Lisa Wilson - Marathon Petroleum Corp. Gary R.

Heminger - Marathon Petroleum Corp. Timothy T.

Griffith - Marathon Petroleum Corp. C.

Michael Palmer - Marathon Petroleum Corp. Anthony R.

Kenney - Marathon Petroleum Corp. Donald C.

Templin - Marathon Petroleum Corp.

Chi Chow - Tudor, Pickering, Holt & Co. Securities, Inc.

Neil Mehta - Goldman Sachs & Co. Edward Westlake - Credit Suisse Paul Cheng - Barclays Capital, Inc.

Brad Heffern - RBC Capital Markets LLC Paul Sankey - Wolfe Research LLC Phil M. Gresh - JPMorgan Securities LLC Corey Goldman - Jefferies LLC Spiro M.

Dounis - UBS Securities LLC

Thank you, Christine. Welcome to Marathon Petroleum's First Quarter 2017 earnings webcast and conference call.

The synchronized slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor Center tab. On the call today are Gary Heminger, Chairman, President and CEO; Tim Griffith, Senior Vice President and Chief Financial Officer; and other members of MPC's executive team.

We invite you to read the Safe Harbor statements on slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session.

Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there, as well as in our filings with the SEC.

Now, I will turn the call over to Gary Heminger for opening remarks and highlights. Gary?

Thanks, Lisa, and good morning and thank you for joining us. Let me begin with some highlights on slide 3.

This morning, we reported first quarter earnings of $30 million, or $0.06 per diluted share. First quarter results reflect substantial turnaround activity at our three Gulf Coast refineries.

In April, we successfully completed this turnaround activity ahead of schedule, under budget and with exemplary environmental and safety performance. I'm especially pleased with our refinery team's focus on safety with no lost-time injuries incurred in almost 3.5 million man-hours worked during the turnarounds.

This marked the first set of turnarounds for the Garyville Major Expansion process units since they came online in late 2009, completing an outstanding seven-plus-year run. During the turnaround, we took the opportunity to upgrade process units such as the hydrocracker at Garyville, which can now operate at 121,000 barrels per day, a 73% increase from its original capacity.

Turnaround work at our Galveston Bay refinery included the second of the refinery's two crude units. Both crude units have now been through a Marathon-conducted turnaround and are consistently processing over 500,000 barrels per day, highlighting the operational improvement we continue to pursue at the facility since we acquired it in 2013.

Market conditions during the first quarter were challenging for Refining & Marketing. While crack spreads and sweet/sour crude differentials were favorable, these benefits were offset by weak product price realizations.

Market dynamics, including higher inventory levels and seasonally weak demand, were both factors contributing to this weakness. That said, we have seen notable signs of improvement, including declining U.S.

petroleum inventories and strong underlying economic activity. With our substantial Gulf Coast turnaround activity behind us, we are well positioned to drive continued top-tier operational, safety and environmental performance and take advantage of increasing refinery margins, favorable crude oil and refinery feedstock purchase cost, and seasonal improvement in our consumer demand for our products.

Turning to Speedway, despite experiencing a slight decline in year-over-year operating results, we are encouraged by improving market conditions seen late in the quarter, with strengthening gasoline and distillate demand, and remain optimistic as we enter the summer driving season. We continue to be enthusiastic about the growth in our Midstream segment, supported by MPLX's strong financial and operational results in the quarter.

First quarter segment income increased over last year due to growth in processing and fractionation activity in the Northeast and the Southwest, as well as contributions from our logistics and storage assets. On the growth front, MPLX completed several organic projects and strategic transactions during the quarter, further diversifying its asset base and strengthening the partnership's position as the largest processor and fractionator in the prolific Marcellus and Utica shales.

In March, we completed the first of several planned dropdowns to MPLX as outlined in our strategic plan, and began funding a substantial return of capital to our shareholders. I'm pleased to report, work is on schedule to prepare the remaining assets slated for dropdown to MPLX.

We also look forward to the exchange of our general partner economic interest for newly issued MPLX common units in conjunction with the completion of the dropdowns. All transactions are subject to market and other conditions, as well as requisite approvals.

These actions are designed to unlock the value inherent in our midstream platform and to provide substantial ongoing return of capital to shareholders in a manner consistent with maintaining investment-grade credit profiles at both MPC and MPLX. Additionally, a special committee of the board and its independent advisor expect to complete the ongoing review of Speedway by mid-2017.

We are enthusiastic about the future for MPC and MPLX, and remain focused on driving long-term value for our shareholders. With that, let me turn the call over to Tim to walk you through the financial results for the first quarter.

Tim?

Thanks, Gary. Slide 4 provides earnings on both an absolute and per share basis.

For the first quarter of 2017, MPC reported earnings of $30 million, or $0.6 per diluted share compared to last year's $1 million, or less than $0.01 per diluted share. Recall that first quarter 2016 earnings included a goodwill impairment charge of $0.04 per diluted share and an LCM charge of $0.02 per diluted share.

