Marathon Petroleum Earnings Call Insights: Relative Price Realizations and Export Numbers

Marathon Petroleum Corp (NYSE:MPC) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Relative Price Realizations

Edward Westlake – Credit Suisse: Good morning, and thanks for the waterfall chart on the Refining & Marketing Q-over-Q. One question on the $313 million of gross margin, you said that include RINs $60 million for 2Q leaving $250 million left over. How much – how would you separate that between being short product in the Chicago area and having that spike and how much do you think if you had to guess would be this difference between product pricing that we see on the screen versus actual product prices as you sell it out of the refinery? That would be helpful.

Garry L. Peiffer – EVP, Corporate Planning and Investor and Government Relations: This is Gary Peiffer. Well, as you’ve heard from others, you know it’s very difficult to try to separate out the impact of fundamental supply and demand impacts from the RIN impact on our – on a relative price realizations, but what don was trying to describe in his remarks was the fact that in addition to that $65 million or so that we actually expended to buy RINs from third parties, there is also other effects that go on in terms of our product price realizations at the wholesale level if you will. So, we would say that the majority of that amount, the $313 million or so was impacted by the spike in crack spread and product prices in the Chicago market and the effect that RINs had on our product realizations and cost in the second quarter. That’s compared to spot Ed, so we’re currently at spot values.

Edward Westlake – Credit Suisse: So as that spike is unwound in the third quarter, spot should be a bit more relevant, but RINs will still be an issue?

Garry L. Peiffer – EVP, Corporate Planning and Investor and Government Relations: That would be correct. Assuming they stay at the high levels also…

Edward Westlake – Credit Suisse: Then the other comment, you said Galveston Bay was still profitable, would you be able to give us a sort of a run rate of EBITDA on the third quarter – in the second quarter as you did for the first quarter?

Garry L. Peiffer – EVP, Corporate Planning and Investor and Government Relations: This is Garry. What we have decided, as you know we gave you that at the end of the first quarter we just operated for two months, but for competitive reasons, and as you know, we have never broken our refineries out individually. We gave that because it was just after starting up Detroit and just after acquiring Galveston Bay because as I said for competitive reasons we are not going to give out the numbers individually going forward.

Edward Westlake – Credit Suisse: Would you give a Gulf versus Mid-Con split?

Gary R. Heminger – President and CEO: Not at this time.

Export Numbers

Paul Sankey – Deutsche Bank: Gary one of the big positives out there is the export number that you spoke about. Could you just remind us where you were in Q1? I think you said 190,000 barrels in Q2. Could you give us an indication firstly of the split between gasoline and distillate there and secondly where that product is going and how much more you think you can grow that number?

Gary R. Heminger – President and CEO: Yes. We had 190,000 barrels per day here in the second quarter, 151,000 barrels per day in the first quarter and Garry do you have the breakdown of…

Garry L. Peiffer – EVP, Corporate Planning and Investor and Government Relations: It is primarily diesel fuel. What we are exporting roughly 170 to 190 was diesel fuel and I guess as a practical limit. I think we’re pretty close to a capacity, although every time we seem to say that our schedulers and engineers find a way to eke a little more out. But 190,000 barrels a day that compares to second quarter last year of 121,000 but obviously we have Galveston Bay in there as well that’s accounting for some of that difference. So roughly that’s probably our practical limit in that neighborhood of 190,000 to 200,000 barrels a day.

Gary R. Heminger – President and CEO: The other thing, Paul that we are doing is you have heard us talk about this before both at Galveston – at Garyville where we’re doing some capital expenditures in order to be able to improve on our gasoline exports. Today, you need to be able to look the gasoline settle out and so the way we operate today is basically on line and straight through the tanks with in order to be able to certify it going to some foreign countries, we need to be able to settle out. We are investing in some incremental tankage to be able to do that. So, in the future, we will be increasing our gasoline exports and then we are also now looking at how we can improve on the exports out of Galveston Bay. So, Garry is right for the asset as they sit today. We think we are pretty much at the peak, but we are investing in both to be able to increase our number into the future…

Garry L. Peiffer – EVP, Corporate Planning and Investor and Government Relations: Maybe one slight clarification. The 151, Gary, referred to is fourth quarter of 2012 and first quarter about 121. So, we have a little bit of a dip there, but 121 first quarter of 2013, 151 fourth quarter of 2012.

Paul Sankey – Deutsche Bank: Further to what you are saying, I know you said you don’t breakdown individual refineries, but you had being running Garyville and you had permitted I think for it to be a much bigger refinery than it was originally nameplate, if you like. Can you talk a little bit more about where you are in terms of firstly Garyville and secondly, your overall capacity and how much you think that will grow with the CapEx that you are expending?

Gary R. Heminger – President and CEO: Right. In the CapEx, I was speaking to, Paul, is not in the process inside. It’s on the actual logistics side and how we move the barrels out of the primary either through pipelines or via the dock and exports. Let me ask Rich to clarify, Rich Bedell here to clarify one thing that there was some discussion this week about a certain permit and Garyville continues to run very well. As you recall, we had delta run incrementally at 180,000 barrels per day. We now have a permit to run 290,000. That’s in the new expansion we put on and it’s running very, very well. But Rich why don’t you talk about the question we had earlier this week about the permit.

Richard D. Bedell – SVP, Refining: There was – an article came out said the hydrocracker expansion at Garyville was going to be completed in third quarter this year. It’s actually going to be in the first quarter of next year. It’s all part of a – it’s really four segments to a diesel optimization project at Garyville that go in in various phases and one phase of it is in the third quarter of ’13 which is going to be a crude improvement diesel recovery project there and then the hydrocracker in the first quarter of 2014.