Marathon Petroleum Corp
NYSE:MPC
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Marathon Petroleum Corp
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Welcome to the MPC Fourth Quarter 2021 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 Fourth Quarter 2021 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investors tab. Joining me today on the call 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. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. References to MPC capital spending during the prepared remarks today reflects stand-alone MPC capital, excluding MPLX.
And with that, I'll turn the call over to Mike.
Thanks, Kristina, and good morning, and thanks for joining our call.
Before we get into our results for the quarter, I wanted to provide a brief update on the macro environment. During the fourth quarter, despite the widespread surge in Omicron variant cases, gasoline demand held up well. And on diesel, we're seeing highway trucking volumes continuing to meet or exceed seasonal records. While jet demand reached post-pandemic highs in the fourth quarter, it's still roughly 15% below 2019 levels as business travel remains suppressed, but we expect to see recovery in that this year as well.
When we spoke with you in November, we were cautious about rising COVID cases this winter and the potential impact. Based on the trends over the last few months, we've become less concerned about the pace of recovery in transportation fuels demand. Light product inventories remain tight and U.S. demand continues to recover. We believe that refining margins will be well positioned for 2022.
On the aspects of the business that are within our control, this quarter, we made continued progress on our priorities. Since our last earnings call at the beginning of November, we've repurchased approximately $3 billion of shares. That puts us at approximately 55% complete on our initial $10 billion share repurchase program. Further reinforcing our commitment to return capital to shareholders, we obtained board approval for an additional $5 billion in share repurchase authorization. This brings our total outstanding authorization to approximately $9.5 billion.
Today, we announced our 2022 capital spending outlook. We expect MPC will have approximately $1.7 billion in capital expenditures, with approximately 50% of the $1.3 billion growth capital for our Martinez refinery conversion. Total costs for the Martinez refinery conversion is estimated at $1.2 billion. Approximately $300 million has been spent to date, $700 million for 2022 and $200 million for 2023. This competitive capital cost is driven by the fact that Martinez' assets are conducive to retrofit, and we can leverage existing infrastructure and logistics.
At Martinez, the project reached another milestone as a 60-day comment period for the Environmental Impact Report concluded on December 17, 2021. We remain committed to progressing the conversion to a renewable fuels facility, engineering is complete and we're ready to begin construction. Our plan is to have the first phase start-up in the second half of '22.
We've already sourced some advantaged feedstocks for the Martinez facility and are engaged in negotiations with multiple parties for the balance. Our strategy is multifaceted, including long-term arrangements, joint ventures and alliances, all of which are common in this space. A recent example of our success would be our joint venture with ADM. We're also leveraging existing capabilities that are currently supporting Dickinson to optimize between the 2 facilities. We remain confident in our progress and ability to secure feedstocks for Martinez.
On Kenai, we have been working at sales process since we last communicated. We'll be back to you when we have additional details that we can share. In 2021, we progressed all 3 of our strategic initiatives, and Slide 4 highlights this execution. On the portfolio, we completed the Speedway sale, receiving $17.2 billion of proceeds from that transaction and securing the 15-year fuel supply agreement with 7-Eleven.
Our Dickinson renewable diesel facility started up, reached capacity, and we've been successfully optimizing the operation. We made 2 strategic decisions to idle our Gallup refinery and to convert Martinez to a renewable fuels facility. And this year, MPLX produced exceptionally strong cash flow, which provided $2.2 billion of contributions to MPC.
As we look at cost reduction, what began as a $1.5 billion cost-reduction initiative is being embraced by the organization and now a low-cost culture is becoming embedded in how we conduct our business.
Finally, on commercial. While I've been reluctant to share too much, I wanted to highlight a few items that have commercial significance in our portfolio. In March of 2021, we started up the Beatrice pretreatment facility, which processes about 3,000 barrels a day of advantaged feedstock for the Dickinson renewable diesel plan. In December, we closed on a joint venture with ADM, which will provide approximately 5,000 barrels a day of logistically advantaged feedstock for Dickinson when the new soybean crush plant comes online in 2023.
And in January of this year, we successfully started up our Cincinnati pretreatment facility, which will process about 2,000 barrels per day for our Dickinson renewable diesel plant. We converted this facility from its original configuration as a biodiesel plant.
Our team's execution on these 3 strategic priorities builds a foundation for continued value creation and we look forward to sharing updates each quarter as we continue to advance these initiatives.
Shifting to Slide 5. We remain focused on challenging ourselves to leading in sustainable energy. We have 3 company-wide targets on GHG, methane and freshwater intensity than many of our investors and stakeholders know well. In the coming weeks, we look forward to providing an update on our progress against these targets and some of our accomplishments in 2021.
At this point, I'd like to turn the call over to Maryann to review the fourth quarter results.
Thanks, Mike. Slide 6 provides a summary of our fourth quarter financial results. This morning, we reported earnings per share of $1.27 and adjusted earnings per share of $1.30. Adjusted earnings exclude $132 million of pretax charges related to make-whole premiums for the $2.1 billion in senior notes we redeemed in December. Additionally, the adjustments include an incremental $112 million of tax expense, which adjusts all results to a 24% tax rate.
Beginning with our first quarter 2022 results, we will be reporting our effective tax rate on an actual basis and will no longer adjust our actual results to a 24% tax rate. Adjusted EBITDA was $2.8 billion for the quarter, which is approximately $400 million higher from the prior quarter. Cash from operations, excluding working capital, was $2 billion, which is an increase of almost $300 million from the prior quarter.
