refining engineers continue to study what improvements we can make to increase the amount of Utica crude we can economically refine at those two refineries, as well as our nearly 210,000 barrel per day refinery in Robinson, Illinois.

Despite challenging market conditions, Speedway also had a strong quarter supported by light product volume and merchandise sales growth.

As we have stated often in the past, one of our goals is to increase assured light product sales by expanding our retail -- our Speedway retail operations in existing and contiguous markets.

Speedway's previously announced acquisitions of 88 GasAmerica stores along major transportation corridors in Ohio and Indiana will complement its existing seven-state asset base.

We anticipate this transaction will be finalized by the end of the second quarter.

In a separate announcement earlier today, we reported that our Board of Directors authorized and directed our evaluation team to further explore the formation and Initial Public Offering of a Master Limited Partnership and to prepare a registration statement.

If we determine to further pursue an Initial Public Offering of an MLP, the issuer would be a wholly-owned subsidiary, MPLX, LP.

We will contribute a portion of our midstream assets to the MLP and sell a minority interest in the MLP in an Initial Public Offering.

Potential MLP will support our strategy to grow our midstream business initially through a contribution of an interest in certain onshore common carrier pipeline assets located in the Midwest and Gulf Coast regions of the US.

We will share more information with you as our plans develop to the extent we are permitted by federal securities laws.

However, to avail ourselves of Safe Harbor provisions of such laws, we are not in a position to provide additional information or answer questions on our midstream evaluation initiative.

As we look forward to the remainder of 2012 and beyond, I want to briefly discuss our view on macro trends that will have an impact on the refining industry.

First of all, North American crude oil production continues to outpace the capacity of existing logistical assets to officially move the crude oil to refining markets.

While we expect that the logistical assets will eventually be built to close this gap, we continue to believe that select crude oil differentials will be wider for longer than most market observers are expecting.

While some changes will occur this year, there is still an abundance of midcontinent, Canadian, and Permian crudes vying for pipeline space.

In addition, the new Utica production is just starting and appears promising for Midwest refiners.

The volatile crude oil differentials associated with domestic and Canadian crudes will present opportunities in the market for flexible refiners who capture discounted crude oil.

With volatile crude oil spreads, logistics flexibility continues to be one of the keys to long-term success in this business.

We believe price advantaged crude and feedstocks, along with an abundance of natural gas as a cost efficient energy source, will provide cost advantages for US refiners for some time to come.

We estimate that US gasoline demand was down about 1.7% and distillate demand was down approximately 3% in the first quarter of 2012 compared to a year ago.

However, Speedway's April month-to-date same-store sales are up approximately 3.7%, which puts their same-store sales about flat year to date.

Therefore, we expect US gasoline demand to improve throughout 2012 and expect total year 2012 demand to be down less than 1%.

Total year distillate demand is expected to improve as well, and we expect it to grow about 0.5% in 2012.

We believe that global demand for gasoline and distillates will continue to provide an opportunity to sell products into higher value export markets, including Europe and Latin and South America.

We exported 81,000 barrels per day of distillates primarily from our Garyville refinery during the first quarter of 2012 compared to 66,000 barrels per day in the same quarter last year.

We expect to continue playing a significant role in the export markets.

We are making investments that will increase our export capability for diesel and gasoline and that will increase diesel production.

Now I will turn the call over to Don Templin to provide a more detailed financial update on the first quarter.

Don?

Thanks, Gary.

Slide 4 provides net income both on an absolute and per-share basis.

Our first-quarter 2012 net income of $596 million reflects a $67 million increase from the $529 million we earned in the first quarter of 2011.

Earnings per diluted share was $1.70 for the first quarter 2012 compared to $1.48 during the same period last year.

I should note that, as a result of the accelerated share repurchase program that we initiated in early February, the weighted average number of diluted shares outstanding during the 2012 first quarter was 350 million compared to 358 million used in the first quarter 2011 calculation.

At the end of the quarter, there were just over 340 million common shares outstanding.

The waterfall chart on Slide 5 shows, by segment, the change in net income for the first quarter -- from the first quarter of 2011 to the first quarter of 2012.

The primary driver for the increase in our net income was the increase in refining and marketing segment income, partially offset by higher interest and other corporate expenses and by higher income taxes.

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

The $37 million quarter-over-quarter change in interest another items primarily relates to the interest expense on our $3 billion in senior notes, the absence of related party interest and the costs associated with being a stand-alone company.

