Marathon Petroleum Corporation
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
(In millions, except share data)
|
June 30,
2017
|
|
December 31,
2016
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents (MPLX: $293 and $234, respectively)
|
$
|
1,450
|
|
|
$
|
887
|
|
Receivables, less allowance for doubtful accounts of $10 and $1
2 (MPLX: $290 and $304, respectively)
|
3,259
|
|
|
3,617
|
|
Inventories (MPLX: $62 and $55, respectively)
|
5,548
|
|
|
5,656
|
|
Other current assets (MPLX: $31 and $33, respectively)
|
186
|
|
|
241
|
|
Total current assets
|
10,443
|
|
|
10,401
|
|
Equity method investments (MPLX: $3,368 and $2,471, respectively)
|
4,823
|
|
|
3,827
|
|
Property, plant and equipment, net (MPLX: $11,638 and $11,408, respectively)
|
25,786
|
|
|
25,765
|
|
Goodwill (MPLX: $2,245 and $2,245, respectively)
|
3,586
|
|
|
3,587
|
|
Other noncurrent assets (MPLX: $491 and $506, respectively)
|
809
|
|
|
833
|
|
Total assets
|
$
|
45,447
|
|
|
$
|
44,413
|
|
Liabilities
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable (MPLX: $512 and $541, respectively)
|
$
|
5,307
|
|
|
$
|
5,593
|
|
Payroll and benefits payable (MPLX: $0 and $1, respectively)
|
395
|
|
|
530
|
|
Consumer excise taxes payable (MPLX: $1 and $3, respectively)
|
474
|
|
|
464
|
|
Accrued taxes (MPLX: $38 and $35, respectively)
|
177
|
|
|
153
|
|
Debt due within one year (MPLX: $1 and $1, respectively)
|
29
|
|
|
28
|
|
Other current liabilities (MPLX: $125 and $81, respectively)
|
376
|
|
|
378
|
|
Total current liabilities
|
6,758
|
|
|
7,146
|
|
Long-term debt (MPLX: $6,666 and $4,422, respectively)
|
12,577
|
|
|
10,544
|
|
Deferred income taxes (MPLX: $7 and $6, respectively)
|
3,923
|
|
|
3,861
|
|
Defined benefit postretirement plan obligations
|
998
|
|
|
1,055
|
|
Deferred credits and other liabilities (MPLX: $196 and $189, respectively)
|
627
|
|
|
604
|
|
Total liabilities
|
24,883
|
|
|
23,210
|
|
Commitments and contingencies (see Note 21)
|
|
|
|
Redeemable noncontrolling interest
|
1,000
|
|
|
1,000
|
|
Equity
|
|
|
|
MPC stockholders’ equity:
|
|
|
|
Preferred stock, no shares issued and outstanding (par value 0.01 per share, 30 million shares authorized)
|
—
|
|
|
—
|
|
Common stock:
|
|
|
|
Issued – 732 million and 731 million shares (par value 0.01 per share, 1 billion shares authorized
)
|
7
|
|
|
7
|
|
Held in treasury, at cost – 226 million and 203 million shar
es
|
(8,664
|
)
|
|
(7,482
|
)
|
Additional paid-in capital
|
11,185
|
|
|
11,060
|
|
Retained earnings
|
10,344
|
|
|
10,206
|
|
Accumulated other comprehensive loss
|
(236
|
)
|
|
(234
|
)
|
Total MPC stockholders’ equity
|
12,636
|
|
|
13,557
|
|
Noncontrolling interests
|
6,928
|
|
|
6,646
|
|
Total equity
|
19,564
|
|
|
20,203
|
|
Total liabilities, redeemable noncontrolling interest and equity
|
$
|
45,447
|
|
|
$
|
44,413
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Marathon Petroleum Corporation
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
Operating activities:
|
|
|
|
Net income
|
$
|
675
|
|
|
$
|
705
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
Amortization of deferred financing costs and debt discount
|
30
|
|
|
29
|
|
Impairment expense
|
—
|
|
|
130
|
|
Depreciation and amortization
|
1,057
|
|
|
990
|
|
Inventory market valuation adjustment
|
—
|
|
|
(370
|
)
|
Pension and other postretirement benefits, net
|
(59
|
)
|
|
56
|
|
Deferred income taxes
|
23
|
|
|
175
|
|
Net gain on disposal of assets
|
(12
|
)
|
|
(25
|
)
|
Income (loss) from equity method investments
|
(140
|
)
|
|
28
|
|
Distributions from equity method investments
|
137
|
|
|
121
|
|
Changes in the fair value of derivative instruments
|
59
|
|
|
29
|
|
Changes in:
|
|
|
|
Current receivables
|
344
|
|
|
(276
|
)
|
Inventories
|
107
|
|
|
386
|
|
Current accounts payable and accrued liabilities
|
(208
|
)
|
|
632
|
|
All other, net
|
(51
|
)
|
|
(13
|
)
|
Net cash provided by operating activities
|
1,962
|
|
|
2,597
|
|
Investing activities:
|
|
|
|
Additions to property, plant and equipment
|
(1,265
|
)
|
|
(1,431
|
)
|
Acquisitions
|
(220
|
)
|
|
—
|
|
Disposal of assets
|
37
|
|
|
79
|
|
Investments – acquisitions, loans and contributions
|
(677
|
)
|
|
(171
|
)
|
– redemptions, repayments and return of capital
|
23
|
|
|
1
|
|
All other, net
|
90
|
|
|
26
|
|
Net cash used in investing activities
|
(2,012
|
)
|
|
(1,496
|
)
|
Financing activities:
|
|
|
|
Commercial paper – issued
|
300
|
|
|
763
|
|
– repayments
|
(300
|
)
|
|
(763
|
)
|
Long-term debt – borrowings
|
2,241
|
|
|
714
|
|
– repayments
|
(213
|
)
|
|
(1,606
|
)
|
Debt issuance costs
|
(21
|
)
|
|
(1
|
)
|
Issuance of common stock
|
20
|
|
|
2
|
|
Common stock repurchased
|
(1,170
|
)
|
|
(126
|
)
|
Dividends paid
|
(376
|
)
|
|
(339
|
)
|
Issuance of MPLX LP common units
|
434
|
|
|
315
|
|
Issuance of MPLX LP redeemable preferred units
|
—
|
|
|
984
|
|
Distributions to noncontrolling interests
|
(324
|
)
|
|
(249
|
)
|
Contributions from noncontrolling interests
|
128
|
|
|
2
|
|
Contingent consideration payment
|
(89
|
)
|
|
(164
|
)
|
All other, net
|
(17
|
)
|
|
(6
|
)
|
Net cash provided by (used in) financ
ing activities
|
613
|
|
|
(474
|
)
|
Net increase in cash and cash equivalents
|
563
|
|
|
627
|
|
Cash and cash equivalents at beginning of period
|
887
|
|
|
1,127
|
|
Cash and cash equivalents at end of period
|
$
|
1,450
|
|
|
$
|
1,754
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Marathon Petroleum Corporation
Consolidated Statements of Equity and Redeemable Noncontrolling Interest (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPC Stockholders’ Equity
|
|
|
|
|
|
|
(In millions)
|
Common
Stock
|
|
Treasury
Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Non-controlling
Interests
|
|
Total
Equity
|
|
Redeemable Non-controlling Interest
|
Balance as of December 31, 2015
|
$
|
7
|
|
|
$
|
(7,275
|
)
|
|
$
|
11,071
|
|
|
$
|
9,752
|
|
|
$
|
(318
|
)
|
|
$
|
6,438
|
|
|
$
|
19,675
|
|
|
$
|
—
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
802
|
|
|
—
|
|
|
(106
|
)
|
|
696
|
|
|
9
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(339
|
)
|
|
—
|
|
|
—
|
|
|
(339
|
)
|
|
—
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(249
|
)
|
|
(249
|
)
|
|
—
|
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
Shares repurchased
|
—
|
|
|
(126
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(126
|
)
|
|
—
|
|
Shares issued (returned) – stock-based compensation
|
—
|
|
|
(6
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
32
|
|
|
—
|
|
Impact from equity transactions of MPLX LP
|
—
|
|
|
—
|
|
|
(105
|
)
|
|
—
|
|
|
—
|
|
|
355
|
|
|
250
|
|
|
—
|
|
Issuance of MPLX LP redeemable preferred units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
984
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
Balance as of June 30, 2016
|
$
|
7
|
|
|
$
|
(7,407
|
)
|
|
$
|
10,996
|
|
|
$
|
10,215
|
|
|
$
|
(321
|
)
|
|
$
|
6,445
|
|
|
$
|
19,935
|
|
|
$
|
993
|
|
Balance as of December 31, 2016
|
$
|
7
|
|
|
$
|
(7,482
|
)
|
|
$
|
11,060
|
|
|
$
|
10,206
|
|
|
$
|
(234
|
)
|
|
$
|
6,646
|
|
|
$
|
20,203
|
|
|
$
|
1,000
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
129
|
|
|
642
|
|
|
33
|
|
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
(375
|
)
|
|
—
|
|
|
—
|
|
|
(375
|
)
|
|
—
|
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(291
|
)
|
|
(291
|
)
|
|
(33
|
)
|
Contributions from noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
128
|
|
|
128
|
|
|
—
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
Shares repurchased
|
—
|
|
|
(1,170
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,170
|
)
|
|
—
|
|
Shares issued (returned) – stock-based compensation
|
—
|
|
|
(12
|
)
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
28
|
|
|
—
|
|
Impact from equity transactions of MPLX LP
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
—
|
|
|
315
|
|
|
393
|
|
|
—
|
|
Balance as of June 30, 2017
|
$
|
7
|
|
|
$
|
(8,664
|
)
|
|
$
|
11,185
|
|
|
$
|
10,344
|
|
|
$
|
(236
|
)
|
|
$
|
6,928
|
|
|
$
|
19,564
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in millions)
|
Common
Stock
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
729
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
—
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued (returned) – stock-based compensation
|
1
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2016
|
730
|
|
|
(202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
731
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
—
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued – stock-based compensation
|
1
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2017
|
732
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements (Unaudited)
1
.
Description of the Business and Basis of Presentation
Description of the Business—
Our business consists of refining and marketing, retail and midstream services conducted primarily in the Midwest, Gulf Coast, East Coast, Northeast and Southeast regions of the United States, through subsidiaries, including Marathon Petroleum Company LP (“MPC LP”), Speedway LLC and its subsidiaries (“Speedway”) and MPLX LP and its subsidiaries (“MPLX”).
See Note
9
for additional information about our operations.
Basis of Presentation—
All significant intercompany transactions and accounts have been eliminated.
These interim consolidated financial statements are unaudited; however, in the opinion of our management, these statements reflect all adjustments necessary for a fair statement of the results for the periods reported. All such adjustments are of a normal, recurring nature unless otherwise disclosed. These interim consolidated financial statements, including the notes, have been prepared in accordance with the rules of the SEC applicable to interim period financial statements and do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2016
. The results of operations for the
three and six
months ended
June 30, 2017
are not necessarily indicative of the results to be expected for the full year.
Certain prior period financial statement amounts have been reclassified to conform to current period presentation.
In the first quarter of 2017, we revised our segment reporting in connection with the contribution of certain terminal, pipeline and storage assets to MPLX. See Note
3
for additional information. The operating results for these assets are now reported in our Midstream segment. Previously, they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised presentation. The results for the pipeline and storage assets were recast effective January 1, 2015 and the results for the terminal assets were recast effective April 1, 2016. Prior to these dates, these assets were not considered businesses for accounting purposes and, therefore, there are no financial results from which to recast segment results. Additionally, the MPLX asset and liability balances as of December 31, 2016 reported in parentheses on our consolidated balance sheets have also been recast to reflect this transaction. See Note
9
and Note
13
for additional information.
2
.