The chart on slide 5 shows the change in earnings over the first quarter last (06:29). Before I get into absolute results, I wanted to highlight a change in segment reporting as a result of our March 1 dropdown of terminal, pipeline and storage assets to MPLX.

The results from these assets are now shown in the Midstream segment. Previously, these results were part of the Refining & Marketing segment and that shift is reflected in the earnings walk.

Segment results show this reporting change from the date these assets were considered to be a business for accounting purposes: January 1, 2015 for pipeline and storage assets, and April 1, 2016 for the terminal assets. Accordingly, the terminal assets are reflected in R&M for the first quarter of 2016 and in the Midstream segment for the first quarter of 2017.

For the year-over-year comparison, the walk highlights two increases for the quarter. First, Midstream reported an increase of $120 million, primarily driven by increased processing and fractionation activity and the earnings from equity investments in a new and existing pipeline and marine operations, as well as the change in reporting for the results of the terminal assets I just discussed.

Second, the absence of impairment expenses in 2017 resulted in a favorable year-over-year effect of $129 million. These increases for the quarter were offset primarily by a $32 million decrease in Speedway earnings and a $150 million unfavorable variance in income loss attributed to noncontrolling interests.

This $150 million variance largely reflects the year-over-year increase in MPLX's net income and its allocation to the public unitholders of MPLX, as compared to the partnership's net loss in the first quarter of 2016, driven primarily by the goodwill impairment charge last year. Moving to slide 6, our Refining & Marketing segment reported a loss from operations of $70 million in the first quarter compared to an $86 million loss in the same quarter last year.

Before I review the segment results, I want to highlight the changes we've made in this walk aimed at providing additional insight into R&M income from operations. We've recently added a RIN/CBOB adjustment to the market data (08:29) to the walk to the right of the LLS 6-3-2-1 crack.

This impact was previously captured in other gross margin on the walk. As this amount has been carved out of other gross margin, we've also provided a further breakdown of that category, highlighting how much relates to crude, products and volumetric gains in the period.

We believe the renewable fuel obligation, otherwise known as the RVO. or RIN, is embedded in the refinery gate price of (08:59) gasoline and diesel, and the LLS 6-3-2-1 crack spread reflects this cost.

For obligated products, the RVO, like other costs, is incorporated into our trading and pricing decision and ultimately recovered and passed on to consumers. This perspective that RIN cost is reflected in the crack underpins our belief that moving the point of obligation has no real economic effect on refining profitability nor an impact on the viability of any specific refinery.

We think this is a short-term look that is ultimately a distraction to the more fundamental changes that need to be pursued with Renewable Fuel Standard and the way it's been administered. As to the absolute Refining & Marketing results for the quarter, increased crack spreads in both Chicago and the Gulf Coast created a favorable impact of $441 million compared to the first quarter of 2016.

The blended crack spread increased from $4.62 per barrel in 2016 to $7.72 per barrel in 2017. Also, a decline in RIN prices produced a $27 million favorable RIN/CBOB crack adjustment.

As discussed, this benefit was considered in our pricing decision and passed on to consumers, thus an equivalent offset resides in the product portion of other gross margin. Several factors offset these favorable impacts during the quarter.

First, a narrowing contango effect, shown in the market structure column of the walk, resulted in a $110 million unfavorable variance as the difference between the prompt crude prices narrowed in relation to the benchmark LLS 6-3-2-1 crack spread, as we adjust the market metrics to reflect actual crude acquisition costs. Second, a decrease in other gross margin had a $162 million unfavorable impact to segment results, mainly due to weak gasoline and non-transportation product price realizations reflected in the $325 million negative product impact versus the first quarter last year.

Third, we had an increase in direct operating cost of $144 million, primarily related to higher turnaround activity at our Gulf Coast refineries. As Gary mentioned, we successfully completed substantial turnaround activity at Texas City, Galveston Bay, and Garyville refineries during the quarter.

While higher than last year, our direct operating costs of $9.45 per barrel in the quarter were about $0.60 per barrel better than what we expected in the quarter, due to strong cost management of the turnarounds. As we mentioned last quarter, we expect full year planned turnaround and major maintenance cost across our refining system to be similar to full year 2016 levels.

(11:36) million unfavorable variance categorized as other in the walk relates to the March 1 dropdown and associated changes in segment reporting from Refining & Marketing to Midstream for the terminal assets that I referenced earlier. Moving forward to the other segments, slide 7 provides the Speedway segment results walk for the first quarter.

Speedway segment income was $135 million in the first quarter of 2017 compared to $167 million in the same period of 2016. Comparability of Speedway's results to prior year's first quarter was affected by the transfer of Speedway's travel centers into the newly formed joint venture with Pilot Flying J called PFJ Southeast LLC in the fourth quarter of 2016.

