MARATHON PETROLEUM CORP (MPC) Earnings …MARATHON PETROLEUM CORP (MPC) Earnings Report: Q3 2015 Conference Call Transcript The following MARATHON PETROLEUM CORP conference call took

CompanyName:MarathonPetroleumCorpCompanyTicker:MPCSector:BasicMaterialsIndustry:Energy

EventDescription:Q32015EarningsCallMarketCapasofEventDate:26.26BPriceasofEventDate:51.15

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

MARATHONPETROLEUMCORP(MPC)EarningsReport:Q32015ConferenceCallTranscriptThefollowingMARATHONPETROLEUMCORPconferencecalltookplaceonOctober29,2015,10:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

GeriEwing;MarathonPetroleumCorporation;IRGaryHeminger;MarathonPetroleumCorporation;PresidentandCEOTimGriffith;MarathonPetroleumCorporation;SVPandCFOMikePalmer;MarathonPetroleumCorporation;SVPSupply,DistributionandPlanningTonyKenney;MarathonPetroleumCorporation;President,SpeedwayLLCRichBedell;MarathonPetroleumCorporation;SVPRefiningDonTemplin;MarathonPetroleumCorporation;EVPSupply,TransportationandMarketingPamBeall;MarathonPetroleumCorporation;SVPCorporatePlanning,GovernmentandPublicAffairs

OtherPart icipants

EdwardWestlake;CreditSuisse;AnalystNeilMehta;GoldmanSachs;AnalystChiChow;Tudor,Pickering,Holt;AnalystEvanCalio;MorganStanley;AnalystDougTerreson;EvercoreISI;AnalystPaulCheng;BarclaysCapital;AnalystBradHeffern;RBCCapitalMarkets;AnalystPhilGresh;JPMorgan;AnalystRyanTodd;DeutscheBank;AnalystDougLeggate;BofAMerrillLynch;AnalystRogerRead;WellsFargoSecurities;AnalystJeffDietert;Simmons;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheMarathonPetroleumthird-quarterearningsconferencecall.MynameisHilda,andIwillbeyouroperatorfortoday.(OperatorInstructions)Pleasenotethatthisconferenceisbeingrecorded.IwouldnowliketoturnthecallovertoGeriEwing,DirectorofInvestorRelations.Ms.Ewing,youmaybegin.

GeriEwing (IR):

Thankyou,Hilda.WelcometoMarathonPetroleumCorporation'sthird-quarterearningswebcastandconferencecall.Thesynchronizedslidesthataccompanythiscallcanbefoundonourwebsiteatmarathonpetroleum.comundertheinvestorcentertab.

OnthecalltodayareGaryHeminger,PresidentandCEO;TimGriffith,SeniorVicePresidentandChiefFinancialOfficer;andothermembersofMPC'smanagementteam.




WeinviteyoutoreadtheSafeHarborstatementonslide.It'sareminderthatwewillbemakingforward-lookingstatementsduringthecallandduringthequestion-and-answersession.Actualresultsmaydiffermateriallyfromwhatweexpecttoday.FactorsthatcouldcauseactualresultstodifferareincludedthereaswellasinourfilingswiththeSEC.

NowI'llturnthecallovertoGaryHemingerforopeningremarksandhighlights.Gary?

GaryHeminger (PresidentandCEO):

Thankyou,Geri.Goodmorning,andthankyouforjoiningus.

Wearepleasedtoreportthird-quarterconsolidatedearningsof$million.Ourresultsweredrivenbyasolidperformanceacrossallofourbusinesses.Wewereabletocapturestrongcrackspreadsinafavorablerefiningenvironment,andwetookadvantageofourflexibilitytomovefeedstocksandrefinedproductsthroughoutoursystemtooptimizeprofitabilitywhereoriginaldislocationsoccurred.Lowerfuelpricesfacilitateastrongrefineproductdemand,furthercontributingtoourresults.

Speedwayalsoperformedverywellduringthequarter,benefitingfromhigherlightproductmargins.Ourpeer-leadingmerchandisemodelalsocontinuestodriveprofitability,withhigherearningscomparedtothethirdquarteroflastyear.

OnSeptember,wecelebratedtheone-yearanniversaryofourEastCoastretailacquisition,andweareverypleasedwiththeresultsofthetransactionsofar.Thenewlocationsareperformingwell,andthebusinessisontracktomorethandoublethe$millioninsynergiesweexpectedinthisfirstyear.

Wearesignificantlyaheadofscheduleinconvertingtheacquiredstores,withnearly,ofthe,newlocationsconvertedtotheSpeedwaybrandandoperatingsystem.Inadditiontotheconvergence,overremodelsofthesenewstoreshavebeencompletedorareinprogress.ThisrapidprogressonconversionsandfocusonremodelingselectedlocationswillfurtherenhanceSpeedway'sabilitytogrowmerchandisemarginsacrossthisentireplatform.

Turningtothemidstreambusiness,welookforwardtofinalizingacombinationofMPLXandMarkWestlaterthisyearandareveryenthusiasticabouttheprospectsofthecombinedpartnership.TheMPLXandMarkWestcombinationwillcreateoneoftheindustry'slargestdiversifiedmasterlimitedpartnerships.WewillcombineMarkWest'srobustorganicgrowthopportunitieswithMPC'slargeandgrowinginventoryofMLP-qualifyingEBITDA.

ThegrowthofdistributablecashflowstothecombinedpartnershipwillalsobesupportedbyMPC'sandMPLX'sstrongfinancialposition,creatingalarge-capdiversifiedMLPwithanattractivedistributiongrowthprofileoveranextendedperiodoftime.Thestrategiccombinationwilldrivesubstantiallong-termvaluefortheunitholdersofbothpartnershipsaswellasMPCshareholders.

AtthetimeMPLXannouncedacombinationwithMarkWest,thepartnershipprovideddistributiongrowthguidancethrough.MPLXremainscommittedtothegrowthprofileprovidedinthatguidance.GiventhesignificantchangeinMLPvaluationsandtheresultanthigher-yieldenvironmentthesectorhasexperiencedinthelastseveralmonths,wenowexpectdrop-downtransactionsorsomeotherformofMPCsupportasearlyas.AsMPLX'ssponsor,wearecommittedtosupportitssuccess.

Asweworktomaximizeourshareholders'long-termreturns,wecontinuetofocusondisciplinedbalance--adisciplinedandbalancedapproachtoinvestinginthebusinessandreturningcapitaltoourinvestors.Animportantelementofthisfocushasbeentoidentifymarketopportunitiesandpursuetransactionsthataccruelong-termbenefitstoshareholders,aswehavedonewithouracquisitionsoftheGalvestonBayrefineryandtheEastCoastretailoperations.




IamconfidentwewillextendourtrackrecordwiththependingMarkWestcombination.WelookforwardtoMarkWestbecomingpartofMPLXtothebenefitofallequityownersassociatedwiththemerger.

AnotherimportantelementoftheCompany'scapitaldisciplineistomonitorchangesinthemarkettoensureinvestmentsreflectthebestlong-term,risk-adjustedreturnstoshareholders.InFebruaryofthisyear,weannounceddeferralofthefinalinvestmentdecisionontheproposedresidualoilupgraderexpansionprojectatourGaryvillerefineryinordertoevaluatetheimplicationsofmarketconditionsontheproject.WhilewestillbelievetheROUXproject,aswecallit,isanexcellentprojecttoenhanceMPC'splatform,atthistimewehavedecidedtocanceltheprojectbasedonourassessmentofmarketconditions.Andwewroteoffthe$millionincapitalizedprojectcostsincurredtodate.Wewilllooktodeploythis$.billionincapitalonavarietyofotherprojectstoprovidesuperiorlong-termreturnprospects.

Wewerealsopleasedtoreturn$millionofcapitaltoshareholdersduringthequarter.Wepurchasedmillionofourshares--$millionofoursharesandhaveapproximately$billionremainingunderourtotalof$billionofsharerepurchaseauthorizations.

Wealsopaiddividendsof$million.OurBoardapproveda$.-per-sharedividend,whichwasincreased%lastquarter,resultingina.%compoundannualgrowthrateonourquarterlydividendsincewespunin.

Wecontinueoureffortstoremainaleaderinourindustrythroughallcyclesbyfocusingonoperationalexcellenceandcontinuousoptimizationofourrefiningandmarketingsystem.Wewillcontinuetogrowourstablecashflowsthroughourretailandmidstreambusinesses,takingadisciplinedapproachtocapitalallocation,anddeliveringsignificantvaluetoourshareholdersthroughoursponsorshipofandourgeneralpartnerinterestinMPLX.