The increase in income tax expense is a function of our higher earnings during the 2012 first quarter.

Most of the slides that I'm using today compare first quarter 2012 to first quarter 2011.

Given the volatility in commodity prices, I thought it would be also useful to show certain first-quarter 2012 information on an absolute dollar basis as well.

Slide 6 shows the primary components that contribute to our refining and marketing gross margin.

Using market indicators and our actual volumes, you can see that the crack spread and sweet-sour differential continue to be significant drivers to our income.

Our ability to utilize the flexibility in our logistics assets also allowed us to capture value in the discounted domestic crude market.

As shown on Slide 7, Refining and Marketing segment income from operations was $943 million in the first quarter 2012 compared with $802 million in the first quarter of 2011.

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

We are continuing to use the expanded market indicators provided on our last conference call to explain the change in our refining and marketing gross margin this quarter.

Where applicable, the changes in market indicators have been applied to MPC actual volumes to arrive at the quarter-over-quarter variances.

First, the blended 6-3-2-1 crack spreads was $1.98 per barrel higher in the first quarter of 2012 than the first quarter of 2011, resulting in an estimated favorable variance of $239 million.

Although the Chicago crack spread was relatively unchanged from 2011, the Gulf Coast crack spread was substantially higher in 2012 than it was last year.

While the sweet sour differential improved from $12.40 per barrel in the first quarter of 2011 to $13.70 per barrel in the first quarter 2012, we processed less sour crude during the first quarter of 2012.

As a result, the estimated quarter-over-quarter variance was down $12 million.

WTI based crudes accounted for approximately 30% of the crude we processed during the 2012 first quarter, 5 percentage points higher than the first quarter of 2011.

This increase in volume and an LOS WTI differential that was $3.57 per barrel higher resulted in an estimated a $198 million favorable gross margin variance between the two quarters.

The first three market indicators I discussed are calculated by reference to an LLS prompt price.

Rapid changes in crude prices can cause significant differences between the LLS prompt price is embedded in the market indicators and the actual amount we pay.

On average, the delivered LLS crude cost was $0.50 lower than the prompt LLS price during the first quarter of 2012 when compared to the first quarter of 2011.

This accounted for an estimated favorable variance of $24 million.

Market structure had a significant quarter-over-quarter effect on our gross margin.

There was $1.44 per barrel less Contango in the Nymex WTI market structure in the first quarter 2012 compared to the first quarter 2011 with an estimated unfavorable impact of $115 million.

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

Such items include our actual realized prices, refinery yields, other feedstock costs, and crude slate variances compared to the market indicators.

They also include refinery volumetric games, purchase for resale activity, and primary transportation.

On the next two slides we provide earnings walks for each of the other operating segments.

On Slide 8, Speedway's income from operations was $50 million in the first quarter of 2012 compared with $33 million in the first quarter of 2011.

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

This was primarily due to margin expansion resulting from increasing merchandising and foods sales systemwide.

It also reflects the impact of the May 2011 acquisitions of 23 Gas City stores in the Chicago-land area.

Slide 9 shows changes in our pipeline transportation segment income.

Income from operations was $42 million in the first quarter of 2012 compared with $51 million in the first quarter of 2011.

This decrease was primarily attributable to a decrease in earnings from pipeline affiliates.

Slide 10 presents the more significant drivers of changes in our cash flows for the first quarter of 2012.

At March 31, 2012, our cash balance was just over $2.2 billion.

Operating cash flow before changes in working capital was a $1.1 billion source of cash.

The working capital use of cash of $761 million noted on the slide is primarily due to higher Accounts Receivable caused by increases in refined product prices as well as lower crude oil payable volumes from changes in crude supply.

Capital expenditures and investments during the quarter were $316 million, primarily related to the continuing investment in our Detroit heavy oil upgrade project.

As we announced earlier this year, our Board authorized the repurchase of up to $2 billion of our stock over the next two years.

We executed on that authorization by initiating an $850 million accelerated share repurchase program in early February.

As Gary alluded to earlier this program will be complete in the coming months and we have already received a majority of the shares under the program.

Slide 11 provides some summary financial statistics.

At the end of the first quarter, we had just over $2.2 billion of cash and approximately $3.3 billion of debt.

With EBITDA of almost $4.8 billion during the last 12 months, we continue to be in a very manageable debt position with a leverage of 0.7 times EBITDA and a debt to total capital ratio of 26%.

Cash flow continues to be strong as well with $347 million of cash from operations net of the working capital use I referred to earlier.

