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Marathon Petroleum Corp  (NYSE:MPC)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the MPC's Third Quarter Earnings Call. My name is Elon, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) Please note that this conference is now being recorded.

I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Kristina Kazarian -- Vice President of Investor Relations

Welcome to Marathon Petroleum's third quarter 2018 earnings conference call. The 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 and CEO; Greg Goff, Executive Vice Chairman; Tim Griffith, CFO; Don Templin, President of Refining, Marketing and Supply; Mike Hennigan, President of MPLX, as well as other members of the Executive Team.

We invite you to read the Safe Harbor statement 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 on slide 3.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Thanks, Kristina. Good morning and thank you everyone for joining our call. Earlier this morning, we reported another impressive quarter. Our net income attributable to MPC was $737 million and we were pleased to report adjusted EBITDA of approximately $2 billion for the second quarter in a row. Our refining throughput was strong at slightly north of 2 million barrels per day. This was especially impressive considering we had both our Detroit and Canton refineries in turnaround during the quarter both of which were completed on time and under budget.

Our integrated business model together with our team's commercial and operational execution continue to create opportunities for us to capture value driving over $1.2 billion of cash from operations, which allowed us to return over $600 million to shareholders in the quarter. During the quarter, we repurchased $400 million of shares even though our repurchase ability was limited by the proxy solicitation period.

Through the first nine months of this year, we have returned $3.2 billion of capital to our shareholders and remain committed to our strategy of returning excess cash flow going forward and we expect to resume our repurchase activity shortly, as market and other conditions allow. On October 1st, we closed on our transaction with Andeavor. Both sets of shareholders demonstrated overwhelming support, as we are now the leading integrated downstream energy company in the US.

As we look forward, we see extraordinary potential across our nationwide platform, including over $1 billion of annual run rate synergies within the first three years. Over the first few months, our teams will be diligently working on integrating the business deploying the best practices and aligning the cultures. In just the first month, I'm especially impressed with the enthusiasm and energy of our commercial teams. We're already harvesting synergies and plan to report on our progress regularly starting in 2019.

As we look to the fourth quarter and into 2019, we see a lot of positive market trends for our business. Both global and US economic growth continues. While risk factors and the recent market pullback have been the focal point of news headlines, the fundamentals that underpin distillate demand appears strong. Inventory levels remaining moderate and days of supply are near five year lows.

We believe current distillate trends combined with the impact of changing IMO regulations around sulfur content will support strong distillate demand well into the future. And we are well positioned, given the investments we have made in our business over the last decade. As you may recall MPC now has the highest coking and hydrocracking capacity in the US. Despite recently weaker gasoline markets, our integrated business model allows us to both flex our yields to maximize our gasoline to distillate ratio, as well as take advantage of export opportunities.

In October, we exported approximately 370,000 barrels per day. With limited turnarounds as we head into 2019, our refining system has the opportunity to capture what appears to be sustainably wider crude differentials in many of our markets. With Detroit and St. Paul Park now out of turnaround, both plants are poised to harvest these wider WCS differentials. We expect to run approximately 500,000 barrels per day of various Canadian crudes across our new refining system. The differentials across these grades and in particular WCS appear to be sustainably wider given meaningful logistics constraints relative to production levels. As we look at our optionality in crude slate, we see opportunities to maximize usage of WTI-based crudes.

With the addition of 400,000 barrels per day of MidCon refining capacity, we now have over 1 million barrels per day that are very well positioned to capture the attractive crude differentials in those markets. We're currently wrapping up our fourth quarter plant turnaround for the Martinez Refinery and have some minor maintenance planned at the Robinson Refinery.

Lastly, as you may have already seen, we announced that we are evaluating the financial business plans of Andeavor Logistics with the intent to move toward financial policies more consistent with our approach toward MPLX. MPC plans to engage advisors and begin the process of assessing all options for the two MLPs, which could include MPLX acquiring ANDX or ANDX acquiring MPLX. Our comments will be limited on this as we work through our evaluation and process and we will provide an update to investors at the appropriate time.

Now, let me turn the call over to Don to cover additional highlights for the third quarter and an update on our integration process. Don?

Donald Templin -- President

Thanks Gary. Turning to slide 4, we reported third quarter earnings of $737 million and income from operations of $1.4 billion. Refining & Marketing delivered strong results with third quarter segment earnings of $666 million. We operated exceptionally well throughout the quarter and achieved 97% utilization across our refining system. Despite having our Canton and Detroit refineries in turnaround during the quarter.

Within the Midstream segment, which largely reflects the financial results of MPLX, we reported income from operations of $679 million, driven by strong pipeline throughput volumes, as well as record gathered, process and fractionated volumes during the third quarter. MPLX announced several new projects during the quarter, including planned investments in two long haul pipelines, as well as the acquisition of a Gulf Coast export terminal in Louisiana. We encourage you to listen in on the MPLX call at 11 a.m. this morning to hear more about MPLX's performance and the opportunities across the business. We would also point you to ANDX's call on November 7th, as both partnerships will be part of our Midstream segment going forward.

On the retail side, Speedway reported income from operations of $161 million. In the third quarter gasoline and distillate margins continued to be adversely impacted by rising crude oil prices. In a rising market, there is a delay in our ability to react at the street which pressures margins. Our focus continues to be optimizing total gasoline contributions between volume and margin, as market conditions adjust. While our third quarter earnings materials do not reflect the results for Andeavor, I would like to provide some key statistics for the quarter, which demonstrate continued strong performance in the legacy business.