Accounting Standards
Recently Adopted
In October 2016, the FASB issued an accounting standard update to amend the consolidation guidance issued in February 2015 to require that a decision maker consider, in the determination of the primary beneficiary, its indirect interest in a VIE held by a related party that is under common control on a proportionate basis only. The change was effective for our financial statements for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. We were required to apply the standard retrospective to January 1, 2016, the date on which we adopted the consolidation guidance issued in February 2015. Adoption of this accounting standard update in the first quarter of 2017 did not have an impact on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard update to simplify some provisions in stock compensation accounting. The areas for simplification involve the accounting for share-based payment transactions, including income tax consequences, classifications of awards as either equity or liabilities and classification within the statement of cash flows. The changes were effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Adoption of this accounting standard update in the first quarter of 2017 did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard update eliminating the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. This change was effective for fiscal years beginning after December 15, 2016, and interim periods within those years. Adoption of this accounting standard update in the first quarter of 2017 did not have an impact on our consolidated financial statements.
Not Yet Adopted
In May 2017, the FASB issued an update to provide guidance about when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless the fair value, vesting conditions and balance sheet classification of the modified award is the same as the original award immediately before the original award is modified. The update is effective for annual periods beginning after December 15, 2017, and interim periods within that annual period. Early adoption is permitted. This update should be applied prospectively to an award modified on or after the adoption date. We are in the process of determining the impact of the accounting standard update on the consolidated financial statements.
In March 2017, the FASB issued an update requiring that the service cost component of pension and postretirement benefit costs be presented in the same line item as other current employee compensation costs and other components of those benefit costs be presented separately from the service cost component and outside a subtotal of income from operations, if presented. The update also requires that only the service cost component of pension and postretirement benefit cost is eligible for capitalization. The update is effective for annual periods beginning after December 15, 2017, and interim periods within that annual period. Application is retrospective for the presentation of the components of these benefit costs and prospective for the capitalization of only service costs. Early adoption is permitted. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.
In February 2017, the FASB issued an accounting standard update addressing the derecognition of nonfinancial assets. The guidance defines in substance nonfinancial assets, and states that the derecognition of business activities should be evaluated under the consolidation guidance, with limited exceptions related to conveyances of oil and gas mineral rights or contracts with customers. The standard eliminates the previous exclusion for businesses that are in-substance real estate, and eliminates some differences based on whether a transferred set is that of assets or a business and whether the transfer is to a joint venture. The standard must be implemented in conjunction with the implementation date of the revenue recognition accounting standard update, which we will implement January 1, 2018. We plan to adopt the new standard using the modified retrospective method and are in the process of determining the impact of the accounting standard update on the consolidated financial statements together with our evaluation of the new revenue recognition standard, as described further below.
In January 2017, the FASB issued an accounting standard update which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the new guidance, the recognition of an impairment charge is calculated based on the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The guidance should be applied on a prospective basis, and is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are in the process of determining the impact of the accounting standard update on the consolidated financial statements.
In January 2017, the FASB issued an accounting standard update to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is intended to narrow the definition of a business by specifying the minimum inputs and processes and by narrowing the definition of outputs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The guidance will be applied prospectively and early adoption is permitted for certain transactions. We are in the process of determining the impact of the accounting standard update on the consolidated financial statements.
In November 2016, the FASB issued an accounting standard update requiring that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. Retrospective application is required. The application of this accounting standard update will not have a material impact on our statements of cash flows.
In October 2016, the FASB issued an accounting standard update that requires recognition of the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The amendments in this accounting standard update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.
In August 2016, the FASB issued an accounting standard update related to the classification of certain cash flows. The accounting standard update provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination and distributions received from equity method investees, to reduce diversity in practice. The change is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We do not expect application of this accounting standard update to have a material impact on our statements of cash flows.
In June 2016, the FASB issued an accounting standard update related to the accounting for credit losses on certain financial instruments. The guidance requires that for most financial assets, losses be based on an expected loss approach which includes estimates of losses over the life of exposure that considers historical, current and forecasted information. Expanded disclosures related to the methods used to estimate the losses as well as a specific disaggregation of balances for financial assets are also required. The change is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an accounting standard update requiring lessees to record virtually all leases on their balance sheets. The accounting standard update also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The change will be effective on a modified retrospective basis for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are currently evaluating the impact of this standard on our financial statements and disclosures, internal controls and accounting policies. This evaluation process includes reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path of implementing changes to existing processes and controls along with necessary system implementations. We do not plan to early adopt the standard. We believe the impact will be material on the consolidated financial statements as all leases will be recognized as a right of use asset and lease obligation on our consolidated balance sheet.
In January 2016, the FASB issued an accounting standard update requiring unconsolidated equity investments, not accounted for under the equity method, to be measured at fair value with changes in fair value recognized in net income. The accounting standard update also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes and the separate presentation of financial assets and liabilities by measurement category and form on the balance sheet and accompanying notes. The accounting standard update eliminates the requirement to disclose the methods and assumptions used in estimating the fair value of financial instruments measured at amortized cost. Lastly, the accounting standard update requires separate presentation in other comprehensive income of the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when electing to measure the liability at fair value in accordance with the fair value option for financial instruments. The changes are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for the guidance regarding presentation of a liability’s credit risk. We do not expect application of this accounting standard update to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued an accounting standard update for revenue recognition for contracts with customers. The guidance in the accounting standard update states that revenue is recognized when a customer obtains control of a good or service. Recognition of the revenue will involve a multiple step approach including identifying the contract, identifying the separate performance obligations, determining the transaction price, allocating the price to the performance obligations and recognizing the revenue as the obligations are satisfied. Additional disclosures will be required to provide adequate information to understand the nature, amount, timing and uncertainty of reported revenues and revenues expected to be recognized. We will adopt the standard January 1, 2018, using the modified retrospective method, which will result in a cumulative effect adjustment as of the date of adoption. We are currently evaluating the impact of this standard on our financial statements and disclosures, internal controls and accounting policies. Based on the results to date, we have reached tentative conclusions for most contract types and do not believe revenue recognition patterns will change materially. We do expect certain amounts to be grossed up in revenue in our Midstream segment as a result of implementation. In addition, we expect to elect to change our presentation of consumer excise taxes from gross to net upon the adoption date in our Refining & Marketing and Retail segments. We will provide updates as qualitative and quantitative conclusions are reached throughout 2017.
3
.
MPLX LP
MPLX is a diversified, growth-oriented publicly traded master limited partnership formed by us to own, operate, develop and acquire midstream energy infrastructure assets. On December 4, 2015, MPLX and MarkWest Energy Partners, L.P. (“MarkWest”) completed a merger, whereby MarkWest became a wholly-owned subsidiary of MPLX (the “MarkWest Merger”). MarkWest’s operations include: natural gas gathering, processing and transportation; and NGL gathering, transportation, fractionation, storage and marketing. MPLX owns or has an interest in a network of private and common carrier crude oil and product pipeline systems and associated storage assets in the Midwest and Gulf Coast regions of the United States, a butane cavern in Neal, West Virginia and NGL storage caverns in Woodhaven, Michigan. MPLX owns an inland marine business, comprised of tow boats and barges, which transport crude oil and refined products principally for MPC in the Midwest and Gulf Coast regions of the United States. MPLX also owns a light-product terminal business, which provides terminalling services principally for MPC in the Midwest and Southeast regions of the United States.
See Note
4
for information on MPLX’s acquisition of the Ozark pipeline, its investment in the Bakken Pipeline system and the formation of a joint venture with Antero Midstream Partners LP (“Antero Midstream”) during the first quarter of 2017.
As of
June 30, 2017
, we owned a
27.2 percent
interest in MPLX, including a
two percent
general partner interest. This ownership percentage reflects the conversion at
1.09
to 1.00 of the MPLX Class B Units in July 2017.
MPLX is a VIE because the limited partners of MPLX do not have substantive kick-out or substantive participating rights over the general partner. We are the primary beneficiary of MPLX because in addition to significant economic interest, we also have the power, through our
100 percent
ownership of the general partner, to control the decisions that most significantly impact MPLX. We therefore consolidate MPLX and record a noncontrolling interest for the
72.8 percent
interest owned by the public. The components of our noncontrolling interest consist of equity-based noncontrolling interest and redeemable noncontrolling interest. The redeemable noncontrolling interest relates to MPLX’s preferred units, discussed below.
The creditors of MPLX do not have recourse to MPC’s general credit through guarantees or other financial arrangements. The assets of MPLX are the property of MPLX and cannot be used to satisfy the obligations of MPC.
Reorganization Transactions
On September 1, 2016, MPC, MPLX and various affiliates initiated a series of reorganization transactions in order to simplify MPLX’s ownership structure and its financial and tax reporting. In connection with these transactions, MPC contributed
$225 million
to MPLX and all of the issued and outstanding MPLX Class A Units, all of which were held by MarkWest Hydrocarbon L.L.C. (“MarkWest Hydrocarbon”), a subsidiary of MPLX, were exchanged for newly issued common units representing limited partner interests in MPLX. The simple average of the NYSE closing price of MPLX common units for the 10 trading days preceding September 1, 2016 was used for purposes of these transactions. As a result of these transactions, MPC increased its ownership interest in MPLX by
7 million
MPLX common units, or approximately
1 percent
.
Private Placement of Preferred Units
On May 13, 2016, MPLX completed the private placement of approximately
30.8 million
6.5 percent
Series A Convertible Preferred Units (the “MPLX Preferred Units”) for a cash price of
$32.50
per unit. The aggregate net proceeds of approximately
$984 million
from the sale of the MPLX Preferred Units was used by MPLX for capital expenditures, repayment of debt and general partnership purposes.
The MPLX Preferred Units rank senior to all MPLX common units with respect to distributions and rights upon liquidation. The holders of the MPLX Preferred Units are entitled to receive quarterly distributions equal to
$0.528125
per unit commencing for the quarter ended June 30, 2016, with a prorated amount from the date of issuance. Following the second anniversary of the issuance of the MPLX Preferred Units, the holders of the MPLX Preferred Units will receive as a distribution the greater of
$0.528125
per unit or the amount of per unit distributions paid to MPLX common units.
The MPLX Preferred Units are convertible into MPLX common units on a one for one basis after three years, at the purchasers’ option, and after four years at MPLX’s option, subject to certain conditions.
The MPLX Preferred Units are considered redeemable securities due to the existence of redemption provisions upon a deemed liquidation event which is considered outside MPLX’s control. Therefore, they are presented as temporary equity in the mezzanine section of the consolidated balance sheets. We have recorded the MPLX Preferred Units at their issuance date fair value, net of issuance costs. Since the MPLX Preferred Units are not currently redeemable and not probable of becoming redeemable in the future, adjustment to the initial carrying amount is not necessary and would only be required if it becomes probable that the security would become redeemable.
Dropdowns to MPLX
On March 1, 2017, we contributed certain terminal, pipeline and storage assets to MPLX in exchange for total consideration of
$2.0 billion
. This consideration consisted of MPLX equity and
$1.5 billion
in cash. We received approximately
13 million
MPLX common units and
264 thousand
general partner units from MPLX, which was determined by dividing
$504 million
by the volume weighted average NYSE price of MPLX common units for the 10 trading days preceding the closing date, pursuant to a Membership Interests Contributions Agreement. We also agreed to waive two-thirds of the first quarter 2017 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contributions of these assets were accounted for as transactions between entities under common control and we did not record a gain or loss.
On March 31, 2016, we contributed our inland marine business to MPLX in exchange for
23 million
common units and
460 thousand
general partner units. The number of units we received from MPLX was determined by dividing
$600 million
by the volume weighted average NYSE price of MPLX common units for the 10 trading days preceding March 14, 2016, pursuant to a Membership Interests Contribution Agreement. We also agreed to waive first-quarter 2016 common unit distributions, IDRs and general partner distributions with respect to the common units issued in this transaction. The contribution of our inland marine business was accounted for as a transaction between entities under common control and we did not record a gain or loss.
Public Offerings
On February 10, 2017, MPLX completed a public offering of
$1.25 billion
aggregate principal amount of
4.125%
unsecured senior notes due March 2027 and
$1.0 billion
aggregate principal amount of
5.200%
unsecured senior notes due March 2047. MPLX used the net proceeds from this offering to fund the
$1.5 billion
cash portion of the consideration MPLX paid MPC for the dropdown of assets on March 1, 2017, as well as for general partnership purposes. See Note
16
for more information.