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

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

The April market data document will be published tomorrow on our Investor website as well.

As you know, we use derivative instruments to float the price of our foreign crude purchases to a date that is closer to the time those crudes are processed at our refineries.

We have begun to hedge our foreign cargo purchases using Brent-based derivative contracts instead of WTI-based contracts.

Our mission continues to be value creation for our shareholders.

We are committed to pursuing opportunities to create near and long-term value.

Examples include the return of capital through our share repurchase program and the evaluation of strategic alternatives for our midstream assets.

We will be balanced in our approach to capital allocation as we continue to assess the opportunities in front of us.

Now I will turn the call back to Pam Beall.

As we open the call for your questions, we ask you to limit yourself to one question plus a follow-up.

Then of course you can prompt again for additional questions as time permits.

So, with that, I would like to now open the call to questions.

Christine?

(Operator Instructions).

Paul Sankey, Deutsche Bank.

Firstly, just sequentially, could you give me an idea?

It was notable that you had a tough quarter in Q4 and this is obviously a good beat of expectations.

Could you give us a sense for the impact in the way that you presented on Slide 6 of some of the differential moves, particularly the sweet sour and the WTI LLS?

Also, I am wondering about market structure because I guess we've got a little bit of a kind of a double curve at the moment with a bit of Contango and a bit of backwardation.

Thanks.

Paul this is Don.

If you wait one second here.

I can flip in the follow-up if you want.

Gary, could you talk a bit about export potential, if we could go back obviously to my original question?

But the other question I had was just about export potential, how big you think the market for exports can be.

That's my two.

Thanks.

That's tough to determine how big they actually can go because it all depends on the refining slate in Europe and how the refineries run in South and Latin America.

But our indicators suggest that the market continues to be very strong for exports.

The way that we put out different cargoes for sale, we're continuing to get strong response on those cargoes.

So it looks like, Paul, it should continue to be strong for the, we think, into the distant future.

The other thing is there is a tremendous amount of building and expansion going on in Brazil and some surrounding countries, which is helping as well.

Gary, can you just talk a little bit more about the destinations of your exports?

I get the point on the refining performance, but I guess most of your stuff is going to Latin American growth.

Is that correct?

Well, as we said -- and Mike Palmer is here.

Mike why don't you -- Mike handles all of our supply business, so let Mike go into the detail.

Yes, Paul, I guess what I would say is that we continue to have a very robust market for distillate exports and, frankly, it still continues to be both Europe as well as Latin and South America.

Okay.

Is there a sense in the mix or is it just shall I call it 50-50?

Yes, I think you can probably call it 50-50 today.

Great, appreciate that.

Then just remind you, my first question was -- sorry to put you on the spot here but it was really Slide 6 I think.

Yes, I think Don has that for you now.

Sure, Paul.

The LLS crack spread in the fourth quarter of 2011 was -- the total was $135 million versus the $323 million.

The sweet sour differential was $53 million.

The LLS prompt versus WTI prompt was $461 million.

The LLS prompt versus delivered was a negative $179 million.

Market structure was $15 million.

Then direct operating costs were a negative $689 million.

Is that the indicative gross margin change sequentially?

Those were the absolute dollars.

Okay, so that is the equivalent of Slide 6 or 7?

That was the equivalent to Slide 6.

Okay, that's helpful, great.

You don't have it for Slide 7 I guess do you?

I don't right now.

Okay, I'll follow up.

I understand it is a somewhat complicated question but that is very helpful on the market change.

Doug Terreson, ISI Group.

Congratulations on your results everybody.

Thanks, Doug.

Gary in the pipeline business, I think you guys have a pretty meaningful interest in the Capline, which I think operated at pretty low utilization until recently.

Either way, I wanted to see if we could get an update on the status of that pipeline.

While I realize partner consent may be required, whether or not you guys are thinking about any possible new plan, because it seems like it could be a significant earnings opportunity for Marathon Petroleum.

So could you just spend a minute on that please?

Well, in fact, let me have Mike Palmer talk about that.

You're absolutely right, Doug.

We do have a little over 30% ownership in Capline.

It's a very big artery to be able to move many crudes from the south to north.

But let me have Mike Palmer go into a little bit more detail.

Yes, it's actually difficult to say a lot.

At this point in time, we certainly are well aware of Capline and the low utilization.

There's been a lot of talk about reversing Capline.

Certainly, we're well aware of the issues that are associated with that.