The legacy Andeavor refining segment had throughput of 1.1 million barrels per day which was roughly 97% utilization. The Andeavor index was $16.03 per barrel for the quarter with a margin capture rate of 80%. Manufacturing cost was $5.50 per barrel. We look forward to reporting on a consolidated basis starting in the fourth quarter, when we think the tremendous benefits to combining these two powerful businesses will be evident.

As shown on slide 5 one of the first tangible signs of integration comes from the retail segment. We immediately started converting the Andeavor company-owned and operated stores to the Speedway brand. At the end of October, roughly 90 sites in the St. Paul and Minneapolis markets have been converted and we expect to complete approximately 200 sites by the end of 2018. These conversions are an important element in the synergy capture we are driving.

We are learning each day, implementing the best practices from each organization and while the conversions of the Speedway stores are an easy first milestone to point out, we look forward to providing more updates across our refining, midstream and retail organizations at our upcoming Investor Day.

With that, let me turn our call over to Tim to provide a more detailed walk through of the financial results for the third quarter.

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Thanks, Don. Slide 6 provides earnings on both in absolute and per share basis. For the third quarter 2018 MPC reported earnings were $1.62 per diluted share compared to $1.77 per diluted share last year. Third quarter 2018 earnings were $1.62 per diluted share including pre-tax charges of $49 million related to pension settlement and transactions costs of approximately $0.08 per share. The bridge on slide 7 shows the change in earnings by segment over the third quarter last year. The log shows a decline of $431 million in the Refining & Marketing earnings.

Approximately $230 million of the variance was driven by the February 1st dropdown transaction as we don't reflect the impact of these drops in prior period segment results. The remaining variance was driven by lower crack spreads and higher turnaround cost in the quarter. Speedway's third quarter results were lower than the same quarter last year by $47 million, primarily related to lower light product margins and higher operating expenses.

The $324 million favorable midstream variance was due to the February 1st drop of refining logistics and fuels distribution services to MPLX, as well as higher pipeline volumes and record gathered process and fractionated volumes compared to last year. The unfavorable year-over-year variance and items not allocated to segments was largely due to transaction costs, related to the combination with Andeavor and increased employee benefit costs. Interest and financing costs we $82 million higher during the third quarter of this year, due to higher debt levels at MPLX compared to last year and $45 million of pension settlement charges in the quarter.

Interest and financing costs were -- I'm sorry, the income taxes were a benefit at lower taxable income combined with lower tax rate resulted in $193 million lower taxes compared to last year. The higher earnings in MPLX resulted in an increased allocation of MPLX earnings to the publicly held units in the partnership shown here as $103 million in non-controlling interest variance.

Turning to slide 8, our Refining & Marketing segment reported earnings of $666 million in the third quarter of '18, compared to nearly $1.1 billion in the same quarter last year. The LLS-based blended crack spread had $111 million unfavorable impact to segment results, largely due to lower Midwest and Gulf coast crack spreads.

The LLS blended 6-3-2-1 crack spread was $8.03 per barrel in the third quarter of '18 as compared to $8.68 per barrel in the third quarter of 2017, reflecting to some extent the wider cracks experienced during Hurricane Harvey last year. Our ability to take advantage of crude differentials provided substantial benefits in the quarter.The widening sweet/sour differential had a positive effect of approximately $238 million versus last year with the differential increasing from $5.42 per barrel in the third quarter of '17 to $9.09 per barrel in 2018.

The LSS/WTI differential increased to $4.71 per barrel up from $3.42 per barrel in the third quarter of 2017. This wider differential drove $102 million benefit based on the WTI-linked crudes in our slate. Direct operating cost for the third quarter was $6.60 per barrel compared with $6.37 per barrel in the third quarter of 2017 resulting in a $51 million unfavorable impact to segment earnings. The increase was driven by higher turnaround and maintenance spend during the quarter.

The $419 million unfavorable variance in other R&M expenses is primarily due to the fees paid to MPLX related to the businesses that were dropped MPLX in February. Prior period R&M results were not adjusted to reflect these newly constituted businesses.

Moving to our other segments. Slide nine provides the Speedway segment results walk for the third quarter. Segment income from operations was $161 million compared to $208 million in the third quarter last year. The year-over-year decrease in segment results is primarily related to lower light product margins and higher operating expenses. Speedway's gasoline and distillate margin decreased to $0.165 per gallon in the third quarter of 2018, compared to $0.177 per gallon in the third quarter of 2017, primarily due to the effects of rising crude oil prices and the lag effect at the retail level.

Same-store merchandise sales excluding cigarettes increased by 4.9% in the third quarter of 2018 versus same quarter last year, leading to the $10 million increase in merchandise margin. Operating expenses has increased $20 million year-over-year, mainly due to higher labor and benefit cost and depreciation which was $8 million higher, primarily due to increased investments in the business. For the month of October, we've experienced approximately 0.5% increase in same-store gasoline volumes versus last year.

Slide 10 provides the Midstream segment results for the third quarter. Segment income was $679 million in the third quarter of 2018 compared to $355 million for the same period in 2017. The $361 million improvement for MPLX was favorably impacted by $230 million from the earnings of the businesses included in the February 1st dropdown. The rest of the improvement is related to higher pipeline throughput volumes and record gathered process and fractionated volumes. As Don referenced, we encourage you to listen to the call at 11: 00 to hear color in MPLX's strong performance in the third quarter.

Slide 11 presents the elements of changes in our consolidated cash position for the third quarter. Cash at the end of the quarter was nearly $5 billion, including approximately $3.5 billion necessary to close the Andeavor transaction on October 1st. Core operating cash flow before changes in working capital was $1.6 billion source of cash in the quarter. Working capital was $408 million use of cash in the quarter, largely due to lower volumes of net crude payables, offset to some extent by a net inventory reduction in the quarter.

