Image source: The Motley Fool.
DATE
Tuesday, Nov. 4, 2025 at 11 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Maryann T. Mannen
Chief Financial Officer — John J. Quaid
Executive Vice President, Refining — Rick D. Hessling
Vice President, Refining — Michael J. Hennigan
Need a quote from a Motley Fool analyst? Email [email protected]
RISKS
Maryann T. Mannen stated, "we generated 96% capture, sequentially down from the second quarter of 105," mainly driven by a 40% fall in West Coast clean product margins and headwinds on jet-to-diesel differentials and secondary product margins.
John J. Quaid noted that renewable diesel segment margins were "weaker in the third quarter as higher diesel prices and RIN values were more than offset by higher feedstock costs."
John J. Quaid described the regulatory environment for renewables as "probably more unknowns than knowns right now," underscoring ongoing uncertainty and its potential negative effects on margins and operational clarity.
TAKEAWAYS
Cash Flow from Operations -- $2.4 billion, excluding changes in working capital, reflecting significant cash generation in the quarter.
Refinery Utilization -- 95%, with throughput of 2.8 million barrels per day; multiple refineries achieved monthly throughput records.
Adjusted EBITDA -- $3.2 billion (adjusted) for the quarter, approximately flat sequentially from the previous quarter.
Adjusted Net Income -- $3.01 per share on an adjusted basis, as explicitly disclosed.
Capture Rate -- 96% in the quarter; year-to-date capture is 102%, up from 95% in the prior year's period.
Shareholder Returns -- over $900 million returned in the quarter: $650 million through share repurchases and $276 million via dividends.
Dividend -- Company announced a 10% dividend increase, attributed to management's confidence in the business outlook.
MPLX Distribution -- Marathon expects to receive $2.8 billion annually from MPLX, with targeted distribution growth of 12.5% over the next couple of years.
R&M Adjusted EBITDA -- $6.37 per barrel, reflecting segment profitability with margin strength in the Mid Continent offset by Gulf Coast and West Coast declines.
Midstream EBITDA -- Segment adjusted EBITDA increased 5% year over year, supported by asset acquisitions exceeding $3 billion.
Renewable Diesel Utilization -- 86% for the segment, as reported by management.
Crude Throughput Outlook -- Fourth-quarter crude throughput projected at 2.7 million barrels per day, implying 90% utilization.
Galveston Bay Hydrocracker -- Expected to be at full capacity before the end of the month, positioning the Gulf Coast system for optimization.
Turnaround Expense Guidance -- Fourth-quarter turnaround expense forecast at approximately $420 million, with West Coast focus.
Operating Cost Guidance -- Fourth-quarter operating cost projected at $5.80 per barrel; distribution costs at approximately $1.6 billion, and corporate costs at $240 million.
Capital Expenditure Trend -- 2026 capital is anticipated to be below 2025 levels, per stated management planning.
SUMMARY
Marathon Petroleum (MPC 4.90%) management confirmed a continued commitment to shareholder returns through a combination of regular dividend increases and ongoing share repurchases. The company executed portfolio optimization transactions, including the sale of an ethanol joint venture stake and strategic midstream acquisitions, both supporting future cash flow. Operating cost structure guidance and expectations for reduced capital expenditures next year signal confidence in ongoing efficiency improvements and reliable long-term cash generation. Market-driven volatility primarily affected West Coast capture rate performance, but operational reliability and demand resilience in diesel and jet fuel provided support for segment profitability. The regulatory outlook in the renewable segment remains uncertain, and higher feedstock costs weighed on margins, creating a challenging environment for further investment decisions in renewables.
Rick D. Hessling said, "we have a significant feedstock advantage on the West Coast," emphasizing a market edge in local crude sourcing.
Management projects MPLX distributions to grow to over $3.5 billion annually in the coming years as the 12.5% target is sustained.
West Coast refinery upgrades, specifically the Los Angeles project coming online, are expected to deliver compliance and EBITDA improvements affecting future competitive position.
Demand indications from internal systems show diesel and jet usage growth, with gasoline described as "flat to slightly lower" according to Rick D. Hessling and product inventories below five-year averages.
Plans call for infrastructure expansion in the Permian Basin via sour gas and NGL asset purchases, with related EBITDA expected to ramp in 2026 and beyond.
INDUSTRY GLOSSARY
Capture Rate: The percentage of available market crack spreads converted into refining margin, reflecting operational and commercial effectiveness.
Crack Spread: The price difference between refined products and crude oil, representing refining profitability.
MPLX: Marathon Petroleum’s majority-owned master limited partnership focused on midstream logistics assets, including pipelines and processing.
Turnaround: Planned shutdown for maintenance, upgrade, or inspection of refinery facilities.
RIN: Renewable Identification Number, a credit used to track renewable fuel compliance under the U.S. Renewable Fuel Standard.
ASCI: Argus Sour Crude Index, a benchmark used for pricing certain varieties of sour crude oil in the U.S. Gulf Coast.
NGL: Natural Gas Liquids, a group of hydrocarbons including propane, butane, and ethane, separated from natural gas.
VGO: Vacuum Gas Oil, a feedstock for further processing in refineries to produce distillates like diesel and gasoline.
FCC: Fluid Catalytic Cracking, a major refining process converting heavy oils into lighter, more valuable products.
LCFS: Low Carbon Fuel Standard, regulations designed to reduce carbon intensity in fuels.
PADD: Petroleum Administration for Defense Districts, geographic U.S. areas used in petroleum logistics and statistics.
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization, a measure of operational profitability.
PTC: Production Tax Credit, a government incentive for producing certain renewable fuels.
Full Conference Call Transcript
Maryann T. Mannen: Thank you, Kristina, and good morning. I would like to take a moment to recognize Michael J. Hennigan. At the end of the year, Mike will be stepping down as executive chairman. Mike's guidance has been tremendously valuable to our Board, to me, and our entire leadership team. We thank him for his service as well as all of his contributions. He will be missed. In the third quarter, we delivered strong cash generation of $2.4 billion. Utilization in the quarter was 95% as we executed our planned refinery turnarounds, safely and on time. Our team delivered 96% capture despite significant market-driven headwinds. Year to date, capture is 102%, compared to the prior year's level of 95%.
