Welcome to the MPC Fourth Quarter Earnings Call. My name is Elan, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.

Welcome to Marathon Petroleum Corp's fourth quarter 2018 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor Center tab. On the call today are Gary Heminger, Chairman and CEO; Greg Goff, Executive Vice Chairman; Tim Griffith, CFO; Don Templin, President of Refining, Marketing and Supply; Mike Hennigan, President of MPLX; as well as other members of the executive team. We invite you to read the safe harbor statement on Slide 2. It's a reminder that we will be making forward-looking statements during the call and during the question-and-answer session. Actual results may differ materially from what we expect today. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. I will turn the call over to Gary Heminger for opening remarks on Slide 3.

Thanks Kristina. Good morning and thank you for joining our call. Earlier today, we reported an extraordinary first financial update as a combined company. And we believe these results are early indication of the tremendous value potential of this powerful combination. Earnings for the quarter were $951 million, or $1.35 per diluted share. Results included cost of $1.06 per diluted share primarily from transaction related items. Tim will walk through these costs in detail later on the call. As we review our performance for 2018, it's important to highlight that we've build a culture focused on operational excellence and safety. We received multiple awards and accolades over the last year including an Energy and EPA Energy Star Partner of the Year and VPP recognition at multiple facilities. We remain committed to a culture of continues improvement that positions our company to safely grow our earnings and create long-term value for our shareholders. This quarter we were pleased to report over $2 billion in income from operations. And adjusted consolidated EBITDA of approximately $4.1 billion with our segments performing well. Our expanded integrated business model created significant opportunities for us to capture value. We optimized crude purchases and utilized our larger logistics and diversified marketing footprint to place over 70% of our gasoline volume on a daily basis. Refining throughput was strong during the quarter at 3.1 million barrels per day. This exceeded our expectations and was impressive considering our Detroit, St. Paul Park and Martinez turnarounds during the quarter, all of which were completed on time and under budget. Our Midstream businesses both performed well this quarter. ANDX reported 2018 EBITDA of $1.2 billion, which increased $250 million year-over-year. For MPLX, 2018 marked the single largest increase in annual EBITDA since it became a public company. MPLX reported 2018 adjusted…

Thanks, Gary. Slide 5 highlights the success we've already had delivering synergies. During the fourth quarter, we realized $160 million of synergies, $138 million of the synergies were in our refining and marketing segment. Although not all of these synergies are recurring, it has underscored our confidence in delivering on the significant opportunity set available to us. Crude oil supply and logistics delivered just over $100 million of realized synergies during the quarter. We were able to leverage our scale to optimize access to Canadian heavy crude, which contributed roughly $50 million of synergies. The other $50 million was largely a result of optimizing logistics assets utilization and foreign spot crude oil purchases as a combined business. Within the refining business, we realized $32 million of synergies during the quarter. For example, we utilized MPC's turnaround specialists and our broader access to contractors to support the turnarounds at Martinez and St. Paul Park. This allowed us to come in under budget and ahead of schedule. The $22 million in corporate synergies represents early efficiencies and cost eliminations made possible by the combination. As a reminder, our synergy targets and realizations are incremental to the synergies Andeavor realized as part of the Western acquisition. As of the date of the closing, Andeavor had achieved run rate synergies of $365 million on that transaction. Looking forward, it is our plan to provide details of realized synergies on a quarterly basis during 2019. As Gary mentioned in his comments earlier, we're not constraining ourselves to the synergies originally identified. Our teams are very focused on generating incremental synergy ideas and opportunities. For example, during the fourth quarter, we converted 170 company-owned and operated sites in Minnesota to the Speedway brand. This will support synergy capture in the retail segment going forward. With respect to refining, we've identified the opportunity to utilize sulfur credits across our refining system that will provide approximately $40 million in value during 2019. This is nearly double the value that we were projecting when we discussed this item at Investor Day. As another example, we've identified the opportunity to change the FCC catalyst formulation at the Los Angeles refinery, which should be worth tens of millions of dollars annually. The successes that we had in the fourth quarter of 2018 and our detailed implementation plan give us confidence in the increased synergy potential that we announced at our recent Investor Day. With that, let me turn the call over to Tim, who will provide a walk-through of our financial results.