ATM Program
On August 4, 2016, MPLX entered into a Second Amended and Restated Distribution Agreement (the “Distribution Agreement”) providing for the continuous issuance of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of any offerings (such continuous offering program, or at-the-market program, referred to as the “ATM Program”). MPLX expects to use the net proceeds from sales under the ATM Program for general partnership purposes including repayment of debt and funding for acquisitions, working capital requirements and capital expenditures.
During the
six
months ended
June 30, 2017
, MPLX issued an aggregate of
13 million
MPLX common units under the ATM Program, generating net proceeds of approximately
$434 million
. As of
June 30, 2017
,
$280 million
of MPLX common units remain available for issuance through the ATM Program under the Distribution Agreement.
Noncontrolling Interest
Changes in MPC’s equity and the offsetting changes to noncontrolling interest resulting from changes in MPC’s and the noncontrolling interest’s ownership interests in MPLX were as follows:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
Transfers (to) from noncontrolling interest
|
|
|
|
Increase (decrease) in MPC's additional paid in capital for the issuance of MPLX LP common units to the public
|
$
|
25
|
|
|
$
|
(40
|
)
|
Increase in MPC's additional paid in capital for the issuance of MPLX LP common units and general partner units to MPC
|
94
|
|
|
—
|
|
Net transfers (to) from noncontrolling interests
|
119
|
|
|
(40
|
)
|
Tax impact
|
(41
|
)
|
|
(65
|
)
|
Change in MPC's additional paid-in capital, net of tax
|
$
|
78
|
|
|
$
|
(105
|
)
|
Agreements
We have various long-term, fee-based transportation, terminal and storage services agreements with MPLX. Under these agreements, MPLX provides transportation, terminal and storage services to us, and we commit to provide MPLX with minimum quarterly throughput volumes on crude oil and refined products systems and minimum storage volumes of crude oil, refined products and butane. We also have agreements with MPLX that establish fees for operational and management services provided between us and MPLX and for executive management services and certain general and administrative services provided by us to MPLX. These transactions are eliminated in consolidation.
4
.
Acquisitions and Investments
Acquisition of Ozark Pipeline
On March 1, 2017, MPLX acquired the Ozark pipeline from Enbridge Pipelines (Ozark) LLC for approximately
$219 million
, including purchase price adjustments made in the second quarter of 2017. Based on the preliminary fair value estimates of assets acquired and liabilities assumed at the acquisition date, the purchase price was primarily allocated to property, plant and equipment. The Ozark pipeline is a
433
-mile,
22
-inch crude oil pipeline originating in Cushing, Oklahoma, and terminating in Wood River, Illinois, capable of transporting approximately
230
mbpd. We account for the Ozark pipeline within the Midstream segment.
The amounts of revenue and income from operations associated with the acquisition included in our consolidated statements of income, since the March 1, 2017 acquisition date, are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Four Months Ended June 30,
|
(In millions)
|
2017
|
|
2017
|
Sales and other operating revenues (including consumer excise taxes)
|
$
|
19
|
|
|
$
|
26
|
|
Income from operations
|
9
|
|
|
11
|
|
Assuming the acquisition of the Ozark pipeline had occurred on January 1, 2016, the consolidated pro forma results would not have been materially different from reported results.
Formation of Travel Plaza Joint Venture
In the fourth quarter of 2016, Speedway and Pilot Flying J finalized the formation of a joint venture consisting of
123
travel plazas, primarily in the Southeast United States. The new entity, PFJ Southeast LLC (“PFJ Southeast”), consisted of
41
existing locations contributed by Speedway and
82
locations contributed by Pilot Flying J, all of which carry either the Pilot or Flying J brand and are operated by Pilot Flying J. We did not recognize a gain on the
$273 million
non-cash contribution of our travel plazas to the joint venture since the contribution was that of in-substance real estate. Our non-cash contribution consisted of
$203 million
of property, plant and equipment,
$62 million
of goodwill and
$8 million
of inventory.
Marine Investments
We currently have indirect ownership interests in
two
ocean vessel joint ventures with Crowley Maritime Corporation (“Crowley”), which were established to own and operate Jones Act vessels in petroleum product service. We have invested a total of
$189 million
in these two ventures as described further below.
In September 2015, we acquired a
50 percent
ownership interest in a joint venture, Crowley Ocean Partners LLC (“Crowley Ocean Partners”), with Crowley. The joint venture owns and operates
four
new Jones Act product tankers, three of which are leased to MPC.
Two
of the vessels were delivered in 2015 and the remaining
two
were delivered in 2016. We have contributed a total of
$141 million
for the
four
vessels.
In May 2016, MPC and Crowley formed a new ocean vessel joint venture, Crowley Coastal Partners LLC (“Crowley Coastal Partners”), in which MPC has a
50 percent
ownership interest. MPC and Crowley each contributed their
50 percent
ownership in Crowley Ocean Partners, discussed above, into Crowley Coastal Partners. In addition, we contributed
$48 million
in cash and Crowley contributed its
100 percent
ownership interest in Crowley Blue Water Partners LLC (“Crowley Blue Water Partners”) to Crowley Coastal Partners. Crowley Blue Water Partners is an entity that owns and operates
three
750 Series ATB vessels that are leased to MPC. We account for our
50 percent
interest in Crowley Coastal Partners as part of our Midstream segment using the equity method of accounting.
See Note
5
for information on Crowley Coastal Partners as a VIE and Note
21
for information on our conditional guarantee of the indebtedness of Crowley Ocean Partners and Crowley Blue Water Partners.
Investment in Pipeline Company
On February 15, 2017, MPLX closed on the previously announced transaction to acquire a partial, indirect equity interest in the Dakota Access Pipeline (“DAPL”) and Energy Transfer Crude Oil Company Pipeline (“ETCOP”) projects, collectively referred to as the Bakken Pipeline system, through a joint venture with Enbridge Energy Partners L.P. (“Enbridge Energy Partners”). The Bakken Pipeline system is currently expected to deliver in excess of
470
mbpd of crude oil from the Bakken/Three Forks production area in North Dakota to the Midwest through Patoka, Illinois and ultimately to the Gulf Coast. MPLX contributed
$500 million
of the
$2 billion
purchase price paid by the joint venture, MarEn Bakken Company LLC (“MarEn Bakken”), to acquire a
36.75 percent
indirect equity interest in the Bakken Pipeline system from Energy Transfer Partners, L.P. (“ETP”) and Sunoco Logistics Partners, L.P. (“SXL”). MPLX holds, through a subsidiary, a
25 percent
interest in MarEn Bakken, which equates to an approximate
9.2 percent
indirect equity interest in the Bakken Pipeline system. In connection with this investment by MPLX, we have agreed to waive our right to receive IDRs of approximately
$1.6 million
per quarter for
twelve
consecutive quarters beginning with distributions declared by MPLX in the first quarter of 2017 and paid to us in the second quarter, which has been prorated to
$0.8 million
from the acquisition date. We account for the investment in MarEn Bakken as part of our Midstream segment using the equity method of accounting.
In connection with closing the transaction with ETP and SXL and the previous decision to indefinitely suspend the Sandpiper project, Enbridge Energy Partners canceled MPC’s transportation services agreement with respect to the Sandpiper pipeline and released MPC from paying any termination fee per that agreement.
Formation of Gathering and Processing Joint Venture
Effective January 1, 2017, MarkWest and Antero Midstream formed a joint venture, Sherwood Midstream LLC (“Sherwood Midstream”), to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. MarkWest has a
50 percent
ownership interest in Sherwood Midstream. In connection with this transaction, MarkWest contributed certain gas processing plants currently under construction at the Sherwood Complex with a fair value of approximately
$134 million
and cash of approximately
$20 million
. Antero Midstream made an initial capital contribution of approximately
$154 million
.
Also effective January 1, 2017, MarkWest converted all of its ownership interests in MarkWest Ohio Fractionation Company, L.L.C. (“Ohio Fractionation”), a previously wholly-owned subsidiary, to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream for
$126 million
in cash. The Class B-3 Interests provide Sherwood Midstream with the right to fractionation revenue and the obligation to pay expenses related to
20
mbpd of capacity in the Hopedale 3 fractionator.
Effective January 1, 2017, MarkWest and Sherwood Midstream formed a joint venture, Sherwood Midstream Holdings LLC (“Sherwood Midstream Holdings”), for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest. MarkWest contributed certain real property, equipment and facilities with a fair value of approximately
$209 million
to Sherwood Midstream Holdings in exchange for a
79 percent
initial ownership interest. Sherwood Midstream contributed cash of approximately
$44 million
to Sherwood Midstream Holdings in exchange for a
21 percent
ownership interest. MarkWest has a
10.5 percent
indirect interest in Sherwood Midstream Holdings through its ownership in Sherwood Midstream. The net book value of the contributed assets was approximately
$203 million
. The contribution was determined to be an in-substance sale of real estate. As such, MarkWest only recognized a gain for the portion attributable to Antero Midstream’s indirect interest of approximately
$2 million
.
We account for our direct interests in Sherwood Midstream and Sherwood Midstream Holdings as part of our Midstream segment using the equity method of accounting. We continue to consolidate Ohio Fractionation and have recognized a noncontrolling interest for Sherwood Midstream’s interest in that entity.
See Note
5
for additional information related to the investments in Sherwood Midstream, Ohio Fractionation and Sherwood Midstream Holdings.
5
.
Variable Interest Entities
In addition to MPLX, as described in Note
3
, the following entities are also VIEs.
Crowley Coastal Partners
In May 2016, Crowley Coastal Partners was formed to own an interest in both Crowley Ocean Partners and Crowley Blue Water Partners. We have determined that Crowley Coastal Partners is a VIE based on the terms of the existing financing arrangements for Crowley Blue Water Partners and Crowley Ocean Partners and the associated debt guarantees by MPC and Crowley. Our maximum exposure to loss at
June 30, 2017
was
$489 million
, which includes our equity method investment in Crowley Coastal Partners and the debt guarantees provided to each of the lenders to Crowley Blue Water Partners and Crowley Ocean Partners. We are not the primary beneficiary of this VIE because we do not have the power to control the activities that significantly influence the economic outcomes of the entity and, therefore, do not consolidate the entity.
MarkWest Utica EMG
On January 1, 2012, MarkWest Utica Operating Company, LLC (“Utica Operating”), a wholly-owned and consolidated subsidiary of MarkWest, and EMG Utica, LLC ("EMG Utica") (together the "Members"), executed agreements to form a joint venture, MarkWest Utica EMG LLC (“MarkWest Utica EMG”), to develop significant natural gas gathering, processing and NGL fractionation, transportation and marketing infrastructure in eastern Ohio.
As of
June 30, 2017
, MarkWest had a
56 percent
ownership interest in MarkWest Utica EMG. MarkWest Utica EMG's inability to fund its planned activities without subordinated financial support qualify it as a VIE. Utica Operating is not deemed to be the primary beneficiary due to EMG Utica’s voting rights on significant matters. We account for our ownership interest in MarkWest Utica EMG as an equity method investment. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating MarkWest Utica EMG. Our maximum exposure to loss as a result of our involvement with MarkWest Utica EMG includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in MarkWest Utica EMG at
June 30, 2017
was
$2.2 billion
.
Ohio Gathering
Ohio Gathering Company, L.L.C. (“Ohio Gathering”) is a subsidiary of MarkWest Utica EMG and is engaged in providing natural gas gathering services in the Utica Shale in eastern Ohio. Ohio Gathering is a joint venture between MarkWest Utica EMG and Summit Midstream Partners, LLC. As of
June 30, 2017
, we had a
34 percent
indirect ownership interest in Ohio Gathering. As this entity is a subsidiary of MarkWest Utica EMG, which is accounted for as an equity method investment, MPLX reports its portion of Ohio Gathering’s net assets as a component of its investment in MarkWest Utica EMG. MPLX receives engineering and construction and administrative management fee revenue and reimbursement for other direct personnel costs for operating Ohio Gathering.
