Marathon Petroleum Corp
NYSE:MPC
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
141.58
219.13
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Marathon Petroleum Corp
You don't have any saved screeners yet
Welcome to the MPC Second Quarter 2022 Earnings Call. My name is Sheila, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded.
I will now turn the call over to Kristina Kazarian, Kristina, you may begin.
Welcome to Marathon Petroleum Corporation's Second Quarter 2022 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com, under the Investor tab.
Joining me on the call today are Mike Hennigan, CEO; Maryann Mannen, CFO and other members of the executive team.
We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ, and factors that could cause actual results to differ are included there as well as in our SEC filings.
With that, I'll turn the call over to Mike.
Thanks, Kristina. Good morning, everyone. In the second quarter, our operational activity was driven by strong market demand for transportation fuels we manufacture. Demand remains resilient, largely driven by the removal of globally imposed mobility restrictions and the pent-up desire to travel.
Jet fuel demand continued its recovery, up nearly 20% from the same quarter last year, with the increased resumption of travel. Gasoline demand remained very resilient through the quarter in part due to the start of the summer driving season. Diesel demand after a strong beginning to the year, softened a bit in the second quarter due to lower trucking volumes.
During the second quarter, in order to meet robust customer demand, we ran our refining system at full utilization. We optimized our system to provide as much transportation fuel to the market as possible. Commercially, we optimized around our scale, footprint and feedstock slate to meet this customer demand.
This resulted in an adjusted EBITDA of $9.1 billion as we saw crack spreads this quarter respond to uncertainty in the product markets, driven by the potential for sanction impacts on top of an already tight supply and related inventory levels.
Maryann will walk you through the details of our results. But looking forward, we expect tight supply, low inventory levels and strong global demand to continue to incentivize high refining runs into the third quarter. We will continue to execute on what we can control running a safe, reliable, low-cost system, improving our commercial performance and strengthening the competitive performance of our assets.
On capital allocation, we remain committed to the 4 priorities we previously outlined. First, we're going to take care of our assets by deploying maintenance capital. We want to ensure we can safely operate our assets protect the health and safety of our employees and support the communities in which we operate.
Second, we're committed to a secure, competitive and growing dividend. And as we've stated in the past, once we complete the $15 billion capital return program that resulted from the Speedway sale, we will reassess the level of our dividend.
Third, we see this as a return on as well as the return of capital business. As we enter the second half of the year, our capital spending outlook remains on track.
We continue to progress our Martinez renewable fuels facility with the first phase of the facility currently targeted to be mechanically complete by year-end. Once completed, the facility is expected to be capable of bringing nearly 50,000 barrels a day of renewable diesel supply into the market.
We also expect to be able to close our JV with Neste in the coming months. The time frame for completing the facility and closing the JV are dependent upon the timing of obtaining the air quality permit. We'll continue to look for other opportunities to generate a return on capital such as cost reduction projects and opportunities that build out our competencies and increase our competitive advantages to drive returns and shareholder value.
And fourth, after executing against the first 3 objectives, we look to return capital to shareholders. In the 3 months since our last earnings call, we have repurchased $4.1 billion of shares. And today, we announced a separate and incremental $5 billion share repurchase authorization.
At this point, I'd like to turn the call over to Maryann.
Thanks, Mike. Moving to our sustainability efforts. In June, we published our annual sustainability report and our annual perspective on climate scenarios report. We continue to make progress on our greenhouse gas reduction targets. And through 2021, we have achieved a 23% reduction in our Scope 1 and Scope 2 intensity emissions, and an 11% reduction in our absolute Scope 3, Category 11 greenhouse gas emissions.
Our perspectives on climate-related scenarios which is aligned with TCFD standards, provides insight into some of the strategic considerations we take to set meaningful objectives, dedicate resources to accomplish them and then hold ourselves accountable and demonstrate results. Our sustainability report shows continued progress on the sustainability goals that we have set for ourselves, which we have been reporting on since 2011. We believe our investors and other interested stakeholders will find that the extensive disclosures in these reports illustrate our company's financial strength, adaptiveness and resilience to climate-related risks.
Moving to second quarter results. Slide 5 provides a summary of our second quarter financial results. This morning, we reported adjusted earnings per share of $10.61. This quarter's results were adjusted to exclude a $230 million benefit related to changes in the 2020 and 2021 RVO requirements published by the EPA. Adjusted EBITDA was nearly $9.1 billion for the quarter and cash flow from operations, excluding favorable working capital changes was almost $7 billion.
During the quarter, we returned $313 million to shareholders through dividend payments and repurchased approximately $3.3 billion of shares. Through the end of July, we have repurchased $4.1 billion of shares since our last earnings call.
