Marathon Petroleum Corp
NYSE:MPC
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Marathon Petroleum Corp
Earnings Call Analysis
Q2-2024 Analysis
Marathon Petroleum Corp
During the earnings call, Marathon Petroleum Corporation (MPC) highlighted the leadership transition, acknowledging Mike Hennigan's impactful tenure as CEO. Under his leadership, the company successfully returned $40 billion to shareholders. As Mike transitions to Executive Chairman, Maryann Mannen, now CEO, assured dedication to continuing the high standard of performance and shareholder returns.
The global demand for refined products has consistently reached record highs, with MPC witnessing strong and steady demand for gasoline and diesel, and growing demand for jet fuel. The refining industry in the U.S. is structurally advantaged due to the country's integrated and diversified refining systems. MPC’s strategic investments ensure their competitiveness in high-utilization environments, allowing them to capitalize on market opportunities despite global volatility.
MPC’s Midstream segment, notably MPLX, continues to contribute robust cash flows. In the second quarter, MPLX's cash distribution to MPC totaled $550 million, highlighting its importance as a steady earnings contributor. Recent investments, including the Whistler transaction and Blackcomb natural gas pipeline's final decision, bolster MPC's value chain and strategic initiatives aimed at sustainable growth and financial flexibility.
MPC reported strong financial performance in the second quarter. Adjusted EBITDA increased by $133 million compared to the previous quarter, thanks to strong results in both the Refining & Marketing and Midstream segments. Operating cash flow, excluding working capital changes, was $2.7 billion. The company returned $2.9 billion to shareholders through repurchases and $290 million in dividends, underscoring its commitment to shareholder returns. Notably, MPC's refineries ran at 97% utilization, processing approximately 2.9 million barrels of crude per day, displaying operational excellence.
Looking forward, MPC projects third-quarter crude throughput volumes of just over 2.6 million barrels per day, representing a 90% utilization rate. Planned turnaround expense for the third quarter is expected to be around $330 million, with a full-year outlook of $1.4 billion. Operating costs are projected at $5.35 per barrel for the third quarter. The strategic focus remains on optimizing portfolio returns, with disciplined capital investments in high-return projects and sustained commitment to operational excellence.
MPC emphasizes returning excess capital to shareholders through share repurchases. With $5.8 billion remaining under current share repurchase authorizations, the company continues to prioritize buybacks given its strong cash generation. Moreover, MPLX's growing distributions significantly cover MPC's dividends and capital expenditures, reinforcing its robust financial strategy and recession-resistant positioning.
MPC's operational efficiency is notable in the Gulf Coast region, where operating costs have been reduced to $3.73 per barrel, showcasing cost competitiveness. Continuous efforts in optimizing the integrated asset portfolio and efficient cost management practices have positioned MPC as a low-cost leader in the industry.
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Welcome to the MPC Second Quarter 2024 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 2024 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 Maryann Mannen, CEO; John Quaid, 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. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I'll turn the call over to Maryann.
Thanks, Kristina, and good morning, everyone. I want to take a moment to recognize Mike Hennigan's leadership as CEO of MPC over the last 4 years. Mike's record of accomplishment has been tremendously valuable. During his tenure, Mike delivered its transformative strategic priorities and returned a peer-leading $40 billion to shareholders. We're fortunate to have Mike as Executive Chairman of MPC's Board going forward.
Moving to the global macro environment. In the second quarter, supply of refined products reached all-time seasonal highs. The margin environment supported assets running at high utilization and new capacity additions continue to ramp. At the same time, demand for refined products set new records globally. We expect 2024 will be another year of record refined product consumption. Within MPC's domestic and export businesses, we are seeing steady demand year-over-year for gasoline and diesel and growing demand for jet fuel. As we look forward, demand growth is expected to outpace near-term capacity additions over time with limited global refining capacity additions expected through the end of the decade. These fundamentals still support an enhanced mid-cycle environment for refining.