DuetothetimingofMarkWest'sspecialmeetingfortheproposedcombinationwithMPLX,wearemovingouranalystdaymeetingbackonedaytoDecember.Atthattime,weplantoupdate--provideanupdateonourallocationofcapital,includingmargin-enhancingopportunitiesidentifiedatourGalvestonBayrefinery,Speedway'sgrowthinsynergiesfromthestoresacquiredinSeptemberof,thecompellingcombinationwithMarkWestandothermidstreamareasoffocus.WelookforwardtoseeingyouatourcombinedMPCandMPLXanalystdayonDecember.

Withthat,letmeturnthecallovertoTimtowalkyouthroughthefinancialresultsforthethirdquarter.Tim?

T imGrif f ith (SVPandCFO):

Thanks,Gary.Slideprovidesearningsonbothanabsoluteandper-sharebasis.AsGarymentioned,ourfinancialperformancewasstrongonceagaininthethirdquarter,withearningsof$million,or$.perdilutedshare,duringthethirdquarterof,comparedto$million,or$.perdilutedshare,inthethirdquarteroflastyear.Justnote,third-quarterearningsreflectsthe$millionimpairmentcharge,orabout$.perdilutedshare,forthecancellationoftheROUXprojectthatGaryjustmentioned.Youcanseetheearningsthroughthirdquarterarealreadyabout$millionaheadoftheentireyearlastyear.

Thechartonslideshowsbysegmentthechangeinearningsfromthethirdquarteroflastyear.The$millionnetincreaseinearningswasprimarilyduetohigherincomefromourrefiningandmarketingandSpeedwaysegments,whichI'lldiscussfurtherinjustaminute.Partiallyoffsettingthesehigherearningsis$millionnon-cashimpairmentchargeforROUX,whichisincludedintheitemsnotallocatedinthechart,aswellashighertaxesresultingfromhighertaxableincomeinthequarter.

Turningtoslide,refiningandmarketingsegmentincomefromoperationswasabout$.billioninthethirdquarter,comparedwith$millioninthesamequarterlastyear.The$millionincreasewasprimarilydueto




strongercrackspreadsinourmarketsandthefavorableeffectsofContangointhecrudeoilmarketinthethirdquarterof.

Youmayrecallthecrackspreadsweprovideinourmarketmetricsonourwebsitearecalculatedusingpropproductandcrudeprices.Thepricewepayforcrude,ontheotherhand,isestablishedtodayspriortothepropmonth.Thispricedifferenceisreflectedinthe$millionfavorableContangoreflectedasmarketstructureonthewalk.Partiallyoffsettingtheseincreaseswaslessfavorablecrudeacquisitioncostsrelativetoourmarketindicatorsandlowerdollarbaserefineryvolumetricgainsresultingfromoveralllowercommodityprices,bothofwhichareincludedinthe$millionothergrossmarginscolumnonthechart.

Onslide,weprovidetheSpeedwaysegmentearningsbridgeforthethirdquarter.Speedway'sincomefromoperationsmorethandoubledfromthesamequarterlastyear.Speedway'snewlyacquiredlocationswereanimportantpartofthatincrease,contributingadditionalincomeofapproximately$milliontothequarter'sresults,orapproximately$millionofEBITDAinthethirdquarter.

ForthelegacySpeedwaylocations,lightproductgrossmarginwasabout$millionhigherinthethirdquartercomparedtothesamequarterlastyear.Thisincreasewasprimarilyduetohigherlightproductdemandandafavorablepricingenvironmentduringthequarter.Overall,theSpeedwaysegmentgasolineanddistillategrossmarginincreasedby$.pergallonfromthethirdquarteroftothethirdquarterthisyear.

Speedway'smerchandisemargininthelegacylocationswas$millionhigherinthethirdquartercomparedtothethirdquarterlastyear,primarilydrivenbyanincreaseinmerchandiseandfoodsalesandimprovedmargins.

Onasame-storebasis,gasolinesalesvolumesincreased.%,andmerchandisesales,excludingcigarettes,increased.%inthethirdquartercomparedtothesamequarterlastyear.Asyoucompareoursame-storegasolinesalestoindustryaverages,Iwouldpointoutthatthesecanvaryduetomanyfactorsincludingregionalfootprint,weatherandcompetition.Speedwaycontinuouslystrivestooptimizetotalgasolinecontributionsbetweenvolumeandmargintoensurefuelmarginsremainadequate.

Asyoumightexpect,totallightproductsaleswerealmostdoubledinthethirdquarterlastyearasaresultoftheHessacquisition,andwearepleasedtohighlightthatgasolinevolumesforthelegacySpeedwaylocationswereup.%inthethirdquarteronanabsolutebasisversusthesamequarterlastyear.Giventhatwearenowoneyearintotheacquisition,OctoberwillbethefirstmonthournewEastCoastlocationswillbeincludedinouryear-over-yearsame-storemetrics.SofarforOctober,totalCompanygas--same-storegasoline'svolumesareup.%versusOctoberlastyear.

Slideshowsthechangesinourpipelinetransportationsegmentversusthethirdquarterlastyear.Incomefromoperationswasupslightlyfromthesamequarterlastyearwith$millionofincomeinthisquarter.Theincreasewasprimarilyduetohighertransportationrevenueinthequarter,reflectinghigheraveragetariffratesandhighercrudeandlightproductthroughputvolumes,partiallyoffsetbyincreasedoperatingexpensesandabout$millionintransaction-relatedcostsincurredaspartoftheMarkWestcombination.

Slidepresentsthesignificantelementsofourchangesinourcashpositionforthequarter.Wehadabout$billionofcashonhandattheendofthequarter.Or,operatingcashflowwasa$.billionsourceofcash.The$millionuseofworkingcapitalnotedontheslideprimarilyrelatestoadecreaseinaccountspayablepartiallyoffsetbyadecreaseonaccountsreceivable.Thedecreaseinaccountspayableandreceivablewereprimarilyduetolowercrudeoilandrefinedproductpricesduringthequarter,whichcreatedtheuseofcashgiventhegenerallylongertermsonthecrudepurchases.




Wecontinueddeliveringonourcommitmenttobalanceinvestmentsinthebusinesswithreturnofcapitaltoshareholders.Wereturned$milliontoshareholdersduringthequarter,including$millioninsharerepurchases.Sharerepurchaseswereslightlylowerthisquarterasweplanourliquidityneedsoverthenextseveralmonths,includingthe$millioncontributionfortheMarkWestcombinationand,basedoncurrentprices,theapproximately$milliontoMPLXtomaintainour%generalpartnerinterestafterthecombinationiscompleted.Sharecountattheendofthequarterwasmillionshares,reflectingrepurchaseactivitysincethespinofabout%ofthesharesoutstandingatthattime.

Turningtoslide,inthethirdquarterwepaida$.-per-sharedividend,representinga%increaseoverthe$.-per-sharedividendpaidduringthesecondquarter.Itwasthefifthincreaseinourdividend,andourdividendhasseena.%compoundannualgrowthratesinceMPCbecameastandalonepublicCompanyinmid-.Ourcontinuedfocusongrowingregularquarterlydividendsdemonstratesourongoingcommitmenttoourshareholderstoshareinthesuccessofthebusiness.AndasGaryhighlighted,wearepleasedtoaffirmthatcommitmentwiththe$.-per-sharedividenddeclaredyesterday.

Slideshowsthatourbalancesheetcontinuestobestrongandourleveragelow,withgrossdebtatlessthanonetimesthe$.billionofLTMEBITDAandadebt-to-total-capitalratioof%.

SlideprovidesanupdatedoutlookinformationonkeyoperatingmetricsforMPCforthefourthquarterof.Weareexpectingfourthquarterthroughputvolumesof.millionbarrelsperday,whicharedownslightlycomparedtothefourthquarterofduetomoreplannedmaintenancethisyear.Asthefourthquarterbeginsandwecomeoutofthesummerdrivingseason,weexpecttoseenormalseasonaldemandlevels,whicharetypicallylowerinthefourthquarter.Ourprojectedfourth-quartercorporateandotherunallocateditemsare$million,includinganestimated$millionofpensionsettlementexpenseinthequarter.

Withthat,letmeturnthecallbackovertoGeri.Geri?

GeriEwing (IR):

Thanks,Tim.Asweopenthecallforquestions,weaskthatyoulimityourselftoonequestionplusafollow-up.Youmayre-promptforadditionalquestionsastimepermits.Withthat,wewillnowopenthecallstoquestions.Hilda?

QUESTIONS&ANSWERS

RETURNTOTOP

Operator :

(OperatorInstructions)EdwardWestlake,CreditSuisse.