Slide 6 shows the reconciliation between net income and adjusted EBITDA, and as well as the sequential change in adjusted EBITDA from first quarter 2022 to the second quarter of 2022. Adjusted EBITDA was higher sequentially and driven primarily by an approximately $6.4 billion increase from Refining & Marketing. Our tax rate for the second quarter was 22%, resulting in a tax provision of $1.8 billion. The tax rate is higher this last quarter due to refining end marketing representing a larger component of earnings in the quarter.
Moving to our segment results. Slide 7 provides an overview of our Refining & Marketing segment. During the quarter, our R&M team was focused on supplying transportation fuels to meet market demand. Refining ran at 100% utilization processing approximately 2.9 million barrels of crude per day at our 13 refineries safely and reliably. This is the same level of throughput achieved back in 2019 pre-pandemic before the closures of Gallup and Martinez.
Capture was 96%, reflecting a strong result from our commercial team in a volatile market. Operating expenses were higher in the second quarter, driven primarily by natural gas prices, which were approximately $3 per MMBtu higher in the second quarter versus the first quarter.
While we have been able to mitigate some of the impact of higher prices, the cost increase we have seen in the first half of the year has been almost entirely driven by higher energy cost. We continue to believe the cost reductions we made to bring our structural operating costs down to approximately $5 per barrel are sustainable. With higher natural gas prices, we would expect operating costs to remain elevated in the third quarter. Distribution costs were modestly higher in the second quarter versus the first quarter due to higher refinery utilization, which resulted in higher system volumes.
Turning to Slide 8, which provides an overview of our refining and marketing margin capture this quarter, our capture results this quarter were impacted by a few key factors. Secondary products continue to be a headwind as prices lag higher light product prices. This was partially offset by strong gasoline and distillate margins as well as higher volumetric gain due to higher product prices.
Product backwardation created a headwind during part of the quarter. But during this time, we were able to leverage our robust logistics capabilities to translate a portion of our physical barrels into the market on a more prompt basis. And our ability to capture 96% of the market indicator across an incredibly volatile 3 months was in part due to our commercial responses.
Slide 9 shows the change in our Midstream EBITDA versus the first quarter of 2022. Our Midstream segment continues to demonstrate earnings resiliency and stability with consistent results from the previous quarter. Performance is underpinned by strong operations and a commitment to strict capital discipline.
MPLX remains a source of durable earnings in the MPC portfolio. As MPLX continues to generate free cash flow, we believe it will have the capacity to return significant capital to its unitholders. Today, MPLX announced an incremental $1 billion unit repurchase authorization.
Slide 10 presents the elements of change in our consolidated cash position for the second quarter. Operating cash flow was approximately $7 billion in the quarter, which excludes changes in working capital. Working capital was roughly flat for the quarter as we saw benefits from an increase in crude oil payables related to higher refining throughput, offset by a build in crude oil inventories. Since the first quarter of 2021, working capital related to increasing prices has been a source of cash flow.
Capital expenditures and investments totaled $546 million this quarter. We continue to spend on our STAR project, which is projected to increase crude capacity at the Galveston Bay refinery by 40,000 barrels per day. This project is expected to be completed early 2023. We are progressing the conversion of Martinez renewable fuel facility and expect the first phase to be mechanically complete by year-end.
During the quarter, MPC returned $313 million to shareholders through our dividend and repurchased approximately $3.3 billion worth of shares. At the end of the second quarter, MPC had approximately $13.3 billion in cash and short-term investments.
As Mike mentioned earlier, we remain committed to a secure, competitive and growing dividend. Our objective has been to complete the $15 billion repurchase program no later than the end of this year. We remain on track to meet this commitment. Upon completion of the program, we will reassess our dividend level.
Since the launch of this program in May 2021, we have repurchased approximately 12.1 billion shares at an average share price of approximately $74 per share. Over this time, we have reduced MPC share count by approximately 162 million shares or over 24%. We've received the Board's approval for a separate and incremental $5 billion share repurchase authorization. We'll work through our capital allocation priorities and continue to assess the market environment to determine how we might execute against this authorization.
Turning to guidance. On Slide 11, we provide our third quarter outlook. We expect crude throughput volumes of roughly 2.7 million barrels per day representing 94% utilization. Utilization is forecasted to be lower than second quarter due to higher planned turnaround activity. Planned turnaround expense is projected to be approximately $400 million in the third quarter with activity spread across all 3 regions.