Return of capital to shareholders by share repurchase in dividends totaled $607 million in the quarter. The $400 million of shares acquired was accomplished despite having the more limited window to repurchase shares, given the pending Andeavor transaction vote in closing.

Looking forward, we remain committed to our disciplined capital strategy and returning capital beyond the needs of the business in a manner consistent with maintaining the company's current investment-grade credit profile. And expect to resume share repurchase activity consistent with that strategy during the fourth quarter. We plan to provide an update in guidance around capital allocation strategy at the Investor Day in December.

Slide 12 provides an overview of our capitalization and financial profile at the end of the third quarter. We had approximately $18.5 billion of total consolidated debt, including nearly $13 billion of debt at MPLX. Total debt represented 2.8 times last 12 months adjusted EBITDA on a consolidated basis or 1.4 times EBITDA excluding the debt and EBITDA of MPLX. Lower (inaudible) distributions for MPLX are added to the debt service capabilities of the parent.

Moving to slide 13, we intend to provide fourth quarter and 2018 guidance at our Investor Day in December and we'll be suspending publication of the market data on our website until then. Given all the moving pieces we wanted to provide an update to the company's 2018 capital investment plan to give an illustration of run rate capital spending for the combined business.

On a consolidated basis included in the MLPs, we expect to invest roughly $6 billion this year. This combined total remains in line with prior guidance. As you can see on the slide, roughly half of the planned investment will be pursued and funded by MPLX and ANDX directly. We look forward to providing our 2019 capital outlook at our Analyst Day in December 4th, we hope you can join us.

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

Kristina Kazarian -- Vice President of Investor Relations

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 and a follow-up. If time permits, we will reprompt for additional questions.

With that, we will now open the line to questions. Operator?

Questions and Answers:

Operator

Thank you. We'll now begin the question-and-answer session. (Operator Instructions) Our first question today is from Doug Terreson from Evercore ISI.

Doug Terreson -- Evercore ISI -- Analyst

Good morning, everybody and congratulations on close of the Andeavor transaction.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Thanks, Doug.

Doug Terreson -- Evercore ISI -- Analyst

You're welcome. And then, first Gary in refining your turnaround activity was really high in the Midwest this quarter and it seemed to be abnormally high during 2018 overall as well. And on this point my question is were higher turnarounds by design somewhat such as the company is prepared to capture benefits during the 2019, 2020 IMO period or other factors at work? And either way, what are the implications or the profile for refinery utilization, given the situation over the next couple of years?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

It was a very good question and kind of top on the charts of what we're working on Doug. First of all with the -- in combining the new companies, we are really attempting to smooth out these turnarounds, so we don't have a lumpy turnaround schedule in any given period. As I look at what we just completed here, there was some work done at El Paso, St. Paul, Detroit, Canton. We're just about completing a turnaround at Martinez. But especially when you look at those markets around the MidCon and as I said in my script earlier, we're not going to have 1 million barrels a day, a little over 1 million barrels a day of refining capacity in and around the WTI in Cushing related crudes, which is a significant benefit.

And we have all that work behind us and as I say, we're going to really smooth things out going forward into '19 and '20. And believe that '19 is going to be really kind of a soft year in the turnaround space.

Doug Terreson -- Evercore ISI -- Analyst

Okay good, that sounds great for utilization. And then also Tim talked about share repurchases and just to clarify my recollection is that you guys were restricted from purchasing shares for about two-thirds of the quarter. So, my question is, is that a good approximation? And second with cash flows that derives significantly with the transaction, I want to see if you could provide some more color of the plan for share repurchases for the medium-term because it seems like we should see a ramp in that area.

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Yeah, Doug, it's a good question. The -- you're exactly right that we were precluded during the proxy period from doing share repurchase. So actually $400 million was a pretty good clip, given the periods that we could not be in the market. I think you can expect to see that our approach on this -- the return of cash beyond the needs of business is going to be as steadfast as ever. I mean, a big part of the combination certainly was the incremental cash flow provided by the transaction. And as the synergies come online, the business continues to perform, I think the expectation that share repurchase will be an important part of our capital allocation is an appropriate assumption.

Operator

Thank you. Our next question is from Neil Mehta from Goldman Sachs.

Neil Mehta -- Goldman Sachs -- Analyst

Good morning, team.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Hi, Neil.

Neil Mehta -- Goldman Sachs -- Analyst

Gary, I want to start off on your comment in your prepared remarks around the 500,000 barrels a day of Canadian crude that you're taking in right now, it's a big number. So can you talk about kind of what the economics of that crude that you're bringing in? I'm sure not all of that is getting the discounted heavy or light barrel. And how much of a tailwind you see that being on a go forward basis? And to frame that out, if you could just talk about your broader views on Western Canadian differentials from here.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Sure. I'm going to ask Rick Hessling to get into that in more detail and as you know as we visited last week, we talked a little bit about the Canadian as well. And not only are we a very large purchaser of WCS, but we are very large in the Syncrude side, which have had tremendous margins or I should say differentials as well, but Rick will give you some more detail.

Rick D. Hessling -- Senior vice President of Crude Oil Supply and Logistics

Yeah, Neil, it is a very good question. So on the heavy front as you know, on the WCS side, it's touched $50 under TI and Syncrude, I think, yesterday touched $32 under. So as Gary mentioned there is a lot of upside for us. We mentioned our purchases being north of 500,000. We do not share and breakdown how much was fully discounted and how much isn't. What I can't share though is that our optionality is significant among PADD II, especially now when you put in St. Paul Park into the grid that allows us even more connectivity and optionality to really eke out the most benefit for these advantage barrels.