EdwardWestlake (Analyst-CreditSuisse):

Goodmorning,andcongratsontheresults.AppreciateobviouslymostofyourquestionsthismorningareprobablygoingtobeonMarkWest.The--someformofsupport--obviouslyadrop-downwouldhelp,buttalkmethroughwhatotherformsofsupportyouhave.AndthenIhaveamoregeneralquestiononMarkWest.


Yes,goodmorning.Howyoubeen?





Good.Thanksverymuch.Thegirlsaredoingwell.


Good,good;gladtohearthat.So,Ed,asyouknow,aswehavetalkedonthiscallbefore,wehavemanyformsofsupport.Letmebackupreallyandtalkaboutthistransactionandtheoverallmarket.Istillcontinuetobesurprisedathowtheoverallmarkethasperformed,especiallyhowMPLXhasperformed.

Inahigher-yieldenvironment,ofcourse,weneedtotalkaboutpossiblysupportearlierthanwehadinitiallyplannedthanlater.ButIthinktheindustriallogicisstillsostrongwiththecombinationofthesetwocompanies,MarkWesthavingjustanoutstandingsuiteofassetsandgrowthopportunities,andMPLXhavingatremendousbacklogandagrowingbacklogofEBITDAthatiseligiblefordrop-downsaswegodowntheroad.

Ofcourse,wehavetremendousflexibility.I'mnotgoingtotieusdowntojustone.Butwecanincubateprojects,andthat'sourplangoingforward,andwehavebeenveryspecificaboutthatplangoingforward.AndwhenIstepbackandlookattheoverallenvironmentinthisMLPworldtodayandlookathowstrongMPLXis,andyoucompareusagainstotherMLPsthatwerejustadrop-downstorybefore,westillcomparevery,veryfavorably,ifnotoneofthebestinindustry,andnowwe'retyingittoaverystronggrowthprofile.

AndsoIstepbackandlookatitat,Ed--Ireallydon'tlookatitaswhetherit'sagatheringofprocessing,whetherit'sanaturalgasMLP,whetherit'sarefinedproductsMLP,aretailMLP.It'swhatisyourbacklogandwhat'sthequalityoftheEBITDAthatyouhave.AndIbelievethatwehave,again,oneofthebest-qualityinventoriesofEBITDAthatcangointothissectorgoingforward.AndasIsaid,welookedatincubatingprojects.WetakethebacklogofprojectsthatMarkWesthas,wecanincubatethoseprojectsinsideMPC,droptheminattherighttime.

Wecandomanyotherthings.Lookatthemultiplesonhowwedropdownassets,othercommercialarrangementswherewedointercompanyloans,IDRgivebacks,thelistgoesonandonoftheflexibility.Butonthefrontside,wenow--basedontheyieldenvironmentofMLPs,andIdoexpectthatouryieldwillimprovesubstantiallyasthemarketgetsmorecomfortablethatthiscombinationisgoingforward.


Andthenontheyieldcomfort,obviouslythere'sabigmoveinthespreadsoftheoverallindex.ButtheupstreamintheNortheastisunderstressbecausegaspricesarelowandNGLpricesarelow.AndwhenyoulookatMarkWest,althoughtheyhavealotofcapacityandacreagededication,theMPCs,thevolumeprotectionisrelativelylowonsomeofthenewareas.Sojustgiveussomecolorastohowmuchdiligenceyou'vedoneontheabilityoftheMarkWestEBITDAtodeliveragainstyourexpectations.Andthenifitdoesfallshort,whatwouldbetheplantosupporttheoverallcombinedEBITDAtotheextentthatvolumesintheNortheastdisappoint?


Right.Andwediddo,obviously,atremendousamountofduediligencebeforeweeversignedthisagreement.Butstepback,Ed,andlookattheMarcellusandtheUtica.Andyoulookat--youallandeveryoneonthiscallisveryfamiliarwithsomeofthemajorproducersintheseregionsandthesuccessthattheycontinuetohaveintheMarcellusandtheUticaatthistime.

Theareasof--andjustsomeofthewellsthathavebeenmadepublicrecentlyareverylargewellsintheacreagepositionsthatwehave.

IwillletFranktalkabouthiscurrentenvironmentmorewhenhehashisearningscallnextweek.SoI'm




notgoingtogo--overstepmyboundsherewithhiscurrentbusiness,butwedidalotofworkontheduediligence.Webelievethebreak-evencostintheMarcellusandUtica,whichisthepredominantareaofinfluenceofMarkWest,continuetobesomeofthebestbasinsinthecountry.Andifthereisaslowdown,aswe'vealreadyindicated,wewillconsiderdroppingdownearlier.Andwe'vetalkedaboutthis$.billionofprojectbacklogorEBITDAbacklogwehaveinsideMPC,andthatcontinuestogrowaswegoforward.

Thekey,though,thatweareveryinterestedinandthelogicbehindthisdealonacombinationiswehavethebalancesheetandthefinancialstrengthtoreallytakethebacklogofprojectswithinMarkWestandbringthemtothetable.AndIthinkthatwillovershadowanydrop-offin--fromtheproducerside.


Thanksverymuch.

Operator :

NeilMehta,GoldmanSachs.

NeilMehta(Analyst-GoldmanSachs):

Gary,Iwantedtogiveyoutheflooralittlebitontheoilmacro,whichyouarealwaysgreataboutreflectingon.IwantedyoutotalkthroughyourviewsonBrentLOSandsomeofthesekeycrudespreadsinapotentiallylowerproductionenvironment.AndalsoviewsontheflatpriceaswegetintotheOPECmeetinginDecember.


Wow,Idon'tknowthatIhaveenoughtimetotalkaboutthat,Neil.Butanyway,letme--Ibelievethelasttimeweweretogether,themarketcontinuestoillustratethatwe'regoingtobelowerforlonger.IbelieveespeciallyasyouseethetradeflowsandyoulookatthecruderesourcesthatarecomingfromtheMiddleEast,WestAfrica,thatismovingintotheEastCoasttoday.Butspecificallythosecrudes--andwe'refindingsomeothersupplysources,mainlyIraqicrudes--IcanhaveMichaelPalmer,who'swithmetoday,addressthismore--butIraqicrudesthatarecomingintotheGulf.AndIthinkwhatthisisgoingtoillustrateforalongerperiodoftime,you'regoingtoseetheinfluenceofimportsontopofcontinueddomesticproduction.

Whiledomesticproductionhassomewhatflattenedout,especiallyinthePermianandtheEagleFord,wearecontinuingtosee--andweseethisthroughourownershipinLOOP,wearecontinuingtoseegoodgrowthinoffshoreGulfofMexicoproduction.

Sofortheremainderoftheyearandintonextyear,we'restilllookingprobablyinthe$to$range.Youmightgetupintothehighersmid-to-laternextyear.Ithinkwe'regoingtobeprobablyrange-boundinthatarenaformostofandprobablyintountilyoustarttosee--becauseyou'regoingtohavetoseenotonlysomedomesticproduction,butyou'regoingtohavetoseeabalancingofthisincrementalIraqiproductioncomingon.AndyoualsohavetowatchwhereRussiaistakingsomeoftheirproductionandhowtheyhavebeentakingsomeoftheirproductionoutofstrategicpetroleumreserveintootherpartsoftheworldandtheeffectthathasontheAsianmarkets.SoIwouldkeepallthosethingsinmindwhenyoulookatthose,Neil.

Bringingitback,then,tospreadsheredomestically,Ithinkwiththeincrementalproduction,asIjustmentioned,cominginfromtheGulfCoast,Ithinkthatbodeswellforthesupplyside.We'recomingdownoffthehigh-demandquarterhereintheUSasfarasrefiningcapacityandthecrudethatisneededtosatisfytherefiningcapacityintheUS.AndIthinkhereaswegetintothelatterpartofthefourthquarter--firstquarter,you'regoingtoseespreadswidenout--Brent,Tuck-in--andIwillletMikePalmer,whois




theexpertonthespreadmarket,addanythingtoit.

MikePalmer (SVPSupply,DistributionandPlanning):

Gary,Icouldn'thavesaiditbettermyself.TheonethingIguessIwouldaddisjust,again,thatwe--inthethirdquarter,wedidrunalittlemoresourcrudethanwedidinthequarterbeforeorthethirdquarterlastyear.AndIthinkoneofthethingsthatweareseeing,ofcourse,isthattheGulfofMexicoproductioncontinuestoincrease.

Andtheninadditiontothat,wehaveseen--asGarypointedout,wehaveseensomeforeigncargoopportunitiesintotheGulfCoastthatwe'vetakenadvantageof,andothershaveaswell.AndIthinkthat'slikelytocontinue,as,again,GarypointedouttheIraqicrudeisbeingproduced.ThereiscertainlythepossibilitythatwewillhavesomeIraniancrudethatwewillbetradingintheworld--increasedvolumesnextyear.AndIthinkthatwillcontinuetohavesomepressureagainstsourgradesthatshouldlookattractive.