As we've mentioned on previous earnings calls, our planned turnaround activity is back half weighted for 2022. Turnaround activity is reflected in our third quarter throughput guidance we expect this elevated level of activity may reduce our light product yields. We'll optimize to minimize the impacts, but we think our capture rate for the third quarter could be lower than the second quarter.
In coordinating maintenance work, we'll always try to maximize turnaround and catalyst cycles to the economic optimum, but we also do not compromise on safety or asset integrity and ensure work is scheduled to achieve this balance Total operating costs are projected to be $5.50 per barrel for the quarter. We are expecting higher operating costs in the third quarter. This is primarily driven by the elevated cost of natural gas as well as slightly higher project expense work, which we normally coordinate to occur during turnarounds to limit the impact on throughput reduction.
As a reminder, natural gas has historically represented approximately 15% of operating costs. Our natural gas sensitivity of approximately $330 million of annual EBITDA for every $1 change per MMBtu. This equates to a sensitivity of approximately $0.30 per barrel of cost.
Distribution costs are expected to be approximately $1.3 billion for the third quarter. Corporate costs are expected to be $170 million representing the sustained reductions that we have made in this area.
In closing, we will continue to optimize our system to provide as much transportation fuel to the market as demand requires. We remain committed to advancing our low-cost initiatives and focused on areas to drive continued commercial outperformance, and we will stay steadfast in our plan to execute against our capital allocation priorities to drive shareholder value.
Let me turn the call back to Kristina.
Thanks, Maryann. [Operator Instructions]. Operator, we're ready for the questions.
[Operator Instructions]. Our first question will come from Doug Leggate with Bank of America.
Mike, nice to see you back. I guess, Mike, in the last couple of months, we've seen Shell and PBF to restructure the ownership of their MLP. Obviously, the relative yields remain very wide between yourselves and MPLX. I know I've asked you about this before, but I just wonder if there's been any reconsideration as to be appropriate, now that you've come through the buyback more or less the appropriate ownership structure of MPLX?
Yes, Doug, we have talked about this before. I mean we continue to look at it. It's not something that we have off the radar screen. But we continue to come to the same conclusion we have for quite some time that those other situations where people are rolling up their MLPs, we think, are in a much different situation than we are. We're pretty pleased with our MLP's performance, continues to kick cash back to MPC. The structure itself, obviously, it's going out of favor with investors for a little bit, but we think that's starting to turn around as well.
So it's something we keep looking at, Doug. But at the end of the day, we're still comfortable with the structure that we have. And we think it works for the Marathon family to have both MPC and MPLX.
Okay. I apologize. I now unpredictable, but I just wanted to get your latest thoughts on that. So thank you. My follow-up is kind of related, I guess, Mike. I mean the operational reliability that you guys demonstrated in some of your peers also, but to be able to take advantage of the environment, I think, speaks to the way you're running the business, which really gets to the issue then of a sustainable base dividend, which you haven't increased since 2020.
Now I understand the point about you wanted to get the Speedway proceeds redeployed. But today, your dividend is, I guess, about 2/3 of the distribution you get from MPLX, which basically means MPC free cash flow isn't paying the dividend at all. So I just wonder if you can give us a steer as to what you think about the right level of base dividend as a proportion? However you want to measure it consolidated cash flow or however you want to look at it? But it seems the base dividend relative to the earnings part of the business is quite dislocated, if you like. I'll leave it at that.
Yes, Doug, it's a good question. And I know some people have been asking us on the last couple of calls where we are on the dividend. I think if I'm right or if I'm wrong, we stated that we were going to maximize the share buyback program and complete that and then reset the dividend. That's still our intention. We're $12 billion through the $15 billion program. Everybody has seen the pace at which we can execute and that's guided by our trading volume and the programs that we have in place.
So we're pretty close to talking about that in a more constructive way, we are committed, and we said this in our remarks, we're committed to a competitive dividend. We want to show the market that we'll grow that dividend. It's probably taken a little longer than everybody's patience has been as far as this return program, but it's actually been executing well in our mind.
As Maryann said in the prepared remarks, we bought back quite a bit of the shares at $74. So we're feeling pretty good about that in general. And we're not too far off of the releasing to the market where our head is on the dividend.
Our next question will come from Neil Mehta with Goldman Sachs.
Really terrific execution this quarter. The first question I had was actually on the crude market. It's obviously been volatile. But we've seen differentials widen out for a couple of different basins, Brent-WTI, Western Canadian crude has opened up as well. Just love your perspective from a commercial perspective of what do you think is driving some of the opening of the differentials? And do you see yourselves as well positioned to capture some of that volatility?
Good question, Neil. Let me let Rick take that.