Finally, during the quarter, we returned $354 million to shareholders through dividend payments and approximately $2.7 billion in share repurchases. In the 3 months since our last earnings call, we have repurchased approximately $3 billion of shares.
Slide 7 illustrates the progress we have made towards lowering our cost structure over the past 2 years. As we think about our strategy on cost structure, I want to emphasize a few things. We will never compromise the safety of employees or the integrity of our assets. And we are committed to ensure the current cost reductions are sustainable, even during periods of general cost pressures.
Since the beginning of 2020, we have been able to maintain roughly $1.5 billion of cost reductions that have been taken out of the company's total cost. Refining has been lowered by approximately $1 billion. Our refining operating costs in 2020 began at $6 per barrel. While we were able to finish 2021 with a full year operating cost per barrel that was $5. Additionally, midstream was reduced by $400 million and corporate cost by about $100 million.
However, regardless of the margin environment, our EBITDA is directly improved by this $1.5 billion. This improvement is expected to make the company more resilient in future downcycles, while having more bottom line profitability and upcycles.
Turning to Slide 8. We would like to highlight our financial priorities for 2022. First, sustaining capital as we remain steadfast in our commitment to 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 the dividend. As we continue to purchase shares, we will reduce the share count and increase the potential of returnable cash flow.
Third, we continue to believe this is both a return on and return of capital business and we will continue to invest capital where we believe there are attractive returns. In traditional refining, we're focused on investments that are resilient and reduce cost. In renewables, current spend is primarily focused on our Martinez renewable fuel conversion. We believe that share repurchases can be used to meaningfully return capital to shareholders.
In order to successfully execute the strategies guided by these priorities, MPC needs a strong balance sheet as a foundation. We continue to manage our balance sheet to an investment-grade credit profile.
Moving to another key focus area. Slide 9 highlights our focus on strict capital discipline. Today, we announced our 2022 capital outlook for MPC. MPC's 2022 capital investment plan totals approximately $1.7 billion. As we continue to focus on strict capital discipline, our overall spend remains approximately 30% below 2019 spending levels. Sustaining capital is approximately 20% of capital spend, underpinning our commitment to safety and environmental performance.
Of the remaining 80% for growth, approximately 50% of this $1.3 billion supports the conversion of Martinez into a renewable fuels facility. The remainder of the growth capital is for other projects already underway. At our refineries, the growth capital is primarily for projects that enhance returns at MPC's large coastal assets with a focus on completing Galveston Bay STAR project as well as smaller projects at Garyville and Los Angeles. Going forward, we expect growth capital will continue to have a significant portion for renewables and projects that will help us reduce future operating cost.
Slide 10 shows the reconciliation from net income to adjusted EBITDA as well as the sequential change in adjusted EBITDA from the third quarter 2021 to fourth quarter 2021. Adjusted EBITDA was higher quarter-over-quarter, driven primarily by a $354 million increase from Refining & Marketing. The adjustment column reflects $132 million of pretax charges for make-whole premiums for debt redemption during the quarter, which has also been excluded from the interest column.
Moving to our segment results. Slide 11 provides an overview of our Refining & Marketing segment. The business reported continued improvement from last quarter with adjusted EBITDA of $1.5 billion. Fourth quarter EBITDA increased $354 million when compared to the third quarter of 2021. The increase was driven primarily by higher refining margins in the U.S. Gulf Coast and West Coast regions.
U.S. Gulf Coast production increased by 14%, recovering from storm-related downtime last quarter and solid margin per barrel increased 31% due to higher export sales and higher sales of light product inventory. The West Coast margin per barrel increased 40% associated with increased demand and refinery outages. Utilization was 94% for the quarter, slightly improved from the third quarter. The higher Gulf Coast throughput was offset by lower throughput in the Mid-Con for planned turnaround activity.
Operating expenses were higher in the fourth quarter, primarily due to higher natural gas prices. There was also higher routine maintenance and planned project expense. Additionally, we saw natural gas prices softened during the quarter, coming off highs in the $5 to $6 range and ending in the $3 to $4 range.
Slide 12 shows the change in our Midstream EBITDA versus the third quarter of 2021. Our Midstream segment continues to demonstrate earnings resiliency and stability with consistent results from the previous quarter.
Slide 13 presents the elements of change in our consolidated cash position for the fourth quarter. Operating cash flow was approximately $2 billion in the quarter. This excludes changes in working capital and also excludes the cash we received for our CARES tax refund in the quarter, which was approximately $1.6 billion source of cash and is included in the income tax part of the chart. Working capital was an approximate $1.3 billion source of cash this quarter, driven primarily by reduction in crude and product inventory.
As we announced on last quarter's call, MPC redeemed $2.1 billion in senior notes in December. Under income taxes, we received approximately $1.6 billion of our CARES tax refund in the fourth quarter. We also used about $300 million to offset against our Speedway tax obligation. There is about $60 million of the refund remaining, which we expect in the first half of 2022. We paid approximately $1.2 billion for our Speedway income tax obligation. All that remains is about $50 million of state and local taxes.
With respect to capital return during the quarter, MPC returned $354 million to shareholders through our dividend and repurchased approximately $2.7 billion worth of shares. At the end of the quarter, MPC had approximately $10.8 billion in cash and short-term investments.
Slide 14 provides our capital investment plan for 2022 which reflects our continuing focus on strict capital discipline. MPC's investment plan, excluding MPLX, totals approximately $1.7 billion. The plan includes $1.6 billion for Refining & Marketing segment, of which approximately $300 million or roughly 20% is related to maintenance and regulatory compliance spending.