Ontheotherhand,thesweetcrude,aswehavetalkedaboutbefore,ontheGulfhasbeenalittlemoreexpensive.Thereisnotasurplusinthislight-sweetcrudewaitingtofindahome.Theproducershavemanyavenuestoclearit.So,again,thattomepointstowardprobablyalittlemoresourcrudethatwewillrun.


Thankyou.Thesecondquestionismoreofahousekeepingquestion.Thebuybackwasatouchlowerthanwewereexpectinginmaybethepreviousquarteraswell.WasthatrelatedtoMarkWestandsomeoftheprocessesgoingonthere?Anythingyoucanspeaktointermsofthequarterlybuyback.


Sure,Neil.ThisisTim.Again,therehasbeennosortofphilosophicalchangearoundthewaythatwe'veapproachedcapitalreturntoshareholders.Ithinkinanygivenquarterwe'regoingtoplancarefullyintheliquidity.WeobviouslyhaveacontributionthatMPCwillmaketotheMarkWesttransactionthatwecertainlyarethinkingaround.Butifyoulookatcashbalances,thingsaregenerallyinlinewithwherewe'reat.So,nochangetobehavior,nochangetobelief.Ithinkjustcircumstancesinthequarterweresuggestiveofalittlebitloweractivity.


Thanks,team.Iappreciateit.

Operator :

ChiChow,Tudor,Pickering,Holt.

ChiChow(Analyst-Tudor,Pickering,Holt):

IguessjustonMarkWest,there'sbeenalotofspeculationontheacquisitionpricegiventhedeclineinbothMPLXandMarkWestunitprices.Howcomfortableareyouwithtransactionasitiscurrentlystructured?Andarethereanyactionsyouareconsideringtosupporttheclosingofthedeal?


Well,Chi,Ibelievethisdealisstillvery,verycompelling.We'vealready--Ithinkthebiggestandmostpositiveaction,weannouncedtodaywhenwereaffirmedguidance.ButyoujuststepbackandlookatthestrengthofMPC'sbalancesheet,MPLX'sbalancesheet,thefinancialpositionwe'rein--itbodesvery




welltotakethiscombination,whichIthinksetsusuponapedestalasthebestcombinationinthebusinessgoingforward.Andwefeelit'sacompellingenterprise.WehaveanumberofoptionsthatIalreadytalkedabout.Andwebelieve,ineffect--wethinktoday,tomorrow,wewillgoeffectivewithaproxy,anditwillbesentoutshortly.


Okay.Iguessthetimingofclosingshere--bymovingtheanalystdaybackoneday,isthatcorrespondingtowhenyouexpecttobeabletobeclosed?


Right.Andthat'swhat--maybenotnecessarilyclosed,Chi;itjustdependsonthetiming.ButThanksgivingandanotherbankholiday--orIguessit'sColumbusDay--VeteransDay,I'msorry.VeteransDaythatiscomingup,welosetwobusinessdays.So,unfortunately,that'sjustthewaythetimingworked;itmovedusbackjustthedaytobeabletohavetheanalystmeeting.So,yes,that'saswewouldexpecttohavethevoteinthefirst,secondofDecembertimeframe.


Gotit.Thanks.AndIhaveacouplequestionsfollowinguponNeil'squestionsonthecrudemarkets.Canyoutalkaboutwhatyouhaveseenontheheavycrudemarketsboth--what'sgoingoninCanadawiththenewDetroitcoker?ArethespreadsforWCIstillattractive?Howdoyouseethatmarketplayingout?We'vegotpipelineaccessnowallthewaytoHouston.You'vegotupgraders--Iguess(inaudible)cancutonupgraders.HowdoyouseetheheavyCanadianmarketandthen,conversely,theheavymarketintheGulfCoastaswell?Anyviewsonhowsupplydemandwilllookgoingforwardhere?


Sure.LetmeaskMiketotakethis.


Yes,Chi,I'llgiveyousomethoughtsonthat.TheheavyCanadianmarketcontinuestobeveryattractive.We'veseendifferentialstoTIthathavebeengyratingaroundthatminus$mark.Byhistoricalstandards,that'saprettygooddiscountina$,$environment.

We--and,again,thismarketisinfluencedbymanythingsthattakeplace.WesawagreatopportunityontheheavyCanadianthissummerduringsometurnaroundsthatweretakingplace.Thespreadswentalittlewider,andwereallytookadvantageofthat.WebroughtquiteabitmoreCanadianintooursystem,andwewereabletomoverecordamountsdowntoGaryville.

So,goingforward,again,Idon'tseeanyreasontobelievethatthat'sgoingtochange.Wethinkthatthedifferentialwillstayinthatkindofarange,andwewillcontinuetotakeeveryadvantagewecan.WearecontinuouslylookingatforeigncargoopportunitiesthatwecanbringtotheGulfCoast.WeseeopportunitiescominginfromBrazilwithsomeoftheirheavysweetcrudes.

Weoftentimesfindverygoodvaluesincrudesthataremoredifficulttorun.TheyareeitherhighTAMorthey'vegotsomeotherissue.TheMexicancrudehasbeenrelativelyattractiveaswell.

Sotheheavymarketlooksprettygoodrightnow,andIdon'tseeanyreasonwhythatshouldchange.


DoestheagreementwithPemexonthecrudeswap--doesthatopenthingsupabitmore,oranyimpact




there?


No,Idon'tthinkso.Asyouknow,that'sa--Ithinkwhat'sbeenapprovedis,barrelsaday.It'sreallyarelativelysmallamount.Ireallydon'tseethatchangingthemarketforusatall.


Gotit.Okay,thanks,Mike.Appreciateit.

Operator :

EvanCalio,MorganStanley.

EvanCalio (Analyst-MorganStanley):

Gary,thanksfortheupdateonMarkWest.Maybejustafollow-upthere.Ipresumeyouwilluseaproxysolicitorthatwillinformyouhowthevoteisgoingthroughthatsolicitationperiodandutilizethatdatatodetermineorconsideryouroptionsasitrelatestotheoffer.Isthatfair?


Yes,sir.That'scorrect.


Andthenifthetransactionwerevoteddown,whichIknowisinyourbasecaseorours--butIpresumeintothatscenario,youjustrevertbacktoyourpriordrop-downstrategygivenyoursignificantpotentialattheparentandyousourcegrowthinternally.Isthatyourthoughts?


Well,you'rerightinyourfirststatement.Thatcertainlyisinourbasecase.Weareveryconfidentthatthiscreatesa--justastellarpositioninthemarketplace,onewithastrongfinancialposition,atremendousgrowthprofile.Butifforsomereasonitdidnotgothrough,you'reabsolutelyright,wewouldreverttoMPLX.


Great.Ithinkit'sagreat--willbeagreattransactionforMPCandMPCshareholders.

Differentquestion,canyoudiscusspipelinecommittedvolumesinyourtwoBakkenpipelines?AndhowdoyouthinkabouttherisktoMPCoryourexposureinanenvironmentwhereBakkenisindecline?AndIknowpipelineshouldhave--shouldbesuperiortorailinthatenvironment,butwhatareyourthoughtshere,maybeanyactualexposure?


Sure,Mikewilltakethat.


Yes,Iwillanswerthat,Evan.SoletmefirstmentionthatourSouthernAccessExtensionPipeline,SAX,ajointventurewithEnbridge,it'sacompletedproject.We'regoingtobefillinglinefillsandtankbottomsinearlyDecember.AndthenbyJanuary,wewillbefullyoperationalandonline.




Wearealreadypurchasingcrudeforthatpipe.Wefullyexpectthatwe'regoingtobeatplannedrates.ItwillbeacombinationofnotonlytheNorthDakotacrude,butitwillhaveavarietyofvariousCanadiancrudes.WearereallyexcitedabouthavingthisSAXpipelineopen.Itcreatessomeflexibilityandsomeoptionalitythatwewereoutof,andIthinkwe'regoingtoseesomerealstrongearningscomingfromcrudethatwillbecomingdownthatpipelinetoourPatokahub.

WithregardtoSandpiper,IguessIwouldsaythatprobably--exactlywhatyousaidearlierwethinkthatNorthDakotacrudeisgoingtocontinuetobeveryattractiveforthosethathavepipelinespace.Wearethebestoptioninthemarket.WealsothinkthataswecontinuetohavefairlynarrowBrentTIspreads,whatyouarereallygoingtoseeisthattheEastCoastplayersthathavebeenrailingsomuchNorthDakotalight,wereallydobelievethatthosevolumesaregoingtodecrease.Andasthecommitmentskindofrunout--astheyare--theywillbecanceledandprobablywon'tbere-upped.Sowethinkthat'sgoingtocreate--it'sgoingtotakesomeofthepressureoffNorthDakotalightmaybethatyouseetoday.SowethinkSandpiperisgoingtobeanothergreatvehicleforus.Itwillcreateflexibilityandoptionalityinamarketthatwearesurewillincreaseproductiondowntheroad.