The U.S. refining industry is expected to remain structurally advantaged over the rest of the world. We believe our assets will remain the most competitive in each region in which we operate. Our fully integrated refining system and geographic diversification across the Gulf Coast, Mid-Con and West Coast regions provide us with a competitive advantage. We are steadfast in our commitment to safely operate our assets and protect the health and safety of our employees. Operational excellence and commercial execution have driven sustainable structural benefits, uniquely positioning us to capture market opportunities. Our execution remains core to our value delivery. Our disciplined capital investments are focused on high-return projects. In refining, we are making investments predominantly in our large competitively advantaged facilities to optimize our assets and position MPC well into the future.
In midstream, MPLX continues to execute attractive growth opportunities focused on bringing in incremental third-party cash flows. We continue to grow our natural gas and NGL value chains. In the second quarter, MPLX closed the Whistler transaction. Last week, MPLX and its partners reached FID on the Blackcomb natural gas pipeline. It will be a 2.5 Bcf pipeline connecting supply in the Permian to domestic and export markets along the Gulf Coast. This project offers a compelling value proposition while providing shippers with flexible market access. Blackcomb is expected to be in service in the second half of 2026. Additionally, MPLX recently increased its ownership in BANGL. This pipeline transports NGLs from the Permian to Sweeny, Texas, and it is currently expanding its capacity to 250,000 barrels a day.
This transaction is immediately accretive and enhances MPLX's Permian NGL value chain as part of its developing wellhead-to-water strategy. MPLX is strategic to MPC's portfolio, providing a $2.2 billion annualized cash distribution to MPC. This fully covers MPC's dividend and nearly all of our 2024 capital program. And our Midstream segment, which is primarily comprised of MPLX, has grown its adjusted EBITDA at nearly 7% compound annual growth rate over the last 3 years. Strong coverage, low leverage and growing cash flows provide MPLX financial flexibility, placing it in an excellent position to continue to significantly grow its distributions, further enhancing the value of this strategic relationship. MPLX -- sorry, MPC's total capital return since May 2021 has reduced MPC share count by nearly 50%.
Cash generation will continue to influence buyback capacity as we return to a normalized balance sheet. Given our highly advantaged refining business and the $2.2 billion annualized distribution from MPLX, we believe we can lead peers in capital returns through all parts of the cycle. MPC generated second quarter adjusted earnings per share of $4.12. Our operational excellence and commercial performance support our quarterly results. This quarter, we delivered refining utilization at 97%, capture of 94%, up 2%, while other refining peers reported sequential declines. Adjusted R&M EBITDA per barrel of $7.07 and cash from operations, excluding the impacts of working capital of $2.7 billion, both of which led refining peers, and we returned $3.2 billion to our shareholders. The capabilities we have built provide a sustainable advantage, and we expect to continue to see the impact on our quarterly results.
Let me turn the call over to John.
Thanks, Maryann. Slide 5 shows the sequential change in adjusted EBITDA from first quarter 2024 to second quarter 2024 as well as the reconciliation between net income and adjusted EBITDA for the quarter. Adjusted EBITDA was higher sequentially by $133 million, driven by increased results in both our Refining & Marketing and Midstream segments. The tax rate for the quarter was 16%, resulting in a tax provision of $373 million. The second quarter tax rate largely reflects the earnings mix between our R&M and midstream businesses.
Moving to our segment results. Slide 6 provides an overview of our Refining & Marketing segment for the second quarter. Following significant turnaround activity in the first quarter, our refineries ran at 97% utilization, processing nearly 2.9 million barrels of crude per day. Refining operating costs were $4.97 per barrel in the second quarter, lower, sequentially, primarily due to higher throughputs, lower project-related expenses associated with reduced turnaround activity and lower energy costs. In our largest region, the U.S. Gulf Coast, our operating costs were $3.73 per barrel, demonstrating our cost competitiveness. Sequentially, per barrel margins were down primarily due to lower crack spreads.