We believe this demonstrates our commitment to deliver sustainable, improving commercial performance in varying market conditions. We have generated $6 billion of operating cash flow excluding changes in working capital and have returned $3.2 billion to shareholders through the third quarter. Last week, we announced a 10% increase to Marathon Petroleum Corporation's dividend reflecting our confidence in our business outlook. We believe that we should be able to lead in cash generation through the cycle, delivering peer-leading results. In October, our blended crack was over $15 per barrel, which is seasonally strong and more than $5 per barrel or 50% higher than the same time period last year.
Diesel and jet demand are up modestly across our system, gasoline is flat to slightly lower. The product inventory draws reported last week signal strong demand. Gasoline and distillate inventory levels remain below five-year averages. Current market fundamentals are indicative of tightness in supply and supportive demand, which we believe will continue into 2026. Throughout the quarter, we completed several transactions advancing our strategic objectives and optimizing our portfolio. We sold our interest in an ethanol production joint venture as the partner's strategic goals evolved and diverged, an opportunity came for Marathon Petroleum Corporation to exit the partnership at a compelling multiple.
MPLX acquired a Delaware Basin sour gas treating business and the remaining 55% interest in the BANGL NGL pipeline. These transactions further MPLX's growth profile. MPLX increased its distribution this quarter reflecting conviction in its growth outlook. We now expect to receive $2.8 billion annually from MPLX. MPLX continues to target a distribution growth rate of 12.5% over the next couple of years, which would imply annual cash distributions to Marathon Petroleum Corporation of over $3.5 billion. We are driving value and positioning Marathon Petroleum Corporation to be industry-leading in its own capital return program.
With our competitive integrated refining and marketing value chains, and durable midstream growth driving increasing distributions from MPLX, we believe Marathon Petroleum Corporation is positioned to deliver industry-leading cash generation through all parts of the cycle. Now I will hand it over to John to discuss our financial performance.
John J. Quaid: Thanks, Maryann. Moving to third-quarter highlights, Slide four provides a summary of our financial results. This morning, we reported third-quarter adjusted net income of $3.01 per share. We delivered adjusted EBITDA of $3.2 billion and $2.4 billion of cash flow from operations excluding changes in working capital. Marathon Petroleum Corporation returned over $900 million of capital to shareholders in the quarter with repurchases of $650 million and dividends of $276 million. Slide five shows the sequential change in adjusted EBITDA from the second quarter to the third quarter and the reconciliation between adjusted EBITDA and our net results for the quarter. Third-quarter adjusted EBITDA of $3.2 billion was largely in line with the prior quarter.
R&M segment results on Slide six were strong, with adjusted EBITDA of $6.37 per barrel. Our refineries ran at 95% utilization, processing 2.8 million barrels of crude per day. Several of our refineries achieved monthly throughput records in the quarter, including Robinson and Detroit in the Mid Con, and Anacortes on the West Coast. Mid Con margins strengthened sequentially but were offset by declining margins in the US Gulf Coast and the West Coast. Turning to Slide seven, third-quarter capture was 96% with headwinds in the West Coast and the Gulf Coast. Jet to diesel differentials compressed, we faced lower clean product margins, and inventory changes contributed headwinds to capture.
The downtime of our Galveston Bay refinery resid was also a headwind to capture of almost 2% across the whole system with a larger effect on our Gulf Coast results.
Operator: Slide eight shows our midstream segment performance for the quarter.
John J. Quaid: Segment adjusted EBITDA increased 5% year over year. MPLX is executing its growth strategy targeting its natural gas and NGL value chains and remains a source of durable cash flow growth for Marathon Petroleum Corporation. Slide nine shows our renewable diesel segment performance for the quarter. Our renewable diesel facilities operated at 86% utilization, reflecting improved operational reliability. Margins were weaker in the third quarter as higher diesel prices and RIN values were more than offset by higher feedstock costs. We will continue to optimize our renewable operations leveraging their logistic and pretreatment capabilities. Operating cash flow, excluding changes in working capital, was $2.4 billion.
In the third quarter, MPLX completed acquisitions of over $3 billion and issued debt in connection with those acquisitions to finance them. Also, as we discussed with you last quarter, our second-quarter share repurchases were influenced by the anticipated proceeds cash of nearly $900 million and MPLX had cash of approximately $1.8 billion. Turning to guidance on Slide 11, we provide our fourth-quarter outlook. We are projecting crude throughput volumes of 2.7 million barrels per day, representing utilization of 90%. The Galveston Bay resid hydrocracker is expected to be at full operating capacity before the end of the month, enabling optimization of our Gulf Coast system.
Turnaround expense is projected to be approximately $420 million in the fourth quarter with activity mainly focused on the West Coast. We are completing our multiyear infrastructure improvement project at our Los Angeles refinery in the fourth quarter, with startup scheduled to align with the conclusion of planned turnaround work before the end of this month. These improvements are intended to strengthen the competitiveness of our Los Angeles refinery and position us to remain one of the most cost-competitive players in the region for years to come. Operating costs for the fourth quarter are projected to be $5.80 per barrel. Distribution costs are projected to be approximately $1.6 billion, and corporate costs are expected to be $240 million.
With that, let me pass it back to Maryann.
Maryann T. Mannen: Thanks, John. We delivered a strong quarter in Refining and Marketing. Safe and reliable operations are foundational. Operational excellence is integral. The commercial team is optimizing decision-making as we leverage our value chains and capture opportunities the market presents. We are optimizing our portfolio through strategic investments. Fourth-quarter refining cracks have started out stronger than seasonal averages and support our enhanced mid-cycle outlook into 2026. Our integrated value chains and geographically diversified assets position us to lead in capital allocation and offer a compelling value proposition to our shareholders. Thanks, Maryann. As we open your call for 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 re-prompt for additional questions. Shirley, could you please open the line for questions? Thank you.