Sherwood Midstream
As described in Note
4
, MarkWest and Antero Midstream formed a joint venture, Sherwood Midstream, to support the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia. As of
June 30, 2017
, MarkWest had a
50 percent
ownership interest in Sherwood Midstream. Sherwood Midstream’s inability to fund its planned activities without additional subordinated financial support qualify it as a VIE. MarkWest is not deemed to be the primary beneficiary, due to Antero Midstream’s voting rights on significant matters. We account for our ownership interest in Sherwood Midstream using the equity method of accounting. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in Sherwood Midstream at
June 30, 2017
was
$192 million
.
Ohio Fractionation
As described in Note
4
, MarkWest converted all of its ownership interests in Ohio Fractionation to Class A Interests and amended its LLC Agreement to create Class B-3 Interests, which were sold to Sherwood Midstream, providing it with the right to fractionation revenue and the obligation to pay expenses related to
20
mbpd of capacity in the Hopedale 3 fractionator. Ohio Fractionation’s inability to fund its operations without additional subordinated financial support qualify it as a VIE. MarkWest has been deemed to be the primary beneficiary of Ohio Fractionation because it has control over decisions that could significantly impact its financial performance, and as a result, consolidates Ohio Fractionation.
Sherwood Midstream Holdings
As described in Note
4
, MarkWest and Sherwood Midstream entered into a joint venture, Sherwood Midstream Holdings, for the purpose of owning, operating and maintaining all of the shared assets for the benefit of and use in the operation of the gas plants and other assets owned by Sherwood Midstream and the gas plants and deethanization facilities owned by MarkWest. MarkWest had an initial
79 percent
direct ownership in Sherwood Midstream Holdings, in addition to a
10.5 percent
indirect interest through its ownership in Sherwood Midstream. Sherwood Midstream Holdings’ inability to fund its operations without additional subordinated financial support qualify it as a VIE. We account for our ownership interest in Sherwood Midstream Holdings using the equity method of accounting as Sherwood Midstream is considered to be the general partner and controls all decisions related to Sherwood Midstream Holdings. Our maximum exposure to loss as a result of our involvement with Sherwood Midstream Holdings includes our equity investment, any additional capital contribution commitments and any operating expenses incurred by the subsidiary operator in excess of compensation received for the performance of the operating services. Our equity investment in Sherwood Midstream Holdings at
June 30, 2017
was
$165 million
.
6
.
Related Party Transactions
Our related parties include:
|
|
•
|
Crowley Blue Water Partners, in which we have a
50 percent
indirect noncontrolling interest. Crowley Blue Water Partners owns and operates three Jones Act ATB vessels.
|
|
|
•
|
Crowley Ocean Partners, in which we have a
50 percent
indirect noncontrolling interest. Crowley Ocean Partners owns and operates Jones Act product tankers.
|
|
|
•
|
Explorer Pipeline Company (“Explorer”), in which we have a
25 percent
interest. Explorer owns and operates a refined products pipeline.
|
|
|
•
|
Illinois Extension Pipeline Company, LLC (“Illinois Extension Pipeline”), in which we have a
35 percent
noncontrolling interest. Illinois Extension Pipeline owns and operates a crude oil pipeline.
|
|
|
•
|
LOCAP LLC (“LOCAP”), in which we have a
59 percent
noncontrolling interest. LOCAP owns and operates a crude oil pipeline.
|
|
|
•
|
LOOP LLC (“LOOP”), in which we have a
51 percent
noncontrolling interest. LOOP owns and operates the only U.S. deepwater oil port.
|
|
|
•
|
MarkWest Utica EMG, in which we have a
56 percent
noncontrolling interest. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
|
|
|
•
|
Ohio Gathering, in which we have a
34 percent
indirect noncontrolling interest. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
|
|
|
•
|
PFJ Southeast, in which we have a
29 percent
noncontrolling interest. PFJ Southeast owns travel plazas primarily in the Southeast region of the United States.
|
|
|
•
|
Sherwood Midstream, in which we have a
50 percent
noncontrolling interest. Sherwood Midstream supports the development of Antero Resources Corporation’s Marcellus Shale acreage in West Virginia.
|
|
|
•
|
Sherwood Midstream Holdings, in which we have an
86 percent
direct and indirect noncontrolling interest. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MarkWest gas processing plants and deethanization facilities.
|
|
|
•
|
The Andersons Albion Ethanol LLC (“TAAE”), in which we have a
45 percent
noncontrolling interest, The Andersons Clymers Ethanol LLC (“TACE”), in which we have a
61 percent
noncontrolling interest and The Andersons Marathon Ethanol LLC (“TAME”), in which we have a
67 percent
noncontrolling interest. These companies each own and operate an ethanol production facility.
|
|
|
•
|
Other equity method investees.
|
We believe that transactions with related parties were conducted on terms comparable to those with unaffiliated parties.
Sales to related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
PFJ Southeast
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
296
|
|
|
$
|
—
|
|
Other equity method investees
|
2
|
|
|
2
|
|
|
5
|
|
|
3
|
|
Total
|
$
|
147
|
|
|
$
|
2
|
|
|
$
|
301
|
|
|
$
|
3
|
|
Other income from related parties, which is included in “Other income” on the accompanying consolidated statements of income, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
MarkWest Utica EMG
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
7
|
|
Ohio Gathering
|
4
|
|
|
3
|
|
|
8
|
|
|
7
|
|
Other equity method investees
|
7
|
|
|
3
|
|
|
10
|
|
|
5
|
|
Total
|
$
|
15
|
|
|
$
|
11
|
|
|
$
|
26
|
|
|
$
|
19
|
|
Other income from related parties consists primarily of fees received for operating transportation assets for our related parties.
Purchases from related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Crowley Blue Water Partners
|
$
|
14
|
|
|
$
|
6
|
|
|
$
|
28
|
|
|
$
|
6
|
|
Crowley Ocean Partners
|
20
|
|
|
11
|
|
|
39
|
|
|
17
|
|
Explorer
|
—
|
|
|
6
|
|
|
—
|
|
|
8
|
|
Illinois Extension Pipeline
|
24
|
|
|
28
|
|
|
49
|
|
|
55
|
|
LOCAP
|
6
|
|
|
6
|
|
|
11
|
|
|
12
|
|
LOOP
|
26
|
|
|
15
|
|
|
39
|
|
|
28
|
|
TAAE
|
23
|
|
|
11
|
|
|
31
|
|
|
20
|
|
TACE
|
9
|
|
|
12
|
|
|
25
|
|
|
29
|
|
TAME
|
21
|
|
|
24
|
|
|
38
|
|
|
44
|
|
Other equity method investees
|
7
|
|
|
5
|
|
|
12
|
|
|
12
|
|
Total
|
$
|
150
|
|
|
$
|
124
|
|
|
$
|
272
|
|
|
$
|
231
|
|
Related party purchases from Crowley Blue Water Partners and Crowley Ocean Partners consist of leasing marine equipment primarily used to transport refined products. Related party purchases from Explorer consist primarily of refined product transportation costs. Related party purchases from Illinois Extension Pipeline, LOCAP, LOOP and other equity method investees consist primarily of crude oil transportation costs. Related party purchases from TAAE, TACE and TAME consist of ethanol purchases.
Receivables from related parties, which are included in “Receivables, less allowance for doubtful accounts” on the accompanying consolidated balance sheets, were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2017
|
|
December 31,
2016
|
MarkWest Utica EMG
|
$
|
1
|
|
|
$
|
2
|
|
Ohio Gathering
|
2
|
|
|
2
|
|
PFJ Southeast
|
25
|
|
|
40
|
|
Other equity method investees
|
4
|
|
|
1
|
|
Total
|
$
|
32
|
|
|
$
|
45
|
|
The long-term receivable, which is included in “Other noncurrent assets” on the accompanying consolidated balance sheet, was
$1 million
at
June 30, 2017
and
$1 million
at
December 31, 2016
.
Payables to related parties, which are included in “Accounts payable” on the accompanying consolidated balance sheets, were as follows:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2017
|
|
December 31,
2016
|
Illinois Extension Pipeline
|
$
|
7
|
|
|
$
|
9
|
|
LOCAP
|
2
|
|
|
2
|
|
LOOP
|
6
|
|
|
6
|
|
MarkWest Utica EMG
|
15
|
|
|
24
|
|
TAAE
|
3
|
|
|
2
|
|
TACE
|
1
|
|
|
4
|
|
TAME
|
2
|
|
|
4
|
|
Other equity method investees
|
7
|
|
|
2
|
|
Total
|
$
|
43
|
|
|
$
|
53
|
|
7
.
Income per Common Share
We compute basic earnings per share by dividing net income attributable to MPC by the weighted average number of shares of common stock outstanding. Diluted income per share assumes exercise of certain stock-based compensation awards, provided the effect is not anti-dilutive.
MPC grants certain incentive compensation awards to employees and non-employee directors that are considered to be participating securities. Due to the presence of participating securities, we have calculated our earnings per share using the two-class method.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Basic earnings per share:
|
|
|
|
|
|
|
|
Allocation of earnings:
|
|
|
|
|
|
|
|
Net income attributable to MPC
|
$
|
483
|
|
|
$
|
801
|
|
|
$
|
513
|
|
|
$
|
802
|
|
Income allocated to participating securities
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Income available to common stockholders – basic
|
$
|
483
|
|
|
$
|
800
|
|
|
$
|
513
|
|
|
$
|
801
|
|
Weighted average common shares outstanding
|
513
|
|
|
528
|
|
|
519
|
|
|
528
|
|
Basic earnings per share
|
$
|
0.94
|
|
|
$
|
1.51
|
|
|
$
|
0.99
|
|
|
$
|
1.52
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
Allocation of earnings:
|
|
|
|
|
|
|
|
Net income attributable to MPC
|
$
|
483
|
|
|
$
|
801
|
|
|
$
|
513
|
|
|
$
|
802
|
|
Income allocated to participating securities
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Income available to common stockholders – diluted
|
$
|
483
|
|
|
$
|
800
|
|
|
$
|
513
|
|
|
$
|
801
|
|
Weighted average common shares outstanding
|
513
|
|
|
528
|
|
|
519
|
|
|
528
|
|
Effect of dilutive securities
|
4
|
|
|
3
|
|
|
4
|
|
|
3
|
|
Weighted average common shares, including dilutive effect
|
517
|
|
|
531
|
|
|
523
|
|
|
531
|
|
Diluted earnings per share
|
$
|
0.93
|
|
|
$
|
1.51
|
|
|
$
|
0.98
|
|
|
$
|
1.51
|
|
The following table summarizes the shares that were anti-dilutive and, therefore, were excluded from the diluted share calculation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Shares issued under stock-based compensation plans
|
—
|
|
|
4
|
|
|
2
|
|
|
4
|
|
8
.
Equity
On May 31, 2017, our board of directors approved an additional
$3.0 billion
share repurchase authorization. This authorization is in addition to its previous authorization, both of which have no expiration date.
As of
June 30, 2017
, we had
$4.39 billion
of remaining share repurchase authorization from our board of directors. We may utilize various methods to effect the repurchases, which could include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be affected through Rule 10b5-1 plans. The timing and amount of future repurchases, if any, will depend upon several factors, including market and business conditions, and such repurchases may be discontinued at any time.
Total share repurchases were as follows for the
three and six
months ended
June 30, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions, except per share data)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Number of shares repurchased
|
14
|
|
|
1
|
|
|
23
|
|
|
3
|
|
Cash paid for shares repurchased
|
$
|
750
|
|
|
$
|
51
|
|
|
$
|
1,170
|
|
|
$
|
126
|
|
Effective average cost per delivered share
|
$
|
52.35
|
|
|
$
|
36.35
|
|
|
$
|
51.53
|
|
|
$
|
40.52
|
|
9
.
Segment Information
In the first quarter of 2017, we revised our segment reporting in connection with the contribution of certain terminal, pipeline and storage assets to MPLX. The operating results for these assets are now reported in our Midstream segment. Previously, they were reported as part of our Refining & Marketing segment. Comparable prior period information has been recast to reflect our revised presentation. The results for the pipeline and storage assets were recast effective January 1, 2015 and the results for the terminal assets were recast effective April 1, 2016. Prior to these dates, these assets were not considered businesses and, therefore, there are no financial results from which to recast segment results.