Yes, Neil, really great question because we are seeing a lot of volatility in both of those markets, specifically to TI first. We're seeing strong production in the Permian and both on the WTI and WTL specifically. So if you look at where MPC is positioned and with our pipeline commitments with Galveston Bay really sitting in the backyard of the Permian. There's really nobody better positioned than us to take advantage of TI and TL.
And then specifically on WCS, that has widened out to 21-plus under. And that's happening, Neil, for a variety of reasons. One, we believe the SPR barrels have put significant pressure on the medium sour barrels in the Gulf Coast, and WCS needs to clear to the Gulf Coast. So it needs to compete directly with the medium sour barrel, and the early SPR releases were predominantly medium sour.
So from an MPC perspective, we have historical space out of Canada. We're able to take advantage of that in all 3 regions, the West Coast, the Mid-Con and now the Gulf Coast. So we feel very good about that macro environment going forward. If those are still open, we'll be as well positioned as anyone to capture those advantages.
Yes. That's great color. And the follow-up is your views on renewable diesel. We've seen soy bean oil and vegetable oil has come off a little bit. And now there's talk of an extension of the blenders tax credit. LCFS, however, has come down. So can you talk about all the moving pieces that go into the economics of Rodeo and how that ties back into your view of the profitability of that asset?
Okay. Neil, this is Ray Brooks, and I'll take your question on that. You're right. There are a lot of moving parts to the economics of renewable diesel some recent headwinds, LCFS price is a little lower than we would have anticipated feedstock prices across the board a little higher.
And then there's some tailwinds. We've got a bigger contribution from RIN pricing, a bigger contribution from RD prices. So a lot of moving pieces in the equation. But one thing I'll tell you is when we look at like our Dickinson project, when you take all the puts and takes, the plus and minuses together, we're pretty much on par with where we expected the project to come in.
And so that's our experience with Dickinson. We expect the same type of contribution with Martinez going forward. One thing that I would like to add, though, is what we really do is a lot of things I'm talking about outside of our control, whether the regulatory prices, the feedstock price is going to be.
I'd really like to focus on what we do and specific to Dickinson, we pay attention to all the feedstocks and we pivoted to the most lowest cost feedstock slate, the lowest carbon intensity slate by optimizing our feedstock acquisition process.
The other thing we did is even though that, that project was supposed to be 100% refined bleach deodorized soybean oil, we used our pretreatment facilities at Beatrice, Nebraska and Cincinnati to essentially bring in a fully pretreated feed slate in there. So really concentrate on the things that we can control to deliver the EBITDA. But a lot of moving parts, and we're just doing the best we can with it.
Our next question will come from Manav Gupta with Credit Suisse.
Mike, you bought a lot of capital discipline to MPC. Investors really respect you for that. But we are in a different environment versus when you actually took over MPC. You have the best-in-class midstream footprint in Permian and Northeast, 2 basins where volumes are actually growing materially. We are seeing E&Ps raise CapEx in these regions. My question is for the right opportunity, organic or inorganic, would you be willing to spend more at the midstream level to benefit from the projected volume growth? .
Yes, Manav. I think the answer to that is yes. I mean, obviously, we probably would prefer to do that at the MPLX level as opposed to MPC. But we are definitely looking and trying to figure out ways to create value in both of those basins. I mean, as everybody knows, we've said for quite some time that we're going to concentrate in the Permian and concentrate in the Marcellus area.
We did announce on the call earlier today that we are advancing a couple more processing plants, one up in the Marcellus, which has been kind of a constrained area for a little bit of time now and it looks like growth is going to start to pick up there. And then we've also announced another plant down in the Permian as well.
So yes, we're very attentive. Hopefully, we'll find more opportunities in both of those basins because we think they're both going to continue to grow. I mean everybody is very aware of the global natural gas situation. We remain constructive on it, and we're trying to be as involved in that growth as we can be.
My second and very quick follow-up is, again, very positive operating cost on the Gulf Coast below $4. You -- if you look at last couple of years, it's been trending down, but you actually did not close an unprofitable assets. Sometimes when you close an unprofitable asset, the cost can come down. Your cost has been coming down as the assets -- as the number of assets has remained the same. So help us understand how you're able to push through these lower OpEx numbers?
Okay. Manav, this is Ray Brooks, and I'll take that question. I think it comes down to a couple of things. One is definitely paying attention to cost control striving to be the low cost, safe, reliable operator. And then the other key word is reliability. So when we look at the Gulf Coast for the second quarter, we ran extremely well, 1.35 million barrels a day of throughput in those 2 assets at Garyville and Galveston Bay. So best ever performance there out of those assets and they're phenomenal assets.