Operator: We will now begin the question and answer session. Please press star then 1 on your touch-tone phone. If you wish to be removed from the queue, please press star then 2. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then 1 on your touch-tone phone. Our first question comes from Neil Singhvi Mehta with Goldman Sachs. Your line is open. You may ask your question.
Neil Singhvi Mehta: Yes. Good morning, Maryann and team. And Maryann, congrats on the chairmanship as well. The question I had was really around capture rates in the quarter. We have gotten so used to you putting up north of 100%. 96 felt a little softer. And I think you called out some stuff in the script a little bit about the roof, but also some West Coast dynamics around diesel and jet. Wondering if you could unpack that for us here.
Maryann T. Mannen: Yes. Certainly. And good morning, Neil. Thanks for your questions. So absolutely, in the quarter, we generated 96% capture, sequentially down from the second quarter of 105. I would say that the West Coast was the leading driver in the quarter. It accounted for more than 50% of the capture change. We actually saw clean product margins fall about 40% in the West Coast. The jet premium to diesel narrowed. In fact, it actually moved from a benefit to a negative. And then, of course, as you know, secondary product margins were clearly a headwind. So again, the West Coast was really the majority of the driver for the sequential change in capture.
Second, and John, as you said, mentioned it in his remarks as well, the RUE, and Mike shared with you sort of the status of that on our last earnings call, obviously, its downtime impacted the quarter and then, you know, also the jet to diesel there. Year to date, as I mentioned, our capture is at 102 through the third quarter, and that compares to 95 the prior year quarter. So what we are hoping that you see is the sustainable changes that we have been working on over the last few years. Will continue to serve us well. You know, our headwinds were certainly challenged. Fourth quarter, as you know, is typically our strongest quarter. For many reasons.
And we will share a little bit more with you there. But we certainly do not see the fourth quarter being any different than we have in prior quarters as well. So let me pass it to Rick, and he will give you some incremental color as well now.
Rick D. Hessling: Yeah. Hi, Neil. Just a couple of comments additional to Maryann. So we are off to a good start in the fourth quarter. We have seen the jet and product margins go right back to normal levels, so that is quite encouraging. You know, we are one month through the quarter, but signals look promising. And the other item that I would add on March, and we are heading into blending season. So as we go into April now, the building of inventory hit that we took in March will be a tailwind in the fourth quarter. So we look to be in really good shape here, Neil, heading into the fourth quarter.
Neil Singhvi Mehta: Yes. Thanks, Maryann and Rick. And then the follow-up is just on return of capital. It was a little bit lighter from a buyback perspective than, again, I think where the street was modeling. You just talk about how you are thinking about share repurchase on the go forward?
Maryann T. Mannen: Yes. Certainly. Happy to do so, Neil. Thank you. No change in terms of the way that we view our primary return of capital using share buyback. You know, as you know, essentially, what we have said and you heard we have announced a 12.5% distribution increase at MPLX. Then that brings about $2.8 billion back on the Marathon Petroleum Corporation side. So our ability as we said, given the differentiation with our midstream distribution should allow us to lead in capital returns. And, you know, you can see that on a year-to-date basis, share those statistics there with you.
No change, Neil, and our ability to continue to lead in share purchase, it no change in the way we view it. And it will be, as you know, the primary return of capital going forward.
Neil Singhvi Mehta: Perfect. Thanks, Maryann.
Maryann T. Mannen: You are welcome, Neil. Thank you. The next question comes from Manav Gupta with UBS. Your line is open. You may ask your question.
Manav Gupta: So I am going to start with the West Coast. We understand capture can move around a bit. It should not matter that much. But when we look at the West Coast, one big refinery has closed in your backyard. Another one will most likely close in the next three to four months. And, yes, there are some product pipelines that might show up, but they might not show up for three years. So I am just trying to understand, given this setup and the upgrade you are doing at your refinery, could we see you generate above mid-cycle margins on the West Coast for the next maybe eight or even twelve quarters?
Can you talk a little bit about that?
Rick D. Hessling: Yes. Hi, Manav. This is Rick. So you point out some very dynamic items that are happening on the West Coast. Let us maybe walk through them one by one. So as we look today, I think you are well aware, we are looking at a $40 clock today, and we have got one closure that has happened one that appears that it may happen early next year, and this is just simply supply and demand. The market is efficient, and the market is responding and showing you that the market is efficient. So when we look at the overall market, there are a couple of lenses I would like you to view it from.
Is we optimize not only the West Coast, but along with the Pacific Northwest. So when we look at our system, it is no different than what we look at when we look at our mid Con region, which, as you know, is highly integrated. So is the West Coast and Pacific Northwest. What I mean by that, Manav, is when you look at Anacortes and you look at Kenai, and you look at LA, which we have invested in and continue to invest in as the largest, most dynamic, complex, efficient refinery in the California region, we believe we had a competitive advantage that not only exists today, but will exist far into the future.
And when you maybe back away even from LA, my and you look at Anacortes and Kenai, we are able to those two refineries to fill the short that is in the San Francisco region. So all three of those assets are complementary to one another. In terms of the pipelines that are rumored to come into the region, I would say that is a big if. I would say those projects I would say, are ambitious and at earliest might be 2029. But when we look at the overall structure of the market, Manav, the incremental barrel coming into the marketplace continues to be a waterborne barrel.
They have a timing and a transportation cost, that we can and will beat all day long, and that does set the market. And that, therefore, is an incredible incremental advantage. To Marathon Petroleum Corporation, only for the West Coast, but for the Pacific Northwest.
Maryann T. Mannen: Manav, it is Maryann. The other thing that I might add to Rick's comprehensive response to your question would be, as you know, our LAR project is coming online in the fourth quarter and intended to meet not only NOx reduction emission requirements, but also greater efficiency and improvement in EBITDA. And that project will benefit us in 2026 as well, and that comes online in the fourth quarter. That is the West Coast benefit also.