We have
three
reportable segments: Refining & Marketing; Speedway; and Midstream. Each of these segments is organized and managed based upon the nature of the products and services it offers.
|
|
•
|
Refining & Marketing – refines crude oil and other feedstocks at our
seven
refineries in the Gulf Coast and Midwest regions of the United States, purchases refined products and ethanol for resale and distributes refined products through various means, including pipeline and marine transportation, terminal and storage services provided by our Midstream segment. We sell refined products to wholesale marketing customers domestically and internationally, to buyers on the spot market, to our Speedway segment and to independent entrepreneurs who operate Marathon
®
retail outlets.
|
|
|
•
|
Speedway – sells transportation fuels and convenience merchandise in retail markets in the Midwest, East Coast and Southeast regions of the United States.
|
|
|
•
|
Midstream – includes the operations of MPLX and certain other related operations. The Midstream segment gathers, processes and transports natural gas; gathers, transports, fractionates, stores and markets NGLs; and transports and stores crude oil and refined products principally for the Refining & Marketing segment.
|
Segment income represents income from operations attributable to the reportable segments. Corporate administrative expenses, except for those attributable to MPLX, and costs related to certain non-operating assets are not allocated to the reportable segments. In addition, certain items that affect comparability (as determined by the chief operating decision maker) are not allocated to the reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Refining & Marketing
|
|
Speedway
|
|
Midstream
|
|
Total
|
Three Months Ended June 30, 2017
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
$
|
12,691
|
|
|
$
|
4,794
|
|
|
$
|
548
|
|
|
$
|
18,033
|
|
Intersegment
(a)
|
2,808
|
|
|
1
|
|
|
363
|
|
|
3,172
|
|
Related party
|
145
|
|
|
2
|
|
|
—
|
|
|
147
|
|
Segment revenues
|
$
|
15,644
|
|
|
$
|
4,797
|
|
|
$
|
911
|
|
|
$
|
21,352
|
|
Segment income from operations
(b)
|
$
|
562
|
|
|
$
|
239
|
|
|
$
|
332
|
|
|
$
|
1,133
|
|
Income from equity method investments
|
2
|
|
|
21
|
|
|
40
|
|
|
63
|
|
Depreciation and amortization
(d)
|
272
|
|
|
65
|
|
|
168
|
|
|
505
|
|
Capital expenditures and investments
(e)
|
180
|
|
|
78
|
|
|
494
|
|
|
752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Refining & Marketing
|
|
Speedway
|
|
Midstream
|
|
Total
|
Three Months Ended June 30, 2016
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
$
|
11,503
|
|
|
$
|
4,865
|
|
|
$
|
441
|
|
|
$
|
16,809
|
|
Intersegment
(a)
|
2,909
|
|
|
—
|
|
|
333
|
|
|
3,242
|
|
Related party
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Segment revenues
|
$
|
14,414
|
|
|
$
|
4,865
|
|
|
$
|
774
|
|
|
$
|
20,053
|
|
Segment income from operations
(b)(c)
|
$
|
1,025
|
|
|
$
|
193
|
|
|
$
|
253
|
|
|
$
|
1,471
|
|
Income from equity method investments
(d)
|
3
|
|
|
—
|
|
|
36
|
|
|
39
|
|
Depreciation and amortization
(d)
|
261
|
|
|
69
|
|
|
153
|
|
|
483
|
|
Capital expenditures and investments
(e)
|
262
|
|
|
70
|
|
|
419
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Refining & Marketing
|
|
Speedway
|
|
Midstream
|
|
Total
|
Six Months Ended June 30, 2017
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
$
|
23,912
|
|
|
$
|
9,175
|
|
|
$
|
1,080
|
|
|
$
|
34,167
|
|
Intersegment
(a)
|
5,398
|
|
|
2
|
|
|
707
|
|
|
6,107
|
|
Related party
|
297
|
|
|
4
|
|
|
—
|
|
|
301
|
|
Segment revenues
|
$
|
29,607
|
|
|
$
|
9,181
|
|
|
$
|
1,787
|
|
|
$
|
40,575
|
|
Segment income from operations
(b)
|
$
|
492
|
|
|
$
|
374
|
|
|
$
|
641
|
|
|
$
|
1,507
|
|
Income from equity method investments
|
4
|
|
|
34
|
|
|
82
|
|
|
120
|
|
Depreciation and amortization
(d)
|
539
|
|
|
129
|
|
|
359
|
|
|
1,027
|
|
Capital expenditures and investments
(e)(f)
|
372
|
|
|
113
|
|
|
1,564
|
|
|
2,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Refining & Marketing
|
|
Speedway
|
|
Midstream
|
|
Total
|
Six Months Ended June 30, 2016
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Third party
|
$
|
19,908
|
|
|
$
|
8,815
|
|
|
$
|
840
|
|
|
$
|
29,563
|
|
Intersegment
(a)
|
5,074
|
|
|
1
|
|
|
565
|
|
|
5,640
|
|
Related party
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Segment revenues
|
$
|
24,985
|
|
|
$
|
8,816
|
|
|
$
|
1,405
|
|
|
$
|
35,206
|
|
Segment income from operations
(b)(c)
|
$
|
939
|
|
|
$
|
360
|
|
|
$
|
442
|
|
|
$
|
1,741
|
|
Income from equity method investments
(d)
|
2
|
|
|
—
|
|
|
59
|
|
|
61
|
|
Depreciation and amortization
(d)
|
534
|
|
|
132
|
|
|
293
|
|
|
959
|
|
Capital expenditures and investments
(e)
|
505
|
|
|
120
|
|
|
769
|
|
|
1,394
|
|
|
|
(a)
|
Management believes intersegment transactions were conducted under terms comparable to those with unaffiliated parties.
|
|
|
(b)
|
Corporate overhead expenses attributable to MPLX are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.
|
|
|
(c)
|
The Refining & Marketing and Speedway segments include inventory LCM benefits of
$360 million
and
$25 million
, respectively, for the three months ended
June 30, 2016
and
$345 million
and
$25 million
, respectively, for the
six
months ended
June 30, 2016
.
|
|
|
(d)
|
Differences between segment totals and MPC totals represent amounts related to unallocated items and are included in “Items not allocated to segments” in the reconciliation below.
|
|
|
(e)
|
Capital expenditures include changes in capital accruals, acquisitions (including any goodwill) and investments in affiliates.
|
|
|
(f)
|
The Midstream segment includes
$220 million
for the acquisition of the Ozark pipeline and an investment of
$500 million
in MarEn Bakken related to the Bakken Pipeline system for the
six
months ended
June 30, 2017
.
|
The following reconciles segment income from operations to income before income taxes as reported in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment income from operations
|
$
|
1,133
|
|
|
$
|
1,471
|
|
|
$
|
1,507
|
|
|
$
|
1,741
|
|
Items not allocated to segments:
|
|
|
|
|
|
|
|
Corporate and other unallocated items
(a)
|
(83
|
)
|
|
(64
|
)
|
|
(165
|
)
|
|
(129
|
)
|
Pension settlement expenses
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
(3
|
)
|
Litigation
(b)
|
(86
|
)
|
|
—
|
|
|
(86
|
)
|
|
—
|
|
Impairments
(c)
|
19
|
|
|
(90
|
)
|
|
19
|
|
|
(219
|
)
|
Net interest and other financial income (costs)
|
(158
|
)
|
|
(137
|
)
|
|
(308
|
)
|
|
(279
|
)
|
Income before income taxes
|
$
|
824
|
|
|
$
|
1,178
|
|
|
$
|
966
|
|
|
$
|
1,111
|
|
|
|
(a)
|
Corporate and other unallocated items consists primarily of MPC’s corporate administrative expenses and costs related to certain non-operating assets, except for corporate overhead expenses attributable to MPLX, which are included in the Midstream segment. Corporate overhead expenses are not allocated to the Refining & Marketing and Speedway segments.
|
|
|
(b)
|
See Note
21
for further information on litigation matters.
|
|
|
(c)
|
Includes MPC’s share of a gain related to its investment in the canceled Sandpiper pipeline project in the
three and six
months ended
June 30, 2017
and impairments of an equity method investment and goodwill in the
three and six
months ended
June 30, 2016
.
|
The following reconciles segment capital expenditures and investments to total capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Segment capital expenditures and investments
|
$
|
752
|
|
|
$
|
751
|
|
|
$
|
2,049
|
|
|
$
|
1,394
|
|
Less investments in equity method investees
(a)
|
111
|
|
|
105
|
|
|
677
|
|
|
314
|
|
Plus items not allocated to segments:
|
|
|
|
|
|
|
|
Corporate and Other
|
18
|
|
|
21
|
|
|
34
|
|
|
45
|
|
Capitalized interest
|
14
|
|
|
15
|
|
|
26
|
|
|
32
|
|
Total capital expenditures
(b)
|
$
|
673
|
|
|
$
|
682
|
|
|
$
|
1,432
|
|
|
$
|
1,157
|
|
|
|
(a)
|
The
six
months ended
June 30, 2017
includes an investment of
$500 million
in MarEn Bakken related to the Bakken Pipeline system. The
six
months ended
June 30, 2016
includes an adjustment of
$143 million
to the fair value of equity method investments acquired in connection with the MarkWest Merger.
|
|
|
(b)
|
Capital expenditures include changes in capital accruals. See Note
17
for a reconciliation of total capital expenditures to additions to property, plant and equipment as reported in the consolidated statements of cash flows.
|
10
.
Other Items
Net interest and other financial income (costs) was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Interest income
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
9
|
|
|
$
|
2
|
|
Interest expense
|
(173
|
)
|
|
(149
|
)
|
|
(336
|
)
|
|
(302
|
)
|
Interest capitalized
|
18
|
|
|
16
|
|
|
33
|
|
|
32
|
|
Other financial costs
|
(7
|
)
|
|
(5
|
)
|
|
(14
|
)
|
|
(11
|
)
|
Net interest and other financial income (costs)
|
$
|
(158
|
)
|
|
$
|
(137
|
)
|
|
$
|
(308
|
)
|
|
$
|
(279
|
)
|
11
.
Income Taxes
The combined federal, state and foreign income tax rate was
30 percent
and
33 percent
for the three months ended
June 30, 2017
and
2016
, respectively, and
30 percent
and
37 percent
for the
six
months ended
June 30, 2017
and
2016
, respectively. The effective tax rate for the
three and six
months ended
June 30, 2017
was less than the U.S. statutory rate of
35 percent
primarily due to certain permanent tax differences related to equity compensation, net income attributable to noncontrolling interests and the domestic manufacturing deduction offset by state and local tax expense. The effective tax rate for the
three and six
months ended
June 30, 2016
varies from the U.S. statutory rate of
35 percent
primarily due to certain permanent tax differences related to the net income attributable to noncontrolling interests (including their proportional share of the goodwill impairment charge recorded by MPLX), the domestic manufacturing deduction and state and local tax expense.
We are continuously undergoing examination of our income tax returns, which have been completed for our U.S. federal and state income tax returns through the 2009 and 2007 tax years, respectively. We had
$19 million
of unrecognized tax benefits as of
June 30, 2017
. Pursuant to our tax sharing agreement with Marathon Oil Corporation (“Marathon Oil”), the unrecognized tax benefits related to pre-spinoff operations for which Marathon Oil was the taxpayer remain the responsibility of Marathon Oil and we have indemnified Marathon Oil accordingly. See Note
21
for indemnification information.
12
.
Inventories
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2017
|
|
December 31,
2016
|
Crude oil and refinery feedstocks
|
$
|
2,285
|
|
|
$
|
2,208
|
|
Refined products
|
2,663
|
|
|
2,810
|
|
Materials and supplies
|
439
|
|
|
485
|
|
Merchandise
|
161
|
|
|
153
|
|
Total
|
$
|
5,548
|
|
|
$
|
5,656
|
|
Inventories are carried at the lower of cost or market value. The cost of inventories of crude oil and refinery feedstocks, refined products and merchandise is determined primarily under the LIFO method. There were no liquidations of LIFO inventories for the
six
months ended
June 30, 2017
.
13
.