Our growth capital plan is approximately $1.3 billion, split between renewables and ongoing projects. Within renewable spending, the majority is allocated for the Martinez conversion. Ongoing projects in our Refining & Marketing segment will enhance the capability of our refining assets, particularly in the Gulf Coast and also support our focus on growing the value recognized from our Marathon and ARCO marketing brands.
Also included is approximately $100 million of corporate spending to support activities we believe will enhance our ability to lower future costs and capture commercial value.
This morning, MPLX also announced their 2022 capital investment plan of $900 million. Their plan includes approximately $700 million of growth capital, $140 million of maintenance capital and $60 million for the repayment of their share of the Bakken Pipeline joint venture's debt due in 2022.
On Slide 15, we review our progress on our return of capital. Since our last earnings call at the beginning of November, we have repurchased approximately $3 billion of company shares. This puts us at approximately 55% complete on our initial $10 billion repurchase program commitment, leaving approximately $4.5 billion remaining. We remain committed to complete the $10 billion program by the end of 2022. And as we are ahead of pace given our recent repurchases, could foresee completion sooner than initially planned.
As part of our long-term commitment to return capital, we announced an incremental $5 billion share repurchase authorization today, increasing our recent repurchase authorizations to $15 billion. We plan to continue using open market repurchase programs, although all of the programs we have previously discussed remain available to us to complete our commitment. We intend to use programs that allow us to buy on an ongoing basis, and we will provide updates on the progress during our earnings call.
As we have said many times, we believe a strong balance sheet is essential to being successful in a competitive commodity business. It's the foundation allowing us to execute our strategy. Slide 16 highlights some of the key points about our balance sheet.
MPC ended the year with approximately $10.8 billion of cash and short-term investments. But longer term, we believe that we will need to maintain about $1 billion of cash on the balance sheet. Additionally, we will always ensure that we have enough liquidity to endure market fluctuations.
Currently, we have a $5 billion bank revolver that is undrawn. We continue to manage our balance sheet to an investment-grade profile. At year-end, MPC's gross debt-to-capital ratio is 21% and our long-term gross debt-to-capital target is approximately 30%. As we continue to execute our share repurchase program, we will see that ratio increase. After the recent redemption in December, our current structural debt is approximately $6.5 billion, and we do not have any maturities until 2024.
Turning to guidance. Slide 17, we provide our first quarterly outlook. We expect total throughput volumes of roughly 2.9 million barrels per day. Planned turnaround costs are projected to be approximately $155 million in the first quarter. The majority of the activity will be in the Gulf Coast region. Our 2022 planned turnaround activity is back half-weighted this year.
Total operating costs are projected to be $5.10 per barrel for the quarter. Distribution costs are expected to be approximately $1.3 billion for the quarter. Corporate costs are expected to be $170 million.
With that, 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 one follow-up. If time permits, we will re-prompt for additional questions. And with that, operator, we'll open it to questions.
[Operator Instructions]. Our first question comes from Doug Leggate with Bank of America.
Mike, Maryann, I think this is the first time you've spoken, so happy new year. Great start to the year with your earnings. But I got a couple of questions, if I may. The first one, Maryann, is maybe for you on the dividend policy going forward. And I guess the way I want to frame the question is when you're done with your buybacks, the absolute dividend burden is going to be quite a bit lower than it is today and quite a bit lower than the distribution you get from MPLX, your share. So what are you thinking -- with the yield now down around 3%, what are you thinking in terms of the appropriate payout ratio, if you like, or dividend policy going forward? How should we think of that evolving?
So maybe a couple of things. First, as you've seen from the capital framework that we've been sharing this morning, the dividend obviously remains an important piece of the capital allocation strategy. As you look, you're right, as we continue to complete our capital program -- share repurchase program, the amount of capital that's allocated towards the dividend, obviously, will be declining. We think that's somewhere -- if you look at the current dividend versus where it's been, that's somewhere in the range of $200 million to $300 million right now.
We continue to think that share repurchase in the short term is an appropriate allocation of that. As we get to what we would consider to be a capital structure in a more normal environment, meaning we complete that share repurchase, we'll continue to evaluate the timing of any dividend change. But again, when you look at the difference in that dividend payment, we certainly think that we're providing that allocation in an appropriate manner.
Doug, it's Mike. Let me just add a little bit to Mary's comments. One of the things that I think may be getting misconstrued is we are still committed to the dividend, as Mary just said. However, we're in a little bit of a different situation than normal operating cash flow. I mean we're sitting with about $11 billion on the balance sheet in a large return program. And as you just saw, we did about $3 billion since the last call.
So as far as order of magnitude, we're committed to returning capital. But right now, the size of the share repurchase relative to the dividend is just out of proportion until we get to a more normal balance sheet. So I don't want people to think we're not committed to the dividend. We are going to evaluate it, as Mary just said. But right now, we're putting a lot of the effort in the return into the buyback program. I hope that helps.
It does. It's just that you've got a lot of headroom to do all of the above, I guess. And I just was curious given the share price, the yield is now back at a sub-average level, I guess, you could say. So a lot of seems has a lot of headroom there, but thank you for that. My follow-up is maybe a little bit of a technical question, and I don't know if Ray is on, but -- or if one of you guys want to try this, but what I'm really interested in is we saw some structural changes 20 years ago. That reset the mid-cycle refining earnings capacity, if you like, with alkylate and with mismatch of demand supply and so on.