Rick D. Hessling: Manav, maybe, not to come over top of Maryann, but an item I meant to bring out, and I just it slipped my mind, is we have a significant feedstock advantage on the West Coast. And if you look even six months ago versus where we are at today, when you look at the closure that just happened and the one that is about to happen, in 2026, we are buying more local California crude today than we ever have. Actually, it is two times greater than we had in the past at a significant advantage. So while our advantages were great even before that happened, that just continues to stress why we are so committed to California.
And the feedstock advantage is real. And really helps us compete quite well with those waterborne imports.
Manav Gupta: Perfect. My quick follow-up here is I am going to focus a little bit on Marathon Petroleum Corporation dividend growth. Maryann, you provided a very detailed response to John Mackay's of projects in MPLX, it is pretty clear that question on the MPLS call. And as you walked through the growth pipeline, MPLX could support the distribution growth of 12.5% for two or maybe even three years.
Now when we couple that with the buyback and how that lowers the dividend burden, would it be fair to say that at this point, if refining cracks hold even mid-cycle or maybe slightly below mid-cycle, Marathon Petroleum Corporation is in a very good position to raise its dividend by 10% for the next couple of years at least supported by distribution from MPLX and the buyback that lowered the dividend burden?
Maryann T. Mannen: Manav, well said. The answer to that is yes. You know, as you know, over the last few years, you know, we have taken over 50% of the equity out through our share buyback initiative. For the last three years, we have raised the Marathon Petroleum Corporation dividend 10% per year, and then prior to that, 30%. But as you clearly state, and our commitment to continue to use our share buyback as a critical lever to return capital to our shareholders. That share count will continue to decline, making it obviously supported by our mid-cycle environment, our belief there, making that dividend opportunity clearly possible for the next several years at Marathon Petroleum Corporation as well.
And as I mentioned on the MPLX call, you know, we see a couple more years of 12.5% as we continue to deliver that mid-single-digit growth. So both of those things should be extremely supportive.
Manav Gupta: Thank you so much.
Maryann T. Mannen: You are welcome. Thank you.
Operator: Thank you. Our next question comes from Douglas Leggate with Wolfe Research. Your line is open. You may ask your question.
Douglas Leggate: Hi, everyone. Hi, Maryann, and congrats from me as well. Please pass our best regards on to Mr. Hennigan. He officially moves into retirement. I have two quick ones, hopefully. Can you address the CapEx specifically for refining relative to the guidance you gave at the beginning of the year? It seems you are running a little hot. I am just wondering if something is changing there or if it was cadence or for some other explanation as to why we should or should not be paying attention to that. And my follow-up is a simple one. I want to hark back to the balance sheet. And buybacks and just get your simple perspective.
Obviously, we have had extraordinary share performance from Marathon Petroleum Corporation. One could argue, you know, elevated valuation, certainly elevated margins for the time being. And a slowdown in the buyback. I believe the slowest is for the fourth quarter of 2021. I think, might be weighing on your shares today. So my question is simply, are you prepared to lean on your balance sheet to buy back your shares?
Maryann T. Mannen: So, Doug, let me try to address some of those, and then I will pass it to John to give you a little more color. I think we have probably said this before, but at the risk of maybe repeating, you know, no one quarter or for that matter, any one given month is meant to be indicative of the way that we view share buyback. And, frankly, if you look consistent with what we have shared, you know, we are comfortable with roughly a billion dollars on our balance sheet. Last quarter, you know, for a lot of reasons, we ended lower than that, and, you know, we delivered strong share buyback performance.
So again, no one quarter should be indicative of how we view that. We remain committed to using share buyback as the element of return of capital and will consistently do that. You know, as I shared earlier, the benefit of that growing distribution from MPLX two years now at 12.5% and growing should also be supportive for us to be able to lead in the return of capital. I think the other part of your question was, would we use our balance sheet? In other words, would we take on debt? And we do not see taking on debt at Marathon Petroleum Corporation to buy back stock as something that we would do.
Having said that, we do believe that our margin delivery will allow us to continue to lead in share repurchases. I am going to pass the question back to John, and he can give you some color on capital. And then I will follow up. Thank you.
John J. Quaid: Hey. Morning, Doug. So, yeah, certainly looking at capital, I think what you are seeing there is we are looking across our value chains and where we are positioned, we are finding really good opportunities to drive investments whether it is operationally or commercially to drive reliability, drive mix and yields, and really drive margin and capture. So I think that is partly what you are seeing in the numbers this year, and maybe I will turn it back to Maryann because I know she had a comment to follow up there as well.
Maryann T. Mannen: Yeah. Thanks. And thanks, John. You know, the one thing that I wanted to be clear, we have not given guidance yet for 2026. And as you know, consistent with the way that we always have, we will provide you full-year guidance. But I think as you are thinking about planning, you should assume that 2026 capital will be below 2025, and we will give you incremental color on the next quarter call. But you should assume capital will be below 2025.
Douglas Leggate: Thank you so much, guys.
Manav Gupta: Thank you.
Operator: Thank you. Our next question comes from Sam Margolin with Wells Fargo. Your line is open. You may ask your question.
Sam Margolin: Hi, good morning. Thanks for taking the question. Good morning, Sam. Maybe we could drill into this jet to diesel dynamic. It seems like it was pretty influential. And you said it is normalized now. But if you just look at the shape of sort of what underlying crack spreads did for the quarter, it was volatile. Right? There are a few, like, sort of big pulses higher and then it came in. I mean, how much of the, you know, I guess, jet to diesel relationship in the quarter would you attribute to kind of unusual volatility across the array of commodities versus, you know, something more structural or any other macro effect you want to call out?
Rick D. Hessling: Yeah. Hi, Sam. It is Rick. So we have not seen a volatility between the jet diesel differential to this extent. I can tell you throughout the length of my career, Sam, it was unprecedented, and I really think it was a combo of inventory and supply-driven. We did have some inventory switches on the diesel side and then jet took the opposite position. And it just caused an imbalance for the better part of a month, month and a half. And it is certainly corrected itself. But we do not see it as structural whatsoever.