It's complicated --

Sure.

-- not only from a partner standpoint but just from the use of the pipeline itself.

So, we are evaluating it now.

We're looking at alternatives to that asset as well as other assets.

Yes.

But there's really not a lot more we can say this point in time.

Well, thanks a lot guys.

Thanks, Doug.

Paul Cheng, Barclays.

Can I have a number of quick balance sheet items?

Don, what is the market value of your inventory (inaudible) and long-term debt?

Also if you can tell us you're saying that you start moving into the brand hedging.

In the second quarter, should we assume that you're pretty much using the brand hedging or that you are still halfway through?

If you can give us some estimate of what is the exposure as well as what is your WTI total exposure at this point?

Thank you.

Okay, Paul.

I think I got most of those questions.

I think the first one was on the infantry question.

That's right.

Inventory was $6.8 billion above our reported costs.

$6.8 billion?

$6.8 billion.

Perfect.

And the long-term debt of the total that debt component?

Long-term debt is almost all of the debt, $3.3 billion.

We have very little short-term debt.

Okay.

How about on the hedging that you're moving into Brent?

Are we pretty much all (inaudible) WTI or that you're just in the process?

For purposes of our cargo hedges, so the foreign crude purchases, we are using Brent derivatives to float that price.

So in the second quarter, if the Brent WTI (inaudible) swing, we should not assume that you will have any meaningful impact in your hedging?

On cargoes, that's correct.

Okay.

Then how about the WTI link exposure?

I think last quarter, excluding [WCSU], it was 28%.

What is that at this point?

This is Garry, Paul.

We're giving guidance for the second quarter that our WTI will be about 27% I believe it is.

27%.

(inaudible) the slides here.

We've got it.

Yes, 27% is what the expected WTI price crude runs will average in the second quarter.

Garry, can you remind me what is the first-quarter level?

First quarter of this year was right about 30%.

We had much lower crude throughputs this quarter.

They will be increasing in the second quarter such that it will be about -- the volume is about the same but the percentage is going down to 27%.

Is there any reason why it is going down?

Just the higher -- the absolute total -- the total of the barrels we are running is higher, but the volume of WTI linked is about the same.

So the increase of your prove down in the Gulf Coast, is that the reason?

All over.

We had turnarounds in the first quarter and for whatever reasons, Paul, we just had lower throughputs.

Lower crude throughputs.

Total throughputs were fairly consistent with last year.

I see.

Okay, very good.

Thank you.

Blake Fernandez, Howard Weil.

Good morning guys.

Congratulations on the results.

I had a question for you on the buyback program.

It sounds like you are largely through the $850 million accelerated program.

I'm just trying to understand how we should think about the balance of the $2 billion program after that.

In other words, is that going to be kind of ratable repurchases, or does that become more opportunistic?

Blake, this is Don.

When we complete the program -- and that program we expect to complete in the next couple of months at the latest -- we will evaluate a number of factors, including our cash position and the market.

We will be making a recommendation to our board around how to continue that or what to do with that share repurchase program.

So, I would say it will be a fact and circumstance-based decision when this current program expires.

Okay, fair enough.

Then the second question I had was on the retail acquisitions.

I know you had a target of 70% I believe on assured sales.

I'm just curious, with this recent 88 store acquisitions, do you have an idea of where that puts you with regard to your target?

Well -- and Paul, excuse me Blake -- things change on how about product was supplied in the marketplace prior to where it is today.

It is only going to change minimally once we get this acquisition complete here in the second quarter.

Okay, thank you.

Jeff Dietert, Simmons & Co.

International.

A question for Gary or Mike.

There was a fair amount of volatility experienced in the Chicago product markets this quarter.

Could you talk about some of the dynamics that contributed to that volatility and does the flexibility of your system allow you to perhaps do better than what the market indicators suggested was available in that market?

You know, I think probably what I could say is the weakness that you saw in Chicago had a lot to do with the weakness that occurred in the Canadian crude oil pricing during the first quarter.

The production -- the weather was good.

Production was high.

There was a lot of Canadian crude that was being produced.

Obviously those pipes that sit directly on Enbridge pipeline in Chicago have the ability to bring them very cheap crude.

So they continue to run a lot of crude basically.

That did cause product prices to be relatively cheap.

So, from our standpoint, again, we -- as you know, our system is set up such that we have the ability of running Canadian crude as well.

So we took advantage of the cheap Canadian crude just like the Chicago refiners did, although we have constraints that perhaps they don't.