Going forward Neil on discounts we're bullish, we sit and we see high all-time production in Canada. There are constraints leaving the basin, Rail is limited. Rail is doing slightly over 200 today and it may get into the 3 -- to mid-3s in 2019, that certainly will not alleviate the constraints. So we're bullish on the differentials going forward not only on heavy, but light and medium which we're players in all three. And really the relief won't happen Neil until you get another big pipeline out of the basin, which by all accounts might be lying three and that may be end of 2019 at best.

Neil Mehta -- Goldman Sachs -- Analyst

Appreciate all that color. The follow-up is just on synergies. It gets come out saying that you expect at least $1 billion, I know that you've only had the Andeavor assets for a couple of weeks at this point. But just want to get your sense or your conviction around achievability of that $1 billion as most of us use some level of the discount of the $1 billion. Where do you think there's potential upside? Sure, we'll get a little more flavor here in a couple of weeks, but any early thoughts would be helpful.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Neil, we're going to give you a lot more flavor at the Analyst Day Meeting, and when I hear that people continue to discount this number, I think we're going to really be able to put that to rest at our Analyst Day Meeting because and you're right, we now have 31 days under our belt of operating, but we weren't sitting still in the transition period. We're really working hard at what opportunities we could see. I'm going to ask Don, Don has really led the integration team. I'm going to ask Don to give you some -- just some upfront color on what we're seeing. We're already seeing some synergies above and beyond what we had recognized in our due diligence exercise I have -- let Don give you some color.

Donald Templin -- President

Yeah, Neil, we are really positive on the realization of those synergies. You talked about the $1 billion and we had a ramp that had us at like $480 million in year one ramping up to the $1 billion. I'm very confident about the achievability not only of the $1 billion, but also of the ramp. To give you examples, we talked a little bit about in my repaired comments around the Speedway conversion, you think about sort of crude acquisition, we have 10 refineries and more than 1.1 million barrels of processing capacity in the mid-continent Midwest and all sorts of logistics assets. And as Rick mentioned, we are seeing optimization of those logistics assets that are helping us achieve those synergies at a faster pace than we'd originally contemplated when we gave you the numbers.

On the refined products side, we've had opportunities to place cargoes now if we have a customer, we can actually place cargoes from either the West Coast or the Gulf Coast, which wasn't an option before we were combined. And then on the refining side, we mentioned -- Gary mentioned a couple turnarounds. We were able to leverage at both St. Paul Park and Martinez, we were able to leverage having supplementing the turnaround teams with MPC employees, as well as some of our key contractors. And so, both of those turnarounds are coming in under budget or came in under budget and ahead of schedule.

So I think those are sort of four tangible examples retail, crude acquisition, refined product supply and what we're doing on the refining side that give us a lot of confidence about our ability to deliver.

Operator

Thank you. Our next question is from Paul Cheng from Barclays Capital.

Paul Cheng -- Barclays Capital -- Analyst

Hey, guys. Good morning.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Good morning, Paul.

Paul Cheng -- Barclays Capital -- Analyst

Two questions. In the integration or any merger, I think oftentimes people overlook as the importance on the back office, just some support how that integration. We have seen many cases that they fell because that they didn't do a good job on that. So on that basis that maybe I know it is early, but perhaps that you guys can give us some idea that how that process has been countered? And what kind of timeline (inaudible) opportunity we are seeing from that? And also that, from that standpoint, will you have the system in place so that you can help us from the outside to track and reconcile your synergy benefit back to the financial result?

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Yeah, Paul; it's Tim. We certainly take the point that getting back office systems pulled together and integrated will be an important part and I think we've recognized that from the outside. There are a couple of systems integration processes that are still under way within the legacy Andeavor business. We'll continue to get those complete done right and we will in very short order take up the process of evaluating exactly what the plans would be on the system side to have come into full integration.

We're not in position at this time to give you a timeline over what that, over what time period that'll take. But it will be a big focus, I think importantly for the synergies themselves though, this is not a massive component of the achievement. I mean there are certainly a small segment of the synergies that will be part of the systems integration, but some of the items that Don mentioned are really the lion's share where those synergies are going to be driven. So it is not a gating item, it is not a critical path on the synergy achievement that we expect to see over time. But we'll clearly stay focused on it as we go in again.

The -- with regard to the reporting out, I mean, I think we recognize and expect full well that we are going to be bringing and accounting around the synergies to the market on a regular basis. I mean well, again we'll share some colors at Investor Day and beyond. But we will be building a sort of a framework and reporting protocol to share exactly what the progress has been and what the color has been as we go along the way. So this is something that's high in the radar, whether the systems integrate or not, we'll have the full ability and anticipate reporting out in our progress along the way. So I appreciate the question, Paul.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Say Paul, let me add on to that. One of the things that we really want investors to understand and it's what next week having a kind of our top 100 management team men for a full meeting. One of the things you need to recognize in a transaction like this is you need to step back and understand the scale. And you have to have a vision for how big this company has become. And the scale is going to be one of the most important parts, not only to driving synergy, but to driving efficiency.

And so, I really want to -- we're going to strive and we're going to talk about scale a lot with investors because that's what we're seeing already in some of the early synergies that we're capturing, that we had anticipated is that scale is very, very important. And you get the scale running down the track in the same direction. It could be a very, very positive event with a lot of momentum behind it. So that's really the point that I want to get across to investors.