Sam Margolin: Okay. Thanks. That is helpful. And then maybe taking a step back, just to the macro because nobody has asked about demand yet. Given all the moving parts of the quarter. But what is interesting about this environment is that, you know, a lot of indicators that normally correlate to demand do not look that strong. You know, consumer sentiment is very low. PMIs are basically below fifty. You know, everywhere. And yet, refining margins are still, you know, very high. And so I guess this is a question about kind of the conditions you are seeing today, and what that means for kind of what a real mid-cycle margin environment looks like.
It looks very much like the mid-cycle might be lifting higher based on kind of long-term capacity trends and indicators today. But would love your perspective on that. Thank you.
Rick D. Hessling: Yes, Sam. So let me start by saying we tend to believe we have some of the best indicators in the United States. With the breadth and depth of our refining and marketing business throughout the United States. Every day, we are getting demand signals. So while there are a lot of surveys out there, I would tell you we have what we would call hard facts, and we feel very good about what we are seeing today and going forward.
If I were to take a step back just for a moment, I mean, as you know, global demand continues to grow, whether it is the IEA, or OPEC, or almost any institution, everyone continues to up their global demand views, by several 100,000 barrels a day. But more so closer to home here, Sam, when we look at diesel and jet, we continue to see modest growth. And saw that in the third quarter, and we are seeing that here again to start the fourth quarter. And gasoline, it depends on the region within gasoline. But gasoline is flat-ish to slightly lower. To the prior year, which to us is a very strong signal.
And as you know, we are in max diesel mode everywhere driven by the diesel crack. And we are seeing strong signals not only on over the road, but container business as well, harvest season. So we are getting a lot of positive signals today, Sam. That would lead us to be very bullish looking forward here into the near term. And then if I even zoom out a little bit further, Sam, you continue to see the slightest bit of disruption in a region that is causing cracks to blow out greater than what they have in the past. A good example is the West Coast today.
You know there are operating issues out on the West Coast as well as a closure. Then even go to the Mid Con where we are seeing outsized cracks for this time of year, because of a disruption. To me, as an if an outsider is looking in, I would say this is a primary example of how tight this market is. From a US perspective. And then globally, when you look at, you know, drone attacks, I woke up and read another article yet this morning on a Russian refinery getting hit with another drone. That is sending the market in turmoil. Especially from a diesel perspective.
We are having good success, Sam, taking diesel to Europe because the whole Russian product export portfolio has been turned upside down. So that is advantaging US refiners like us who have a really strong appetite to export on the Gulf Coast.
Maryann T. Mannen: You are welcome, Sam. Thank you.
Operator: Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open. You may ask your question.
Paul Cheng: Good morning.
Maryann T. Mannen: Good morning.
Paul Cheng: Maryann or maybe this is for John, you guys have mentioned that the third quarter one-off the impact on the margin capture is on butane inventory build. Can you give us some idea of how big is that impact? What are your in the dollar per barrel or percent of capture weight? Secondly, I want to go back into California. With the new pipeline proposal and all that, we know that, I mean, not all of them probably will be materialized. But I suppose that at least one may be materialized. And so how you guys will position yourself and also then I think Rick has said that you believe the main import avenue is going to be waterborne.
Will Marathon Petroleum Corporation be an act and aggressive player in that market and already organize a range import coming in given your airway logistics that you would be able to easily bring import? So trying to understand how you are positioned yourself.
John J. Quaid: Paul, it is John. I will start with the inventory question you had on. Rick mentioned earlier, there were a few different inventory changes, I would say, that affected capture. One that Rick mentioned earlier, would expect every season, right, as we are building LPGs. To get ready for blending season. We also had some VGO we built ahead of some FCC turnarounds that kind of bridge the quarter, and then probably some other pieces as well, Paul. But, I mean, it was if you add all those up, it is, you know, it gets you to a pretty good effect on cap quarter to quarter.
Paul Cheng: John, do you can you quantify? Is it safe? 3%, 4%, 1%, and any kind of color?
John J. Quaid: Yeah. It is probably closer to three to five, Paul.
Paul Cheng: Thank you.
Rick D. Hessling: Hey, Paul. It is Rick. So let me start with the pipeline question. So, you know, there are as you mentioned, several announcements out there. And if one of them goes through, I would say that is if. If one does and it comes, the origin comes out of the MidCon, I would say, Paul, that is extremely positive for us. Most pundits on the one coming out of the MidCon would say that about 100,000 to 200,000 barrels per day could come out of the MidCon. And as you know, Paul, we have got about 800,000 barrels per day through our four plants that come out of the MidCon.
So we feel like we would benefit significantly with that draw coming out of the MidCon. Now I will pause, and say that is a big if. Because when you look at a tariff that is yet to be set on if a line comes out of the MidCon. As best we can tell, it is about a thousand-mile pipe that would need to be laid. Across several states. It is long haul. And it would most likely or potentially cross governmental administrations. So there is a wild card there. So there are a lot of ifs on the cost. And the likelihood of it happening.
But if one would come out of MidCon, we see it as quite bullish for us. On the second part of your question, on the waterborne market, from a commercial perspective, we absolutely have a significant advantage with our LA asset and our Pacific Northwest assets. However, Paul, if we see a trading opportunity in the waterborne market, we will look at it just like we look at every other market. But I would tell you at this ten seconds, that would not be a primary focus of ours. Our focus is to really ring the value out of our fully integrated value chain between the West Coast and Pacific Northwest.
Paul Cheng: Okay. Rick, if I interpret it correctly, it means that you do not have a plan to be a consistent and active importer of product into the California market.
Rick D. Hessling: Paul, I would not tell you if I was. Or was not, but it is a nice try, Paul, but I will not tell you that. We look at every opportunity to make money.
Paul Cheng: Sure. Understand. Thank you.