It seemed as if perhaps there was some winter/summer grade gasoline issue there as well.

It got weak and then it rallied sharply.

Was that part of the issue also?

Yes, you know, that is a phenomenon we see really every year.

When you look at the Chicago market, it is a relatively thin market.

The vapor pressure changes cause volatility pretty much every year.

Thank you.

If I could follow up on Detroit, you talked about the 70-day turnaround after the completion of the heavy upgrader.

Is that a complete refinery turnaround?

How do you expect that to impact throughput volumes in the fourth quarter?

Yes, Jeff, it is a complete refinery turnaround, so we will be down for that 70-day period of time.

We would expect all units.

You know how things go in a turnaround.

If you get a few done early, you may start up a few of the small units, but with complete turnaround and tying in of the new systems we're putting in, I would say that we will reengage the systems in a very planned sequence, and I would doubt that you will see much of -- many of the process units coming up early.

Thank you.

Chi Chow, Macquarie Capital.

Gary, in your prepared remarks, you talked about certain crude spreads potentially staying wide longer-term.

Could you expand on that and maybe talk about what specific crudes you're thinking about?

Sure.

I think we have chatted about this in the past.

As we look at the crude going from north to south and west to east, first of all, the Canadian crude -- and we all know the dynamics in the system is trying to expand the crude systems into the Gulf Coast for Canadian supply.

Then you look at the Bakken down to the Niobrara eventually to the Permian and Eagle Ford.

The Canadian and Bakken and Permian crude as well all finds its way to the Cushing Hub.

The initial pipeline that I understand midmonth here will be started up that will be reversed from Cushing to the Gulf Coast is around 150,000 barrels per day or so of output.

But when you look at the Bakken -- and I am understanding 20,000 to 30,000 barrels per calendar month are being added each month -- and you look at the take-away capacity from the Bakken, the take-away capacity from Canada and then the Cushing barrels -- excuse me -- the Permian barrels coming into Cushing, we still find that there's going to be a substantial amount of supply available vis-a-vis the amount of export capacity you have out of that Cushing market.

Then the other point that I want to make is, as you take a look at those crudes, that eventually they want to find their way to the Gulf Coast.

I think you have a very, very strong competitive force being the Eagle Ford crude that is continuing to grow each month.

In order to be able to get those crudes and transport those crudes through the Gulf Coast, I've see it that you have to go through the Eagle Ford to get there.

Therefore, I think it is going to allow differentials to be wider back in those refiners in the midcontinent and Midwest that have the ability to take those crudes into the marketplace.

You're going to have a transportation differential, a timing differential, and I think you're going to find more competition in the Gulf Coast.

Now where that competition is really going to play out I believe is the imported barrel that is coming in as well as some offshore barrels that can come in into the Gulf Coast, either Louisiana corridor or the Houston corridor.

I just see for some time that the friction of those barrels that are trying to pass through to the Gulf Coast, it's still going to be a very, very competitive market.

Therefore, it's going to, as I said before, allow benefits back to Midwest, midcontinent refiners.

Great, thanks, Gary.

Given those thoughts, why would you even consider a reversal of Capline?

Well, we did not say that we were considering that.

There are many markets and many ways to look at the markets.

And it's clear Capline is a 1 million barrel per day kind of rate of capacity system that moves south to the north to the [day].

It is also clear that you would need to ensure that you have supply into the Midwest.

I could take you back to, you know, late the last decade where that pipeline was a major supply source in the Midwest refineries.

In the event that you were to consider that, you would need to ensure that you have a large pipeline that can still move that type of supply, maybe not 1 million barrels per day, but still move a significant amount of supply south to north if needed.

The Canadian production cannot handle everything into the Midwest.

So, there are many dynamics that go into making or performing that analysis in terms of what would be the best way to look at those assets.

Right.

It seems like you would want to keep that optionality open from the Gulf Coast is what you are saying?

You absolutely need that optionality.

Right.

Okay, thanks.

One final follow-up.

I guess, Don, a couple of details.

On the share repurchase program, it's not clear.

Are you done with the $850 million buyback in the first quarter or is that still ongoing?

We've spent the money, Chi, and that money has been paid to the bank, but the bank is still in the process of purchasing and completing the share repurchase.

We received 17.6 million shares to date, and we would expect, given sort of where pricing is currently, that the total shares repurchased will be in the 20 million share range.

Okay.

Do you have any guidance on what second-quarter average share count would be then?