And then the other thing is it's just concentrating on costs. We talked about this many times over the earnings calls in the last couple of years. We've got 2 refineries there that performed very well in the Solomon OpEx survey that comes out every 2 years. Garyville, historically, has been a very good first quartile refinery and Galveston Bay has improved over the past couple of years.
So just strict cost discipline after we pay attention to all of our safety and maintenance cap just questioning everything we're spending there and running reliable. So even though your question was on cost in the Gulf Coast, we're really happy with 2Q with our margin performance. So I'm going to let Rick talk a little bit on that.
Yes. So Manav, so hand-in-hand with op costs goes refining margin per barrel. And we have really taken Mike's push on improving the commercial performance. We have an acronym we call CCI, continual commercial improvement, and the Gulf Coast -- and this is -- this goes for all 3 regions, but the Gulf Coast specifically, I think you're continuing to see us separate ourselves and improve quarter-to-quarter.
And in simple terms, Manav, what we're doing is we are expanding the crack. We are expanding the margin from feedstocks to products. We're optimizing every day. It's a focus that is relentless within our team, and it's something truly that's been going on for years, but you're now really seeing the dividends of the optionality that the team has created, the logistical flexibility and our ability to take a feedstock into the refinery for raise team, his successful operating metrics that he's shown and proven that he's best in industry for quite some time with his toolkit.
And then taking that all the way to the end consumer, I can't stress enough how proud we are of our team and it's an initiative that's very important to us and one that I think you'll continually -- I'll ask you to continually watch because I feel confident in our performance in the quarters ahead as well.
Our next question will come from Roger Read with Wells Fargo.
Yes. Mike, good to hear you on the call, for sure. My question, coming back to the 96% capture in the quarter, your comments about the commercial operations helping. And then looking at where we are thus far in the third quarter. In Q2, we saw between the Gulf Coast and New York Harbor, quite an opening between cash markets for diesel. This quarter, it's cash markets for gasoline. So as we think about those kind of dislocations in the market, the crude diffs mentioned before, what would be a reasonable expectation for kind of capture performance this quarter?
This is Rick. So I'll take capture first. And I'll pivot back to -- before I specifically address your question, pivot back to Manav's point, one of the reasons you're seeing our capture where it's at is optionality. So optionality within our system really directly to your point, whether it's the Harbor or the Gulf Coast that blows out on diesel and gas, we are structuring our entire system to have optionality.
We don't know when and where the differentials will blow out what will be favored 1 month versus the next. What I can tell you is when it happens, we have the system to take advantage of it. And that's years and years of really preparing for optionality within the system.
Specifically, to your question on the Harbor versus the Gulf Coast, that's a tough call. It appears right now, as you said, gas is in favor. Where that will go will be interesting. I think part of that will be on inventories, how they play out within each of the regions as well as demand.
And from a demand perspective, we are seeing very bullish signals from the consumer right now. So we are quite optimistic on that front.
Okay. And then maybe pivoting back to Martinez and the error permit that's still required. Could you just help us, I mean, the 30 days obviously was provided in the release. But is there any other part of that process we need to watch in terms of other approvals required or an extension or anything like that? I mean is it 30 days and should be good on knowing what to do? Or do we have to watch other events?
Roger, this is Ray. And I'll give you an update on Martinez. And I'll go back to the beginning of second quarter. On May 3, we were pretty excited when we got the EIR, the environmental impact report, the final one approved by Contra Costa County Board of Supervisors. So that was big and that let us with one more permit, which was the air permit with Bay Area Air Quality Management District.
And so they spent the next couple of months doing a technical review and actually recently, July 22, they posted that permit for public comment, which is a 30-day comment period, which would end in August 21. So when that public comment period ends, they, along with us, providing input, will respond to any comments, and that should be the end.
So what -- getting the air permit will be big deal. That allows us to start to unit up when it's ready, and it also allows us to close our joint venture partnership with Neste. So where would we see the light at the end of the tunnel coming on that one.
Our next question will come from John Royall with JPMorgan.
So you touched on demand a bit in your opener and it sounds very strong. But I think if I'm not mistaken, I think the commentary related to 2Q. So it'd be interesting to hear what you're seeing in your system today on the demand side? And then maybe where you think we sit currently relative to pre-COVID? And anything on your outlook for the rest of the summer would be really helpful.
John, this is Rick. So going forward, it's been interesting. I'll back up and just talk about July and then where we're at today. So early in July, we had a little bit of a speed bump in and then around the 4th of July where demand was slightly below where we thought it should be. Ever since then, though, we've seen week-on-week increases and demand is picking up really across the board, but specifically in gasoline, diesel steady. And as Mike said in his opening comments around jet. Jet is 20% over quarter-on-quarter 2Q, anyways of -- from where we were a year ago, and we're getting very strong indicators from the airlines and the travel industry on domestic travel via jet.