Maryann T. Mannen: You are welcome, Paul. Maybe just one last wrap on the capture question just to be sure. As you know, over the last several quarters, one of the things that we have been trying to do is continue to provide color on the things that are sustainable that which Rick and his team are working on to provide that sustainable excellence in terms of our commercial performance. And the lion's share of that change that we talked about this particular quarter was really market-driven. That is the volatility I talked about the jet versus diesel, the clean product margins, etcetera.
And then as you know, as a result of that volatility, then the secondary product headwinds can be significant for us. And you know that they are obviously, you know, largely not within our control as well. The one that was, and that is where we have, you know, shared with you the progress, was the Gulf Coast part of that, and that was the, you know, the downtime that we experienced on our roof. And Mike shared with you, you know, the intent to bring that back up and, obviously, expect to have that operational for much of the fourth quarter, that would be the piece that I would tell you with sort of hours.
But largely, when you look at the change quarter over quarter, it was largely market-driven for all of the reasons that I shared. I hope that is helpful for you as well.
Paul Cheng: Thanks, Tom. Very much.
Paul Cheng: Thank you.
Operator: Thank you. Our next question comes from Theresa Chen with Barclays. Your line is open. You may ask your question.
Theresa Chen: Hi, there. Building off of Rick's comments, about how MidCon product margins would likely improve if Kinder and Pilch's pipeline gets built. Is the same true for PADD IV if Dino project The Dino project goes through considering that you do also have a Salt Lake facility and given the relatively low CapEx and minimal looping that would require, would that also improve netbacks for you in that region?
Rick D. Hessling: That one is a little tougher to call, Theresa. This is Rick, by the way. But I would tell you where we see our significant advantage in Salt Lake City is we are the largest refiner in Salt Lake. And we have a significant feedstock advantage with the amount of black and yellow wax we run in that region. And so regardless if something comes in and or out of that region, the project that you are referencing is of such de minimis volumes. We do not see it affecting us really negatively.
And we so we really like where our asset is at because of the reasons I have mentioned and our ability to clear our product to other areas of the country, i.e., Vegas, Arizona, etcetera.
Theresa Chen: Understood. And on the light heavy outlook, what are your expectations on how those differentials evolve from here? What do you think are the key drivers in keeping the geopolitical instability and general macro volatility in mind?
Rick D. Hessling: Up until now, Theresa, I would tell you that TMX has been the key driver. I would say most have been projecting the differentials to get wider, but increased Far East demand through TMX pipeline has really kept Canadian inventories low and differentials tighter than expected. However, as Far East demand appears to be waning, we believe this could provide some relief to those differentials. So we expect incremental Sour differentials to widen slightly in Q1. OPEC production and incremental Canadian production, especially as we enter the diluent blending season and production grows.
The one area that I would like to point out is we have certainly seen depressed ASCI prices as grades are under pressure due to more challenging export environments, both within the US and China. So we believe this is extremely positive. As you know, we are a big player in the asking market. We have a ton of exposure of our barrels priced against an ASCI benchmark. And just as a reference, ASCI prices are $2 weaker than earlier in the year, and the forward curve is one of the weaker four Q1 q ASCII curves that I have seen and we have seen in the last five years. As off production continues to be quite bullish.
The latest number I looked at is it looks like it is slightly above 2 million barrels a day. For the first time since 2020. A lot of big exploration projects coming online. So we are quite bullish on the ASCI as we are seeing that not only in current ASCII markets, but in the future forward curve. I hope that helps answer your question.
Theresa Chen: That is very helpful. Thank you, Rick.
Rick D. Hessling: Thank you, Theresa.
Theresa Chen: Thank you, Theresa.
Operator: Thank you. Our next question comes from Jason Gabelman with TD Cowen. Your line is open. You may ask your question.
Jason Gabelman: Yes. Hey, morning. Thanks for taking my questions.
Maryann T. Mannen: Morning, Jason.
Jason Gabelman: I wanted to start on the West Coast. It has been a heavier turnaround year in that region, and it seems like that is going to continue into 4Q. So just wondering what is driving that? And then more broadly, it looks like turnaround spend is going to be a bit higher than what you have previously guided to. So wondering if that is related to what is specifically going on the West Coast. And then I have a follow-up. Thanks.
Rick D. Hessling: Morning, Jason. This is Mike. On the West Coast, primarily, we are running the refinery currently, but we do have our f and our alky down. We started that turnaround in the third quarter, and then we are coming up with the project that Maryann talked about. Our Enertie project will come up here in the next few weeks. So we should be in a good position to capture that in the West Coast. So at this point, we will be able to run hard on the LAR refinery. From the turnaround cost side, you know, some of it has gone up. Specifically at LARGBR.
That was primarily around opportunities on growth projects and ER projects, mainly around some reliability, which allows us to put us in a position for better capture. Both on the West Coast and the Gulf Coast.
John J. Quaid: Okay. Jason, it is John. I might just kind of add on to Mike's comments. So, you know, certainly, you are seeing the number. You can add the fourth quarter to get to a number for the year. But as we look to '26, that is the number we see coming down. And after '26, we see that trend continuing as well. Just to give you a little bit of a forward look.
Jason Gabelman: Great. Thanks for that. And my follow-up is maybe just on margin capture. And in you know, your indicators do not include some regions that were really strong in February and March, the Pacific Northwest, and the Rockies. And I suppose some had thought, you know, that strength would offset some of the headwinds. That you had mentioned. So if you just talk about your ability the past couple of quarters to capture the strength in the Pacific Northwest and the Rockies. Has that driven that distribution cost number higher, which came in above the estimates or do you feel like your system is kind of well situated at this point to capture those dislocations in the market? Thanks.
John J. Quaid: Hey, Jason. It is Sean. I will start with distribution costs and then turn it over to Rick to talk about kind of, you know, those regional cracks as you noted. So, you know, again, just to take a step back, right, this is our cost that we look at to kind of get our product to market across all our refinery systems. Again, a little bit of a different convention for us. Certainly, like you said, the number is a little bit higher than our guidance, but it really reflects commercial decisions Rick's team is making every day about products, which more markets we go to, and where we see the most margin opportunities.