And what we are real interested in is what's happening with natural gas between The U.S. and Europe and the structural advantage that puts on U.S. refiners. And I'm wondering if you've given any thought to that in terms of whether you believe that if what we're seeing in Europe, let's say, or internationally currently could be another structural tailwind for realized refining margins for U.S. refiners and Marathon specifically.
Doug, it's Mike. Let me -- I'm going to put that over to Brian on products and Rick on crude to give you a little bit of color. It's a good question. Obviously, that dynamic is occurring in Europe. So why don't you start, Brian?
Yes, sure. This is Brian. Great question. So I think the short answer is too early to tell, but I think you're on to it. Maryann mentioned in her prepared comments, the volatility we've seen in natural gas over the last several months. We've gone from $3 gas to $6 down to $4, now we're peaking back up to 5. So directionally, yes, very supportive relative to the cheap natural gas position we have that we believe is certainly sustainable over the long term in The U.S.
But ultimately, these are long-term decisions for anybody that has that exposure overseas to higher natural gas prices. But yes, directionally, we do see it as supportive. It's just a little bit too early to tell. But if we stay in this $5 to $6 gas range, it will absolutely put pressure on those that have that exposure, and we'll look for upside. But it's one of many variables.
I'm curious, have you seen any shift in imports coming from Europe as a consequence of that cost disadvantage? And I'll leave it there.
Yes. No, from an import perspective, not yet. I mean, that's one thing that we're looking at, both the fundamental balance in the Atlantic Basin looking at opportunities to actually export into Europe. But the ARPS has been pretty stable. No big immediate changes here in the short term, but we're watching it very closely.
Doug, it's Rick. I'll just add on a few more comments. With Europe at $30 an MMBTU or thereabouts, there's no doubt a structural advantage. But with that being said, what we're seeing right now out of Europe is just slight run cuts at best because their margins are covering or higher up OpEx costs. So we haven't seen the impact substantially yet. If it continues, I think that's another story. So as Brian said, it's still a little bit too early to tell.
But then I'll also leave you with a couple of wild cards that we're watching closely, which could exasperate it as well in terms of nat gas costs. It's the Russian-Ukraine conflict, which we're all well aware of. And then ultimately, it's Nordstream 2 and what is the result that comes out of that. So a tailwind could get much better depending on how either 1 of these 2 plays out. It's just a little bit too early, Doug.
Our next question will come from Prashant Rao with Citigroup.
I wanted to switch to talking about renewable diesel a bit. But first, on Martinez, could we dive in a little bit to the CapEx that you've outlined specifically, what all is getting completed this year? And I guess related to that, does that sort of tie into the utilization level we see for the guidance on the West Coast? And when you talk about back half weighted turnarounds as well, is that sort of impacting that too? And I have a follow-up.
Ray, can you give a Martinez update?
Yes, sure. Thanks for that question. And if I start talking about Martinez and before I get into the CapEx, I kind of want to talk about where we're at with the project in regards to permitting. And so as we covered before, we completed the public comment period in December. And right now, over the last 1.5 months, we've been working really hard with the [indiscernible] to address all questions and get the permit to the finish line. And so we're really targeting the end of Q1 to have the sequel permit done and be ready to put shovels in the ground.
And with that, what I want to emphasize is we're absolutely ready to do that. Our engineering is complete for the first phase. It's nearly complete for the backup few phases. We have the equipment on site. We have the pipe, we have the pilings. We have the vessels that we need to do this project. So we're ready from that standpoint.
Now as far as what's in the project, I've talked a lot over the past couple of calls about why Martinez makes sense. And I've talked about 3 hydroprocessing units, 2 hydrogen plants. I've talked about the Cogen power generation on site. As far as what we're spending the money on, what I want to emphasize is a couple of key things in that regard. One is pretreatment. This project is really driven by -- we want to be able to process all the renewable feedstocks, and we want to be able to pretreat them ourselves.
So we've invested in pretreatment capabilities. We're really excited about the technology that we've chosen. We feel it is a good technology that we're spending money on that will have a lower CapEx, have sustainability advantages. So we feel good about that. And then the other thing I want to emphasize is we're investing a lot in logistics. Why Martinez? Martinez has scale, Martinez has optionality. And so we have optionality on truck, rail, pipe and water as far as bringing feedstocks in and products out. So I just wanted to give a little bit of color on, hey, what we're spending money on in 2022.
The follow-up -- I'm sorry, go ahead.
Yes, Prashant, it's Mike. I just want to add a little bit more color to what Ray said. So if you back up, the way I've looked at this project from the beginning is do we have competitive CapEx? Do we have competitive OpEx and logistics and ultimately, feedstock to make it work? So Ray has just talked a little bit about the CapEx, and we finally have disclosed that number.
Part of the reason I wanted to explain that we hadn't disclosed it up until this point is because we've been working the feedstock side of the business pretty detailed and that's still in progress. So hopefully, we'll give more updates as time goes by. But we're at a point as we've negotiated with a lot of different counterparties that we felt comfortable now that we can disclose the CapEx because that's been part of all the discussions and all the negotiations that have occurred on that side of the ledger.
So I think us disclosing that now, Ray, trying to give you a little bit more feel for -- we put some CapEx in that we believe is going to give us lower operating expenses over time. And I think the whole puzzle is kind of coming together is the way we thought of the project: competitive CapEx, competitive OpEx, good logistics, as Ray just mentioned. And then like I said, we're still working on that feedstock side, but we're pretty far along in what we're trying to accomplish there.