Specifically, going forward, we're seeing a very resilient consumer with a lot of pent-up demand and the trends look very promising. Now certainly, you have the headwinds of inflation, rising interest rates, et cetera. But right now, I would say the falling street price that has been permeated by the falling WTI market is winning the day. And the consumer is showing us very positive demand signals today, and we view that going forward as well.
Great. That's really helpful. And then on utilizations, you did 100% in 2Q, 3Q guidance is 94%. Just wondering on sequencing, you obviously ran full out for the entirety of 2Q. Is the expectation of 3Q that you'll run full out in July and August and then go into some maintenance in September? Is there any work plan for the summer? Just any thoughts on the sequencing for utilizations?
Yes. This is Ray again. So I'll take that question, John. Yes, you're right. We ran at 100% utilization in 2Q. And then in the third quarter, we're guiding to 94% utilization. And if you look at our turnaround number, up $400 million. That's because we have more turnaround plus catalyst work that's -- that we'll be doing in this 3-month period.
One thing I'd like to highlight, though, is one of the reasons we ran 100% in 2Q is we really wanted to meet market demand. And so we challenge ourselves to what we could do in that regard. And just 1 example, we had 1 unit at one of our plants where a hydrocracker, we could squeeze a little bit more life out of the catalyst. And so we made a conscious decision to run through that in 2Q and do pick that work up in 3Q.
So we made those decisions. It looks like they're the right thing to do, but we do have a little bit more work coming up in the third quarter.
Our next question will come from Connor Lynagh with Morgan Stanley.
I wanted to ask two on capital allocation here. The first is a bit of a housekeeping question on the buyback. Just so we're understanding this cadence that you're buying back stock in the second quarter here. Is the way to think about this that you're going to continue that until the end of the initial $15 billion, and you'll revisit from there? How should we think about the timing and pacing of the $5 billion buyback?
Connor, it's Maryann. Thanks for the question. So I think you captured it right. As we said, we are committed to completing that $15 billion no later than this year -- at the end of this year, excuse me. And you can see by the pace that we have been executing that clearly in the quarter as well, $3.3 billion in the quarter, $4.1 billion since the last time we met on the earnings call, we remain committed and on track to deliver that.
As we talk about the additional $5 billion authorization that we just received, I would say it this way, you shouldn't expect that we will have that incremental share repurchase authorization complete by the end of this year. So $15 billion, again, remain firmly committed to that. As we talked about the next round of $5 billion, we'll evaluate market conditions and other opportunities that we have. But I wouldn't assume that we'll be done with that $5 billion this year.
Okay. Understood. The second is a bit more high level. But I know you'd like to think about investing in the business in terms of banks of the river upside, downside. I guess, has there been any change in what you think of the upside in the business based on the events that have been ongoing in the refining industry over the past 3, 6 months? Is there anything that you might not have considered to be a valuable project? I'm thinking there might be some other projects like the STAR project that might not have competed for capital before, but are starting to look more interesting?
Connor, it's Mike. I think what you're asking is, do we have a more constructive view on mid-cycle. I think the answer to that is, yes, as Rick stated before, right now, we're in a pretty constructive environment. Inventories are low. Demand hasn't gotten back to levels before COVID. So we're still recovering in that regard. So it is a pretty constructive environment.
But as far as to your question of, does it change our view, I mean, I think you said it well. We do banks of the river regardless of where the mid-cycle is. We always look at a downside case and an upside case. And at the end of the day, our upside case is aggressive and our downside case is aggressive, so we can really get those banks to the river.
I think our mode, and it was mentioned earlier in the call is we are a believer in capital discipline. We do want to invest in the business, but we want to be really strict about where we do that. And again, I keep saying it's a balance between return on capital when we have good opportunities and return of capital. and we've been trying to do a better job in both areas.
So I don't think our bigger picture has changed. I mean what you're hearing out of us a lot today is the second quarter showed what we were supposed to do is run reliably. Ray and his team did a terrific job in that regard. That's what you're supposed to do when the margins are where they are because we don't control that side. And then Rick and his team, and Brian and his team look at how do we maximize feedstock profitability and how do we maximize product lease and profitability.
And very proud of the team for what they did in the second quarter because it did show some of the discipline we've been trying to achieve because we don't control the margin environment, but we do control how reliably we run. We do control our cost, and we do control how we set ourselves up commercially. So very proud of the team to accomplish what I think was a pretty good second quarter.