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2017
|
|
December 31, 2016
(a)
|
Refining & Marketing
|
$
|
18,989
|
|
|
$
|
18,590
|
|
Speedway
|
5,158
|
|
|
5,078
|
|
Midstream
|
14,053
|
|
|
13,521
|
|
Corporate and Other
|
802
|
|
|
817
|
|
Total
|
39,002
|
|
|
38,006
|
|
Less accumulated depreciation
|
13,216
|
|
|
12,241
|
|
Property, plant and equipment, net
|
$
|
25,786
|
|
|
$
|
25,765
|
|
|
|
(a)
|
Prior period balances have been recast in connection with the March 1, 2017 contribution of assets to MPLX. See Note
1
for additional information.
|
14
.
Fair Value Measurements
Fair Values—Recurring
The following tables present assets and liabilities accounted for at fair value on a recurring basis as of
June 30, 2017
and
December 31, 2016
by fair value hierarchy level. We have elected to offset the fair value amounts recognized for multiple derivative contracts executed with the same counterparty, including any related cash collateral as shown below; however, fair value amounts by hierarchy level are presented on a gross basis in the following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
Fair Value Hierarchy
|
|
|
|
|
|
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and Collateral
(a)
|
|
Net Carrying Value on Balance Sheet
(b)
|
|
Collateral Pledged Not Offset
|
Commodity derivative instruments, assets
|
$
|
534
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(496
|
)
|
|
$
|
41
|
|
|
$
|
7
|
|
Other assets
|
3
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
3
|
|
|
—
|
|
Total assets at fair value
|
$
|
537
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(496
|
)
|
|
$
|
44
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative instruments, liabilities
(c)
|
$
|
546
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
(547
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Embedded derivatives in commodity contracts
(c)
|
—
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
43
|
|
|
—
|
|
Total liabilities at fair value
|
$
|
546
|
|
|
$
|
—
|
|
|
$
|
44
|
|
|
$
|
(547
|
)
|
|
$
|
43
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value Hierarchy
|
|
|
|
|
|
|
(In millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting and Collateral
(a)
|
|
Net Carrying Value on Balance Sheet
(b)
|
|
Collateral Pledged Not Offset
|
Commodity derivative instruments, assets
|
$
|
688
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(688
|
)
|
|
$
|
—
|
|
|
$
|
126
|
|
Other assets
|
2
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
|
2
|
|
|
—
|
|
Total assets at fair value
|
$
|
690
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(688
|
)
|
|
$
|
2
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative instruments, liabilities
|
$
|
712
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
(712
|
)
|
|
$
|
6
|
|
|
$
|
—
|
|
Embedded derivatives in commodity contracts
(c)
|
—
|
|
|
—
|
|
|
54
|
|
|
—
|
|
|
54
|
|
|
—
|
|
Contingent consideration, liability
(d)
|
—
|
|
|
—
|
|
|
130
|
|
|
N/A
|
|
|
130
|
|
|
—
|
|
Total liabilities at fair value
|
$
|
712
|
|
|
$
|
—
|
|
|
$
|
190
|
|
|
$
|
(712
|
)
|
|
$
|
190
|
|
|
$
|
—
|
|
|
|
(a)
|
Represents the impact of netting assets, liabilities and cash collateral when a legal right of offset exists. As of
June 30, 2017
, cash collateral of
$51 million
was netted with the mark-to-market derivative liabilities. As of
December 31, 2016
,
$24 million
was netted with mark-to-market derivative liabilities.
|
|
|
(b)
|
We have no derivative contracts that are subject to master netting arrangements reflected gross on the balance sheet.
|
|
|
(c)
|
Level 3 includes
$4 million
and
$13 million
classified as current at
June 30, 2017
and
December 31, 2016
, respectively.
|
|
|
(d)
|
Includes
$130 million
classified as current at
December 31, 2016
.
|
Commodity derivatives in Level 1 are exchange-traded contracts for crude oil and refined products measured at fair value with a market approach using the close-of-day settlement prices for the market. Commodity derivatives are covered under master netting agreements with an unconditional right to offset. Collateral deposits in futures commission merchant accounts covered by master netting agreements related to Level 1 commodity derivatives are classified as Level 1 in the fair value hierarchy.
Level 3 instruments include OTC NGL contracts and embedded derivatives in commodity contracts. The embedded derivative liability relates to a natural gas purchase agreement embedded in a keep‑whole processing agreement. The fair value calculation for these Level 3 instruments used significant unobservable inputs including: (1) NGL prices interpolated and extrapolated due to inactive markets ranging from
$0.25
to
$1.10
per gallon and (2) the probability of renewal of
50 percent
for the first
five
-year term and
75 percent
for the second
five
-year term of the gas purchase agreement and the related keep-whole processing agreement. For these contracts, increases in forward NGL prices result in a decrease in the fair value of the derivative assets and an increase in the fair value of the derivative liabilities. The forward prices for the individual NGL products generally increase or decrease in a positive correlation with one another. Increases or decreases in forward NGL prices result in an increase or decrease in the fair value of the embedded derivative. An increase in the probability of renewal would result in an increase in the fair value of the related embedded derivative liability.
The contingent consideration represents the fair value of the remaining amount we expected to pay to BP related to the earnout provision associated with our 2013 acquisition of BP’s refinery in Texas City, Texas and related logistics and marketing assets. The fair value of the remaining contingent consideration as of
December 31, 2016
was estimated using an income approach and is therefore a Level 3 liability. The fair value calculation used significant unobservable inputs including: (1) an estimate of forecasted monthly refinery throughput volumes; (2) an internal and external monthly crack spread forecast; and (3) a range of risk-adjusted discount rates. The fair value of the contingent consideration liability was reassessed each quarter, with changes in fair value recorded in cost of revenues. The balance of
$131 million
was paid on April 12, 2017. On the consolidated statements of cash flows for the
six
months ended
June 30, 2017
,
$89 million
of the contingent earnout payment is included as a financing activity with the remainder included as an operating activity.
The following is a reconciliation of the beginning and ending balances recorded for liabilities classified as Level 3 in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Beginning balance
|
$
|
175
|
|
|
$
|
358
|
|
|
$
|
190
|
|
|
$
|
342
|
|
Contingent consideration payment
|
(131
|
)
|
|
(200
|
)
|
|
(131
|
)
|
|
(200
|
)
|
Unrealized and realized (gains) losses included in net income
|
(2
|
)
|
|
15
|
|
|
(14
|
)
|
|
27
|
|
Settlements of derivative instruments
|
(1
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
2
|
|
Ending balance
|
$
|
41
|
|
|
$
|
171
|
|
|
$
|
41
|
|
|
$
|
171
|
|
|
|
|
|
|
|
|
|
The amount of total (gains) losses for the period included in earnings attributable to the change in unrealized (gains) losses relating to assets still held at the end of period:
|
|
|
|
|
|
|
|
Derivative instruments
|
$
|
(1
|
)
|
|
$
|
13
|
|
|
$
|
(12
|
)
|
|
$
|
17
|
|
Contingent consideration agreement
|
—
|
|
|
2
|
|
|
1
|
|
|
9
|
|
Total
|
$
|
(1
|
)
|
|
$
|
15
|
|
|
$
|
(11
|
)
|
|
$
|
26
|
|
Fair Values – Reported
The following table summarizes financial instruments on the basis of their nature, characteristics and risk at
June 30, 2017
and
December 31, 2016
, excluding the derivative financial instruments and contingent consideration reported above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
(In millions)
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
Financial assets:
|
|
|
|
|
|
|
|
Investments
|
$
|
26
|
|
|
$
|
2
|
|
|
$
|
25
|
|
|
$
|
2
|
|
Other
|
24
|
|
|
23
|
|
|
21
|
|
|
21
|
|
Total financial assets
|
$
|
50
|
|
|
$
|
25
|
|
|
$
|
46
|
|
|
$
|
23
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
Long-term debt
(a)
|
$
|
13,305
|
|
|
$
|
12,362
|
|
|
$
|
10,892
|
|
|
$
|
10,297
|
|
Deferred credits and other liabilities
|
122
|
|
|
109
|
|
|
121
|
|
|
109
|
|
Total financial liabilities
|
$
|
13,427
|
|
|
$
|
12,471
|
|
|
$
|
11,013
|
|
|
$
|
10,406
|
|
|
|
(a)
|
Excludes capital leases and debt issuance costs; however, includes amount classified as debt due within one year.
|
Our current assets and liabilities include financial instruments, the most significant of which are trade accounts receivable and payables. We believe the carrying values of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including (1) the short-term duration of the instruments, (2) our investment-grade credit rating and (3) our historical incurrence of and expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.
Fair values of our financial assets included in investments and other financial assets and of our financial liabilities included in deferred credits and other liabilities are measured primarily using an income approach and most inputs are internally generated, which results in a Level 3 classification. Estimated future cash flows are discounted using a rate deemed appropriate to obtain
the fair value. Other financial assets primarily consist of environmental remediation receivables. Deferred credits and other liabilities primarily consist of a liability resulting from a financing arrangement for the construction of MPLX’s steam methane reformer (“SMR”) at the Javelina gas processing and fractionation complex in Corpus Christi, Texas, insurance liabilities and environmental remediation liabilities.
Fair value of fixed-rate long-term debt is measured using a market approach, based upon the average of quotes for our debt from major financial institutions and a third-party valuation service. Because these quotes cannot be independently verified to the market, they are considered Level 3 inputs. Fair value of variable-rate long-term debt approximates the carrying value.
15
.
Derivatives
For further information regarding the fair value measurement of derivative instruments, including any effect of master netting agreements or collateral, see Note
14
. We do not designate any of our commodity derivative instruments as hedges for accounting purposes.
Derivatives that are not designated as accounting hedges may include commodity derivatives used to hedge price risk on (1) inventories, (2) fixed price sales of refined products, (3) the acquisition of foreign-sourced crude oil, (4) the acquisition of ethanol for blending with refined products, (5) the sale of NGLs and (6) the purchase of natural gas.
The following table presents the gross fair values of derivative instruments, excluding cash collateral, and where they appear on the consolidated balance sheets as of
June 30, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30, 2017
|
Balance Sheet Location
|
Asset
|
|
Liability
|
Commodity derivatives
|
|
|
|
Other current assets
|
$
|
537
|
|
|
$
|
546
|
|
Other current liabilities
(a)
|
—
|
|
|
7
|
|
Deferred credits and other liabilities
(a)
|
—
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
December 31, 2016
|
Balance Sheet Location
|
Asset
|
|
Liability
|
Commodity derivatives
|
|
|
|
Other current assets
|
$
|
688
|
|
|
$
|
712
|
|
Other current liabilities
(a)
|
—
|
|
|
13
|
|
Deferred credits and other liabilities
(a)
|
—
|
|
|
47
|
|
|
|
(a)
|
Includes embedded derivatives.
|
The tables below summarize open commodity derivative contracts for crude oil and refined products as of
June 30, 2017
.
|
|
|
|
|
|
|
Position
|
|
Total Barrels
(In thousands)
|
Crude Oil
(a)
|
|
|
|
Exchange-traded
|
Long
|
|
54,857
|
|
Exchange-traded
|
Short
|
|
(64,763
|
)
|
|
|
(a )
|
77 percent
of the exchange-traded contracts expire in the
third
quarter of
2017
.
|
|
|
|
|
|
|
|
Position
|
|
Total Gallons
(In thousands)
|
Refined Products
(a)
|
|
|
|
Exchange-traded
|
Long
|
|
271,698
|
|
Exchange-traded
|
Short
|
|
(202,650
|
)
|
OTC
|
Short
|
|
(58,214
|
)
|
|
|
(a )
|
92 percent
of the exchange-traded contracts expire in the
third
quarter of
2017
.
|
The following table summarizes the effect of all commodity derivative instruments in our consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
(In millions)
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
Income Statement Location
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Sales and other operating revenues
|
$
|
2
|
|
|
$
|
(7
|
)
|
|
$
|
18
|
|
|
$
|
(1
|
)
|
Cost of revenues
|
(7
|
)
|
|
(8
|
)
|
|
(31
|
)
|
|
(71
|
)
|
Total
|
$
|
(5
|
)
|
|
$
|
(15
|
)
|
|
$
|
(13
|
)
|
|
$
|
(72
|
)
|
16
.