Well, we have -- there's 340 million shares currently, Chi, if we would receive the other shares, only a couple million more shares, so I would say 340 million is probably the number I would start with.

Okay, great.

Okay, thanks a lot.

Doug Leggate, Bank of America.

Hi guys.

It's actually Jason Smith on for Doug.

I just had a follow-up on Detroit.

Even though the conversion is underway, how do regional discounts we're seeing impact your optimal crude slated?

Is it still optimal to run WCS or is it going to be optimal to potentially run light sweet crudes instead?

Good question, Jason.

I think, when you look at the spreads that we have been seeing in the market for the first quarter, it would still suggest that you would want to run a very heavy slate.

But the fact is that what we'll do, like we do all the rest of our refineries, is we will look at the crude oil differentials that exist in the market at any given time, and we will optimize the crude slate such that we will have the highest profitability slate that we can.

We still very much believe that it is going to be a heavy slate, but there are times when we may not run all the heavy that we talked about.

It will depend upon the market.

The object is to make money, not to run heavy crude.

Thank you.

Just can we get an updated view on consolidation, given the cash in the balance sheet here, both on the refining and the retail side?

I'm not sure I understand the question Jason.

Sorry.

With the cash on the balance sheet and given that we know that there are some assets on the market right now, just your views on the kind of bid ask on consolidation.

Okay, sorry, Jason.

We continuously look at all assets that are available and as recognized with our acquisition last year of Gas City and the acquisition soon on GasAmerica, so we continue to look at basically everything that is available and what opportunities are there.

But I can't go into any more detail at this time.

Thank you very much.

Faisel Khan, Citi.

In your prepared remarks, I think you talked about how you had switched a lot of yours foreign waterborne crudes over to Brent-based pricing.

For the first quarter, how much of your crude was -- your foreign born waterborne crude was priced off of WTI?

This is a Garry Peiffer.

For the first quarter, most of it was based on WTI derivatives pricing, so essentially all of it in the first quarter.

As Gary mentioned, we're just switching in the second quarter.

If you look at most of April, there has not much of a difference through the first 20 days or so, so fairly minor impact so far as we move to the second quarter.

Okay, understood.

Given the punting price of ethanol versus gasoline, were there any benefits of blending ethanol into your gasoline pool?

This is Garry again.

You know, we're basically E-10 everywhere at the moment.

So we're watching the developments on the expansion, but at this time, we have no plans to go beyond E-10 in our blending.

Okay, great.

Just looking at your export volume growth year-over-year, where would you say you had the most growth?

Which region of the world did you see the most growth year-over-year?

I don't know.

I would say, just off the top here without getting into the details, Faisel, I think it is pretty balanced.

If you look at Europe and compare that to South America, Latin America is probably fairly balanced.

Garry just has a --

No, and that's right.

We don't have a lot of good details on some of the sales since a lot of it is that we sell it domestically and it's exported so we're not always sure exactly where a lot of the barrels are actually ending up anyhow.

okay, got you.

And last question from me, the acquisition price of the GasAmerica stores?

We have not made that public.

Okay.

Thanks, guys, for the time.

I appreciate it.

Rakesh Advani, Credit Suisse.

Just first I wanted to kind of get your view of the Motiva startup on margins and the light heavy spreads I guess in the short term and long term?

Well, my understanding and what I have read and studied is that, as they start up, they will be taking the base plan down for turnaround.

So I think it is going to be some time, probably through the end of the third quarter, before they get the entire system up and running.

Then it all depends and of course we do not know the information of how they're going to supply their crude, whether it is going to be heavy crude, medium, some light.

We don't know what type of slate, so therefore how that would affect the differentials and then as they come up how that will change the product prices.

I think it is just too far out probably into late second/early third quarter before we would see the effects.

Okay so I mean I guess if you thought they were bringing on coking capacity with the implication that you are bringing or taking on heavy crude then, wouldn't that (multiple speakers).

well, coking capacity could also mean that you are running part of a medium slate.

But I would assume you are right, that it will be a heavier crude.

Okay, thanks.

I'm just wondering if it's possible for the first-quarter results in the Refining segment, is it possible to get the non-FERC EBITDA contribution from logistics that is in refining?

We don't break it out, no, not at this time.

All right, thank you.

Cory Garcia, Raymond James.

Just one quick one out of me now that we're through I guess the seasonal low point in asphalt demand.

Do you guys have any color into sort of how that market is shaping up as we move into summer?