Paul Cheng -- Barclays Capital -- Analyst

Totally agree, I mean that this scale I think is going to be phenomenon in your advantage at this point. The second question, if I may on Speedway. Historically that Marathon using a one brand strategy, one brand in the retail, one brand in the wholesale order in the Japan market, and this legacy is multi-brand. And so how exactly that going forward that you guys going to be in the brand strategy? And how fast are you going to move on that?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Sure. Well, Paul as we've mentioned, we're already completing the turnaround of the St. Paul at Minnesota and Wisconsin assets from SuperAmerica into Speedway, we expect that to be done by the end of the year. From there, we have crews doing seven to eight stores every day. We're able to turn those stores that quick. And that -- when we say turn the store, that's not just putting signs out on the pumps and at the street. That's remerchandising the store and putting your backroom system in the managers the entire store as well.

And from there we'll get those completed here in December and then we're going to move to the West and Southwest and start probably in the El Paso and Arizona market starting to rebrand those into Speedway. Now as we go out to Southern California, Northern California, the ARCO brand is a very, very strong brand. We're continuing our analysis, we won't have the crews freed up to be able to go further West until probably mid-'19 to later '2019. So we're completing our analysis on what brands we may want to use in that market. As I said ARCO is a very strong brand, Speedway has a very strong brand and a very strong convenience store merchandising component.

And then in addition, as you said, there is a potpourri of many other brands that have been used historically. It is our intent that we're going to whittle this down to either one or maybe a handful of other brand and locations by the time we complete. And then at the same time, the jobber business that you're familiar with that we have branded Marathon, there are large number of brands that have been used on the jobber dealer side in Andeavor in the past.

We will expect to take the majority of those to the Marathon Brand over time, again it will take us a little while to finish up the analysis as we meet with some of our suppliers, as we meet with some of our customers as well to determine which brands. But predominant brand going forward on that side of the business will be Marathon.

Operator

Thank you. Our next question is from Phil Gresh from JPMorgan.

Phil Gresh -- JPMorgan -- Analyst

Hey, good morning. First question, just wanted to follow-up one more time on the crude exposures because you mentioned 1 million barrels a day of advantage crudes. How do you think about the Bakken exposure for the pro forma company at this point? Obviously the differentials have widened up quite a bit. And just wondering how you think about your advantage access there. And then just if you have a view, how much of this is temporary for maintenance versus more structural because of pipeline or real capacity constraints?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Yes, Phil. It's a good point, and you recall when we invested in the Dakota Access Pipeline, that gives us that ability to bring Bakken crude down into our PADD II refineries. It gives us the ability to run it now in some of our MidCon refineries. As you know Greg and his team have taken Bakken to the West of the rail and other methods of transportation. So we have tremendous optionality to use Rick's term on being able to move Bakken around our system. But let me ask Rick to get into the details of what he's seeing and talk about the structure of the market.

Rick D. Hessling -- Senior vice President of Crude Oil Supply and Logistics

Yeah, Phil. I'm really glad you brought this up. A lot of people want to talk Canadian and want to talk Midland. And really Bakken is kind of the forgotten basin if you will and it's extremely important to us. Yesterday, believe Beaver Lodge, which is an origin point that feeds DAPL trade at $14 -- at a $14 differential. So unheard of by all accounts every report we hear is that basin is flushed with barrels. Really similar to the Canadian story Phil, it's flushed with barrels and there's no way out. And there's no immediate relief, Phil, that we can see. Rail can only do so much and as we head into winter you're going to have rail constraints. The difficulties of loading rail out.

So we kind of see this as a perfect storm we had in our St. Paul Park refinery now. That gives us as Gary said more optionality connectivity, we have the DAPL pipeline that feeds barrels to us right into Patoka, where we can go throughout our PADD II system, as well as we can also take their barrels to Southern Access Extension or Ozark. So we have multiple ways of getting barrels to multiple plants and we're very bullish this differential here going forward.

Phil Gresh -- JPMorgan -- Analyst

And just to clarify the Bakken is in the 1 million barrel a day of advantage crudes that you're speaking to?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Yes, correct.

Phil Gresh -- JPMorgan -- Analyst

Okay. Second question would just be -- this might be a difficult one, but to the extent you can talk a little bit to the Andeavor performance in a quarter, realize you may not be able to give hard financials. But it would be helpful to at least understand since we don't have anything publicly available to us.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Sure. Greg, would you like to handle that?

Gregory Goff -- Executive Vice Chairman

Yeah, sure I will. It's a good question Phil, I would say if I look back at the third quarter the -- as Don stated, we have refinery utilization right around 97% ran a little more than 1.1 million barrels per day and we had a strong index for the quarter. The index for the quarter was a little bit more than $16.50 a barrel. We didn't have the maintenance that Gary alluded to earlier basically started in October. So we ran from a refining standpoint very strong in the quarter.

We also successfully continued the Los Angeles project, and the cat cracker in Los Angeles that we intended to shut down, it's now shut down. And we've begun moving feedstocks through some of the pipelines between the two parts of the facility. So that project is on target and the success there is, it positions us well for IMO because as you're aware it allows us to run another 40,000 barrels a day or so of distillates over gasoline at the market trades distillate higher than gasoline.

The marketing business performed volumes were strong, but like the comments on Speedway with the raising crude price environment the margins were off a little bit versus our plan but overall results across the system, we had strong strong volumes. We continue to grow in Mexico and we're seeing very good success in Mexico as part of our integrated strategy for the business model. And the logistics business performed extremely well, kind of touching upon Rick's last comment on the Bakken we're seeing really strong growth in our crude oil system up in North Dakota. Likewise the growth and development of the Permian system is continuing to blossom and develop just like we expected. And with the participation in the Gray Oak Pipeline it allows the company to access the crude that we gather from the wellhead and take it into the system, however, we want to, whether Corpus Christi or other places and so. I would say overall that the business performed very, very well and it was right on target with very strong financial results.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

And Phil, one more thing I'll add to that. And this kind of goes back to the questions on the confidence of being able to capture the synergies. When you look at how well the legacy Andeavor assets performed in the third quarter, how well the MPC assets, even though we had a couple turnarounds. How well we performed in utilization rates, while we have this major transaction going on. I think that illustrates that we can execute on big projects, as we've done in the past, with all the big projects we've done over our life over the last seven years, we execute and we complete big projects on time and usually on or below budget.