Slide 7 provides an overview of our Refining & Marketing margin capture of 94% for the quarter. Capture in the quarter reflected tailwinds from gasoline margins, offset by increased headwinds from secondary product pricing, which was driven by high refining industry utilization. Gasoline margins were supported by a falling price environment during the quarter and, in addition, our integrated system and realized demand across our multiple sales channels was a competitive differentiator to our capture performance.
Slide 8 shows the changes in our Midstream segment adjusted EBITDA versus the first quarter of 2024. Our Midstream segment is generating strong cash flows. This quarter, MPLX distributions contributed $550 million in cash flow to MPC. The 2 midstream transactions Maryann discussed earlier further enhance our Permian value chains for both natural gas and NGLs. Through organic growth and disciplined investments, MPLX continues to provide growing cash flows to MPC. MPLX is a differentiator in the MPC portfolio and remains a source of durable earnings growth.
Slide 9 presents the elements of change in our consolidated cash position for the second quarter. Operating cash flow, excluding changes in working capital, was $2.7 billion in the quarter, driven by both our refining and midstream businesses. Working capital was a $541 million source of cash for the quarter, primarily driven by the decrease in refined product prices. This quarter, capital expenditures and investments were $541 million. And during the second quarter, MPLX issued $1.65 billion in tenured senior notes, the proceeds of which MPLX expects to use to retire senior notes maturing in December of this year and February of next year.
MPC returned $2.9 billion through share repurchases and $290 million in dividends during the quarter. And in July, we repurchased just over $900 million of MPC shares, leaving $5.8 billion remaining under our current share repurchase authorizations and highlighting our commitment to superior shareholder returns. At the end of the second quarter, MPC had approximately $6 billion in consolidated cash and short-term investments, excluding cash at MPLX.
Turning to guidance. On Slide 10, we provide our third quarter outlook. We are projecting crude throughput volumes of just over 2.6 million barrels per day, representing a utilization of 90%. Planned turnaround expense is projected to be approximately $330 million in the third quarter, with activity focused in the Mid-Con and Gulf Coast regions. Turnaround expense for the full year is anticipated to be approximately $1.4 billion. Operating costs are projected to be $5.35 per barrel in the third quarter. Distribution costs are expected to be approximately $1.55 billion and corporate costs are expected to be $200 million.
In summary, our second quarter results reflect strong cash generation and disciplined capital allocation. The R&M segment generated $2 billion of adjusted EBITDA and MPLX distributed $550 million to MPC. This supported investments of over $500 million and capital return of approximately $3.2 billion.
With that, let me pass it back to Maryann.
Thanks, John. My priorities are consistent with those that made MPC a peer-leading energy investment. We are unwavering in our commitment to safe and reliable operations. Operational excellence, commercial execution and our cost competitiveness yield sustainable structural benefits and position us to deliver peer-leading financial performance irrespective of the market environment. To do this, we will optimize our portfolio to deliver outperformance now and in the future. We'll leverage our value chain advantages, ensure the competitiveness of our assets and continue to invest in our people. Our execution of these commitments position us to deliver the strongest through-cycle cash generation.
Durable midstream growth should deliver cash flow uplift. We will invest capital but be disciplined where we believe there are attractive returns, which will enhance our competitiveness. We are committed to leading in capital allocation. We will return excess capital through share repurchases. MPC is positioned to create exceptional value through peer-leading performance, execution of our strategic commitments and a compelling value proposition.
Let me turn the call back over to Kristina.
Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions. We will now open the call. Sheila?
[Operator Instructions] Our first question will come from Manav Gupta with UBS.
Congratulations on a very strong start. And looking at all these very attractive projects that you're doing in midstream, Maryann, like BANGL and Whistler and now Blackcomb. And looking at the way the distribution is growing at MPLX, like is the thought process somewhere here to try and grow the distribution at MPLX for 10%. And even if you can do it for 2 more years, that distribution to MPC jumps to like 2.7-plus, at that point, is covering your full CapEx and full dividend. So technically, you are a recession-proof refiner.