Great--


AndEvan,theotherthingaboutthosetwopipelines--andMikewasspeakingtothetremendousadvantagetoMPC--isthatgivesagreatcashflowEBITDAstreamthenbacktoMPLXdowntheroad.


Allright,exactly.MaybeifIcouldonemore,Gary,andthanksforthemacroviewsontheoilside.Butinthepast,you'vealsosharedyourmacroviewsontheothersideoftheequationdemand.Anycommentsondemandasyouseeiteitherthroughretail,export--what'syourthoughtstheregiventhat'sanincreasingconcerninthemarket?Iwillleaveitthere.


Right.AsTimmentionedinhisscripttoday,weareverypleasedhere--Octoberyeartodate,weareup.%inSpeedwayonthegasolineside.Andyouwillrecallwhenwespokelastyearaboutthissametime,wewerelookingforanincreaseingasolinedemand.However,wewereintheshoulderquarter,anditreallydidn'tkickoffuntilearlyintothesecondquarter.Ithinktheconsumerreallyhadsomeconfidencethatthisgasolinepricewasheretostay.Andgasolinedemandhasbeenveryrobustoverthesecond,thirdquarterandnowstartingintothefourthquarter.

Ontopofthat,youlookatexportsforbothgasolinedemandanddistillatesdemand,andwe,too,setanewrecordhereinthisquarterforourrefinedproductexportswith,barrelsperday.So--andwewillcontinuetorampupourgasolineexportsaswe'vecompletedacoupleofgasolinetanks,bothinGaryvilleandcontinuingtoimproveinGalvestonBay,withourlogisticstobeabletomoveoutthegasoline.

Sowethinkthatgoingintohere--andasImentionedearlieronthemacrosideofcrude,Ithinkthatstandstobenefittheconsumerverywell,andyouwillcontinuetoseegoodgasolineincrementaldemand.

Turningtothedistillateside,globaldistillateshavebeenabitflat.AndIwouldsayit'sbecause--ifyoulookatover-the-roaddieselhereintheUS,itstill--andwehaveprettygoodopticsthroughallofthetravelcentersandcommercialfuelinglocationsthatTonyhasdoneatSpeedway.Sowehaveapretty




goodfeelofoverallgasordistillatedemand,andourdistillateexportdemandcontinuestobestrong.

Ithinkwhatyou'reseeingisthat,acrosstheglobeandhowsomeoftheregionsintheglobehavechanged,someoftheexportsandtheglobeinwhichtheyarehittinghavesloweddownalittlebit.Ourdistillatedemandexportscontinuetobeverystrong.Butitappearsonamacrobasis,somepartsoftheglobe,distillatedemandhasslowedalittlebit.


Ileaveitthere.Appreciateit,guys.

Operator :

DougTerreson,EvercoreISI.

DougT erreson (Analyst-EvercoreISI):

SoGary,Ijustwantedtoseeifyoucouldclarifythelastpointthatyoumadeaboutdistillatedemand.Ithinkyouhighlightedthattherewereacoupleofregionsthathadbeenalittlebitspottyrecently.Couldyouprovidealittlebitmorecoloronwhichonesthosemightbe?


Well,itappearsasthoughthere'sbeenaslowdowninAsia,andallofushaveseenthat.Andthen,obviouslyBrazilhashadsomebitofasomewhatofaslowdown.Europecontinuestoberobust.TheLatinAmericancountriesforthemostpartcontinuetobestrong.AndyouareseeingmoreofanincrementalgasolinepickupintheLatinAmericancountriesthanotherpartsoftheworld.

Sothemarketsinwhichweservecontinuetobeverystrong.ButIwasansweringthatquestion,Doug,onaglobalbasis--andthenewrefineriesthathavecomeoninSaudiArabia,someinChina,andIthinkthatisjustthematerialbalance.Thewayit'smovingaroundtheworldiswhereyouareseeingsomesoftness.


Okay,Ijustwantedtobesure.Andthenalso,Gary,afewminutesagoyoutalkedaboutSpeedwayandhowthatbusinessiswellaheadofexpectationsasitrelatestosynergiesyouthoughtyouwouldhavewhentheacquisitionwasconsummated.Somyquestionisbetweenthemajorsourcesofsynergy,whichatthetimewerelightproductsupplyandlogisticsandmarketingenhancementsandthenSG&A.Whichonesaredrivingthepositivesurpriseversustheoriginalexpectations?

Andthesecondquestionishowarelightproductbreakevenstrendingaswell,andaretheysimilarlysurpassingyourexpectationsattheoutsetofthetransaction?


Sure,Doug.I'mgoingtoturnthisovertoTonyKenney,whoisontheline.Tony?

T onyKenney(President,SpeedwayLLC):

Hey,Doug.Howareyoudoing?Thesynergiesinallthecategoriesareaheadofpaceineachoneofthosethatyoumentioned

So,goingbacktoGary'scomments--openingcomments,wearetimesaheadofwherewethoughtwewouldbeinonsynergies,andIwillprovidemoredetailonthatatanalystday.





Okay,great.Thanksalot,guys.


Andalightproductbreakeven,Tony?


Yes,andwithrespecttolightproductbreakeven,we'reaboutapennyaheadofwherewethoughtwewouldbewhenweoriginallyputourforecasttogether.So,again,that'sacombinationofthebusinessjustperformingwellbutalsotheenhancedsynergiesthatwearerealizingaswell.


Okay,okay.Thanksalot.

Operator :

PaulCheng,Barclays.

PaulCheng (Analyst-BarclaysCapital):

Anumberofquickquestions,hopefully.Gary,justcurious,fourthquartertheturnaroundseemsunreasonablyheavyforyouguys.Arethoseprimarilyinthecrudeunitorconversion?Andalsothat--theturnaroundcycle,aretheygoingtobesomewhatsimilartoorhigherorlower?


I'mgoingtohaveRichBedelltakethatforyou.

RichBedell(SVPRefining):

Yes,thisisRich.Theturnaroundsinthethirdquarter--whatwe'vehadisRobinsonhasbeenprimarilyaroundahydrocrackeranditsrevamp.InCatlettsburg--andtheRobinsononeisfinished.InCatlettsburg,wedohaveacrudeunitnow.We'redoingarevamptothatonetorecovermoregasoil.SothathasimpactedthecruderunsatCatlettsburg.WealsohadashutdownplannedatDetroittodosomecokercleanoutandcatalystchangesthere,andthatoneiswrappinguprightnow.Sothosewerethemajorturnaroundactivitieshereinthethirdquarterforus.


Howaboutwhichistheturnaroundcyclegoingtobecomparableto??Orthatweshouldassumeit'sgoingtobehigherorlower?


Paul,youknow,ourpolicyiswedon'ttalkaboutturnaroundsintothefuture.


Okay.AndmaybethisisforGary.There'salotofmovementintheMLPsectorintermsofvaluationhavedroppedquitealotoverthelastsixmonths.Andthenwehavealsostartedseeingthelowerproduction.So,someoftheMLPoperatorsstarttovoiceconcern.Theindustrymayhaveseen,atleastshort-termormedium-term,over-investmentinthelotlogisticoutset.Doyousharethesameviewandwhetherthat--




inanyshapeorform,thatmayhavechangedyourviewonthatmarket?Orhowyouaregoingto--goingforwardintermsofyourorganicinvestment?


No.Infact,Paul,I'mgladyoubroughtthatquestionforward.Webelievethatisthemostimportantpartofourplatformofthisstrategiccombinationisthatwearerunning--allofourmidstreamassetsarerunningverywell.Wedonotseestrandedinvestment.AndasanumberofpeersandmembersoftheindustrywithintheMLPcommunityarestartingtotalkaboutloweringtheirguidanceandreducingtheirinvestment,loweringtheirguidancegoingforward,wejustreaffirmedagainthismorning--Ibelievethisisnowthethirdtimesinceweannouncedthistransactionthatwehavereaffirmedourguidanceandwherewebelievetogo--orwherewearegoingtogowiththiswithourmidstream.Andit'sbasedonthefundamentalsofourbusiness.WehavesuchabacklogandprojectswithinMarkWest.WehaveabacklogwithsomeprojectswithinMPC.Andalotofthebarrelsthataregoingtomovethroughsomeoftheseprojectsarebarrelsthatwealreadycontrol.