Speedway's share of the results of operations from the joint venture is reflected in income from equity method investments and is shown in the other column on the walk, while prior quarter activity remains in light product margin, merchandise margin and the other bars. Speedway's change in segment income, a decrease from light product gross margin, had a $31 million unfavorable impact as margins averaged $0.157 per gallon in the first quarter of 2017, down from $0.168 in the first quarter of 2016.

The decrease in margin is primarily due to the lower margin per gallon and the absence of contributions from the travel centers for the quarter. Similarly, a decrease in merchandise margin of $10 million was due to the absence of contributions from the travel centers.

Without this impact, merchandise gross margin would have increased over last year. Income was also lower compared to last year, given the $24 million gain on a location sale in the first quarter of 2016 compared to a $3 million gain in 2017.

Partially offsetting these unfavorable variances is a $30 million favorable variance in the other segment income, which reflects the decrease in operating expenses due to the absence of the travel centers in 2017 and Speedway's share of the results of the new joint venture. In April, we've seen a roughly 2.3% decrease in same-store gasoline sales compared to last April.

Speedway's same-store gasoline sales was impacted by higher retail prices versus last year and is in line with EIA published industry data. Slide 8 provides the changes in the Midstream segment income of $120 million quarter-over-quarter.

The $86 million favorable variance for MPLX was primarily due to higher processing and fractionation prices and volumes, and income from the terminal assets acquired from MPC. As mentioned earlier, the Midstream segment income for the first quarter of 2016 does not reflect any results from these terminal assets since they were not considered a business for accounting purposes until April 1, 2016.

The absence of financial results for the terminal assets in the first quarter of 2016 represents almost half of this favorable variance. Earnings from equity investments in new and existing pipeline and marine operations also contributed (14:41).

Slide 9 presents the significant elements of changes in our consolidated cash position for the first quarter. Cash at the end of the quarter was nearly $2.2 billion, an increase of approximately $1.3 billion from year-end 2016.

Core operating cash flow before changes in working capital was a $703 million source of cash. Working capital was a $410 million source of cash for the quarter, due primarily to a decrease in current receivables and inventories, partially offset by a decrease in accounts payable and accrued liabilities.

Additionally, consolidated cash flows impacted by debt borrowing and repayments including MPLX's $2.2 billion debt issuance and MPC's repayment of the remaining $200 million under the term loan. Cash flow also reflects net proceeds of $148 million from opportunistic equity issuances by MPLX through its ATM to fund its organic capital program.

Return of capital to shareholders via (15:46) $610 million in the quarter. After the dropdown closed on March 1, we executed $420 million of share repurchases in March and ended the month with an additional $60 million of share repurchases commitments that were settled in April.

We would expect this activity to resume once we're out of blackout following the quarter. Going forward, we expect cash proceeds from the dropdown and ongoing LP distributions to fund substantial ongoing return of capital to shareholders, all conducted with a continued focus on maintaining an investment-grade credit profile at both MPC and MPLX.

Finally, cash associated with the MPLX and Antero Midstream joint ventures, purchase of noncontrolling interest in a fractionation capacity at our Hopedale complex was the primary contributor to the $170 million source reflected in the other category on the walk. Slide 10 provides an overview of our capitalization and financial profile at the end of the quarter.

We had $12.6 billion of total consolidated debt, including $6.7 billion of debt at MPLX. Total consolidated debt-to-book capitalization was about 38% and represented 2.8 times last 12-months adjusted EBITDA on a consolidated basis or about 2 times, excluding MPLX.

We continue to show debt-to-EBITDA, excluding MPLX, as we think it is more useful to show the independent capital structures given the effect of relatively higher leverage of the growing partnership on MPC's consolidated metrics and our approach to managing capitalization separately. Slide 11 provides updated outlook information on key operating metrics for MPC for the second quarter of 2017.

We're expecting throughput volumes of 1.975 million barrels per day, up from second quarter 2016, primarily due to increased crude processing capabilities at Galveston Bay and Robinson. Total direct operating costs are expected to be $6.80 per barrel.

Other manufacturing cost (17:47) higher primarily due to higher forecasted natural gas prices than the same period last year. We expect to see an advantage from processing sour crude as reflected in our expectation that it will make about 61% of crude oil throughput in the second quarter.

Estimated percentage of WTI-priced crude is expected to be about 20%. Projected second quarter corporate and other unallocated items are estimated at $80 million for the second quarter.

With that, let me turn the call back over to Lisa. Lisa?

Thanks, Tim. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question plus a follow-up.

If time permits, we will re-prompt for additional questions. With that, we will now open the call to questions.

Christine?

Hey. Thanks.

Good morning.

Good morning, Chi.

Gary, you – good morning. Yeah.

Gary, you mentioned in your remarks that you're currently seeing more favorable feedstock costs. But it looks like to us that crude differentials relative to Brent have really tightened across almost all grades outside of Permian, in particular, for medium and heavy barrels.

How do you reconcile your statement to what we're seeing on these market prices?