Thanks, Manav. I think you said it well. The strategy that we are trying to execute in MPLX, we've talked about targeting mid-single-digit growth. As you've seen over the last 3 years, we've achieved that almost 8% in distributable cash flows as well. And to your point, we have increased the dividend over the last 3 years and more so in the last 2 years, 10% per year. We believe that our strategies, wellhead-to-water, as we explained, and the key initiatives that you just articulated for me, our investment in BANGL, our JV in the Utica, Whistler. And then also just recently, the FID of Blackcomb, we think, continue to support our ability to deliver in growing mid-single-digit growth.
Therefore, our goal of increasing that distribution and bringing it back to MPC creates, we believe, incremental strategic value between MPC and MPLX. And as you stated well, that will fully cover the MPC dividend and largely the capital that heretofore MPC has been putting to work. So again, we think that strategic relationship becomes incredibly more important as we are able to increase MPLX's distribution going forward.
Perfect. And a very quick follow-up is, looking at the Gulf Coast OpEx, I think, $3.72 is the lowest in the business. It's like probably the lowest. Help us understand what's been the drivers of this because probably 3 or 4 years ago, you were not the lowest cost Gulf Coast operator. Looks like you've now gotten there. So help us understand some of the initiatives? And can this be sustained here?
Manav, thanks. So as you know, one of our key initiatives, one of our priorities with respect to our peer-leading initiatives has been profitability per barrel. And we see that as a cost competitive commitment, if you will, in each of the regions where we operate. As we've been talking about for the last few years, the work that we have been doing, we believe, is sustainable. Ultimately, again, what we're trying to do is to deliver the best EBITDA per barrel in each of those regions. We appreciate your recognition of the Gulf Coast. I'll pass it to Rick to see if he wants to add any comments on the Gulf Coast.
Yes. So on the Gulf Coast, I will share that with utilization where it's at. We believe it to be a highly constructive market going forward and continue to rebound, Manav.
Next, we will hear from Neil Mehta with Goldman Sachs.
Maryann, I wanted to kick off with you. As you take on the reins of the business in the CEO role. Can you talk about the first 6 months on the job. What are your key objectives? And what are you focused on here?
Neil, thank you. I'll say, first and foremost, continuing to create exceptional value. As we've shared here and tried to articulate here this morning, we believe we can deliver the strongest EBITDA per barrel and cash flow per share. And we're going to continue to focus on notwithstanding our safe and reliable operations every day, all day, delivering outstanding operational excellence, commercial performance.
We talked a little bit about that here that will be a focus as we go forward to ensure that our profitability per barrel is the strongest. Ultimately, at the end of the day, we want to have our peer-leading capital allocation, and we'll continue to drive all that we do to ensure that those allocation principles return on and return of are peer-leading. I shared a little bit. We're going to continue to do that, leveraging our value chain. We also want to ensure as we always have the competitive nature of those assets, it's something that we will continually evaluate.
And then last, as we talk about one of the things that I just shared here is the durable midstream growth in our -- with the cash flows, we think that is another compelling value proposition for MPC. And with all that, we should be able to deliver the strongest through-cycle cash flow. I think those are the things that you will see me continue to focus on not only in the next 6 months, but continuously as we drive value for our shareholders.
And if I can drill down on one specific item. Over the last couple of years, the business and the value has really been created largely organically. There are some questions about whether you pursue M&A in the renewable diesel space. There was some trade articles around Neste in particular. So just love your comments on how do you create value in that business and any thoughts around that specifically?
Yes. Sure, Neil. Let me address the Neste one, first. I heard you mention that. That rumor is not factual, and we are not having any conversations about a buyout with Neste. So just want to be sure that I address that. As we continue to look at the opportunities, we do see value within our portfolio. I mentioned the competitive nature of each of our regions. We continue to see opportunities there to drive performance. We are focused on our commercial performance and continuing to deliver the strongest EBIT per barrel, as I mentioned. So right now we see the opportunities within our own portfolio, and we'll continue to evaluate as we go forward over the long term how to deliver that value proposition. But we see our ability to grow organically.