So,asIsaid,manyarebackingupontheirgrowth.Andthisiswhat--fromEdWestlake'sfirstquestionthismorningiswhyIwantedtospeaktothat.Iswehaveavery,verystrongcase,andIbelievewedeservetobe--ouryielddeservestobemuchlowerandpricedwiththehighdrop-down,high-valueMLPsinthebusiness.

AndletmeaskDonTemplintomakeafewcommentsaswell.

DonT emplin (EVPSupply,TransportationandMarketing):

Yes,Paul,Ithinkoneofthethingsthatisreallyintriguingtousandexcitesusisthat,particularlyinUticaandMarcellus,thereisclearlymoreproductionthatexistsnowthanthereisareasonabletake-awaycapacity.Andsoyou'refindingtheproducercustomersareveryconstrainedintermsoftheirabilitytogettheirproducttoamarketwheretheycangetanappropriaterealization.

Andsowelookatthatasbeingarealstrategicopportunityforustobeabletomeettheneedoftheproducercustomers.Sothoseareprojectsthatareripeforinvestment,wherethere'salreadyproduction,andwebelievetherewillbe--incontinuingproduction,butthere'salreadyproductionandaneedfortake-awaycapacity.SoourabilitytotakeonprojectsthatallowproducercustomerstomovetheirNGLstoamarketwheretheygetahighernetbackisahighpriorityforusandarealopportunity.


AndPaul,weareoneofthefewMLPsthathavethefinancialstrengthtobeabletogetthisdone.Thoseprojects,theback-upthat'sintheUtica,theMarcellus,theydon'tgetdoneunlessyouhaveastrongbalancesheet.Andyoucanincubatetheseprojectsovertime.That'swherethestrategiclogicis.


Great.AndGaryandDon,IthinkIhavetwofinalquestions.OneontheGalvestonBay--IthinkthatpreviouslyyouguyshavebeentalkingabouttheopportunitynowthatyousortofliketheGalvestonBayversiontwo.Youalreadyfixedahouse,andnowthatislookingfortheopportunitytograbthelow-hangingfruitorotheropportunityset.

Isthatany--maybetheupdateyoucanprovideintermsofquantifyingroughlywhatisthatopportunitysetmaylooklikeforthenexttwoorthreeyears?

Andsecondly,thatwhenyoudidthewrite-downthismorningindicatethatsomerelatedtothelonglead-timeequipment.Isthereanyalternativeuseofthoseequipmentorthatyouaretotally--thereasonthat




youhaveawrite-downisthatyouarenottakingdeliveryatall?Andalsothatfromthatstandpoint,isthereanychangeinyourfutureFIDpullsetssothatyouwillnothavethistypeofsituationinotherwordsthatthetimingofwhenyouaresupposedtoorderthelonglead-timeequipment?


No,that'safairquestion,Paul.IwilltakethelatterquestionontheROUXfirst,andthenIwillcomebacktoGVR.OntheROUX,wecontinuetolooktoseeifthere's--ifwehaveuseofsomeofthislongleadequipment.It'sspecificallydesigned,andit'scalledlongleadbecauseittakesthreeorfouryearstobeabletofabricatesomeofthis.

So,forthemostpart,whatwedidiswestoppedthefabricationearlyinthestages.Therefore,itwouldnothave--it'snotina--forthemostpart,it'snotinafinishedstate.Soitwouldhaveverylittlelead.

Themajorityofthat$millionwasthepreliminaryengineering.Ofcourse,allofthathasvaluedowntheroadasmarketsturnaround.Andwe'llreevaluate--Isaidinmytalkearlier,thisstillisaverystrongprojectandmakesagoodstrategicprocessplatforminsideofoursystem.Butthemarketshavecertainlyturnsouth.Andifthespreadsaren'tgoingtobethere,itdoesn'tmakesensetogoforward.

AsfarasourFIDprocess,ourFIDprocessworkedverywellhereinthatwedidn'tforcesomethingtogothrough,andweminimizedallofthefabricationexpense.Wehavenotdoneanyworkinthefieldasfarasanyconstructionoranyearth-movingwhatsoeverinordertobeabletostartthisproject.OurFIDprocessandthestepsthatwegothroughtomakethatfinaldecisionworkedverywell.Butasalways,Paul,wetrytocertainlyback-endloadanytypeofequipment,anylongleadtimeuntilwehavemadea--clearlyafinaldecision.

Whenwemadethatdecisiontwoyearsago,thiswasa%recurringproject,andthemarketcertainlyhasturnedtheotherdirection.

AndthenyourfirstquestionaboutGalvestonBay,youstoleourthunderalittlebit.Thatwillbethecenterpieceofwhatwewilltalkaboutonanalystday.We'regoingtotalkaboutGalvestonBay,wewilltalkaboutourmidstreambusinessbecauseit'sgoingtobeacombinationanalystdaymeetingwithMPLX.Wewillspendalotoftimeonmidstreamandthenobviouslyspendalotoftime,Tonyalreadymentioned--Speedway.Sowewillbegivingalotofthose,asyousay,low-hangingfruit,howwewillharvest.Andthetypeofprojectswe'relookingatatGalvestonBaywillhavequickreturnsandquickreturnsofEBITDA,andtheywon'tbelong-leadprojectsofcapitalthat'smany,manyyearsoutbeforeyoustartgettingyourreturn.


Verygood.Thankyou.

Operator :

BradHeffern,RBCCapitalMarkets.

BradHef f ern (Analyst-RBCCapitalMarkets):

AndSpeedway,justcirclingbacktoanearlierquestion,Iwaswonderingifyoucouldputafinerpointonthesynergiesgeneratedtodate.Hasitbeentheoverallpoolofsynergieshasexpanded,orhavetheybeenjustcominginfasterthanyouwouldexpect,andperhapsthegoalnowbecomesthegoal?Buttheoverallsynergiesarenotmorethanyouoriginallyexpected?





Allright,Tony?


Yes,so,originallywehadindicatedthatwewouldgenerate$millionofsynergiesin.AndasGarymentioned,that'saboutXthatnumberthatwe'veseensofar.

Sowhat'shappenedis,again,alludingbacktoGary'scomments,whenyouthinkabouttheacceleratedconversions,theback-officeplatforms,theoperatingplatforms,thebenefitswegettoreallymarketingthestoresalongthesamelinesaswedoourlegacystores,thoseareallgeneratingadditionalsynergiesthatwearerealizingfromthatactivity.Whenyouaddinthenumberofremodelsthatwe'vecompleted--sotheseareprojectswe'respending$,to$,togointothestoresandreallyredesignhowwearemerchandisingthekeyareasofthestore.And,again,thosearegivingrisetosynergiesonanacceleratedbasis.

Andthen,lastly,Iwouldsaythatthe--justtheoverallintegrationoftheoperations,thepeoplehavebeentremendous.Theamountoftimeit'stakentotrainthousandsofemployeesonnewsystemsandprocedureshasreallyexceededourexpectations.So,again,fromanoperatingexpensestandpointandthenoverallfromtheG&Astandpoint,wehavebeenabletotakeadvantageofthosesavingsaswell.


Okay,gotit.AndthenjustthinkingaboutSpeedwayingeneralanditsplaceintheportfolio,obviouslyitisaveryvaluableasset.Atthispoint,theheadstoresarenotmature.Butfast-forwardacoupleyears,ifyoufeelthatyouarenotgettingthecreditthatyoushouldforSpeedwayintheshareprice,howdoyouthinkaboutunlockingthat?


Well,wewilljustcontinuetofollowthatthrough,Brad.WecontinuetobelieveSpeedway,asyousaid,isavery,verystrategicpartofourportfolioalongwithourrefiningsystemandourmidstreamandhoweverythingworksandwemovethosevolumesthroughourintegratedlogisticsspace.Butwewillcoverthatdowntheroad.


Okay,Iwillleaveitthere.Thanks.

Operator :

PhilGresh,JPMorgan.

PhilGresh (Analyst-JPMorgan):

Thefirstquestion,justonemoreonMPLX,couldyoutalkalittlebitmoreabouttheinterplaybetweenthedropsthatyou'renottalkingaboutintheorganicgrowththatyouseefromMarkWestandotheropportunities?Howshouldwethinkaboutthemixofthosetwothingswhenyoulookatinordertohitthat%distributiongrowthtarget?


Well,youlookatMarkWestbyitselftoday--andthey'vestatedpublicly,theyhaveabout$.billionofCapExintheirplanthisyear.Thatwillbecomingonsomeworktheyalreadyhadgoingon.Andasfieldsmature--andtheotherthingishowtheyareimprovingutilizationoftheassetsthattheyalreadyhavein




place.YoutakeontopofthattheassetsthatwehavealreadyputintotheMLP,howtheycontinuetogrow.