Thanks, Don. Slide 6 provides earnings on both an absolute and per share basis. For the fourth quarter of 2018, MPC reported earnings of $1.35 per diluted share compared to $4.09 per diluted share last year. As Gary referenced fourth quarter earnings were reduced by $1.06 per diluted share or $745 million due to purchase accounting related inventory effects, expenses associated with the Andeavor combination and MPLX debt extinguishment costs. As a reminder, fourth quarter 2017 earnings included a benefit of approximately $1.5 billion or $3.04 per diluted share resulting from a change in the corporate tax rate at the end of 2017. Additionally, the transaction and our mix of earnings drove a higher income tax rate impact for the quarter. Going forward, we expect the effective tax rate to be around 22%. Slide 7 provides some additional details on the items, which impacted our results in the quarter and where they reflected on the income statement. Refining and marketing segment results include estimated costs of $759 million, reflecting the difference between recording acquired inventory at fair value on the closing date of the acquisition under purchase accounting and the cost used to value inventory at year-end. The effect was magnified as crude prices were rising into the end of the third quarter and subsequently fell rapidly through the fourth quarter. We also incurred $183 million of transaction related costs, including financial advisor fees, employee severance and other costs in connection with the Andeavor acquisition which are reflected in items not allocated to segments in the quarter. Lastly, MPLX redeemed all of $750 million aggregate principal amount of its 5.5% senior notes due in 2023, which resulted in $60 million of debt extinguishment costs, which were reflected in interest expense for the quarter. Combined total of these items had an…

Thanks, Tim. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we'll re-prompt for additional questions. With that, we'll now open the call to questions.

[Operator Instructions] Thank you. Our first question today is from Neil Mehta from Goldman Sachs.

Hey, thank you very much and congrats on a great quarter here. So, Gary, to kick off on the gasoline market, you made a point that Speedway same-store sales were down 1.5%, it sounds like some of that is weather related, but we've been surprised at how elevated gasoline inventories have been to start the year. So just your thoughts on whether this is seasonal or we can work our way through it. What the root cause of the issue is and what the fix is?

Sure. And that's a great question, Neil. And if you look at Speedway same-store sales, I think the majority of this is a result of the weather we've had. But on the counter to that, the weather in the refining system, especially in PADD II and in PADD IV, the Polar Vortex has really had an effect on the industry, not just Marathon, but the industry refining system. We expect, and you're not seeing it in the numbers yet, Neil, you'll see it over the next couple of weeks. But if you look at the number of refineries that have had some sort of maintenance issues, not turnaround, just maintenance issues due to the Polar Vortex, we think probably 6 million to 7 million barrels of gasoline and distillate come out of the refining system here in the month of February. Back to the first part of your question on, is the inventory is -- are we in a cycle and, we always build inventory in the first quarter to get ready for the summer grade gasoline. And so as we deplete the gasoline inventory of the winter grade, we have all the tankage and logistics setup to be able to start inventorying that gasoline. But I think the most important thing and then the number I gave you, 6 million to 7 million, that is above and beyond whatever turnarounds. It appears as though the turnarounds within the industry are going to be a little bit later in the first quarter this year, than has been normal, which I think will have an effect on gasoline inventories as well, as you know, distillate inventories are in very good shape. And, yes, we're at the top end of the four-year average if you look at that or the 5-year average, whichever one you pay attention to, we're at the top end of that, but you're going to see inventories decline. I would say rapidly because of some of the issues the industry has had, and you're going to see a later turnaround -- or later first quarter turnarounds than normal.

I appreciate that Gary, and the follow-up is around capital returns, in a scenario where 2019 is tougher than you anticipate, maybe below trend because of differentials or because of gasoline markets. How committed are you to capital returns and share repurchase? In other words, should we think that the buyback commitment as a ratable number and any thoughts around the -- how aggressive you intend to be around capital returns would be helpful?

Sure. Neil, its Tim, I think, the cap returns are going to continue to be a critical part of the overall capital allocation strategy we've got, I mean, as we laid out at Investor Day and I reinforced here this morning, we expect that we're going to be returning at least half of discretionary free cash flow through dividends, distributions from the MLPs and share purchases. And that's a commitment that we will stay with. So, I mean, certainly to the extent that there is softness in the space, things could adjust, but I don't think there's anything that changes our outlook at this point.