I think that was represented here in how well both sides perform well, we had integration process going on. And that's a -- again it gives us tremendous confidence going forward that we'll be able to execute.

Gregory Goff -- Executive Vice Chairman

Yeah. And I would just add to that. I know that there have been a few questions on the synergies and how the integration process is going in. I would just offer from my experience of doing this type of stuff that I am extremely confident that what we've identified as opportunities because at the end of the day synergies are ideas and opportunities that people in the organization have come up with and what we identified initially, we've been able to confirm. But is been very, it's been interesting and exciting to see the opportunities that happened right out of the starting gate and that.

And so from my personal experience and the work that I've been doing, I am extremely confident in what we're doing and I would reinforce Don's summary of kind of the things that he said and I just think we're going to have a very robust delivery of synergies over time that will surprise people.

Operator

Thank you. Our next question is from Roger Read from Wells Fargo.

Roger Read -- Wells Fargo -- Analyst

Thanks. Good morning. I guess to keep on with the theme here of crude differentials, crude capture, we've had some other companies on both sides of the border talk about apportionment issues with the pipelines. And I was just curious what you or how you think about your deliver ability of the Canadian crudes, whether heavy or light, what kind of apportionment issues you may be saying? And whether or not the earlier comments about the advantages around the SPP unit being added helped on that front?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Yes, let me ask Rick to take that, Roger.

Rick D. Hessling -- Senior vice President of Crude Oil Supply and Logistics

Yes, Roger, ultimately, the apportionment that Enbridge has had out of the basin has been pretty consistent plus or minus 5%. We predicted every month and we usually come in within 1% or 2%. And to be frank, if you look at what the barrels we've received in the past with what we are received in current month and what we believe will receive going forward. We're very confident with the numbers we've shared to date going forward. So I can't speak to anyone else's view on apportionment, but from our standpoint, it's been relatively consistent and we see it that way going forward.

Roger Read -- Wells Fargo -- Analyst

And along those lines thinking of the 1 million barrels to total, is it fair to say it's probably about round terms 30, 70 heavy light? Or are you closer to -- not exactly but may be closer to a 50, 50 level on that, if you go to full flexibility?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Yeah, I it would be closer to two-thirds, one-third, but I would caution you that fluctuates month-to-month. It's really all based on refinery runs, are we looking to run more gas, more diesel and obviously the differentials. So I would caution you not to get locked in on a specific percentage because that does fluctuate month-to-month significantly.

Donald Templin -- President

Yeah, Roger, and that two-thirds, one-third, this is Don, that two-thirds, one-third is really a reference to Canadian acquisition or Canadian crudes that we're acquiring.

Operator

Thank you. Our next question is from Doug Leggate from Bank of America Merrill Lynch.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thanks, good morning, everybody. I hate to hark on about the differentials, but I'm going to do that as well, sorry. Just on -- obviously Canadian heavy has been particularly weak here and you guys are ideally positioned to take advantage of that. I'm just curious, as you can offer your prognosis as to how you think it plays out as a huge amount of downtime in PADD II comes back online. But more importantly, Gary your ability to move crudes around your system has been an anchor of the whole strategy you build at Marathon.

I'm just wondering, when you look at the opportunities to do something around logistics in moving crudes specifically in the Andeavor network, do you see any obvious advantages? Because I'd like to see Greg have done a pretty good job on that as well I'm just curious, if you see any significant shifts in that 1 million barrel a day across the -- on a proportional basis across the combined company?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Well Doug, I'll give you a narrative, that the answer is yes. I'm not going to -- I can't share with you the individual areas that we -- I have already seen that we can capture some additional value because is a very competitive market there. I shared some a few years ago different system and it only took 60 days and that evaporated from a competitive standpoint. So I'm not going to get into the details, but yes, we're seeing in and around the Northern pipeline systems. And when you step back and look at what it caused to rail, to rail out of Canada or to rail out of the Bakken to PADD II, $15, $16 a barrel and then you back into our MidCon PADD II, PADD IV systems today, that gives us a tremendous advantage over the next barrel that's trying to move out of that market. So I would just say we've captured very early some additional synergies commercial synergies that we have not recognized in our initial due diligence and I'll just leave it at that Doug.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

I assume we can get into some of that detail in December, Gary hopefully.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Okay.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Okay. My follow-up if I may is just a pickup on the comment that Greg made. Relating to gasoline distillate on the whole IMO situation. And I do -- really just hoping for a high level perspective from whoever you think is best equipped to answer the question. But it seems to us that one of the big question marks is diesel really does get a spike everyone is expecting. There is a pretty relatively easy fix in terms of cat feed as a low cost equivalent bunker fuel. I'm just curious if you can offer your perspective as to how that might cap any diesel premium that could evolve as a result of IMO, and I'm obviously thinking specifically about the European market. I'll leave it there. Thanks.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

All right. Let's have Ray Brooks, who runs all refining touch on that Doug.