Our next question will come from Theresa Chen with Barclays.
First, I'd like to start off by revisiting some of the comments made about cost inflation and also your continued reiteration of the laser focus on cost controls. As we think about second half of the year and 2023 CapEx expenses, et cetera, can you provide some incremental color on how exactly you're managing this process, especially in light of costs really increasing across the board, be it energy, labor or materials, et cetera?
Theresa, I'll start, and then I'll let Ray jump in here. We're definitely seeing the impacts of inflation, whether it's materials or anything else along those lines. It's a reality to us. And obviously, everybody can also see the cost of natural gas and where it stands and Mary gave sensitivities during the prepared remarks about where they are.
So those are all important things that, again, I put them in the bucket of we don't control that. Obviously, inflation is a big global picture. But what I asked Ray and his team to do is to really focus on areas we do control and try to offset some of these natural higher-cost things that we don't control coming at us.
At the end of the day, I mean, he gave a good example of ways that we can do things differently. We can manage our turnaround schedule differently than we've done in the past. We can look at the cost that we're spending in each of those areas differently.
It's kind of interesting. For those who know me, I spend a lot of time on the downside, and we've had a pretty upside quarter that we've been talking about. But I think it's good discipline for us to have that reliability mode, to have a good commercial mode, as Rick said, trying to improve ourselves commercially all the time.
And then to your point, Theresa, when inflation comes at you, hopefully, you set a lot of groundwork in your thinking as to how to be disciplined to attack that rather than just complain about it happening because it's going to happen and it's going to happen later times because it's a cyclical business. But Ray and his team have done a very nice job. I'm very proud of where the cost structure of the company has come in the last couple of years.
And now I'll turn it over to him if he wants to add additional color.
Yes. Not much more to add based on what Mike said. We don't control gas prices, labor costs. We don't necessarily control that. The one thing I will elaborate a little bit on is material cost. When we look at a lot of the work that we have coming up in the near future, whether it's Martinez, whether it's work at Garyville, whether it's Galveston Bay and STAR, most of the large equipment purchase material purchases are already on site.
So we've got that, that we're able to check that off from both a cost standpoint and reliability of material supply standpoint. So we'll monitor the situations, whether it's labor or gas and adjust accordingly. But the fundamental premise that we're always looking to be the low-cost operator. We'll continue to strive for that.
And as a follow-up, right, to your comments about the Martinez project, just -- on the heels of the car public workshop, really with the recent one really scrutinizing crop-based feedstocks in general. What is your view on that as it potentially may impact your assets and feedstock procurement plans, if it does?
Theresa, just one question for clarification. Are you referring to the LCFS plan?
Yes.
Okay. My partner is shaking the head, yes. Essentially, what that is, we see that as a potential benefit right now where if we step back a year ago, we kind of looked at LCFS as a $200 a ton level. And most recently, we've been in a $90 a ton. But with CARB's recent announcement, and I'll say the state support for a rescoping plan, their desire is to increase the GHG reduction in the state, which at the bottom line will put more pressure on people to generate credits in the states. So we see that as a potential tailwind on from where we are right now.
So what I said to an earlier question, though, is there's a lot of moving parts in the renewable diesel economics between RIN and LCFS and BTC and feedstock costs and all that. And we don't necessarily control them, but we balance between them and we feel pretty good right now definitely how our Dickinson economics are working, and we feel real good going into the Martinez project in total.
Our next question will come from Paul Cheng with Scotiabank.
Since you took over as the CEO in the company, I think, over the past 2.5 years the performance has been quite dramatic improvement the and efficiency and everything has improved. From that standpoint, and you have a good system in pay. So should MPC consider or maybe view themselves as a potential consolidator in the refining industry? We still have quite a recommended market given your strong execution in the platform that you have in pace. That's the first question.
The second question is that third quarter turnaround cost is high. So that would suggest that 2022, the total turnaround cost is going to be much above the historical average. So is that partly driven by the catch-up spending from 2020 and '21? Or that it is just purely from the timing of the cycle? And should we assume 2023 will trend back down to a more normal level?
So, Paul, first of all, thank you for the compliments. It's really been a team effort over the last couple of years. So appreciate your comment there. As far as the consolidator in refining, again, I never say never, but we have enough of a refining footprint in my mind to be effective. At the end of the day, we are believers that we're going to see these good times and bad times in refining. And as I said previously, my own mantra is I want us to be a good performer in the down cycle. And if we can do that, then I know we're going to have the discipline to be a good performer in the up cycle.