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

Hi, good morning. Gary, first question, I'm just thinking about this first pro forma quarter that you guys logged $4 billion plus of EBITDA, so call it $16 billion plus annualized versus your guidance for 2019 of $12.9 billion, you obviously had some pretty nice tailwinds and differentials here that you called out in the bridges in your prepared remarks. But just any latest thoughts on this guidance now that you've got a quarter under your belt?

Well, it would be very nice if you could annualize things based off the fourth quarter. But as you know, the fourth quarter had some very key attributes that were a benefit to us with the drop in crude price which allowed a higher capture margin than that is normal. But I would say we're very optimistic on what we presented at Analyst Day, Neil's question that he just posed about EBITDA and share buybacks going so far, what happens if it is more of a sluggish year than we had anticipated, but we still are very bullish on the year, in fact, I think, Phil you had written some things earlier about gasoline as kind of an associated byproduct, I think you used that term, we believe, especially and unfortunately what has happened here with the Polar Vertex that has taken a number of systems down and as you build those systems back up, it's going to clean up the inventory in the system. But I think, we're going to get into the second quarter and very likely see should you be max gasoline or should be max distillate and I would anticipate will be distillate, but I think you could see that scenario and then as we go out into the second part of the year, you're going to see, I think the effects of the ultra low-sulfur diesel start to kick in the marketplace. So we feel very bullish about what we presented on our Analyst Day of $12.9 billion as you suggested, and we'll see where the balance of the year takes us.

Thanks for the color, Gary. I guess my second question just to focus a bit more on the differentials side of things, hoping for your latest thoughts, both on the light-heavy differentials, in light of the Venezuela sanctions, but also even just the light inland differentials versus coastal (inaudible) obviously the Capline reversal. Do you think we might see a tightening of inland differentials as all these pipelines come up?

Let me ask Rick to talk about the crude markets.

Yes, hi, Phil, Rick Hessling. Good question. As we look at all the new pipelines that are slated or rumored to come online. If you look, there is a large majority of them that are looking to point to the Eastern Gulf Coast. So from our vantage point that's a positive to MPC as you all know, we have Garyville on the Eastern Gulf Coast with a large appetite for both sweets and heavies and when we look at the differentials, we see it as a positive. We will get pipeline connectivity to advantage barrels -- WTI advantage barrels as well as Canadian heavy and light in time. So we actually view the connectivity as a win for us and we are bullish production and the basins where that product -- where that crude oil will be coming from. So for us, it's a big plus.

Any thoughts on light-heavy?

I think you're going to continue to see pressures on light-heavies as we are today. We're in a zone where obviously because of sanctions, because of the stance that OPEC has taken, the medium sours, the heavies, they are commanding a premium. We continue to see that and I guess to tag on to that, when you look at what the sanctions, speaking of Venezuela, what they have done and I think it's been very well documented in the press that we stepped away from those barrels quite a while ago quite frankly. So from a supply perspective, we're not exposed one bit whatsoever. We see those replacement barrels being AG barrels, Arabian Gulf barrels, as well as predominantly Latin American barrels. So it will continue to stay tight, but I would tell you with our added flexibility between the US Eastern Gulf Coast and the US Eastern West Coast and our West Coast facilities, our flexibility, I think as Don touched on earlier with synergies really, this plays into our hand more so than anyone in the industry that we can optimize between those plants, between grades and really drive the most value for our shareholders.

And Phil, let me ask Ray to mention here a second that even though heavies and medium sours are more expensive, we are not slacking our cokers whatsoever. Ray, you want to speak to that?

Yes, sure Gary. Even though the heavy depths have tightened in a bit, we never met a heavy unit that we didn't like to fill. So our cokers have resid hydrocrackers or deasphalting units. We're still running those out and capturing the differentials that are out there, the balance of the crude slate, Rick goes out and his team and get us the best mix take that he can. So today we're running about 50-50 across our slate, about 50% sours, 50% sweet.