That's super helpful. And I wanted to pick up on the feedstock side and specifically the pretreatment that you highlighted. You highlighted that Beatrice that came up last year. You've got the Cincinnati project now. Pretreatment is a big part of Martinez, it sounds like. So kind of a 2-parter. One is just more broad big picture, what we're seeing in a world right now where the differentials between feedstocks are trying to -- are getting tighter. Some of that is -- could be temporary based upon timing of projects coming online and logistical issues, but some of it might be related to some shifts going on, and I think that's a bit of a debate shift going on in reflecting CI scores.
So I guess this is sort of a bigger philosophical question is the value of pretreatment or how do you pivot on what your pretreatment do or what you want to scope out as you think about how feedstock differentials might change as the supply ramp globally but specifically within The U.S. goes up. And I'll leave it there.
Yes, Prashant, it's Mike. I'll start off and then I'll let Brian or Ray jump in if they'd like to. One of the things people have asked me about, can you talk a little bit about commercial stuff. And I've tried not to go into a lot of detail there. But the point you're making has got a little bit of portfolio and a little bit of commercial side to it. Long term, I think the point you're making is markets equilibrate and you'll see some competitiveness and we agree with that. It's part of the reason that we stress test Martinez.
But in the short term, we've got Dickinson up and running and you got to be fast in this business. You got to be quick. And I think what you're seeing through the team effort here because it's our portfolio and it's part commercial was to get this Beatrice plant up and running, get 3,000 barrels a day of really advantaged feedstock there, get a couple of thousand barrels a day of converting the biodiesel plant.
So it's partly the portfolio or the engineering team working with the commercial team. To your point, right at the moment, those feedstocks are advantaged and getting pretreated. Long term, you're right. The competitiveness will change over time. There will be more equilibrium. But at the same time, as Ray talked about, we felt having full pretreatment at Martinez was still going to be a good thing for us in the long term.
And the technology that we pick there, so there's a lot of important thoughts from an engineering and technical side that also married to what we want to try and achieve commercially. And like I said, hopefully, we'll be able to give you a little bit more color on feedstock as time goes by. But we felt it was a good enough time to explain what the CapEx number is and how we're feeling about it.
That's super helpful.
Our next question will come from Neil Mehta with Goldman Sachs.
Two questions for me. The first one is on refining. Capture rate, as you show on Slide 22, was very strong, 116% this quarter. And I recognize capture rates are very hard metrics to try to calibrate. But on Slide 23, you help us think through some things like other margins. So Mike, I guess the question for you is, how much of this do you think is a carryforward versus a onetime dynamic? And are some of the things that you talked about around optimizing the commercial side of the business and getting your costs down starting to show up in that capture rate number.
Neil, it's Maryann. Let me try to give you some color there, and then I'll pass it back to Mike. So I appreciate the comments. In the quarter, as you saw, about 116% capture overall. We had a couple of things happening in the quarter. One, in general, inventory was a tailwind for us this quarter. We have inventory impacts period-to-period. You can actually look at the third quarter as an example of that. Capture was about 100%.
We benefited from crude timing impacts from running some advantage third quarter inventories purchased and we ran that in the fourth quarter. And we had some seasonally strong marketing margins. So historically, I think we have been talking about a baseline for our refining capture in and about a range of 95%. And while there's volatility in the quarter -- quarter-to-quarter, we're looking right now, we think, just based on this commercial execution that we've been talking about that our baseline is more like 100%.
I'll make a couple of comments, and then again, I'll pass it on to Mike, just something specific in the quarter. We did benefit in the fourth quarter from an adjustment $62 million for the full year adjustment for the 2021 RINs. That's pretty ratable quarter-by-quarter, so 1/4 of that belongs in the quarter. And we also did see a benefit of about $39 million for the Dickinson LCFS adjustment for lower CI in the quarter. So there are a few things that benefited the quarter overall. And I'll pass it back to Mike.
Yes, Neil, I'm going to add, but it looks like Brian wants to jump in and want to comment, and then I'll finish up.
Yes, Neil, thanks for the question. This is Brian. So just commercially, we are hyper-focused on optimization and improvement. I think we've been pretty transparent and clear about that as one of our 3 key strategic initiatives. So just a bit of color. The Gulf Coast was an area here over the last quarter where we saw some nice, marked improvements in our operations commercially that help to drive a better capture.
Really fundamentally, what's helping with that for us and our business is better alignment of the team. We're getting the right resources and getting them focused in the right areas and aligned efficiently. In a couple of examples, in the Gulf Coast, just highlighting that as an example, it's really helping us drive our marketing book and our growth in and along the Gulf Coast.
And then our export expansion as well. We've been really focused on our expansion of our export book. And specific to our export book, we're really focused on more delivered cargoes. So we're moving further down the value chain, higher margin capture. So we've had a lot of success in growing that line of our business.
And then lastly, we did take in a position in the Caribbean in the fourth quarter that allows us to optimize supply both internationally and domestically, particularly into Florida as well as developing blending program in and along the Caribbean. So I just wanted to provide some color and some examples of things that we're doing to help advance our commercial initiatives.
And Neil, it's Mike. One of the things -- happy with the progress that Brian and the team are making in some of those areas. But I do want to stay on the record that I'm not a big fan of this metric. I've said that many, many times. And the main reason is because there's other things that can drive the metric in different directions. The spread between light products and heavy products is the most dominant feature in it.