Sure. And let me have Mike Palmer who, of course, is in charge of buying 2 million barrels a day.

Let me have Mike get into the details here.

Hi, Mike.

Yeah, Chi. I guess we're fairly optimistic about differentials really.

We think that if you look – start with the Brent-WTI spread, I guess we know it's been trading between $2 and $2.85. We think it's going to move toward the upper end of that range.

That'll be favorable. We believe that if you look at the heavy market, for example, it has been influenced, obviously, by the Syncrude plant fire and explosion.

Those differentials are now starting to come back to normal. So we think that will be attractive in the second half of the year.

And, frankly, we've been seeing plenty of spot opportunities generally on the harder-to-process kind of crude oils, heavy sour, sometimes high acid. So, we still see plenty of opportunities.

And, Chi, the other thing is, we've talked about this before with you and other analysts, we have the ability to run two-thirds sweet or two-thirds sour. And so, we have tremendous flexibility.

Here in the first quarter, we almost topped out at close to two-thirds, probably can run a little bit more of sour, but it just shows the tremendous flexibility we have to go back and forth and take advantage of whichever crude gives us the best economics; and we answer that question every day. So, I think that flexibility, along with Mike's comments, is really what gives us some optimism.

Okay. I guess on the Canadian situation, how is that impacting your crude supply strategy here in the second quarter in the Midwest?

And then, I guess just more broadly, the OPEC cuts and the production declines we're seeing in Mexico, Colombia, Venezuela are very steep, and it just seems like this may be a longer-term issue on tightening this. But, do you have any concerns long term on these issues?

Mike?

Chi, I guess what I would say is that we do believe that there's a lot of OPEC resolve to bring the market back in balance. So, we do think in the second half of the year, that's certainly going to be a factor.

I think from our standpoint, what I would tell you is kind of what Gary already has. We have a lot of flexibility within our system both in terms of running sweet crude, running very heavy, high (22:27) crude.

We have a lot of logistics opportunities and flexibility. So, I don't think it's going to be a problem finding crude oil to run.

And I think that we're in a position where we can find the most cost-advantaged crude to run as well. With regard to your question on Syncrude and how that's going to affect the second quarter, again, it kind of comes back to the same story.

We have a lot of flexibility to process synthetic crude oil in our plants, but when we see something like the Syncrude explosion that takes place, to us it's an opportunity. And that means when Syncrude gets expensive, we'll sell off the Syncrude and we'll bring in another crude.

We've got the flexibility to do that. So, that's kind of how we see it as we move forward.

You bring barrels up Capline and do you slack the coker at Detroit because of the heavy dose type unit? I'll leave it there.

No. We haven't seen a need to slack the coker at Detroit, no.

Okay. Okay.

Thanks, Mike. Appreciate it.

Good morning, Gary.

Neil, how are you?

Doing well. The first question is around share repurchases.

We had a nice number here in the first quarter, supported by the dropdown. Gary, can you just talk about your strategy around share repurchases and how aggressive you think you can get around reducing your share count in 2017?

Sure. And I'll have Tim help me here.

But this is clear, from our January 3 announcement, what our plans were and this is right on with our strategy of returning capital to shareholders. So, we were very aggressive here in the first quarter.

We've elected to use our internal sources versus an ASR. We just think it's better for us, better for the economics of the share repurchases to do it internally than to go out and do one block.

But our plans are – we did $420 million here, really $480 million if you look at what wasn't settled, kind of overlapping the end of the quarter. But we expect to continue to be very aggressive in share repurchases.

Tim, you want to add into that?

Gary, I think that's right. I mean, ultimately, our activity was bounded to March for the first quarter, but we expect this activity is going to resume into second quarter.

And I think you could expect to see similar pacing as we go forward and utilize the drop proceeds.

That's great, guys. And the follow-up is on Speedway, and it's a two-part question.

I guess the first is, Tim, can you read out that demand number again or retail sales number for April? I just want to make sure I got it.

And just, in general, what you're seeing in terms of volumes going through the system? And then, Gary, I recognize we are still going through the process here.

But, how are you thinking about the latest in terms of what to do around Speedway from a corporate structure perspective?

Sure.

Yeah. Neil, the...

Tim or Tony, you want to handle the first part?

Yeah. Sure.

Neil, for April same-store, so far we've seen about 2.3% decline on year-over-year for April and I'll hand it over to Tony for his comments.

Yeah. And, Tim, that's really reflective of the market conditions so far that we've seen.

So, actually, Speedway, the U.S. market demand data suggests it's down slightly more than Speedway, so we're tracking that.

One of the factors in there is the average retail prices are up year-over-year as well. So, that's part of it.

And, Neil, if you look at, average retail is up $0.40 to $0.50 over same period last year. I go back and looked at the first quarter and we're early here in April.

This number here of 2.3% was just for April. But if you look at first quarter, we were down 1%, so we outperformed the overall market significantly, Speedway did in the first quarter.