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

Hey guys, good morning. Gary, maybe that's for Rick entry on that. You currently that in the first quarter you are estimating 48% in sweet and 52% in sour and given the light-heavy defense always --, as you may see for some time, is that we should take it as the maximum flexibility you have or that you actually have more ability to swing it more to the sweets if this kind of market condition persists. And similarly, that should we look at your system and saying that your gasoline, you already maxed out in your distillate yields, so you can't really shift anymore between the gasoline and distillate comparing to what you currently have been doing?

I'm glad you asked that question, Paul, because we want to get those across to the investors very carefully. Ray, you want to take that?

Sure, yes, a couple of questions, the first as far as the sweet/sour split and I mentioned that we're roughly 50/50 here today. We have capability and historically we've said that we're two-thirds, one-third, that we could go either way. Now with our new system with 16 plants, it's a little bit different. We can go up to 70% sweet and so we have a little bit more flexibility on the sweet side, but Paul, day in and day out, we're running our LP models at all 16 plants and we're working with Rick's team to bring the crude slate that's going to make us the most profitable across the whole system, and right now, that's where we're laying at about 50/50 percent on that. The second, the second question had as far as distillate production, we're right now distillate production about 40% -- 41% of crude for our distillate. We absolutely have everything within our control pointed to distillate production if things would change and we'd want to go to a max gasoline mode. We have up to about 10% with cut point swing streams that we could direct back into the gasoline pool.

Ray, I'm actually talking about the other way. Can you increase the distillate yield and reduce the gasoline further from here, not, I mean, of course that when you take out butane in the summer grade, you will reduce the gasoline yield, but other than that, is there any other flexibility that you swing even if you want to, that you can swing even more to distillate and lesser into gasoline?

Gary would be pretty mad at me if we weren't already doing that, Paul. We've got everything pointed to the distillate pool that we can and out of the gasoline pool. Now, I'm going to take a little flip on that from the standpoint of, you're trying to say swing from gasoline to swing to diesel, the other knot that you have is less gasoline and again we take gasoline production. Again, we take -- we take our notes from what the market gives us and we saw about a month ago -- we saw the incentive that, hey, we should cut our cat crackers and, A, not buy outside gas oil for some of our cat crackers and, B, sell some gas oil where we have the opportunity and we did that when the gas oil -- sweet gas oil price was about $0.15 over the 70/30 split, we made those moves and then as economics changed, then we changed our operations accordingly. So that's not a shift from gasoline to diesel, but that was just looking at the pure economics of gasoline.

Thank you, Ray. And the second question, a quick one. Gary, any update about Capline reversal?

Yes, let me have Mike Hennigan cover that please.

Hi, Paul, it's Mike. So we launched a binding open season that will run through April of this year -- April 30 of this year. Our expectation is to have the line available for service September 2020. So we're in the process of purging the line, we have to do some integrity work, some pump work, et cetera. Obviously, we want to see the results of the open season and then about 18 months of construction to get out to around September. Why we're excited about it, Paul? I would tell you Ozark connects there, DAPL connects there, the Canadian system connects, we're also talking about a connection with Diamond pipeline. So getting barrels to the Eastern Gulf I think is going to be a real good opportunity for us, as soon as we get the system going.

Mike, are you concerned about depleting too much of the barrel at Patoka?

No, Paul, I think in the short term, there are some limitations on Canadian barrels getting into Patoka, but we think that will solve itself over time. And in the meantime, I think you're going to see some more things that people will look at, I mean we're going to look at as you know we already expanded Ozark ourselves. We're going to look at, can we do a little bit more there. That's another opportunity for Cushing barrels to get up into that area. We're anticipating some more expansion now in the Bakken region as well. So I think you're going to see more flow into the Patoka area, which should be a source of supply for Capline.

Yes, Paul, this is Rick, just to tag on to what Mike said. So when you look at both the Enbridge System and Keystone XL and the timing of their potential -- or their potential increases in capacity, it really lines out well with bringing an incremental barrel into Patoka to take down Capline.