So we're concentrating on how we run the business regardless of where the margin environment is. You heard Ray on cost, you heard Rick on commercial initiatives. So I think we're in a good spot there, and I think we have enough exposure. I never say never, but the chances of us increasing our footprint in refining is not high.
Instead, I do -- I am a big believer in returning capital as we've been doing, but I'm also constantly looking for opportunities for us. And the word I used a lot more is adjacencies. I like to look for things that are close to our business that can make us more competitive.
One of my 3 months is take the assets we have today and make them more competitive. And sometimes that has to do with adjacency build-out. Dave and his team have tried to increase the profitability at Dickinson as an example. And Ray mentioned that our feedstock flexibility there has gotten way better. We have a JV that's coming on. It's going to help us there. We've done some other things to change our feedstock flexibility.
So that's probably where I spend more time thinking about how to create value than thinking about overall consolidation. So I hope that answers the first one. I'm going to let Ray take the second one.
Yes, Paul, regarding turnaround and your comment that the third quarter is high. I'll put the caveat in there again that 2022 was back-half weighted. So we ran extremely -- the run rate for the first half was much lower than the run rate for the second half. But if we go back a couple of years, and look at 2020 and 2021, those were lower years from a turnaround standpoint. And yes, when we were in the pandemic, some of the issues we had with wanting to minimize people in our facilities, we did look to lower our turnaround work.
So some of the work that we're doing, not all of it, but some of the work is deferred from that period of time. One thing I will tell you that our team really looks at and this is looking at this with -- in conjunction with Rick and Brian's team from the commercial standpoint is we really want to -- we want to do turnarounds at the -- we want to maximize our catalyst cycles. We want to maximize our turnaround cycles. And we also want to try to level the spending as much as possible.
So when we look at '22 and '23 and '24, we're looking at optimizing that and trying to level that as to much our capabilities across a period of time. So to answer your question a little bit of deferral from 2021 and a little bit of back half weighted in the second half of '22 versus the first half of '22.
Just as a follow-up, should we assume 2023 as a result going to be materially lower in that than the 2022 activity level on the turnaround?
Paul, it's Maryann. We're a little early. As you know, we typically will give you a quarter-by-quarter view of how we see turnaround expenses. So we're a bit early to give you a 2023 guidance. So not ready to call that just yet if that's okay.
And our last question will come from Jason Gabelman with Cowen.
So you sound pretty constructive on the demand side of things, particularly gasoline, but we've seen cracks over the futures curve come down quite a bit over the past month. Do you think that aligns with what you're seeing on the ground? Or do you think this move is too far, too fast, cracks, I think, over the next year for gasoline or back below where they were prior to the Russia-Ukraine war? And then I have a follow-up.
Jason, it's Rick. It's really a great question because you're right, we have seen a lot of volatility on cracks here the last 2 to 4 weeks specifically, and we expect it to continue. I will say, fundamentally, if you look at where inventories are across the energy sector, they're either at or below 5-year averages.
We're getting good demand signals from the consumer. And we're seeing really solid feedstock differentials. We're seeing a Brent TI that's $7 to $10. We're seeing backwardation that is only plus or minus $1.
So I would tell you, from a macro perspective, I think there's upside from here, but I'll pause there and be careful because -- it's a very volatile market. Oftentimes, markets go too high and then they correct and go too low. I believe there's some optimism going forward from a macro perspective really because of those key factors that I just laid out for you.
Understood. That's helpful. And then my second question, just on the distribution update. On last earnings call, you kind of discussed that you would provide some sort of distribution framework update in the near future, and it doesn't seem like we've gotten that on this call. So I'm curious if this is kind of in line with what you're envisioning providing at this time if something changed between that last call and this call or maybe just some misunderstanding on our end?
Jason, it's Maryann. Look, you're right. I think one of the things that we said was when we finished our $15 billion share repurchase, we would come back to you with a bit more detail. So I think we've been consistent in that, and hopefully, you see that as well. As a part of that, we said we would reassess the dividend at that particular time. We're hopeful that you see the pace at which we are moving to complete that $15 billion as consistent with that communication.
So nothing has changed from our views, again, committed to the $15 billion, committed to a reassessment of the dividend at that particular time. And hopefully, the pace gives you some good indication of where that would be. I hope that addresses it, Jason.
All right. Sheila, Well, if there are no other questions. Thank you for your interest in Marathon Petroleum Corporation. If you have additional questions or want clarification on topics discussed on the call this morning, please reach out anytime and members of our Investor Relations team will be here to help. Thank you for joining us.
Thank you. That does conclude today's conference. Thank you again for your participation. You may disconnect at this time.