And I just want to remind people that you can have a low capture rate if you're still making a lot of money or you could have a high capture rate and not be making as much. So you got to be a little careful or you got to dig into the details because the metric itself has some flaws. Now with that said, am I glad that we're making incremental progress? Sure. I think all things being equal, we want to see the number up higher than not.
But I just keep want to caution, Kristina is tired of me saying this to her all the time that there's other factors that influence that metric that can mislead or misalign some of the activities going on. But overall, as Mary said and Brian said, good things happen should drive that in the right direction. But I just want to keep putting that caution out.
I'm still challenging Kristina and our team to come up with a better way to do it. We haven't come up with that yet, but we're working on it because I think we may be able to come up with something that might be a little better. But in the meantime, I know everybody tracks this one and is used to looking at it. So it is what it is, and I just wanted to make sure I had that caution on it.
It's been clear about that and a lot of good perspective there. The follow-up is back on Martinez. Thanks for the $1.2 billion. Is there a way to tie that into an EBITDA number, either with or without the blenders tax credit? Or is it still too early for you guys to come out there with an EBITDA number that we can then ultimately tie back into returns?
Yes, Neil, it's a good question. It is still a little early. What I was saying earlier is we're still actively engaged in some feedstock discussions. So we can't go to that disclosure. We got to the point with our discussions that capital is now very open with everybody, so we thought we could disclose it. So that's where we are in the process. You saw in our prepared remarks, we have secured some feedstock. We're still in some discussions, but still a little premature.
But we were thinking that we could at least put the capital out there and that would give some color to some of the questions that people have been asking us. And I know it's taken a little bit of time, but part of it is we couldn't disclose it while we were still in some level of those negotiations. Now that we're past that, we can disclose that piece, but we still have some activity going on.
Our next question will come from Roger Read with Wells Fargo.
Congratulations on the quarter. Maybe to kind of take up where part of the answer to Neil's question left off. Yes, you made the comment, Mike, about capture doesn't tell the whole story. And obviously, one of the big things is the reduction in costs. So as we look at the conversion of Martinez, the closure of Gallup, we think about that in terms of the impact on costs, and we think about that as an impact on capture. What else should we be thinking about is going on? And is there any possibility you can quantify across those items to help us understand what we ought to consider as sustainable and what we ought to consider as maybe just a product of current market environment?
Yes, Roger, it's a good question. What I'm trying to say is the metric can be driven by different factors other than what we're doing than things we have control of. Brian was mentioning some of the things that we have control of that we think are increasing our commercial capture. What I was trying to say, sometimes the spreads themselves can drive that metric in a different direction.
So the only thing I was trying to say is the metric itself has some good parts to it. It has some bad parts to it. And you usually have to drill down to really understand what's happening. Now like I just said, I'm happy with the commercial team making progress. For apples-to-apples, we want to see that number higher. But I just want to continue to caution people that there's some flaws in the metric or some other things that drive it, just like Mary said in her remarks.
So part of, like you said, cost and everything that we're doing on that side, is still a high focus. We have a lot of focus, as Brian said, on the commercial side of the business, trying to be a little reluctant to give a lot of details in that regard because of the competitive nature of it, but also listening to people saying, "Hey, can you give me some color what's going on there? So we tried to pick a few examples that we could give you a little bit of the way we're thinking about it. And hoping it helps, but I'll leave it there.
One other small add to make, maybe as you're thinking about that cost and sustainability -- the sustainability of the cost reductions, keep in mind that as we are in the middle of this Martinez conversion, there are current operating costs included in that capture rate that you're seeing now. So those operating costs to complete the conversion, the day-to-day operating costs are already embedded in that capture rate as you're seeing it today.
Okay. Yes. That's -- so -- well, I'll say the follow-up on that for another time. I guess the other question I had on the commercial side, obviously, it's been a focus of the company. You had a change in leadership there and I was just curious how you see the commercial ops going forward and how that should work its way out. .
Yes, Roger, it's Mike. I'll take that again. I would say, in general, you're referring to that we made a change at the CCO level. I do want to say, Brian was a contributor this year. He's a nice guy and a very smart guy. And commercial team has been doing some really good stuff. But ultimately, we weren't in sync on philosophy and expectations, so I thought a change was necessary.
But I don't want to diminish the progress that the team has made. I don't want to diminish Rick and Brian who are on the call here today and their teams are -- I love Brian's word, hyperfocused. I was glad to hear that. We think there is opportunity for us in this area. And like I said, we had a little bit of philosophical and expectation differences that I just thought it was -- is warranted to make a change rather than try and get that back on track. It was warranted to make a change.
But I'm happy with the progress that's been occurring. I think we have clear line of sight of some other opportunities for us. I know we frustrate people by not giving a lot of detail there, but hopefully, you'll just continue to see it in results, and we'll try to think of ways and opportunities that we can explain some things that will help you guys understand the business from our perspective a little better.
No, I appreciate that, and don't worry about it. We'll make sure to keep you frustrated from questions coming from the sell side. .
Our next question comes from Manav Gupta with Credit Suisse.
Mike and team, my question is a little bit around the CapEx of Martinez, it's about 1.2. If my math is right, that's putting you about that $1.6 or $1.65 a gallon with a very good pre-treat. And what we are generally seeing out there is people who are trying to build really high-class pre-treats are hitting that cost of about $3.25 to $3.50. So if you can talk about your comfort level with that CapEx, what is allowing you to do it at about 50% of what others are doing? And what role has already operations at Dickinson where you are already making R&D? What are the learnings from there, which are basically kind of, I think, allowing you to bring this facility on at a highly discounted CapEx per gallon basis?