Some of those might have higher distribution costs, if you will, but we are going after relatively higher margin. And the only other thing I would offer again, that can move quarter to quarter based on those decisions. But if you look at it on a barrel sold basis versus our normal throughput basis, you look year to date this year, year to date last year, it is pretty much the same number. But it can move quarter to quarter, but it reflects those commercial decisions Rick and his team are making. And I will turn it over to Rick to talk about kind of your regional question.
Rick D. Hessling: Yeah, Jason. The regional question is a dynamic one because as we look, and I will just talk about California for a moment, so in California, especially in three q, you know, you have the dynamic between the cracks between San Fran and LAR. Now we would we will and can take some of our Anacortes product and take it and back it into San Francisco and backfill the San Francisco market. But the swings that we have seen between the PNW and the California market, which I always break into two, San Francisco and LAR, are quite significant.
So in any one given quarter, there are times when one region is out clipping the other, but it is a tough call. To make consistently throughout the quarter. And in a lot of cases, in 3Q, I would tell you the PNW actually trailed parts of California. For a negative, for our margin pull-through. So it is quite dynamic, and we do all we can to move around and optimize it to take advantage of the highest margin areas within that region.
Jason Gabelman: Great. Thanks for those answers.
Maryann T. Mannen: Thank you. You are welcome, Jason.
Operator: Thank you. Our next question comes from Matthew Blair with TPH. Your line is open. You may ask your question.
Matthew Blair: Great. Thank you, and good morning, everyone. Could you give your thoughts on the RV market going forward? Given these losses, are you considering shutting your California RD asset and do you have any explanation on why D4 RINs are not at stronger levels now on our supply demand, it looks like D4 is in shortage this year. We see a lot of companies operating at pretty low utilization, implementing economic run cuts. And yet the d four market still seems pretty depressed. So if you have any thoughts on that, that would be great. Thank you.
Maryann T. Mannen: Yeah. Good morning. So maybe just a couple of comments and then I will pass it to John to give you some of the specifics to your questions with respect to our renewable diesel segment. You know, as you know, in the very beginning of the year, one of the things that we said was in terms of operation, the only investment that we were considering was anything to ensure reliability and that really has not changed. As you know, there has been a tremendous amount of backdrop as we think about the regulatory environment that, you know, continues to ebb and flow, still decisions that are pending with respect to how resolution will happen, etcetera.
So it is a place where we are ensuring that our operations are running as efficiently as possible, but there are certainly some headwinds when we look at margins, feedstock, etcetera. And, you know, as we went out to work on this project, we felt like we had some very favorable, I will call it, metrics with respect to this project when we look at its location, we look at the center of demand, logistics, etcetera. Feedstock was a place where we felt strongly that we wanted to further optimize as well. So a very small part of the portfolio. We are ensuring that we can run it as efficiently as possible, but you do not really see us.
John J. Quaid: Some of Maryann's comments, and I am sure you have heard similar comments from some of our peers on some of those regulatory items. There are probably more unknowns than knowns right now. Lots of things need to play out there. We are looking at that d four range as like you are. As well as maybe LCFS credits, and you could kind of go down the stack there. Certainly, seeing margins improve, some in the fourth quarter, but it really feels like we got to get into 2026 before we are going to get some clarity there.
As Maryann noted, we are going to work on, you know, driving the most value out of the assets we have given, you know, where we are in Martinez and what we can do there. So we will keep focused on that, but I think there is just a lot of uncertainty. You are seeing other players come out of the market, and we will just have to keep an eye on it as we go into 2026.
Matthew Blair: Great. Thank you. And then maybe just to expand the conversation on crude dips, you talked about favorable dynamics on WCS and ASCII. We are also seeing wider moves in areas like ANS Bakken, and Syncrude. So far in the fourth quarter. So I guess fair to say that this would be an additional tailwind on capture this quarter and you have any sort of any other insights on what is pushing these other grades wider as well?
Rick D. Hessling: Yeah. Hi, Matthew. It is Rick. So I will start with AMS. That is the one that is the most logical to explain because when you look at the TMX barrels that have entered the market there, and the closures, the demand for ANS has gone down significantly. So the differential has had to widen out to compete. And then we are seeing stronger than what we would have expected Bakken production and Syncrude production. So quite nice tailwinds both from a production perspective in those two fields that is driving those differentials wider for us.
John J. Quaid: And hey, Matthew. It is John. Just to add on one more thing, kind of when you think about for modeling purposes, the way we do our blended crack numbers and our market metrics, we include those diffs in those numbers. So when we do cap it is above and beyond what is going on here. It would certainly, you know, drive margin, but it is not going to be a capture tailwind. I just yeah. We are a little than what some of our peers do around their indicators. So I just wanted to remind you.
Matthew Blair: Sounds good. Thanks for your comments.
Operator: Thank you. Our next question comes from Phillip J. Jungwirth with BMO. You may ask your question. Your line is open.
Phillip J. Jungwirth: Gulf Coast and Mid Con are expecting to run a higher percentage of sweet crude in the fourth quarter than they have in prior quarters. Just given what should be increased availability of crude was hoping you could talk through the planned crude slate and also just what you are seeing in the market, as far as sourcing more advantaged barrels?
Rick D. Hessling: Yeah. Hi, Phillip. It is Rick. So from a sweet perspective, you know, GBR really sits right at the mouth of incredible amounts of sweet discounted crude. So we are highly advantaged to run it at GBR. And then at Garyville, we will toggle between sweet and sour depending on the price and the economics. I will tell you we are starting to see a few more looks at what we see as Iraqi barrels. That are becoming more promising and getting a slight hint that we might lean into those a little bit more so. But, generally, the increase suite and the amount of suite you are seeing is just because of where we are logistics.