Our next question will come from Paul Cheng with Scotiabank.
Two questions, please. I think the first one is probably for Rick. Rick for TMX, it has been -- I've been wondering for a number of months. Do you think that all the impact has already been felt in the marketplace? Or you believe there's more to come. We are surprised that 2/3 of the incremental barrel seems like being exported to Asia. And how that additional barrel in the West Coast may or may not have changed your operation in the West Coast, in terms of your crude slate and product yield? That's the first question. And second question, maybe for John. On your Page 18, there's an Other margin, say, $108 million. Can you maybe share a little bit more detail? What's inside there?
Paul, thank you. So on TMX, first and foremost, I think we've been talking about this for the last several quarters. And what I would share with you is the start-up of TMX has largely happened as we anticipated and the results of that very similar to the way that we believe that would play out in the marketplace. So pretty consistent as we've shared. I'm going to pass it to Rick and allow him to give you some incremental color in particular on what's happening in the West Coast.
Yes. Paul, it's Rick. Just a few comments here. Really, no surprises. I would tell you from a yield perspective, the changes are insignificant from our perspective. What has changed, though, that is significant and quite helpful to us, actually, is as these incremental Canadian barrels have come into the market, it has put pressure on the ANS barrel. And as you're well aware, we're a big buyer and runner of ANS barrels on the West Coast. So we're a recipient of that. So that's been very positive for us. And then obviously, with our commitment on TMX, we have the ability to run these advantaged barrels not only at Anacortes, but at LA. So it's been very positive for us, see it being that way going forward, Paul.
And then in terms of the export comment to Asia, not surprising at all. In fact, we expect that plus or minus will continue. And Paul, that will largely be dependent on differentials and your quality differentials and your transportation, shipping transportation to the West Coast. So when you factor in those 2 variables, you'll be able to back into what will happen here going forward.
Paul, it's John. On the other margin change you see for R&M, not all of it, but it primarily relates to us finalizing our insurance claim for the Galveston Bay reformer. So we would have finalized that, recognize that income in the first quarter and then receive the cash proceeds in Q2. So you have that recognition in Q1, but again, it's the final one. So there's really nothing to offset it in Q2. That's what's driving the change you're seeing there.
Our next question comes from Roger Read with Wells Fargo.
Congrats, Maryann on everything. I'd just like to maybe take a couple of shots at some of the macro stuff here. As we think about the let's -- what we call better than mid-cycle, but whatever new mid-cycle, how you're looking at the structure of the market? And then how that fits in with what's generally been higher utilization throughout the industry, putting a little pressure on cracks here at least for a few months this summer. How maybe you think that works out as we look out over the next, call it, 6 to 12 months?
Sure, Roger, thanks. A couple of things I'd say. First and foremost, over the long haul, we continue to believe in an enhanced mid-cycle, it will continue in the U.S. Clearly, in the short term, we talked a little bit about what we saw happen in Q1, Q2. Q2 coming off of pretty high turnaround across the space on -- in Q1. And then you see, obviously, continued volatility here, supply demand. But over the long haul, as I mentioned, we do not see really any challenge there.
There could be supply that comes online. But when you look at demand that we are expecting over the long term, we think that will be absorbed, clearly some short term. China, obviously, that in just recent reports there in terms of where their demands flow is decisions by OPEC, all of which we think could have some short-term volatility. But over the long term, enhanced mid-cycle, we believe, depending on how you think about that mid-cycle, one of the ways that we like to articulate, we're running 1 billion barrels. If you think it's a $1, it's an incremental $1 billion to the MPC portfolio, just a way for you to maybe frame that. I'll pass it to Rick and let him give you a little more color there.