Manav, this is Ray. Let me take another shot at talking about Martinez and your math is right. It's about $1.60 a capacity gallon for that, which we feel good about compared to the industry and why we are excited about this project. As far as why that's the case, it gets back to the toolkit that's already sitting there at Martinez, 3 hydrocrackers, hydro treaters, 2 hydrogen plants and a Cogen facility.
So what we're investing, the big thing that's new is investing in the pretreat system. The rest that we're doing is we're investing a lot in connectivity, piping to get all those units to go to the right places and logistics from that standpoint. So largely, the reconfiguring of Martinez allowed us to have a very capital-efficient project.
And Manav, it's Mike. I just want to reemphasize something that's important and give Ray and his team some credit for. I mean, at the end of the day, we spend a lot of time thinking about this CapEx. And ultimately, to your point, it's a good number, but we actually had a lower capital case that we thought would have a higher operating expense, as Ray mentioned. And we chose to spend a little more capital.
So trying to bring a little more commerciality into the decision to assist the technical side of it, I think, has played out really well for us. Ray hasn't talked a lot about it, but the technology that we picked there was very important. And offline, we can talk to you a little bit about that, but that's a very important part of how this project has played itself out, choosing to go a little higher on CapEx even though it's a pretty good rate, just so that we get lower OpEx.
It was an important part of the discussion. The sustainability of the project and the way we set up that part of the project, we're pretty happy about. So I give -- Ray and his team connected to the commercial side of it, that's the important part that we're trying to emphasize today that it's not just engineers picking [indiscernible] there's a connectivity that has to occur between those that makes the project better.
So even in an example, and I know you're thinking, hey, it's a good number. We actually had a case that was a lower number, higher OpEx, and we went with this case because we thought it was a better long term to have that OpEx lower. And like I said, the technology and the sustainability and the carbon output of it, I think, has turned out to be really good. So we're happy to disclose it. And offline, we can give a little bit more color around some of those details.
Perfect. And Mike, my follow-up question, obviously, here is when you took over, the focus kind of changed internally to optimization, cost cuts and everything is falling in place. I mean you're almost generating $1 billion post dividend free cash on a quarterly basis. So I'm just trying to understand, when you start looking at this kind of cash level buildup, even with your buybacks, like what's the -- like what is the optimum debt level? Or is this a dry powder where you could actually go out and make a strategic acquisition at some point given the way the cash is building on the balance sheet now?
So I'll let Mary talk about the balance sheet and debt, obviously, an important part, but I'll give you a big picture look, is part of the way we looked at this business is we want all of our assets to generate free cash. So you're pointing out something that we've been working on over the last couple of years. You make portfolio adjustments, you adjust commercial activity, do all those things so that you end up in a position where we like -- where we are right now.
And it was mentioned earlier, we haven't abandoned the dividend. We've kind of put that a little on hold as we return a lot of capital via share buybacks. But I'm still a big believer in you got to be in this position, so you got to put the business in this position so that you can then have really good discussions about return of capital and return on capital.
We do want to grow the business. We've been very selective in where we're going to put some of that money and we'll continue to be that way. And when we are selective, we'll have cash that we'll return to shareholders. When we are selective, and we think we have a good investment, we're going to put it there. And we're going to continue to challenge all of our teams to tie the technical side of this business to the commercial side of this business, such that at the end of the day, we put ourselves in a position where we have the choices that you're talking about.
So we have some thoughts going forward. I don't want to get ahead of ourselves, but at the same time, I'm happy that the team has embraced the concept, the philosophical concept of putting ourselves in a position where all assets contribute free cash, will generate that -- as you know, I've said many, many times, we don't control the market. So we're a pricetaker in a large part of refining. So that will make some of our business volatile.
And then we want to have the balance sheet in a good position as well. So I don't know if Mary wants to comment on that. But at the end of the day, I think you pointed out the good end game, which is generate a lot of cash in the business, have some flexibility and then make some good decisions on what's the best way to create value.
It's Maryann. I'll just add maybe a few additional comments. We've been looking over the last several quarters and talking about the balance sheet. We continue to say that, that investment-grade profile for us is critically important. That means we need to stay in and around gross debt-to-capital range of about 30%. We're below that, as I shared with you today. But keep in mind, we've got $9.5 billion of share repurchase remaining and all other things being consistent as we continue to do that share repurchase, right?
We'll see that ratio improve. We've done quite a bit of work to ensure we've got the right liquidity. We'll sit with $1 billion on the balance sheet, which is somewhat lower than we had initially contemplated a few quarters ago and we think that's certainly a positive step. Mike already mentioned that returning to the more, I'll say, normal capital structure. We have outlined our capital priorities, obviously, sustaining capital, the dividend being important and then we'll use share repurchase opportunistically to return that capital as we see the outlook for 2020. I hope that helps.
Our next question will come from Phil Gresh with JPMorgan.
First question, just one clarification on Neil's question around the RVO piece. Maryann, I think you said $62 million per quarter. So that -- so would I multiply that by 4 in terms of what showed up in the fourth quarter specifically? And then my real question just around your comments on maintenance being a bit more back-end loaded. I was hoping you could remind us what a normal maintenance level would be per year and/or if you're willing to comment, just if you have an annual number that we can be thinking about? .