Andthenoneofthethingsthatiskindofaflywheel,ifyoulookatit,ishowwemoverefinedproducts.Sometimesitmakesmoresensetomoverefinedproductsouttheexports.Sometimesitmakesmoresensetotakethemthroughourpipelinesystems.Andwetakethatallintoaccount.Andthenyoucouplethatwithpossibledrop-downsthatwemaylookat.

Theotherthingis--letmeturnitovertoPam.PamBeallisherewithme.PamismanagingallofthetransitionbetweenMPLXandMarkWest,soletmehavePamgiveyousomeofherthoughts.

PamBeall(SVPCorporatePlanning,GovernmentandPublicAffairs):

GaryreallyelaboratedextensivelyearlyonthecallaboutthemanydifferentwaysthattheparentcansupportthedistributiongrowthforMPLXgoingforward.Soit'snotsimplyacombinationofdrop-downandorganicgrowth.Andwewilldetermineaswemovethrough,basedonalotofdifferentconsiderations,whatwethinkisthebestcombinationofthemanytoolsthatMPCcanlendtothepartnershiptosupportitsdistributiongrowth.


Phil,thisisDon.Ithinktheotherreallyimportantfactorinthereistheyieldenvironment.ThatwillimpacthowthetrajectoryofwheretheEBITDAsourcesareandhowthatworksgoingahead.Sowhatwefeelgreataboutisthatwehavealotofoptionsandtoolstobeabletomanagewhateveryieldenvironmentthatweareintobeabletoreachthat--thedistributiongrowthguidancethatwe'vearticulated.AndwethinkthatdifferentiatesMPLXfrommanyofMLPsthatareoutthere.SoIcan'ttellyoutheexactpercentage,butIcantellyouwehaveallthetoolsthatweneedtomeetthatdistributiongrowthguidance,andthatisadifferentiator.


Yes,okay.Andthenonthecapitalspending,ifIthinkaboutthecorebusinessoutsideoftheMarkWest,numberone,you'retrackingwellbelowthefull-yearguidance.Andnumbertwo,I'mjustwonderinghowyouarethinkingaboutthatasyoucompareitagainsthowyou'rethinkingabout,again,outsideofMarkWest.Howareyouthinkingaboutthattoday?Andifyoucouldmaybetiethattohowyou'rethinkingaboutreturnofcapitalaswell--theavailabilityofcashflowtoreturningcapitaltoshareholders--again,thisquarterbeingabitlower.Howareyouthinkingaboutthat?


Phil,areyouspeakingtoMPC?


Yes.


Right,okay.Timwilltakethat.


Phil,Ithinkagreatquestion.Forcapitalspendingthroughthirdquarter,we'renotterriblyfaroffourexpectationsandwouldexpectthatourfull-yearwillbeaboutwhereweexpected.So--andthat'snotunusualtoseealittlebitheavierofacapitalspendinthefourthquarter.Thatincludesallelementsof




thebusiness.Obviouslywe'vegotsomecontinuedinvestmentonthepipelineprojectsthatweareworkingonwithinrefiningandwithinSpeedway.SoIthinkforthefullyearwewillgetthere.

We'rereallynotatapositionrightnowtotalkabout.HopefullyyoucanjoinusfortheinvestordayinDecember.Ithinkweintendtogiveyoualittlebitmorecoloraroundourintentionandexactlywherewe'regoingtodevoteresourcesfornextyearacrosstheentirebusiness.

Thereturnofcapitalpieceisanothergoodquestion.Ithinkyou'veseenfromusandwillcontinuetoseefromusaverybalancedapproach.Thisisnotanall-in,one-way-or-another.Wethinkthatwe--it'scarefullyandthenwithaprettydisciplinedapproachinvestinthebusinesswherewethinkitmakessense,anddothatwithafocusonshareholderreturnsaswell.Webelievethatthedividendandsharerepurchasearepartoftheoverallvalueequationforinvestors,andthat'ssomethingwe'regoingtoremaincommittedto.


Okay.Allright.Thanksalot.

Operator :

RyanTodd,DeutscheBank.

RyanT odd (Analyst-DeutscheBank):

MaybeifIcouldjustfollowupwithonefollow-upontheROUXproductcancellation.Youdiscusseditalittlebit,butmaybeifyouthinkaboutgeneralcapitaldeploymentgoingforward,isthisjustmoreofaproject-specific?Shouldwethinkaboutitintermsofthespecificeconomicsofthisproject?Isitacommentonrelativegasolineversusdistillatecracksgoingforward?Orifwethinkaboutit,canweviewthisas--whenyouthinkaboutcapitalallocationwithinyourportfolio,asbetteropportunitiesoutsideofrefining,orarethereotheropportunitieswithinrefiningifthesespreadsaren'tgoingtoworkwhereyoucanmaybeshiftcapitalgoingforward?


It's,firstofall,aspecificproject,Brian.Andit'sthemarketconditionsthatweareseeingtoday.Thisprojectwasallabouttakingheavyresid,upgradingitthroughtheROUX,andmaking(inaudible)fordiesel.Andit'saspreadfromthat.Andweallknowwherecrudepriceshavegone,thereforewheretheproductpricehasgone,andthespreadhascollapsedsignificantly.

AsIstatedatonetime,thisspecificprojecthada%return.It'sgoingtohaveabout$millionto$billionofannualEBITDA.AndourFIDprocesswork,we'reontopofthat.Anditsuggeststhatthemarketconditions,iftheyaregoingtobelowerforlonger,nowisnotthetimetoinvestinthem.ButwebelievethatthebackdroptothatiswehavesuperiorprojectsspecificallyaroundGalvestonBaythatarehigherratesofreturn,muchquickerreturnsofcapitalintoourmarketplacethatmakesmoresense.

So,yes,wewrotethisoff.Weshelvedthisforthetimebeing.Butwhenthemarketscomeback,wehavealltheengineeringdone,complete,andwecanpullitoffthe--youdon'tsayshelfanymore,youpullitoutofthecomputerandawayyougo.Soit'sa--therightdecisionfromacapitaldisciplineapproach,butitgivesustheavailablecapital.Thereareotherprojectsinrefiningand,ofcourse,othergoodreturnsthatwehaveeitherinthemidstreamorintheSpeedwayspace.

RyanT odd (Analyst-DeutscheBank):

Allright,thanksfortheclarityonthat.Iwillleaveitthere,actually.




Operator :

DougLeggate,BankofAmerica.

DougLeggate (Analyst-BofAMerrillLynch):

So,look,alotofstuffhasobviouslybeenasked,butIhavetwothings.Andthenmaybeyouwanttosavethisfortheanalystday.Gary,you'vebeenprettyopenandactiveaboutfindingwaystoreleasevalueovertheyears.Andobviouslyoneofthebigslugsofyourbusinessnowisretailfollowingtheacquisition,obviously,ayearortwoago.Whatareyourlonger-termstrategicthoughtsforretailintermsofwhat--ifyoulookatpeersinthestreet,youcouldargueitgetsahigher-multiplebusinessthat'sembeddedinalower-multiplerefiningbusiness.SoI'mjustcuriousaboutyourbroadthoughtsonthat.AsIsay,maybeit'sanissuefortheanalystday.AndI'vegotafollow-up,please.


Right,andIjusthadasimilarquestiontothat.We'vebeenveryclear--youandIhavetraveledandtalkedaboutthisinthepast.Speedwayisaverystrategicpartofourbusiness.Ourstrategiesarewewanttohaveaveryhigh-controlvolumeoutofourrefineryspecificallyforgasoline.AndasSpeedwaycontinuestogrowthedieselpartofitsbusiness,itiscertainlycontinuingtohelpthat.

Ithinkifyouwanttolookatthecaptureratefromourrefiningandthemarginsthatwegetfromsomeofourrefining,itcertainlyhelpshavingSpeedwayinordertohaveaveryratabledemandsourcethathastakenyourrefinedproduct.

Lastly,asIsaidlastyearwhenwedidtheacquisitionoftheSpeedwayEast,thatwewanttogrowSpeedwaytobea$billion-a-yearEBITDAbusiness.AndIwillknockonwood,andwewillsharemorewithyouatanalystday,butIthinkwe'reprettymuchgoingtobethereinthefirstyearofoperations.

So,itillustratesthatourstrategy--thetremendousexecutionbyTonyandtheSpeedwayteaminordertobeabletoaccomplishthis,togetabouttwiceasmanystoresreconvertedinthefirstyearthanwehadanticipatedisvery,verystrong.Butwewillsharemorewithyouatanalystday.IthinkyourrealquestionisarewethinkingaboutspinningSpeedwayoff,andtheansweris(multiplespeakers)--


Yes,Ididn'twanttobethatobvious.But,yes,that'sprettymuchit.