Debt
Our outstanding borrowings at
June 30, 2017
and
December 31, 2016
consisted of the following:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 30,
2017
|
|
December 31,
2016
|
Marathon Petroleum Corporation:
|
|
|
|
Commercial paper
|
$
|
—
|
|
|
$
|
—
|
|
364-day bank revolving credit facility due July 2017
|
—
|
|
|
—
|
|
Trade receivables securitization facility due July 2019
|
—
|
|
|
—
|
|
Bank revolving credit facility due 2020
|
—
|
|
|
—
|
|
Term loan agreement due 2019
|
—
|
|
|
200
|
|
Senior notes, 2.700% due December 2018
|
600
|
|
|
600
|
|
Senior notes, 3.400% due December 2020
|
650
|
|
|
650
|
|
Senior notes, 5.125% due March 2021
|
1,000
|
|
|
1,000
|
|
Senior notes, 3.625%, due September 2024
|
750
|
|
|
750
|
|
Senior notes, 6.500%, due March 2041
|
1,250
|
|
|
1,250
|
|
Senior notes, 4.750%, due September 2044
|
800
|
|
|
800
|
|
Senior notes, 5.850% due December 2045
|
250
|
|
|
250
|
|
Senior notes, 5.000%, due September 2054
|
400
|
|
|
400
|
|
MPLX LP:
|
|
|
|
MPLX term loan facility due 2019
|
250
|
|
|
250
|
|
MPLX bank revolving credit facility due 2020
|
—
|
|
|
—
|
|
MPLX senior notes, 5.500%, due February 2023
|
710
|
|
|
710
|
|
MPLX senior notes, 4.500%, due July 2023
|
989
|
|
|
989
|
|
MPLX senior notes, 4.875%, due December 2024
|
1,149
|
|
|
1,149
|
|
MPLX senior notes, 4.000%, due February 2025
|
500
|
|
|
500
|
|
MPLX senior notes, 4.875%, due June 2025
|
1,189
|
|
|
1,189
|
|
MarkWest senior notes, 4.500% - 5.500%, due 2023 - 2025
|
63
|
|
|
63
|
|
MPLX senior notes, 4.125%, due March 2027
|
1,250
|
|
|
—
|
|
MPLX senior notes, 5.200%, due March 2047
|
1,000
|
|
|
—
|
|
Capital lease obligations due 2017-2028
|
306
|
|
|
319
|
|
Total
|
13,106
|
|
|
11,069
|
|
Unamortized debt issuance costs
|
(62
|
)
|
|
(44
|
)
|
Unamortized discount
(a)
|
(438
|
)
|
|
(453
|
)
|
Amounts due within one year
|
(29
|
)
|
|
(28
|
)
|
Total long-term debt due after one year
|
$
|
12,577
|
|
|
$
|
10,544
|
|
|
|
(a)
|
Includes
$397 million
and
$420 million
of unamortized discount as of
June 30, 2017
and
December 31, 2016
, respectively, related to the difference between the fair value and the principal amount of assumed MarkWest debt.
|
During the
six
months ended
June 30, 2017
, we borrowed and repaid
$300 million
under the commercial paper program. At
June 30, 2017
, we had
no
amounts outstanding under the commercial paper program.
There were
no
borrowings or letters of credit outstanding under the MPC bank revolving credit facility at
June 30, 2017
. At
June 30, 2017
, we had
no
amounts outstanding under our trade receivables securitization facility.
At
June 30, 2017
, MPLX had
no
outstanding borrowings and
$3 million
letters of credit outstanding under the MPLX bank revolving credit facility, resulting in total availability of
$2 billion
.
MPC Term Loan Agreement
On March 31, 2017, we repaid the remaining
$200 million
outstanding under the MPC term loan agreement with available cash on hand. Under the provisions of the MPC term loan agreement, the loan may be prepaid in whole or in part without premium or penalty. The maturity date of the MPC term loan agreement was September 24, 2019.
MPLX Senior Notes
On February 10, 2017, MPLX completed a public offering of
$1.25 billion
aggregate principal amount of
4.125%
unsecured senior notes due March 2027 and
$1.0 billion
aggregate principal amount of
5.200%
unsecured senior notes due March 2047. The net proceeds, which were approximately
$2.22 billion
after deducting underwriting discounts, were used by MPLX to fund the
$1.5 billion
cash portion of the consideration paid to MPC for the dropdown of assets on March 1, 2017, as well as for general partnership purposes. Interest is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2017.
17
.
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
Net cash provided by operating activities included:
|
|
|
|
Interest paid (net of amounts capitalized)
|
$
|
231
|
|
|
$
|
242
|
|
Net income taxes paid to (refunded from) taxing authorities
|
198
|
|
|
(69
|
)
|
Non-cash investing and financing activities:
|
|
|
|
Contribution of assets to joint venture
(a)
|
337
|
|
|
—
|
|
|
|
(a)
|
MarkWest’s contribution of assets to Sherwood Midstream and Sherwood Midstream Holdings. See Note
4
.
|
The consolidated statements of cash flows exclude changes to the consolidated balance sheets that did not affect cash. The following is a reconciliation of additions to property, plant and equipment to total capital expenditures:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
(In millions)
|
2017
|
|
2016
|
Additions to property, plant and equipment per consolidated statements of cash flows
|
$
|
1,265
|
|
|
$
|
1,431
|
|
Asset retirement expenditures
|
1
|
|
|
2
|
|
Decrease in capital accruals
|
(54
|
)
|
|
(143
|
)
|
Total capital expenditures before acquisitions
|
1,212
|
|
|
1,290
|
|
Acquisitions
(a)
|
220
|
|
|
(133
|
)
|
Total capital expenditures
|
$
|
1,432
|
|
|
$
|
1,157
|
|
|
|
(a)
|
The
six
months ended
June 30, 2017
reflects the acquisition of the Ozark pipeline. The
six
months ended
June 30, 2016
reflects adjustments to the fair values of the property, plant and equipment, intangibles and goodwill acquired in connection with the MarkWest Merger.
|
18
.
Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss by component. Amounts in parentheses indicate debits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Pension Benefits
|
|
Other Benefits
|
|
Gain on Cash Flow Hedge
|
|
Workers Compensation
|
|
Total
|
Balance as of December 31, 2015
|
$
|
(255
|
)
|
|
$
|
(70
|
)
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
(318
|
)
|
Other comprehensive income (loss) before reclassifications
|
(2
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Amortization – prior service credit
(a)
|
(23
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
– actuarial loss
(a)
|
18
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
19
|
|
– settlement loss
(a)
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Other
(b)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Tax effect
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Other comprehensive income (loss)
|
(3
|
)
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
(3
|
)
|
Balance as of June 30, 2016
|
$
|
(258
|
)
|
|
$
|
(69
|
)
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Pension Benefits
|
|
Other Benefits
|
|
Gain on Cash Flow Hedge
|
|
Workers Compensation
|
|
Total
|
Balance as of December 31, 2016
|
$
|
(233
|
)
|
|
$
|
(7
|
)
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(234
|
)
|
Other comprehensive income (loss) before reclassifications
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Amounts reclassified from accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
Amortization – prior service credit
(a)
|
(19
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
– actuarial loss
(a)
|
18
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
17
|
|
– settlement loss
(a)
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Other
(b)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Tax effect
|
(1
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Other comprehensive income (loss)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
(2
|
)
|
Balance as of June 30, 2017
|
$
|
(233
|
)
|
|
$
|
(8
|
)
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
(236
|
)
|
|
|
(a)
|
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note
19
.
|
|
|
(b)
|
This amount was reclassified out of accumulated other comprehensive loss and is included in selling, general and administrative on the consolidated statements of income.
|
19
.
Defined Benefit Pension and Other Postretirement Plans
The following summarizes the components of net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Pension Benefits
|
|
Other Benefits
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
35
|
|
|
$
|
29
|
|
|
$
|
6
|
|
|
$
|
8
|
|
Interest cost
|
18
|
|
|
18
|
|
|
7
|
|
|
8
|
|
Expected return on plan assets
|
(24
|
)
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
Amortization – prior service credit
|
(9
|
)
|
|
(12
|
)
|
|
(1
|
)
|
|
—
|
|
– actuarial loss
|
9
|
|
|
8
|
|
|
(1
|
)
|
|
—
|
|
– settlement loss
|
1
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
30
|
|
|
$
|
21
|
|
|
$
|
11
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Pension Benefits
|
|
Other Benefits
|
(In millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
Service cost
|
$
|
66
|
|
|
$
|
57
|
|
|
$
|
13
|
|
|
$
|
16
|
|
Interest cost
|
37
|
|
|
37
|
|
|
15
|
|
|
17
|
|
Expected return on plan assets
|
(50
|
)
|
|
(49
|
)
|
|
—
|
|
|
—
|
|
Amortization – prior service credit
|
(19
|
)
|
|
(23
|
)
|
|
(2
|
)
|
|
(1
|
)
|
– actuarial loss
|
18
|
|
|
18
|
|
|
(1
|
)
|
|
1
|
|
– settlement loss
|
1
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
53
|
|
|
$
|
43
|
|
|
$
|
25
|
|
|
$
|
33
|
|
During the
six
months ended
June 30, 2017
, we chose to make a
$120 million
voluntary contribution to our funded pension plans. Benefit payments related to unfunded pension and other postretirement benefit plans were
$2 million
and
$15 million
, respectively, during the
six
months ended
June 30, 2017
.
20
.
Stock-Based Compensation Plans
Stock Option Awards
The following table presents a summary of our stock option award activity for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
Outstanding at December 31, 2016
|
9,531,440
|
|
|
$
|
28.93
|
|
Granted
|
1,214,112
|
|
|
50.57
|
|
Exercised
|
(1,017,243
|
)
|
|
21.78
|
|
Forfeited, canceled or expired
|
(54,488
|
)
|
|
41.41
|
|
Outstanding at June 30, 2017
|
9,673,821
|
|
|
32.32
|
|
The grant date fair value of stock option awards granted during the
six
months ended
June 30, 2017
was
$13.42
per share. The fair value of stock options granted to our employees is estimated on the date of the grant using the Black Scholes option-pricing model, which employs various assumptions.
Restricted Stock Awards
The following table presents a summary of restricted stock award activity for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of Restricted Stock (“RS”)
|
|
Restricted Stock Units (“RSU”)
|
|
Number of Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
|
Outstanding at December 31, 2016
|
1,250,343
|
|
|
$
|
41.51
|
|
|
361,117
|
|
|
$
|
28.26
|
|
Granted
|
553,742
|
|
|
50.09
|
|
|
20,198
|
|
|
51.39
|
|
RS’s Vested/RSU’s Issued
|
(512,336
|
)
|
|
42.49
|
|
|
(1,409
|
)
|
|
40.47
|
|
Forfeited
|
(60,779
|
)
|
|
44.67
|
|
|
(13,750
|
)
|
|
50.20
|
|
Outstanding at June 30, 2017
|
1,230,970
|
|
|
44.80
|
|
|
366,156
|
|
|
28.67
|
|
Performance Unit Awards
The following table presents a summary of the activity for performance unit awards to be settled in shares for the
six
months ended
June 30, 2017
:
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average Grant Date Fair Value
|
Outstanding at December 31, 2016
|
6,255,178
|
|
|
$
|
0.78
|
|
Granted
|
2,584,750
|
|
|
0.92
|
|
Exercised
|
(1,854,728
|
)
|
|
0.85
|
|
Canceled
|
(34,000
|
)
|
|
0.70
|
|
Outstanding at June 30, 2017
|
6,951,200
|
|
|
0.81
|
|
The performance unit awards granted during the
six
months ended
June 30, 2017
have a grant date fair value of
$0.92
per unit, as calculated using a Monte Carlo valuation model.
MPLX Awards
During the
six
months ended
June 30, 2017
, MPLX granted equity-based compensation awards under the MPLX LP 2012 Incentive Compensation Plan. The compensation expense for these awards is not material to our consolidated financial statements.
21
.