But with our position in the market and needing to get this increase in the wholesale price and crude cost to the market, I think that's what has had a temporary lull in demand. As far as our study, our full and thorough review, as we've stated on Speedway, it continues to clip along at a very good pace.

The special committee is very engaged. Our outside advisors are engaged and by mid-year, the definition of mid-year will be sometime summer or late summer, we will have a conclusion of the direction we're going.

So, we continue to move along rapidly in this study.

All right. Thanks, Gary.

We'll stay tuned.

Thank you.

Yeah. Good morning, Gary, and congrats on getting a big maintenance schedule behind you.

Thank you.

I guess just on that maintenance schedule quickly, I mean there was some self-help going to be coming through an Analyst Day from a few years ago, I think $350 million. And that was up from $175 million last year.

Are these turnarounds going to deliver some of that improvement in the assets that was behind some of those Analyst Day slides?

Yes, Ed. In fact, in my comments I talked about the hydrocracker.

When we first built Garyville, that hydrocracker was rated at, I don't know, 70,000 to 72,000 barrels per day. And now, we have the hydrocracker only with improved technology, very little incremental capital.

We have it up to, I think, the second largest hydrocracker in the world at 121,000 barrels per day. We're seeing the same thing at Galveston Bay.

Now that we've been through both crude units, improved the technology, improved the operations and really been through Marathon-style turnarounds, we have that plant now up, running 500,000 barrels per day. The same thing at Robinson where we upgraded some systems at Robinson.

So, the systems, the technology is in place. And that's what's important here in our comments is that we didn't go out and build new units.

We improve the technology, improve the – some of the operating and mechanical performance of the process units in order to be able to increase the throughput. So, I think we're right on schedule.

Of course, everything is a result of how margins are. But, the other thing that I think is important – I was talking to Tom Kelley who runs our Marketing group.

We're expecting a strong year in asphalt. And as – a question we had earlier on can we – would we slack a coker, well, we have the flexibility to even make more asphalt if the market requires, and we're starting out the first quarter here, as we start into the asphalt season, a very strong demand, up over 6% versus same period last year.

And I think that flexibility is going to help us as well. So, all of these things should deliver.

We have the opportunity to deliver the incremental economics that we've talked about in the past.

And then switching, I mean so many things to talk about to MPLX. I mean, one of the things that was going to be a result of the merger was the synergistic investments.

There's the Alky, there's NGL long-haul pipes, NGL exports, Centennial, some of the infrastructure you have. Maybe any comments as to how far we are along in terms of some of those decisions?

Sure. Don?

Yeah. Sure, Ed.

As you probably saw in the MPLX update, as well as the MPC one, we are working very hard and focused on growing our organic backlog. And, in fact, our guidance for organic growth capital has increased up to the top end of the range as $2 billion this year and we are continuing to identify a lot of those opportunities.

So, we're very optimistic about the outlook. We are very optimistic about sort of what our producer customers are experiencing, particularly in the Marcellus, and also in the Southwest we have some exciting opportunities in the Delaware Basin supporting our producer customers there.

You asked specifically, I think, about the Alky project. We have done a lot of analysis around that.

As you recall, the driver of that was driven – the economics were being driven by the differential between butane and sort of octane value. Currently, that differential isn't strong enough in our view to go forward with that project, but there's been a lot of engineering done around that and to the extent that there are the market factors and the economics would support that project, that one can be revisited and accelerated in terms of implementation.

So, to summarize, most of the pull that you're seeing on organic CapEx is sort of gathering, processing, closer to the upstream wellhead?

Yeah. I would say that and there are opportunities and we're continuing to explore opportunities at around pipelines, in general.

I mean, clearly there's a lot of build-out in the Permian generally and to the extent that you can get product to the water and provide producer customers alternatives to just the domestic market, people are very interested in projects that would allow them to do that and we're continuing to explore those types of projects.

Okay. Thank you.

And, Ed, to your question on Centennial. Centennial still can be a resolution to be able to get incremental propane, butane, maybe even ethane to the Gulf Coast and it's – we continue to work with our partner on this project.

However, the producers who are looking for that additional route and additional market are still analyzing which direction they want to go. And we're not ready to pull the trigger on this project yet, as we continue to work with the producers to get their commitment on whether or not that reversal goes forward.

So, we're working it hard, but the producers have to make the decision if they want a second market.

Thanks.

Hey guys. Good morning.

Hey, Paul.

Good morning, Paul.

Gary or maybe this is for Tim. Tim, if we're looking excluding MPLX on a pro forma after you finish all the job and the exchange of the GP, where is the sweet spot for you from MPC standpoint, the net debt-to-EBITDA or net debt-to-capital of those ratios?

And how those ratios may change that if you have decided to spin off Speedway?

Well, I think for how we view things today, we sort of view the – around 2 times on a net of MPLX basis is probably an appropriate area. Again, we've focused on maintaining an investment-grade credit profile, we'll continue to do so.