Theanswerisno.Thisisavery,verykeypartofourstrategygoingforward.


Gary,myfollow-upisreally--IguesswestartedoffthecalltalkingaboutMPLXormaybeIcouldjustfinishitupthere.Clearly,thesharepriceofMPLXisnotunderpressure.Ithinkthat'sawidermarketissuethanjustaMarathonissue.Butleavingthataside,whatdoesitdotoyourviewonwhatyouthinkyoucanattractbywayofacquisitionmultiplesforyourmidstreamassets?AndI'mthinkingmorethelonger-termrefiningdrops.Alotofyoustillthinkthatsortoftomultipleisstillreasonable.Andifso,whendoyouthinkwecanstarttoseethatprocesskickstartagain?


Well,Iwillanswerthatfromaverymacroviewpoint,Doug.Aswelookacrosstheentiremidstreamspace,Istillthinkyou'regoingtoseeconsolidationinthemidstreams.Ithinkyouhaveto.Thepressureon




balancesheetsofcertainmidstreamcompanies--that'swhythisisacompellingcombination.Andtheindustriallogicisourstrongbalancesheetwithacompanythathasatremendousbacklogofprojectsandcan'tdoallofthemontheirown.Sothat'snumberone.Ithinkyou'regoingtocontinuetoseeadditionalcombinationsinthisbusiness.

Thenextpointthat--whenyoulookoutatassetsthatareavailable,high-qualityassetsthatareattractiveinthemarketplacearestilldemandingan,,andsometimesevenahighermultiplewhenyouarecompetingforthoseassetsinanopenauction.

SoIthinkthemarket--becausewhatwe'retalkingaboutthatisavailabletobedroppedintotheMLPareveryhigh-quality,veryhigh-sustainingcashflowassets,andtheywilldemandapremiuminthemarketplace.SoIstillthinkthatmarketisgood.Don,doyouhaveanycomments?


Well,maybetheotherjustobservation,Doug,isinanenvironmentwheretheyieldshavewidenedasmuchastheyhave,thereisprobablygoingtobesomepressurejustaroundthemarketingeneralonmultiples.Imean,ifyouhaveahighercostofcapitalonahigheryield,whatyouareabletopayforatacquisition,Ithink,doesgodownovertime.


Okay.Well,Iappreciatethefullanswer.Don,we'llseeyouinacoupleofweeks.Thanksagain,everybody.


Getfeelingbetter.Don'tbringanyofthosegermstoourmeeting.


Yougotit.Thanksalot.

Operator :

RogerRead,WellsFargo.

RogerRead (Analyst-WellsFargoSecurities):

Canwetalkabouttheexportalittlebit?Youmentioneddoingsomethingstoexpandedandifyoucouldgojustalittlefurtherthanrecordvolumesbutwheredoyouthinkvolumescangogiventheexpansion?Andasyoumentionedearlier,somecompetitionpickingupandprobablynotanythingwewouldcallcoremarketsofyours.ButthereissomecapacitycomingoninLatinAmericainfitsandstarts,let'ssay.Andalotofdowntimeinthatregionaswellthatmaynotresumeanytimesoon.Justgiveusanideaofwherethat--Ithinkitwas,youmentioned.


Yes,wedid,thisquarter.LetmeaskRichBedell,andMikePalmermayhaveafewcommentsaswell.


Asfarastheprojectsthatwehavetoincreaseourexportcapacity,there's--twoarerampingupthisyear.OneisdoneatGaryvilleandthatwastoincreasethegasolineportion.InGalvestonBay,wearedoingsomethingtoincreasethedistillateportion.Andthenlookingdowntheroadbyabout,Ithinkrightnowwewilltakethatuptoabout,willbeourstatedcapacityonexports.Butthenwegouptoalittle




above,withaprojectthatwewillcompleteinatGalvestonBaythatreallytakestheoldcrudeimportdocksandmakesthemintogasolineanddistillateexportdocks.SoMike,youcantalkaboutthebiggerscaleofthedemand.


Sure.Roger,here'swhatIwouldsay.It's--thisexportmarketisextremelydynamic.It'sverycomplex.Everytimewestarttoseemaybealittleslowdowninonearea,thestrengthshiftsanditgoessomewhereelse.ThepredominanceofourbusinessendsuptodayinEuropeorinLatinAmerica.

Butinadditiontothat,weactuallyhavecargoestheygoallthewaytoAsia.There'sallkindsofdifferentneedsouttherefordifferentspecsanddifferent-sizedcargoes.AndasIsay,themarketisextremelydynamic.Wehonestlyhavehad--wehaven'tmissedastepsincethesebigexportrefinerieshavecomeon.Andnoreasontobelievethatwewon'tcontinuetohavetheadvantagethatwe'vehadinthepast.


Okay,that'sgreat.Andonefollow-uponthat,youmentionedweakdieseldemandoveralldomestically,globally.Itseemstomeanysortofpickupinthatisgoingtotightenthedistillatemarketfairlyquickly.AndIdon'tknowexactlyhowtonamethetimingofthat.Butdoyouseethatthereisany--especiallygiventheshifttogasolinethissummerthatthereisasubstantialamountofexcessdistillatecapacitythat'snotbeingusedoutthere?


No,wedon'tthinkthere'sthatmuch.Infact,alotofupsetsaroundtheworldinrefiningoverthelastquarterhavebeenabletosoakupalotofthatexcessinventoryinthemarketplace.Butyouareright;itgoesback,Roger,tobasiceconomictheory.It'snotgoingtotakemuchtoturnthatdistillatemarketaround.Whetherit's,barrelsadayor,barrelsaday,it'sfairlybalancedtoday.Andsoit'snotgoingtotakemuchtohappen.AlittlebitofpickupinAsia,alittlebitofpickupinBrazilthatIwasmentioningearlier.Europecontinuestoremainstrong.Soit'snotgoingtotakemuchto,Ithink,putthingsinapositivepositiononthedistillatesideoftheequation.


Okay,great.Thanks.SeeyouallinDecember.

Operator :

JeffDietert,SimmonsandCompany.

Jef f Dietert (Analyst-Simmons):

Myquestionisrelatedtohigh-octanegasoline,andIwaswonderingifyoucouldcommentonyourflexibilitytoincreaseproductionofhigh-octanegasolinewithinyoursystem.Areyouseeingretailsalesandhigh-octanegasolinegrowmorerapidly?Andthentheregular-octanegasoline?


WewillhaveRichtakethefirstandTonytaketheretailside.


Fromtherefiningstandpoint,we'veseenthatoctanedemandhasgoneup.Primarily,Ithinkit'srelatedtorunningtheshalecrudesandtheCanadiancrudeswiththediluent.Soyouareusingyouroctane,you're




blendingitupintherefinery.Ouroctaneknobs--Marathon'srefinery,wehaveaprettyhighpercentageofreformercapacity,andweutilizeitfully.Sowearegeneratingoctanethere.Wearealsolookingatprojectstogenerateadditionaloctanethroughourcatcrackersandalpunits.Butwe've--lookatourproductslatesandweoptimizeourrefineriesaroundthat.

Mike,doyouwanttotakealittlebitaroundsomeoftheoctanesales?


AndJeff,IwillfinishthecallherewithoneofthekeythingsthatwewilltalkaboutwiththeMPLandMarkWestcombinationiswe'relookingataprojectthathasanalkaloid-typeunitdowntheroadthatcantakethebutanethatisintheMarcellus--sotheMarcellusUticaregionsarelongbutane.Wecantakebutane,putitthroughanalkylationunit,andmakeahigh-octaneblendstock.Andthat'soneofthekeythingsthat--oneoftherealstrengthswebringtothetableintothis--inthiscombinationthathelpstheproducers.Ithelpsusbeingshortoctaneandhelpstheindustryandtheconsumers.Sothat'sabigpartthatwewilltalkaboutinDecemberaswell.

Jef f Dietert (Analyst-Simmons):

Thanksverymuch.

Operator :

Thankyou.Weshownofurtherquestions.IwouldliketoturnthecallovertoMs.Ewingforfinalremarks.

GeriEwing (IR):

Thankyouforjoiningustoday,andthankyouforyourinterestinMarathonPetroleumCorporation.Shouldyouhaveadditionalquestionsorwouldlikeclarificationonanyofthetopicswediscussedthismorning,TeresaHomanandIwillbeavailabletotakeyourcalls.Thankyou.

Operator :

Thankyou,ladiesandgentlemen.Thisconcludestoday'sconference.

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