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

Hi, guys, can you talk a little bit about the retail here like MPC was doing $180 million to $200 million in run rate, Andeavor was doing $170 million to $190 million, you put those two together, that's $400 million, but you did $613 million in retail earnings alone. So I understand the weaker crude would have helped, but the results are stellar regardless, so what's driving these retail earnings besides the weaker crude?

Right, Manav. First of all, let me compliment you, you are the first out this morning with your analysis and I thought you did a good job on your quick outlook. The retail, Tony and his team had a phenomenal year -- a phenomenal fourth quarter. As you know, the year started off a little bit slow, but we saw a ramp up in merchandise sales, a ramp up in merchandise margin, but really for the most part, it was the volume through now total Speedway that we were able to capture very strong margins and across the entire sector of Speedway as well as a direct retail part of our business was very strong for the quarter. As we look going forward, and this is one of the real bright spots, when Greg and I worked on putting these companies together, one of the real bright spots was the retail side that we thought through synergies and through our marketing ability and I talked earlier about a 70% of our volume is going to our retail chains either the Speedway side or the Marathon brand or direct retail and that I think helps prop up the refining side, it helps prop up the retail side, and while we had very strong margins in the 4th quarter, I wouldn't expect them to continue at that high of a rate. But as I look through the first part of the year, we continue to perform very well across the entire retail sector.

Gary, a quick follow up. We remember when you acquired Hess, you gave out a synergy target for three years, but you literally got there in one year. And now today you are indicating that $160 million in synergies in one quarter and reiterated $600 million for next year, but the way we are looking at it, the way R&M business is going and the retail business is going, it looks easy like $800 million to $900 million at least. So are you just being very conservative there again for the second time?

Well, you're being very kind Manav, but I would look at retail and we've had this discussion -- I had this discussion on Analyst Day, the synergy walk that you're going to see with this transaction is a bit different than other synergy walks. Lot of times you'll see synergies upfront and then a very long and slow tail, if you will, of synergies. Whereas these synergies are going to be more of a stair-step going forward, and the stair-step, I mean, we've already done -- Don talked about 170 stores that we have already re-ID'd and Minnesota. We're now in Southwest Texas, we are going to start in Arizona here soon, and New Mexico of re-ID'ing and developing those stores into the Speedway mark. So I was in Arizona last week and had a full market tour and there's so many opportunities there that I can -- I am holding my breath that we can get going as soon as possible. But then it is going to take a little bit longer as we go into California and some of the other western states to get things permitted. So you're going to see more of a stair-step, and I would say year two is even going to have higher synergies and year three higher synergies than the Hess model. The Hess model, we were able to get in about 18 to 24 months to get everything re-ID'ed and get tremendous synergy more on the inside of the store. Here we have to take and go and completely redo the stores to get those into the Speedway type of operations. But, yes, we are very bullish on the synergies that are there. I do believe that there can be some upside in the retail synergies and stay tuned.

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

Thanks, good morning everyone. Gary, I appreciate. We always appreciate your comments on the macro, but obviously a reasonable amount of focus on gasoline this morning. I wonder if I could challenge you a little bit on--whether there actually have been some structural changes and what I'm thinking is, the US is obviously running the latest ever API slate at least according to the EIA, that obviously has ramifications for gasoline yields and obviously utilization has been incentivized by crude spread. So I guess my question is, do you think that's a valid reason why we've seen so much gasoline, both productions on inventories, in which case, should we expect the industry and Marathon in particular to see maximum distillate as perhaps a new normal through the cycle as opposed to seasonally?

Well, just because of the crude differentials in the fourth quarter -- well third and fourth quarter that led people to run -- want to run more sweet. You're correct, Doug. But I would say the reason the inventories are high is everybody ran at very, very high utilizations because the differentials allowed you to do that, even though you built some inventory, which if you were on the call earlier, I think you're going to see over the next few weeks here as the EIA numbers start to come out, you're going to see a decline in gasoline inventories due to some of the operational issues caused by the weather. Don, you want to add more to this?