Again, the prospects of any change to Speedway is something we'll have to assess as we go. It's certainly been an important part of the cash profile of the business.

And if that were not a part of the business, I think we'd need to reassess and understand what that impact would be. It may very well support a even lower leverage than that.

But that's clearly all part of the overall analysis and assessment that we're going through, and that will clearly be an important part of our consideration, so.

And from an accounting standpoint, when we go for the dropdown, the remaining of the dropdown, the EBITDA loss from the refining, are they going to come out from the gross margin or they're just for the gross margin realization or they're just going to be all increased in the refining expense line?

Well, again, depending on exactly how it's structured, for what we've got contemplated for fuels distribution, for instance, or for the refinery assets, that would be earnings that would have an impact on gross margin.

When you do the dropdown, will you be able to just maybe, at the time, give us some idea so that we know how to model?

Yeah. I think we can probably provide some framework around what that could look like.

The important part, from an MPC perspective, is that for a lot of the earnings that could have an impact on the R&M metrics, we're effectively turning it into a distribution stream that's coming from the partnership. So, again, we've continued to view this as sort of an enterprise-level initiative, but we certainly can provide some frameworks around the best way to think about things on a more segmented basis.

That would be really appreciated. Thank you.

Good morning, everyone. Gary, I was wondering if you could put some more flesh on the bone on sort of your macro comments to start the call.

It sounds like, at least, in your retail system, you're seeing headwinds on the gasoline side. I think your guidance is for a record throughput in the second quarter.

The rest of the industry has been running at record levels over the past few weeks. So, is there a concern that whatever demand growth we are seeing is just going to be offset by people running so well post such a heavy turnaround season?

Well, Brad, I think the key ingredient to your question is where we see exports going and we see exports while we were a little over 200,000 barrels a day, we export 226,000 in the first quarter. But our book going forward gets us back into the historical range of 300,000 barrels a day, plus or minus a little.

So, the export book continues to be strong. It looks like we're – from a macro level, we're fairly – I would say, it's evident that we're kind of teeing up to be in the same position of last year.

Inventory share in the first quarter from the gasoline side, especially pads 2 and 3, are on the gasoline, distillate inventory, are pretty much in check what they were last year. First quarter inventories and the market seem to take a pause yesterday on why gasoline inventory built in PAD 1 here last week, but that's all of the timing of cycles coming through Colonial, some cycles possibly from Plantation Pipeline, but – or maybe just the – when some imports hit the New York Harbor.

But, all in all, it's early in April and Tony talked about a slight pullback in demand, but that's because we're up $0.40 to $0.50. So, from a macro standpoint, I think the crude market is going to continue to have strong resolve in trying to get crude prices up.

I think that's going to help in differentials over the same period. But I believe as long as we stay in this range, we're kind of ranged $2.25 to $2.50 in gasoline right now.

I would expect demand to be about the same as this period last year. And I think everything – the flywheel is going to be the exports.

And export demand continues to be strong. So, I think we should be okay.

Okay. Thanks for that, Gary.

And then I was wondering if there's any update on the fuels distribution private letter ruling, is that still being pursued and where are we in the process?

Sure. Tim?

Sure, Brad. So, with regard to the strategic plan, I mean, I'll give a broader update that we're very much on track with all of the sort of remaining drops and putting the company in position to proceed with those.

With regard to the fuels distribution specifically, again, we were obviously very pleased to see the new QI regs issued in January and made part of the Federal Register. Based on our reading of them, it looks like it'll be supportive of our model.

They do have an effective date of January 1, 2018, and right now it would be tough for us to rely for activity in 2017 on that, but we'll pursue every angle. Again, I think the net result is that we're still very encouraged by the prospects and having everything ready to go, and we'll evaluate any and all alternatives to sort of accelerate that, but we feel pretty good about the path forward right now.

Okay. Thanks.

And, I'm sorry. Christine, I just wanted – Paul, your question with regard to the drops and the impact on the refinery piece, I want to just clarify.

The impact on segment income for R&M will certainly be there. But it more likely will get picked up in sort of other cost.

It'll be sort of an operating cost imposed within the refining system as a service contract. So, I'd indicated part of R&M gross margin, but actually it will be picked up in sort of other elements of operating expense within R&M.

Nonetheless, when we get to that point where it can be helpful, we'll certainly try to provide some framework around it.

Yeah. Hi.

Good morning, everyone. It's really a follow-up to all the above questions.

If you could just step back and give us the overall timeline. Is the next event going to be the independent committee?

And then, would it be the private letter ruling? And is the best guess that the whole process of restructuring is completed by end of the year?

Thanks, guys.

Well, Paul, it's good to talk to you. Haven't heard from you in a long time.

Hey, man. Hi, Gary.

Yeah. Yeah.