Raymond L. Brooks -- Executive Vice President, Refining

Yeah. Hey, if I understand your question it plays into sweet gas oil, as well as ULSD. And certainly from our standpoint, we position ourselves really well across our entire 16-plant system to make a whole lot of ULSD. We also have the ability to bring in additional sour gas oil if needed and make sweet gas oil for our system. So is that really what you're getting at?

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

A huge range of uncertainty and a wide range of expectations out there. What I'm really trying to understand is if gasoline is as weak as it has been, I'm thinking Brent based like European refineries, this is probably the best thing to happen to them in 20 years. But it seems to us that you could cap that upside by swinging cat feed into the bunker fuel market and essentially improving the supply side of what is expected to be a tight supply dynamic. I'm just wondering, if you think we're getting that wrong, is that something you think about as well? And ultimately, what do you think the endgame would be if that was the case?

Raymond L. Brooks -- Executive Vice President, Refining

At this point none of our plants would have us essentially slacking our cat crackers and then blending that cat feed. Our models going forward see very good opportunities for running our cat crackers. We have taken the opportunity to change our catalyst mix and our cat crackers to swing more toward petrochemicals, But we don't have any forward look that slacks our cat cracker at this point.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Yeah, Doug you -- the equipments you have, the processing facilities you have, you absolutely maximize those to the fullest extent. You may change a little bit of your feedstock. But the way we are set up whether it's cat feed, whether it's light crude or whether it's heavy crude. We will absolutely maximize the amount of diesel we could make, no matter what feedstocks are available, we will top those facilities out.

Operator

Thank you. Our next question is from Manav Gupta from Credit Suisse.

Manav Gupta -- Credit Suisse, North America -- Analyst

Hi, guys. Gary earlier in the year you were working very closely with Washington to improve the situation on RINs and it looks like some of what you did and plus other steps have been a big problem solver. Now a lot of people forget that MPC does have retail, but it's still exposed to RINs, so was Andeavor. So can you talk a little bit about how this lower RIN prices will be quantify, how much of benefit it would be to the combined entity MPC plus Andeavor?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

You're right, Manav, and in fact I'm going to go back to Washington again next week to -- I don't know, chat about this. But our big push has been to have a refresh, if you will of the renewable fuel standard. And while that has not happened yet, you really step back and say and look at the numbers RINs have gone from $1.25 back in 2016, 2017 down to $0.78 this week. So we have made a tremendous amount of progress and has to do with lower refinery or smaller refinery exemptions and the accounting of RIN is beyond that.

So we have -- had a tremendous improvement in the cost of RINs, I'll ask Tim to -- if he can answer your question on what that value is. But as I said, we have made a lot of progress. We're not fully aware, we think the market needs to go and we're -- the administration needs to go as far as fixing this RFS problem, but we're continuing to work on it diligently. Tim, can you answer the question on the value side?

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Sure. Manav, you've probably seen and we've said this on multiple occasions over the last couple of years that we're not believers that RIN costs are drive differential profitability within the refining system. I think we are -- we have a pretty convicted view that as RIN prices arise, it gets reflected in the crack and on a net basis, the system is no better worse off than where things were at. So I'm not sure, we'd highlighted an incremental benefit to the lower RINs cost, it certainly introduces a lot less noise into the market, relative to what the real economic cracks are, but we wouldn't identify any natural economic benefit in total to the system related to the lower prices.

Manav Gupta -- Credit Suisse, North America -- Analyst

A very quick follow-up. You're cracking about 3.5 million to 4 million barrels of capacity coming from Permian to the Gulf Coast. What's your outlook for 2021 for light sweet crude on the Gulf Coast? Would the entire MPC's refining system become an advantage system just like the MidCon, as all this Permian crude flows into the Gulf Coast?

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Well, you've just touched on kind of our thesis, what we think is going to play out over time. As we've said in the past, Manav, we could run 70% light slate or 70% medium sour to heavy slate. With all of the light sweet crude that's being exported out of the market and with the number that Middle East producers wanted to continue to have their market share not erode in the Gulf Coast, we believe the medium sour will become kind of the crude de jure because so much light sweet crude is going to be exported, and competitively, the foreign players are not going to want to have to come and compete with that.

So we believe that we are very, very well positioned, whether it's an air of life, which kind of has a gravity to more look like Mars, we believe that is going to be a very strong feedstock for us going into the future. And as I said earlier, we have the ability to run tremendous amount of medium sours, heavies, or we can keep it in the light range.

The other thing that's so important that -- let me ask Mike Hennigan to just talk a second about the big pipeline projects coming out of the Permian and our strategy. Greg Goff had done the deal on Gray Oak Pipeline. Now we're looking at the Permian to Gulf Coast Pipeline. We're looking at Swordfish, example for the Eastern Gulf. So we have tremendous opportunities there, that I think helps our feedstock supply as well. Mike, you want to talk about that strategy?

Michael Hennigan -- President

Sure, Gary. So, Manav, what we've been doing on the logistics side to support MPC's refining system is what we call the Permian to Gulf Coast Pipeline, which will enable Delaware Basin and Midland Basin crudes be originated out in Wink or Crane or Midland and come down into the Houston, Texas City market as well as other markets. But one of the main drivers is the supply to Galveston Bay refinery. We've also expanded the Ozark Pipeline as well as the Wood River to Patoka Pipeline to get Cushing light material up into that area.

And as Gary mentioned as well, we're also looking at what the market needs from an overall standpoint as far as exports. And we've talked to -- and we'll talk a little bit more on the later call on the Swordfish Pipeline, which is existing assets that we think is going to be very competitive and connecting that Eastern Gulf system to refineries into the export markets. So we're very attuned to the point that you made about light sweet growth. We're trying to maximize our abilities to get that to markets, whether it be the refining systems at MPC or others and also into the export market.