Yes, I guess, Doug, if we think about particularly, you saw in the Gulf Coast, we had record exports and so. Our view is, Ray said, we're at 40% or so diesel production, that's kind of max diesel for us and we'll continue to do that. But we're really well situated from a perspective of if there is a better market -- a higher value market for the products that we're producing; we're taking advantage of that, either through the West Coast exports or through the Gulf Coast. And that's what we saw in December and the fourth quarter. I think December was 485,000 barrels a day of exports, and for the fourth quarter, I think, it was just slightly under that number and about 300,000 to 390,000 of that came out of the Gulf Coast. So we were very focused on delivering to markets where we thought there was incremental value.

I know it's not easy one to answer. So thank you for that. My follow-up is a quick one, Don, it's probably also for you. You said in your prepared remarks, the synergies, not all of the Q4 synergies will be recurring, so can you give us an idea of what the annualized recurring synergies stand at right now relative to the $600 million guidance and I'll leave it there. Thank you.

Yes. So thanks, Doug. And I was -- I wanted to get in on the last call -- or the last question as well. So if you look at our $160 million of realized synergies in the fourth quarter, a little over $100 million of it came from our crude oil supply and logistics. And that piece of it is really comprised of sort of two pieces, one is incremental volume that we're able to get through optimizing pipeline space and those type of things. And then the other piece of it is the differentials as well. As you know, the fourth quarter differentials were incredibly wide particularly around Canadian crude. And so when I'm saying it's non-recurring, the volume piece of it is recurring. The differential piece will fluctuate quarter-to-quarter. Another example, Doug, would be on the turnaround. So we talked about the turnaround in St. Paul Park and Martinez, we are going to have turnaround opportunities annually but we won't always have them every quarter. So in the fourth quarter, there was a turnaround and we were able to capture that. The timing of capturing synergies around turnarounds in 2019 will be different than the timing of capturing synergies or turnaround synergies in 2018. So I think we feel very -- our original base plan was $480 million run rate, which implies $40 million a month exiting 2019. I think we feel very comfortable that we'll be above that number exiting 2019.

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

Sorry. Good morning. Hopefully you can hear me there. Actually, I'd like to come back real quick on the gasoline thing; I'm with you that it seems to be more higher volumes. If you look at gasoline yields from the weekly DOE data, we're down from a year ago and we're about where we've been the last, say, five-year average. So it looks like higher throughputs, and maybe Gary, if you could give us a little more detail on your thoughts about the weather impacts and how persistent the problems from that maybe, I know you talked about kind of, I think it was a 6 million to 7 million barrel product loss. But do you see that is strictly the PADD II area or is that something nationwide?

The numbers I gave you were more probably PADD II, PADD III -- excuse me PADD II and PADD IV. And I would say that another way to look at this, Roger, I should've mentioned this earlier, that because this is really a precursor to I think the inventories coming. Look at the way gasoline crack spreads have gone in the last 7 days, they're up about $7, $8 a barrel from where they were just a week to 10 days ago, and that's because of the market having to rebalance, to take care of these shortages. So you clearly are going to see this inventory come down and come more into balance here in the next few weeks. And the best metric to look at is where the gas crack in PADD II is and PADD IV today and you've seen that they've come up substantially over the last seven to 10 days.

Yes, it's funny how that seems to happen every year.

Yes.

If we could follow-up on Manav's questions about the retail side and the process of switching the MSOs over, should we look at this as a more CapEx intensive approach than say the Hess merger was as we think about switching stores over or is this a fairly straightforward re-branding that isn't too high on the CapEx side, just trying to think about what other changes need to be made and it's quite a different system, and then if I could tag on just as a separate refining question, if we look at West Coast OpEx, we know it's historically higher, but I was wondering given the moving parts in the quarter, the inventory adjustment, how much of that much higher manufacturing costs was related to that and how much of it is that's a clean number that you want to get down over time?

Okay. Roger, I'll take the first one on the retail. We put the numbers out in our Analyst Day in Tony's presentation, he had the capital numbers in there, what it is going to take us to remodel, re-ID the stores. So it's not a big number. It's pretty much in line with where we were on the Hess for the re-ID side and the remodel side as well. So, no, I do not expect it to be any more incremental capital then we already had in the plant, which is not significant to begin with. We're making very good progress on the re-ID front, one of the things we learned from the Hess side is that it is best to remodel at the same time you're doing the re-ID, so you're not back to the store twice. So while it might seem as though we're moving a little slower, we're going to capture I think incremental sales, incremental margins at a faster rate by doing both of those combined. But you should not expect to see any increase in the capital that we have already identified. Ray, you want to talk about the West Coast OpEx?