Just sort of refresh me on how your asphalt sales -- is it predominately wholesale versus what we considered more of a I guess assured sales or sort of contracted volumes?

Well I like your optimism that we are at our low point in asphalt demand.

It's still going to be a struggle for asphalt this year.

As you see the relative price of asphalt in the $500-plus per ton, it's going to be a challenge for state governments and cities to be able to pave as much as they have in many years past.

So, to say I would like to share your optimism.

We have hit the low point and Garry may have a little more detail.

Yes, I think the only thing to add is, as you probably know, both the House and the Senate recently passed a 90-day extension, so these 90-day extensions really put a bit of a -- cast a lot of uncertainty over what funding is going to be there.

So I think, as Gary suggested, until we get a little more certainty as to what type of federal funding is going to be out there -- and federal state funding accounts for about 80% of the total funding for asphalt.

So, it's really until we get some resolution at the federal level as to what kind of funding they're going to have.

We're just kind of -- it is a bit of a -- it's overshadowing everything else going on in that market.

So it is still a bit uncertain, even considering the federal funding status.

Well, I appreciate the color and great quarter, guys.

Thank you.

Paul Cheng, Barclays.

Gary, I joined late, so I missed your opening remark.

You made have already commented, so if you do, I apologize.

For the month of April, do you have some same-store sales for gasoline that you can share with us?

Right, for April month-to-date, we're up a little over 3.5%.

I think it's about 3.7% month-to-date, so a very strong turnaround in April versus the first quarter.

The other thing is when you go back and compare some of the volume first quarter versus last year, even look at the individual months, we had some pretty strong months in the first quarter last year.

So when you look at things on a same-store basis, sometimes you are comparing up yourself against very strong months last year.

So as I said in my prepared remarks, we expect to be, after April, about flat year-to-date on gasoline demand with a very strong pickup here in April.

Gary, does it make any difference in terms of the year-over-year comparison between your Midwest system and your Southeast system?

Well, when we look at same-store, we are only in the Midwest.

(multiple speakers)

I thought you had some down in the Southeast.

No.

We do not any longer, Paul, we saw those back in '07/'08 time frame.

Okay, I see.

Alright, I'm wondering.

If we're looking at older new shale oil development, a lot of them is actually NGL and also condensate.

(inaudible) may actually be relatively smaller than people thought.

Two questions in here -- Gary, do you guys really can run much of a condensate even in your light sweet crude refinery?

Secondly if not, I could assume that we're probably going to be that long in condensate.

Do you look at condensate (inaudible) even though that may not be a traditional investment, that you guys will make it then an opportunity there?

Paul, this is Garry Peiffer.

We've been looking at that very closely, and you are right.

We think we can run, between Canton and Catlettsburg, maybe 20,000 to 30,000 barrels a day of condensate type crude, or 20,000 to 30,000 barrels a day between the two facilities.

But we're also looking at other opportunities around the system to run more condensate.

I guess our opinion is that, based upon the production forecast for condensate, we think, for the foreseeable future, we could have an appetite to use up a lot of what is available for quite a few years in that area.

So we are looking at investments to do some of that, but we think we have the facilities and we definitely are located in the right spot to be able to run it.

So, Gary, you will be able to run it, so you don't really need to build a condensate (inaudible) to take advantage of the potential excess supplies in the market for condensate?

We are looking at alternative, utilization of existing equipment, new equipment in our facilities -- this is both at Canton, Catlettsburg and potentially Robinson -- as ways to use some of the condensate, should it become available in the quantities being projected.

How about down in the Gulf Coast.

I mean Eagle Ford does produce quite a lot of condensate, and it looked like the Permian basin, the increase is going to be NGL and condensate also.

Any opportunity there?

I think there's a lot of other outlets down there.

That's kind of the -- a lot of opportunities for using those type of liquids in the Gulf Coast that we aren't really exploring those for the Texas city of Garyville.

So we're strictly focusing on the Midwest, the Utica at the moment.

Yes, and Paul, what happens in the Gulf Coast, first of all, there are more condensate splitters but also the condensate seems to get blended into different systems because of just much more infrastructure.

And Garry's points are right and I should have included Utica back in the question that Chi Chow had for me on that we looked at the different crudes.

I should've included Utica as well because as this production ramps up and this production is up the furthest eastern part of Pad 2, it is -- we don't have any pipelines that run east to west over in Pad 2.

So this really gives us a great opportunity to be able to run this at those refineries.