Yes. Roger, just a few more comments. So when you look, S&D is really in line with our expectations. It's really what we -- what and where we thought it would be. But when you drill down even further and look at utilization closer to home domestically over the last couple of weeks, even domestic utilization is off some 4%, ironically, bringing us to this 90% utilization level, which is where our guidance is going forward. So we see that as continuing to be very constructive. .
And then I'll just spend a moment talking about our demand. Our demand within MPC, both domestically and from an export perspective is very steady on the gas and diesel side, and we're seeing really strong signals on the jet side. So we believe those tailwinds, combined with the supply and demand picture, that's truly in balance further backs up our mid-cycle plus thoughts going forward.
I appreciate that. You kind of clip me on my follow-up on the demand side, so I'll leave it there and turn it back to you all.
Our next question will come from John Royall with JPMorgan.
So my first question is just looking at your 90% utilization guide for 3Q. It's pretty low for MPC for 3Q. There is a fair amount of turnaround activity it appears just from the total turnaround dollars. But my question is, is there any economic downtime or pulling forward a turnaround activity or any -- in any way, any kind of response to the weaker crack environment buried in that 90%?
John, it's John. I'll take that to start. You're spot on with the turnaround comment really largely what you're seeing, right, we've got activity, as I mentioned, in the Mid-Con and the Gulf Coast, that's going to affect what we're going to be able to run. And then I'll make an initial comment, turn it over to Rick if he has any further. But really, we're going to continue to run our assets optimally to meet the demand in the market.
Yes, John nailed it. We will run economically and 90% is the guidance that we think is a fair number going forward as we're 1/3 of the way through the quarter.
Great. And then I was just hoping for a little color operationally on how Martinez is running and ramping towards the target of getting to full by year-end. And relatedly, do you have any concerns about the price of feedstocks getting driven up by a combination of Martinez ramping back to full and Rodeo coming on and ramping its runs of lower feedstocks.
Yes, John, this is Tim. I'll take that one. We continue to believe Martinez is a highly competitive facility. And in the second quarter, we did bring a second unit back online, which did provide us with the ability to run at 75% of the nameplate capacity. And as we have noted in the past, we expect to bring the last production unit online by the end of this year, which would allow the plant to run at 100% of its nameplate capacity. So we're on track for that.
Next, you will hear from Jason Gabelman with TD Cowen.
I wanted to ask, firstly, on shareholder returns and the pace of buybacks moving forward. 2Q was a very strong buyback quarter. If I look adjusting for working capital the past couple of quarters, net debt has increased about $1.5 billion at the parent. I'm just wondering if that's indicative on how you're managing the balance sheet, moving forward as you continue to deploy that excess capacity towards buybacks? Or conversely, do you become a bit more cautious here in the near term with potential for some dislocations perhaps in the stock price moving forward, should things continue to weaken, that maybe presents a more advantageous price to buy at.
Jason, thanks. With respect to buyback, I appreciate the comment on the second quarter, you could see $2.9 billion in the quarter. We continue to see share buyback as an appropriate return of capital, particularly when you look at the current equity price of MPC and what we believe to be over the long term, the growth and opportunity in this equity. So you'll continue to see us use cash to buy back stock. Again, no change to that view as we look at that. Part of the reason you saw that change in net debt, obviously, is quarter-over-quarter. You saw the drawdown in cash. We've talked about what looks like a reasonable place for us to be in terms of the cash position. I can have John share a little bit more about that with you. But we're not near there. So we continue to believe in buybacks, and we'll go forward with that.
Great. And my follow-up is just specifically on results in the Mid-Con. Gross margin came in very strong. I was wondering what drove that? If there was any onetime items or items you would call out for the quarter?
Jason, it's Rick Hessling, so no onetime items. What I would tell you is we believe a competitive advantage of our assets in the Mid-Con is our fully integrated system. We've been working for many years to create optionality from what we call cradle to grave when you think refining all the way through our end consumer. And we believe this is and will continue to pull through on our results.