To go through the – the next step would be, more than likely, as we had outlined earlier, we would expect to have late second quarter, early third quarter another drop. And then the drop we're looking at, we think, would have minimal tax impact based on the tax reform discussions that are public at this point in time.

One thing that I think we all need to be cognizant of, and I know many of the investors that we've talked with, who have asked us questions, is to ensure that we're keeping a close eye on how tax reform might affect, whether it's a 12 – a December dropdown or whether it's a January, early 2018 dropdown, depending on how whatever tax changes might go into effect. And, of course, we're continuing to work and be very diligent in what that tax planning might be.

So, the next thing would be a dropdown sometime mid to late summer. Secondly, we will follow through with the study of Speedway through the special committee.

And then, lastly, and we're proceeding on, we will have all of the drops ready from an accounting, finance, tax, administrative standpoint. We're pursuing and working very, very quickly to get all of those drops ready.

Tim just explained the PLR process, which is positive. So, everything will be ready to go, but I think everybody would conclude that we need to be as tax efficient as possible.

Understood, Gary. And then speaking of having not spoken for a while, when we last spoke, it was before the inauguration, 100 days of this presidency shortly coming up.

How have things changed? I mean, of course, border tax is a huge issue and we last spoke – what's your latest perspective on what's happening in DC?

Thanks.

Yes. Then that's a very good segue into this tax reform.

If you noticed what the President, Secretary of Treasury and Mr. Cohn announced yesterday, you didn't hear the words border tax anywhere in that preview.

And so, I think the work that not only we have done, but the entire business community continues to work on is that border tax just doesn't seem to work going forward. So, that's very positive and I recall speaking at your conference.

That was a big issue. And as I said, we had a lot of work to do and, so far, I think we've been successful in outlining and trying to educate what that meant for companies such as ours in our industry.

So, our work, we continue to be very, very positive with this administration and the President and his outlook on the energy industry, his outlook on where we think some positive steps can be taken on renewable fuels. And, obviously, with the pipeline permits that have been approved that helped get DAPL up and going and we expect mid-May for the first deliveries to come out of DAPL, that is certainly going to be a positive for us in our Midwest refineries.

So, all in all, very, very positive with this administration.

Thank you very much, Gary.

Yeah.

Hey, good morning. I guess I'm going to ask one more tax question just as a follow-up to your comments about the next drop.

I believe all in, it's a question for Tim, you had expected a roughly, I think, $1 billion tax implication from this entire plan. I'm wondering if there's any update to that, kind of ignoring what might change here.

And then secondarily on tax, do you expect the consolidated tax rate to come down at all as more income flows to MPLX? I know the first quarter was a bit below the trend of last year.

So, I'm just wondering how that might progress.

Yeah. I think, Phil, I guess, to answer the question, two parts.

One is, what the cash tax impact would be on the drops, I think, and ultimately the guidance we provided around that of roughly 20% over the course of the full drops we think is still appropriate. The effective tax rate for the corporation will be impacted over time as the drops are commenced, given the NCI impact and the amount of allocated income that will go to unitholders.

So, there will be sort of an evolution over the course of the drops that will very likely drive down the effective tax rate over the course of the next couple of years. And, again, as we get closer to that and we can provide a little bit more clarity, we'll try to do so.

Okay. And then, just a second question.

You had given a wide range, I think, around potential valuations for the GP-LP swap. I think it was around $9 billion to $12 billion type of range a while back.

I'm wondering if you've dialed in on that any more at this point. Any additional color you might be able to provide?

Yeah. Phil, again, I think the range that we gave at the time we thought was an appropriate range, I don't know that there'd be any updates.

The valuation of the GP interest is clearly going to be part of a comprehensive process that we will do an assessment. We will make a suggestion as to what we think that value is worth.

We'll work through with the MPLX board and its conflicts committee and ultimately land on evaluation. So, I don't know that there's any more color or adjustment to a range that we'd provide at this point.

Again, this is a process that's out in front of us and I think the range that we've given is one that we still think would be appropriate.

Okay. Last question, just on the product-related component of the other gross margin, it was definitely softer than any quarter of last year and you made some opening remarks on this.

Just wondering if any of that was perhaps one-time in nature. I think there have been some other publicly-traded retailers that have talked about some wholesale headwinds in the quarter.

And I'm just curious, has that, in any way, influenced the product-related component of the margins this quarter?

Mike, do you have any comments?

I guess, I'm not clear on what this one-time issue was, Phil. Could you explain that further?

There are some wholesale headwinds called out, in particular, Colonial line spacing values and things like that, that other companies have talked about. I wasn't sure if that in any way – I believe wholesale is still in your refining business, your refining segment, but I didn't know if there were...

Yes, it is.

Any particular headwinds there that you think influenced you, that might have been temporary in nature?

We have seen – certainly in January and February early on, we saw specific weakness in some of our markets. And I think that's improved somewhat in March and April.

But in terms of one-time events, no, I don't – I can't think of anything.

Right. Yeah.

Okay. That's good.