Set up and the toolkit for Garyville is really well positioned to run a lot of sweep barrels. In addition to that, we do run, I think, you know, a lot of Canadian heavy barrels that we feed into the Roux that are highly discounted as well, and we see that discount. Becoming slightly larger in the coming quarter. I hope that helps you, Phillip.
Phillip J. Jungwirth: Yeah. No. That is helpful. And then when you look at the need for waterborne refined product imports into California, can you touch on available dock space just to bring volumes in? I know you are utilizing some of that through your other refineries, but from an industry's perspective, how much of a dock space you view is utilized? And is that at all a bottleneck to future supply as additional refineries close?
Rick D. Hessling: Phillip, you have identified something that certainly is a deterrent. And headwind for waterborne imports. You know, even prior to imports, needing to go up significantly because of the recent announced closures and one to come. The docks have always been the wild card on the West Coast. And the reason is you have fog, you have delays, you have unexpected waterborne incidents that are far less ratable than having a refinery in the state. So when we look at not only the docks, when we look at weather concerns, when we look at high freight rates today, which is also causing the arb to be where it is at and cracks be where it is at.
We see all of these as significant tailwinds for us.
Phillip J. Jungwirth: Great. Thanks.
Rick D. Hessling: Thank you. Thank you.
Operator: Thank you. Our final question comes from Ryan M. Todd with Piper Sandler. Your line is open. You may ask your question.
Ryan M. Todd: Good. Thanks. Maybe a couple of follow-ups on earlier ones. On the renewable diesel side, you mentioned a lot of the uncertainty that which there is still a lot of uncertainty out there regarding various policies. One of which is the treatment of foreign feedstocks. What sort of impact could this have on your access to or approach to feedstock at Martinez? If you continue to see penalties there. And maybe on the RD side as well, are you at a ratable run rate at this point in terms of kind of monetization or booking of PTC credits, or is there still movement one way or the other there?
Maryann T. Mannen: Yep. Ryan, thanks for the question. So really on foreign feedstock, that is still being debated. But as we know right now, there is a potential for a 50% limitation on that from foreign feedstocks. As I mentioned earlier, you know, one of the things that we were really focused on was ensuring that we could optimize our feedstock when we ran our initial economics on the Martinez project. We were looking at largely a soybean-only feedstock. And then as we did our transaction with Neste and had access to other foreign feedstocks as well as other local advantage feedstocks. We saw that as a benefit in actually improving the economics of the project.
Today, I think we can largely source and have benefit with our partner Neste and our. So we do not see this as necessarily being significantly limiting to us. I think the question longer term is, what does the administration do and whether or not that 50% stays in place and would have obviously broader market impact or whether or not they are able to delay the implementation of that as they are resolving the RVO issue and also other elements associated with go forward as well as the historical review of that.
So for us, less of an impact, but it will be obviously a market-driven decision as they decide how they are going to implement that 50% foreign feedstock.
John J. Quaid: And then, Ryan, it is John. Just to add on to that, as Maryann said, we have got really strong logistics, not just water for international, but actually rail offload for domestic coming in at Martinez. That puts us in a good spot to pivot wherever the market goes. And then on your, I think we could not get off the call without a 45 z question. You know, again, as a reminder, we made some changes to our structures there back in April, and that really got us a big chunk of those credits. There are some little pieces here and there we are still pursuing.
There is a piece back in Q1 we have not given up on kind of getting, but I think you are largely seeing the production tax credit in the numbers right now.
Ryan M. Todd: Great. Thanks. Maybe one, CapEx or question overall. On the overall business. I appreciate the provided details and the on many of the projects that you have going on either on the refining or the midstream side. You talk about some of the macro opportunity set that has you leaning in a little more here in the near term into some of the project spend, particularly on the midstream side. And then should we see that trend back towards a more normal level as we look out a couple of years?
Maryann T. Mannen: Yes. Ryan, sure. Thank you. So when we look at the midstream, our growth opportunities are focused in the Permian at Permian, excuse me, as you see. I am really trying to build out our nat gas and our NGL value chain. So most recently, we put some capital to work to acquire a sour gas treating set of assets. And the reason why we think that is so important is we believe that this is some of the best rock in the Permian in this Delaware Basin, Lea County.
The challenge with that is producers move into that region is it is a sour gas, high HD two s, c o two, and requires a certain level of treatment to blend it down to be able to further process. But in this area, this is very close adjacent and complementary to the that we are currently operating. And fit very nicely with the producer customers that we are currently supporting. That EBITDA will improve in 2026 as the second follow-on amine treating plant comes online. Bringing our EBITDA to its projected run rate by 2026. So contributing in 2026, frankly, and beyond to incremental EBITDA. Additionally, we talked about some other projects.
First of all, BANGL, we took the remaining ownership, an incremental 55%. And so that ownership will be another EBITDA growth into 2026. Similarly, you know, the full-year benefit of our Preakness 2 plant. And then Secretariat, another processing plant in the Permian bringing our processing capability to 1.4, will come online at the end of this year and therefore be incremental. Then if we look at even longer term, we talked about our fractionation and LPG export dock. So two fracks coming online, one each in 2028, and 2029. Along with our export dock, and that will add incremental EBITDA in both of those years.
You know, as we look at nat gas and NGL demand frankly, you know, you look at the growth of NGL, you look at gas oil ratios, we see demand LPG pool, the strength of the producer customers in that region really as all very supportive long term to that growth as well. And then that growth allows us the ability to increase the MPLX distribution, bringing back at least this year about $2.8 billion which supports Marathon Petroleum Corporation's ability to lead in capital return, again, as we bring that back our goal, as we have always said, is to lead in the return of capital.
Through all parts of this cycle, and that is extremely supportive of, we think, extremely supportive of our ability to do so. Let me pause there and see if I have answered your question.
Ryan M. Todd: Yeah. That is great. You very much.
Maryann T. Mannen: You are welcome.
Operator: Alright. With that, thank you for your interest in Marathon Petroleum Corporation. If you have more questions or want clarifications on topics discussed this morning, please contact us. Our team will be available to take your calls. Thank you for joining us this morning.
Operator: Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.