Our next question will come from Carlos for Doug Leggate with Wolfe Research.
This is Carlos. Dough sends his apologies. First of all, congrats on the quarter end. I suppose we would like to know what the appropriate dividend growth policy would be a resumable buyback slowdown, especially considering how strong your MPLX distribution is insofar as providing coverage for you guys in that end.
Thanks for the question, Carlos. With respect to our dividend policy, no change in how we think about that. Some criteria. One, we want that dividend to have the ability to grow. And over the last few years, we look at that in the third quarter, and we'll do so again. But over the last few years, we've grown that dividend over a period of time, about 12.5% compound annual growth in the change of that dividend.
We want that dividend to be sustainable and we want that dividend obviously to be competitive. So we'll take another look at that and share with you as we head into the third quarter as we have in prior years. We continue to believe that when we talk about return on capital, we're looking at both dividend and share repurchase, but that our share repurchase is the primary vehicle for us in the return of capital strategy.
And you actually -- that's a good segue for my follow-up question, which is, in the software market, where would your priority be on that same balance of buybacks over balance sheet? And would you consider relevering the balance sheet and to what extent if that's what you choose to do?
No, I don't think we would relever the balance sheet. We've talked about our strategy and structure as it relates to debt to cap. We'll continue to look at that, but don't see a reason at this point that we would relever the MPC balance sheet.
Next question will come from Matthew Blair with TPH.
Congrats on the remarkable quarter. On the refining side, the slides mentioned tailwinds on capture in Q2 from a rise in gasoline margins. But we noticed that you're gasoline yields was actually a little lower than normal at 49%. So could you talk about what kept it low? And do you think that will rebound as we move into the third quarter?
Matt, it's Rick. So the yields were really an impact of the feedstock input. And I would tell you that the ultimate capture though was enabled by our ability to capture higher margin with our specific commodities. So it's again an a testament to the team working from cradle to grave to maximize the margin irrespective of the yield percentage.
Sounds good. And then sticking with refining. When we look at octane spreads by region, the Midwest really stands out. We're seeing about $40 premiums versus regular gasoline compared to, say, the Gulf Coast around $9. Do you have a sense of what's driving those wide Midwest octane spreads? And is that something that you should be able to capture in your system?
Well, it's a great call out. This is Rick again. Yes, so the market is tight right now. There have been some notable disruptions in the Midwest that are straining supply and demand, Matt. And that's definitely been a benefit to us. While it has widen significantly as you've outlined. I would say we do expect a slight pullback to stay where it's at, probably is overly optimistic. But with that being said, constructively right now, the Midwest is tight.
Our next question will come from Theresa Chen with Barclays.
Just a quick follow-up on your midstream strategy as it complements R&M. So as you grow that wellhead-to-water footprint in Permian to the Texas Gulf Coast. Is your preference still to keep the commodity exposure at MPC such that if you get that final piece in market LPGs across the water, as your Midstream competitors do and R&M keeps that piece of the earnings. Could that structurally augment R&M capture?
Yes, Theresa, you're correct. We would keep that commodity risk as you well stated, at MPC. No desire to move that commodity risk. I'll pass it to Dave and allow him to give you a little more color there.
Yes, Theresa, I think as we look at building out our wellhead-to-water strategies, one thought through it is from an MPLX lens and building that industry solution, both for MPC and other shippers on the system. And the second piece of the equation as we look at it from an enterprise perspective, where can we complement the MPC, MPLX relationship to create that incremental value. But also, as Maryann touched on, maintaining the commodity risk of that marketing and trading activity more on the MPC books. I hope that helps.
I think it's also the benefit of our integrated asset portfolio, I think you really see that come through.
All right, Sheila, if there are no other questions. Thank you for your interest in MPC. If you guys have additional questions or would like a clarification on the topics discussed this morning, please reach out and the Investor Relations team will be available to take your calls. Thank you for joining us today.
Thank you. That does conclude today's conference. Thank you for participating. You may disconnect at this time.