Operator

Thank you. Our next question is from Prashant Rao from Citigroup.

Prashant Rao -- Citigroup -- Analyst

Hi, good morning. Thanks for taking the question. I guess my first one, I wanted to touch on crude sourcing. And I think you guys have touched upon this already on the call, but waterborne crude, particularly, I think, is sort of the other side of the question when you're talking about getting more domestic heavy discounted barrels than light barrels. And so just wanted to get some color on the current market. We've seen Maya differentials come in, maybe the Gulf Coast. Waterborne heavy barrels have been a little bit more difficult, they were in 3Q.

So that's -- part one is sort of to ask about that in the Gulf Coast. But then also pro forma for the company if you look at PADD V as well, what we've heard from some other peers that waterborne heavier barrels were maybe a little bit more challenging compared to domestic versus ANS out there. So I wanted to get your thoughts around that, too, and maybe initiatives around sort of managing crude costs sort of more in the medium-term pro forma for company in both of those regions.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Rick?

Rick D. Hessling -- Senior vice President of Crude Oil Supply and Logistics

Yes, this is Rick. So first off, on the Maya piece, Maya has been extremely expensive. Its formula, as you know, follows basically WTS as well as some other domestic grades. So with everything strengthening, Maya has kind of priced itself out of the market. The good news from our front on Maya is we run very little Maya, and we are able to pivot away from Maya and have great optionality to bring in other heavies. On the market tightening, I would agree with that, that it had tightened for a period of time, but I would tell you at this 10 seconds and looking forward, we're seeing a window where the market is now the avails looks good, the economics behind the avails look good, both on heavy and air of gulf crudes, as well as Latin American and crudes really throughout and around the globe.

So we believe the pinchpoint of the tightness in the market is kind of clearing, and we believe better days are ahead, certainly, with optionality into the Gulf with all waterborne crudes.

Prashant Rao -- Citigroup -- Analyst

Okay. Thank you. And I guess the follow-up, sort of a little bit more specific to the quarter and thinking it carries forward through the end of the year here. When I look at the variance year-on-year, understanding and appreciating the $230 million from MPLX, that's unfavorable. There's still $190 million or so in that minus $419 million negative variance in the other category. I know that's a mix of things. But just wanted to get a sense of it, if there's anything color you can give on that in the quarter and maybe how we should be thinking about that going forward.

It sounds like in general, things are positive and we should see a strong 4Q here given the Canadian heavy barrels' turnaround season is being completed and maybe some better crack realizations. So just wanted to make sure that we're thinking about things right in terms of how we're looking at the cadence Q-on-Q and then maybe into early '19.

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Yeah, Prashant, it's Tim. The -- that $419 million and other really reflects almost entirely the services being paid to MPLX for the refinery logistics assets and fuels distribution. So that is the lion's share of that delta versus last year. And it's probably inappropriate assumption these on a going forward basis because those are agreements that'll be in place for an extended period of time.

Operator

Thank you. Our next question is from Brad Heffern from RBC Capital Markets.

Brad Heffern -- RBC Capital Markets -- Analyst

Hey, everyone. I'll just skip it to one given we're past the top of the hour here. But I was wondering, Gary, if you could give your thoughts on the E15 year round waiver. And I'm particularly interested in your thoughts from a Speedway standpoint as to whether you see value in having an E15 offering and sort of what your assessment of the long-term demand impact is on gasoline.

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Okay. I'll just give you a very quick summary. We could talk a long time about this. But probably less than 1% of the stations in America today are offering E15. We have analyzed it in many different ways, and if you look at the -- still the biggest issue is a majority of the vehicles on the road today will not warrant anything greater than E10, unless you have a flex-fueled vehicle. So as we continue to study that, the procedures and implementation processes are not out yet from the EPA on how they would implement this.

We question whether or not they really have the authority to grant this E15 waiver year round. Adding incrementally, it's three months beyond what's already in the marketplace today. So it's not -- we kind of look at it as being de minimis. However, E85 -- excuse me, E15, the way it's marketed, is at an 88 Octane. There will be a number of issues you would have to be able to counter such as misfueling. So we continue to analyze this. We need to see, Brad, what the procedures are that come out from the EPA before we make a final determination. But I think the best thing that has happened throughout all of this, it's kind of been neutral to the overall market, but Brent prices have really continued to decline.

Kristina Kazarian -- Vice President of Investor Relations

Sounds great, operator. I think we'll end there. So thank you, everyone for joining us today, and thank you for your interest in MPC. Should you have additional questions or would like clarification on any of the topics discussed this morning, we will be available to take your calls. Operator, that's it.

Operator

Thank you. And this does conclude today's conference. You may disconnect at this time.

Duration: 63 minutes

Call participants:

Kristina Kazarian -- Vice President of Investor Relations

Gary Heminger -- Chairman of the Board, Chief Executive Officer

Donald Templin -- President

Timothy Griffith -- Senior Vice President and Chief Financial Officer

Doug Terreson -- Evercore ISI -- Analyst

Neil Mehta -- Goldman Sachs -- Analyst

Rick D. Hessling -- Senior vice President of Crude Oil Supply and Logistics

Paul Cheng -- Barclays Capital -- Analyst

Phil Gresh -- JPMorgan -- Analyst

Gregory Goff -- Executive Vice Chairman

Roger Read -- Wells Fargo -- Analyst

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Raymond L. Brooks -- Executive Vice President, Refining

Manav Gupta -- Credit Suisse, North America -- Analyst

Michael Hennigan -- President

Prashant Rao -- Citigroup -- Analyst

Brad Heffern -- RBC Capital Markets -- Analyst

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