Yes, sure, of course. So let me be clear, the $62 million that I referred to is the annual adjustment for 2021 compliance year. So the $62 million is total adjustment or reduction, if you will, to our obligation for all of 2021. If you think about the impact on that on the capture rate in the quarter, so we were about 116. That's about 1.7 change in the capture rate, including all $62 million. My comment on a quarterly basis was just to say that it's fairly ratable. So had -- we had that RVO obligation at the beginning of the year, you would have seen roughly a $15 million benefit to the prior quarters. That's all that I was trying to say. I hope that answers that question.
The second one is really around turnaround. And I guess what we would say is, yes, absolutely back half of the year, we see a greater rating, if you will, toward our turnaround expenses. We see this year, meaning 2022, slightly higher than a normal year. We tend to think normal is in range of $600 million to $700 million, as you saw from what we had this year. So we do expect that to be a higher total for 2022. I'll let Mike add any comments.
No, I don't have anything to add.
Okay. Great. No, that's very helpful. My second one, just on the buybacks. Obviously, the pace in 4Q has essentially tripled from the 2Q, 3Q run rate. And with the increase in the authorization, recognizing it doesn't have a specific end date, is there any reason to think that the new run rate that you've been doing is not achievable or doable on a go-forward basis? Or anything in particular about the fourth quarter that you would say is nonrepeatable? .
It's Maryann. I'd say, look, we'll look at liquidity. We certainly, as you know, committed. We were on our third quarter earnings call, to changing the cadence and hopefully, that we've demonstrated our ability to do so in the third quarter -- so from our third quarter performance. We'll absolutely look at liquidity. And as I said, we remain committed to getting that done in 2022 and given the pace that we've achieved, we're likely to be able to get that done sooner. And again, I'm talking about the $10 billion initial commitment.
We do have time for just one more question. Our last question will come from Paul Cheng with Scotia Bank.
Question, I think one is just maybe a bit of the housekeeping. I want to follow up to Maryann's answer to Neil earlier. You talked about the RVO adjustment benefit and the LCFS adjustment. Can you give us what is the benefit from the crew timing benefit and also the inventory benefit by region? So that's just a quick follow-up here. Second question is for Mike, from a commercial operation, I mean when you look back into your earlier, in your carrier, in Sunoco 20-some-odd years ago. I mean that's your pick.
And when you're looking at that in the longer term, so when you look at that operation primarily to facilitate the rest of the refining and how the operation -- and MPLX operation? Or that should we also look at it as a profit center, like the model above by BP, Shell, Total, those guys. I mean, what do you envision that business really going to do? And what have already accomplished and where you think is the biggest opportunity with the potential improvement or upside that you still envision from that business over the next 1 or 2 years?
So I'll start with your second part and I'll let Mary go back to the first part. So to answer your question, Paul, it's both. It's -- yes, it should be a separate profit center for us. Rick, Brian and the team are very committed to that. You heard some examples earlier. So that's a stand-alone. And then the other part of it is connectivity to the whole business, making sure the commercial and the portfolio side are totally in sync. So the answer is really both. You have to do both really, really well.
Again, when I started this by saying portfolio cost and commercial, they're all linked, and they all have an obligation across the supply chain. So that's one obligation, and then they all have to do excellence in their own regard. So the commercial area needs to do excellence in just the commercial area. Ray's team needs to do excellence, like I was saying earlier about picking that technology at the end of the day. That's something that goes across both and then have some excellence inside of it.
So the answer -- the short answer to your question is both. Like I said earlier, I'm trying to give you some examples of how we're approaching it. Trying not to go into too much detail, but just to give you a little bit more of the philosophy. So hopefully, that helps, and then I'll let Mary talk on the first part.
And Mike, can I just ask one question on that approach? Is your commercial operation going to be a centralized commercial operation or it be centralized? In other words, that is the trade by refinery that they're going to do on the final or the day-to-day adjustment in terms of the operation or that you have a centralized team to coordinate all the effort, which approach that you guys are picking? .
Yes. Again, the answer is both. We have -- part of our commercial team is dedicated to the supply chain and what we're doing, and then part of it is more entrepreneurial and trying to look at it in a little bit different regards. So I think both still the right answer. .
Maryann, sorry.
Yes. No, no worries at all. Yes, unfortunately, we really do not provide those inventory movements quarter-to-quarter on a regional basis. So not disclosed, and it's not actually something that we would typically share. .
Can I ask that on the appendix, Page 22 on your presentation, you saw a capture impact of 597, we can identify based on the RVO and the LCFS roughly 100. So the other 500 on the total sum, is that primarily driven by the favorable inventory impact and the crude timing? Or I mean you have not break down by region, can you share that what is the total system on those 2 benefits? .
Paul, it's Maryann. Maybe we can take that offline and address all of your questions specifically. Would that be helpful? .
Yes, that would be great.
Sounds good.
And Paul, the only thing that I would add is, again, watch quarterly results, there's always timing from Q3 into Q4, Q4 into Q1. Some of that occurred here. And like I said, Mary can give you a little bit more offline and Kristina and the team. But just be careful when you look at 1 quarter isolate it, that tends to get a little bit misaligned if there was activity across the quarters. So just keep that in mind when you guys have the discussion.
All right, Sheila? Operator, are you still there?
That was all the time that we had for questions for today.
Perfect. Well, thank you so much, everyone, for joining our call this afternoon. If you have any questions that you didn't get addressed on the call today, the Investors Relations team is available any time, please just reach out. Thank you again.
Thank you. That does conclude today's conference. Thank you for participating. You may disconnect at this time.