Thank you.

Hey, guys. Good morning.

Just a quick follow-up, Gary, to your comments regarding Centennial. Just to go the other way towards the east.

So, with SXL formally moving forward with the expansion on ME2, which allows a little bit more than 0.5 million barrels a day move west to east. Just wondering since that pipe will be capable to move refined products, can you comment on MPC's appetite to move some gasoline or diesel to the East Coast and what would be needed from MPC to make that possible?

Sure. And I'll let Mike talk about that since he manages all of our movements.

Yeah. That's certainly something that we're interested in and watching.

In our Midwest refining system, we do have further capacity that could be used. And certainly it's seasonally during the year we need further markets.

We've talked about this before. So, we're interested in moving additional product outside of the Midwest, and we'll look at that over time.

Got you. And then were there any impact to Speedway if you were to start moving product towards the East Coast?

No. That wouldn't have any impact to Speedway at all.

Okay. And then just a last question from me.

Presumably, the dropdowns to your point about timeline won't be completed before the Speedway strategy is announced. So, just wondering, how does the committee look at a Speedway strategy if the MPLX portion is kind of yet to be completed?

In other words, we won't have a view on really the value of those IDRs until after the Speedway committee kind of came to a conclusion. So, I was wondering how they view the changes at MPLX and the value proposition there and what that means for Speedway within MPC.

I would say, Corey, that those are two different matters that, the value of the IDRs will really have no impact on the decision of Speedway one way or the other. Speedway is already – the volume that goes through Speedway is already implicit in MPLX, and the amount of volume that we're moving through MPLX today.

But I would say that it really wouldn't be a determinant either way.

Isn't the committee looking at whether or not Speedway is valued properly in MPC though?

Oh, absolutely. What I'm saying is, you asked a question on how Speedway in or out of MPC would affect the MPLX – the drops of MPLX.

I'm saying that doesn't matter either way. We still have the volume that's already inside of MPLX and would expect – and that's one of the big questions is, can you have a supply agreement attached to – if you decide to go a spin route, can you have a supply agreement attached to that spin in order to be able to maintain the volume that goes through?

That's yet to be determined, but what I'm saying, I don't see the volume. We would expect that we would have a supply agreement either way.

So, that really is not going to have an effect, but absolutely, the committee is looking at the value.

Okay. Understood.

Thanks, Gary.

Yeah.

Hi, everyone. Thanks for squeezing me in here.

Just two quick ones. Gary mentioned the strength or potential strength in asphalt this year.

Just curious on when you think that can really start to impact the capture rate and product realizations as we kind of go through the second quarter. And then just along those lines, maybe just give us more color on, I guess, why you think there's going to be that much strength this year versus last year.

Well, you just look at the backlog of projects and the inventories of asphalt that we came out of the end of last year, the inventories that are available of asphalt. So, that's why I make that statement, but I think it's the infrastructure that's required in the U.S., this administration is very bullish on infrastructure and improving roads, bridges, and so we expect that we're going to have a strong asphalt season, Q2, Q3, mainly because of the inventory that we came out of last year.

So, being up 6% early in the asphalt season, I think, is a good indicator and with our flexibility of going through the cokers or making asphalt, that gives us another real strength versus some of our competition.

Got it. Okay.

And, once again, Gary, you've been pretty open before on just, I guess, providing some views around OPEC and potential decisions. Just curious, I guess, we're about a month out now on the next meeting, just your thoughts around that and what might happen around the oil price.

Yes. Mike Palmer was – in his comments earlier, illustrated the strength and the resolve that we believe is in OPEC.

As we look at OPEC, I stated early in the year that we expect to end this year in the $60 to $65 range. I still think that that is still in line with where we see the crude markets going.

The resolve of OPEC, and you will continue to see that, I think, in the inventory numbers going forward, that there is a very strong resolve to get worldwide inventories in check. It certainly appears as though there would be an extension of the OPEC agreement into the second half of the year.

I believe as the oil minister Khalid al-Falih stated that he thinks that is important to continue to get global inventories in check. And with that, I think it's going to have a double-prong effect.

I think it's going to bring worldwide inventories closer to balance. And secondly, it's going to be a win for the U.S.

producers, because as the price continues to go north of even $50, but if we get up in the $55 to $60 range and with the efficiency and reduced cost that the U.S. producers are seeing, it's going to be a strength for the Permian, Eagle Ford, Bakken areas in their production.

And I think that's going to certainly help us with our acquisition of the Ozark Pipeline. It's going to give us that ability to move barrels through Cushing into the Midwest, bring barrels down from the Bakken.

And I think it should help differentials over time.

Got it. I really appreciate the color.

Thanks, everyone.

Thanks, Spiro.

Thank you for joining us today and your interest in Marathon Petroleum Corporation. Should you have additional questions or would like clarification on topics discussed this morning, Denice Myers, Doug Wendt and I will be available to take your calls.

Thank you, and have a great day.