Commitments and Contingencies
We are the subject of, or a party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Some of these matters are discussed below. For matters for which we have not recorded a liability, we are unable to estimate a range of possible loss because the issues involved have not been fully developed through pleadings, discovery or court proceedings. However, the ultimate resolution of some of these contingencies could, individually or in the aggregate, be material.
Environmental matters
—We are subject to federal, state, local and foreign laws and regulations relating to the environment. These laws generally provide for control of pollutants released into the environment and require responsible parties to undertake remediation of hazardous waste disposal sites and certain other locations including presently or formerly owned or operated retail marketing sites. Penalties may be imposed for noncompliance.
At
June 30, 2017
and
December 31, 2016
, accrued liabilities for remediation totaled
$128 million
and
$132 million
, respectively. It is not presently possible to estimate the ultimate amount of all remediation costs that might be incurred or the penalties if any that may be imposed. Receivables for recoverable costs from certain states, under programs to assist companies in clean-up efforts related to underground storage tanks at presently or formerly owned or operated retail marketing sites, were
$58 million
at both
June 30, 2017
and
December 31, 2016
.
We are involved in a number of environmental enforcement matters arising in the ordinary course of business. While the outcome and impact on us cannot be predicted with certainty, management believes the resolution of these environmental matters will not, individually or collectively, have a material adverse effect on our consolidated results of operations, financial position or cash flows.
MarkWest Environmental Proceeding
– In July 2015, representatives from the EPA and the United States Department of Justice conducted a raid on a pipeline launcher/receiver site of MarkWest Liberty Midstream & Resources, L.L.C., a wholly-owned subsidiary of MPLX (“MarkWest Liberty Midstream”), utilized for pipeline maintenance operations in Washington County, Pennsylvania pursuant to a search warrant issued by a magistrate of the United States District Court for the Western District of Pennsylvania. As part of this initiative, the U.S. Attorney’s Office for the Western District of Pennsylvania, with the assistance of EPA’s Criminal Investigation Division proceeded with an investigation of MarkWest’s launcher/receiver, pipeline and compressor station operations. In response to the investigation, MarkWest initiated independent studies which demonstrated that there was no risk to worker safety and no threat of public harm associated with MarkWest Liberty Midstream’s launcher/receiver operations. These findings were supported by a subsequent inspection and review by the Occupational Safety and Health Administration. After providing these studies, and other substantial documentation related to MarkWest Liberty Midstream's pipeline and compressor stations, and arranging site visits and conducting several meetings with the government’s representatives, on September 13, 2016, the U.S. Attorney’s Office for the Western District of Pennsylvania rendered a declination decision, dropping its criminal investigation and declining to pursue charges in this matter.
MarkWest Liberty Midstream continues to discuss with the EPA and the State of Pennsylvania civil enforcement allegations associated with permitting or other related regulatory obligations for its launcher/receiver and compressor station facilities in the region. In connection with these discussions, MarkWest Liberty Midstream received an initial proposal from the EPA to settle all civil claims associated with this matter for the combination of a proposed cash penalty of approximately
$2.4 million
and proposed supplemental environmental projects with an estimated cost of approximately
$3.6 million
. MarkWest Liberty Midstream has submitted a response asserting that this action involves novel issues surrounding primarily minor source emissions from facilities that the agencies themselves considered de minimis and were not the subject of regulation and consequently that the settlement proposal is excessive. MarkWest will continue to negotiate with the EPA regarding the amount and scope of the proposed settlement.
Other Lawsuits
—We are a co-defendant in
four
lawsuits consolidated for pre-trial purposes in a multi-district litigation pending in the 56
th
District Court, Galveston County, Texas. Plaintiffs allege personal injuries from a fire that occurred at our Galveston Bay refinery on January 11, 2016. The other co-defendants in this litigation are contractors that were engaged by us to provide services at our Galveston Bay refinery. In mid-July 2017, the parties participated in a mediation process and began settlement discussions. On August 1, 2017, we entered into binding settlement agreements with the plaintiffs and co-defendants, subject to requisite court approvals, whereby we agreed to pay
$86 million
to settle all
four
lawsuits. We recorded a liability for the losses under these settlement agreements, which resulted in a charge of
$86 million
in the second quarter of 2017. Further, we plan to vigorously pursue recovery of losses, as well as defense costs, through indemnification from a significant contractor who is not party to the settlement agreements.
In May 2015, the Kentucky attorney general filed a lawsuit against our wholly-owned subsidiary, MPC LP in the United States District Court for the Western District of Kentucky asserting claims under federal and state antitrust statutes, the Kentucky Consumer Protection Act, and state common law. The complaint, as amended in July 2015, alleges that MPC LP used deed restrictions, supply agreements with customers and exchange agreements with competitors to unreasonably restrain trade in areas within Kentucky and seeks declaratory relief, unspecified damages, civil penalties, restitution and disgorgement of profits. At this early stage, the ultimate outcome of this litigation remains uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined, and we are unable to estimate a reasonably possible loss (or range of loss) for this matter. We intend to vigorously defend ourselves in this matter.
In May 2007, the Kentucky attorney general filed a lawsuit against us and Marathon Oil in state court in Franklin County, Kentucky for alleged violations of Kentucky’s emergency pricing and consumer protection laws following Hurricanes Katrina and Rita in 2005. The lawsuit alleges that we overcharged customers by
$89 million
during September and October 2005
. The complaint seeks disgorgement of these sums, as well as penalties, under Kentucky’s emergency pricing and consumer protection laws. We are vigorously defending this litigation. We believe that this is the first lawsuit for damages and injunctive relief under the Kentucky emergency pricing laws to progress this far and it contains many novel issues. In May 2011, the Kentucky attorney general amended his complaint to include a request for immediate injunctive relief as well as unspecified damages and penalties related to our wholesale gasoline pricing in April and May 2011 under statewide price controls that were activated by the Kentucky governor on April 26, 2011 and which have since expired. The court denied the attorney general’s request for immediate injunctive relief, and the remainder of the 2011 claims likely will be resolved along with those dating from 2005. If the lawsuit is resolved unfavorably in its entirety, it could materially impact our consolidated results of
operations, financial position or cash flows. However, management does not believe the ultimate resolution of this litigation will have a material adverse effect.
We are also a party to a number of other lawsuits and other proceedings arising in the ordinary course of business. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe that the resolution of these other lawsuits and proceedings will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Guarantees—
We have provided certain guarantees, direct and indirect, of the indebtedness of other companies. Under the terms of most of these guarantee arrangements, we would be required to perform should the guaranteed party fail to fulfill its obligations under the specified arrangements. In addition to these financial guarantees, we also have various performance guarantees related to specific agreements.
Guarantees related to indebtedness of equity method investees
—We hold interests in an offshore oil port, LOOP, and a crude oil pipeline system, LOCAP. Both LOOP and LOCAP have secured various project financings with throughput and deficiency agreements. Under the agreements, we are required to advance funds if the investees are unable to service their debt. Any such advances are considered prepayments of future transportation charges. The duration of the agreements vary but tend to follow the terms of the underlying debt, which extend through
2037
. Our maximum potential undiscounted payments under these agreements for the debt principal totaled
$172 million
as of
June 30, 2017
.
We hold an interest in a refined products pipeline through our investment in Centennial, and have guaranteed our portion of the payment of Centennial’s principal, interest and prepayment costs, if applicable, under a Master Shelf Agreement, which is scheduled to expire in
2024
. The guarantee arose in order for Centennial to obtain adequate financing. Our maximum potential undiscounted payments under this agreement for debt principal totaled
$23 million
as of
June 30, 2017
.
In connection with our
50 percent
indirect interest in Crowley Ocean Partners, we have agreed to conditionally guarantee our portion of the obligations of the joint venture and its subsidiaries under a senior secured term loan agreement. The term loan agreement provides for loans of up to
$325 million
to finance the acquisition of four product tankers. MPC’s liability under the guarantee for each vessel is conditioned upon the occurrence of certain events, including if we cease to maintain an investment grade credit rating or the charter for the relevant product tanker ceases to be in effect and is not replaced by a charter with an investment grade company on certain defined commercial terms. As of
June 30, 2017
, our maximum potential undiscounted payments under this agreement for debt principal totaled
$163 million
.
In connection with our
50 percent
indirect interest in Crowley Blue Water Partners, we have agreed to provide a conditional guarantee of up to
50 percent
of its outstanding debt balance in the event there is no charter agreement in place with an investment grade customer for the entity’s three vessels as well as other financial support in certain circumstances. The maximum exposure under these arrangements is
50 percent
of the amount of the debt, which was
$139 million
as of
June 30, 2017
.
Marathon Oil indemnifications—
In conjunction with our spinoff from Marathon Oil, we have entered into arrangements with Marathon Oil providing indemnities and guarantees with recorded values of
$2 million
as of
June 30, 2017
, which consist of unrecognized tax benefits related to MPC, its consolidated subsidiaries and the refining, marketing and transportation business operations prior to our spinoff which are not already reflected in the unrecognized tax benefits described in Note
11
, and other contingent liabilities Marathon Oil may incur related to taxes. Furthermore, the separation and distribution agreement and other agreements with Marathon Oil to effect our spinoff provide for cross-indemnities between Marathon Oil and us. In general, Marathon Oil is required to indemnify us for any liabilities relating to Marathon Oil’s historical oil and gas exploration and production operations, oil sands mining operations and integrated gas operations, and we are required to indemnify Marathon Oil for any liabilities relating to Marathon Oil’s historical refining, marketing and transportation operations. The terms of these indemnifications are indefinite and the amounts are not capped.
Other guarantees
—We have entered into other guarantees with maximum potential undiscounted payments totaling
$92 million
as of
June 30, 2017
, which primarily consist of a commitment to contribute cash to an equity method investee for certain catastrophic events, up to
$50 million
per event, in lieu of procuring insurance coverage, a commitment to fund a share of the bonds issued by a government entity for construction of public utilities in the event that other industrial users of the facility default on their utility payments and leases of assets containing general lease indemnities and guaranteed residual values.
General guarantees associated with dispositions –
Over the years, we have sold various assets in the normal course of our business. Certain of the related agreements contain performance and general guarantees, including guarantees regarding inaccuracies in representations, warranties, covenants and agreements, and environmental and general indemnifications that require us to perform upon the occurrence of a triggering event or condition. These guarantees and indemnifications are part of the normal course of selling assets. We are typically not able to calculate the maximum potential amount of future payments that could be made under such contractual provisions because of the variability inherent in the guarantees and indemnities. Most often, the nature of the guarantees and indemnities is such that there is no appropriate method for quantifying the exposure because the underlying triggering event has little or no past experience upon which a reasonable prediction of the outcome can be based.
Contractual commitments and contingencies—
At
June 30, 2017
, our contractual commitments to acquire property, plant and equipment and advance funds to equity method investees totaled
$595 million
.
Certain natural gas processing and gathering arrangements require us to construct natural gas processing plants, natural gas gathering pipelines and NGL pipelines and contain certain fees and charges if specified construction milestones are not achieved for reasons other than force majeure. In certain cases, certain producer customers may have the right to cancel the processing arrangements with us if there are significant delays that are not due to force majeure. As of
June 30, 2017
, management does not believe there are any indications that we will not be able to meet the construction milestones, that force majeure does not apply, or that such fees and charges will otherwise be triggered.
22
.
Subsequent Event
On July 21, 2017, we entered into credit agreements with a syndicate of lenders to replace MPC’s previous
$2.5 billion
four
-year bank revolving credit facility and
$1 billion
364
-day revolving credit facility. The new credit agreements provide for a
$2.5 billion
five
year bank revolving credit facility that expires in
July 2022
and a
$1 billion
364
-day bank revolving credit facility that expires in
July 2018
. In addition, on July 21, 2017, MPLX entered into a credit agreement to replace its previous
$2 billion
five
-year bank revolving credit facility with a
$2.25 billion
five
-year bank revolving credit facility that expires in
July 2022
. The financial covenants and the interest rate terms contained in the new credit agreements are substantially the same as those contained in the previous bank revolving credit facilities.
Additionally, on July 19, 2017, MPLX prepaid the entire outstanding principal amount of its
$250 million
term loan with cash on hand.