Once we get it on the water, we can take it many places.

So, to Gary's point, instead of possibly heavy-ing up capital investments, maybe we can use our transportation assets to move it into markets.

Sure.

A final one, Garry, can you tell us (inaudible) you have go in into the data room of BP Texas City?

Yes, Paul, we don't really comment on what we're looking at or not looking at, so we can't comment.

Thank you.

Evan Calio, Morgan Stanley.

Great quarter.

I joined a little late here, sorry.

I may be at risk of getting the last response.

Congrats on the strategic update on midstream alternatives.

I just had a question.

In addition to exploring an IPO, would management consider acquiring exists a publicly traded MLP or GP vehicle assuming the right opportunity presented itself?

This is Garry Peiffer.

Really it is kind of the same answer, is we look at a lot of things as ways to enhance the value of our core assets.

We really can't comment on what we're doing, but we're looking at a lot of different alternatives all of the time.

Perfect.

Maybe with faster moving midstream peers in the Utica and big private acquisition, clearly in a key positioning for MPC, I mean could we see incremental CapEx or investment alternatives in the midstream infrastructure in the Utica, at least given the last CapEx guidance in November?

Right.

Evan, thank you very much for compliments on the quarter.

But as we've stated before, we are executing on a permanent truck rack at Canton.

We're looking at a trucking to barge operation.

Those are already in our plans that we have discussed before.

If the production grows like we certainly expect and the producers we're working with, we have a main trunk line that runs west to east into the Canton area.

Therefore, we would have a great ability to run a gathering system if that production grows into that main trunk line.

So we have many opportunities and I believe we're going to be able to move it as fast and as quick and have the flexibility going forward as anyone else.

That's great.

Another question -- I know -- I believe there've been some questions on Capline.

I understand it doesn't -- it wouldn't make as much sense, given the kind of limited number of potentially interested volumes moving -- looking to move south from the north and low likelihood of a [Chai cap] reversal.

But what are your rights to control any potential reversal?

Have there been any discussions there with partners, or how are you thinking about that obviously longer-term?

I apologize if some of that had been answered.

Yes, this is Garry Peiffer again.

As you probably know, this is an undivided interest in this pipeline, so there's three owners and we're all competing with one another to set tariffs and to ship volume, so we have to be a little bit careful about how we talk about the pipelines.

So the bottom line is we're just one of three and we have to evaluate this in our interest, but we don't control the ultimate destiny of that line.

Got it.

Last small question from me is can you give any color on the pretax income that comes from the acquired GasAmerica stores?

I will leave it at that.

We have not given that level of detail, nor have we closed the transaction yet.

All right guys, again, great quarter.

Thanks for taking my call.

Thank you very much.

Chi Chow, Macquarie Capital.

Hey, Don, real quick, what is the remaining CapEx on DHOUP and also have you given any guidance on 2013 CapEx?

We have not given guidance on 2013 CapEx.

Remaining CapEx on DHOUP was $370 million for the year.

As of the end of first quarter?

No, I don't know that number from the end of the first quarter.

Okay, so $370 million at the beginning of the year?

$370 million was the full year.

That was included in our full-year refining CapEx budget, Chi.

Okay, great.

Thanks a lot.

Rakesh Advani, Credit Suisse.

Hi, I just had a quick last question.

In the -- you mentioned about retail expansions.

Would you be looking to move back into the Southeast in a big way?

Would that be interesting to you?

Or --?

Yes.

We have stated before we are very interested in continuing to grow both sides of our retail.

I want to make sure, when Paul Cheng was asking me about retail, we have the Marathon brand in the Southeast but we don't look at same-store sales in Marathon brand because we don't have the individual store volumes.

But we have Speedway just in the Midwest, in the seven-state area.

But certainly if we can find the quality and the size of opportunities, we would consider that into the Southeast for Speedway.

We're continuing.

We had an outstanding year last year on the Marathon brand side in growing our business in the Southeast as well.

So, we're trying to grow both sides of our retail business.

Thank you.

Yes.

That concludes today's question-and-answer session.

Please go ahead with any final remarks.

Thank you, Christine.

Thanks to everyone for joining us today and for your interest in Marathon Petroleum.

Should you have any additional questions this afternoon, the IR team will be in the office.

Give us a call.

Thank you.

Thank you for participating in the Marathon Petroleum Corporation's first-quarter 2012 earnings conference call.

This concludes the conference for today.

You may all disconnect at this time.