Sure, West Coast OpEx is definitely something that's high on our radar right now. We're historically used to operating in the US Gulf Coast, Midwest and seeing numbers that are magnitude lower than what we have right now. If we look at our OpEx projection for the first quarter in the West Coast, some of that is driven by, we do have some turnaround activity going on right now at LAR, we have some turnaround in the Wilmington alky that's associated with the LAR project and so that's implied in our OpEx, but in general, we see a real opportunity and an incentive for us to want to bring that down. We talked a little bit about this at Analyst Day when we showed the Galveston Bay performance in the six years that we have had that refinery and that we brought that from a port cortile down to what we view as a midpoint OpEx refinery and we'll utilize the same Galveston Bay play book on the West Coast and look for opportunities to bring those costs down too.

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

Hi, thanks for taking the question. I wanted to circle back on the synergy detail on the crude supply and logistics, appreciate the split there, the 50/50 between the WCS and the logistics foreign spot, I sort of wanted to drive back to the Western acquisition that's already in the numbers are accounted for on the close, the $365 million. Is there a similar split that we could get or some sort of way of thinking about how much of that was maybe driven by differentials as well so that we can kind of get a sense of to combine what the run rate is going forward?

Yes, Prashant, this is Greg Goff, as far as the Western synergies that were quoted in there was through the third quarter. The amount that Don stated with through 3Q 2018, had no impact on differentials, those were -- the synergies were what had been talked about in the past and from corporate synergies, to supply, to refining operations, to the whole basket, and so there was no, nothing to do with the crude differentials.

Okay, thank you. I think my second question here as we look to in the West Coast now as combined, I kind of wanted to drill down on the dynamics there, maybe some color on how maybe the California assets compared to the Pacific Northwest market and what we're seeing here in 1Q. And maybe a little bit of an update on some of the progress that -- opportunity that might be there as well in terms of anything on the synergy or integration side?

Well, Prashant, we're just getting into those refiners. Ray just had a very good discussion on what we see -- the opportunities we see at LAR, that we're going to move up the cost to Martinez and we see opportunities there on the operating expense and operational excellence side of the equation, and then move up to Anacortes as well. Ray, you want to go into some of the things you're looking at Anacortes, anything in Alaska?

Yes, I would just say this will play into our whole synergy playbook, but we're looking at how we can better utilize, better optimize the four refineries on the West Coast; Kenai, Anacortes, Martinez, and LA. Andeavor historically had done a really good job of that. We think there's additional opportunities, I'll say with IMO coming, beginning in the next year to maybe move some of the heavy streams from the -- and I'll say from Kenai, Anacortes down to our LA refineries where we have more processing capabilities. The other thing I'll say relative to Anacortes is that refinery, it's on the West Coast but has a very good crude advantage with the Bakken and being able to bring in unit trains, and so we're really excited about what we've seen thus far with their capability from a crude processing standpoint. Kenai, a little bit smaller of an asset you know at 60,000-ish barrels a day, with more of a limited marketing presence, but we still think there's opportunities within that tool kit within the refinery configuration to optimize that a little bit going forward. As Gary said that we're four months into this, we are spending a lot of time analyzing the assets at each of the refineries and there'll be more to come at more of these earnings call, but I'd say the biggest thing that we're focused on right now is really just making sure, one, we understand the cost structure on the Pacific Coast and, two, we get a game plan how to make that lower.

Yes, Prashant, I'd just -- this is Rick Hessling, I'd like to add just a few comments to that. So from a crude sourcing aspect, it's an incredible synergy to have the Pacific Coast and the West Coast as part of our footprint. We're able to take Canadian now to the West Coast, to the Pacific Coast as well as Ray mentioned Bakken, and this expanded footprint gives us the ultimate flexibility to guide a barrel there, to guide barrel to St. Paul Park or to guide of barrel into PADD II for our four refineries there. And then in addition to that, our foreign purchasing strategy enables us to toggle barrels between the US Gulf Coast to those regions as well. So never before have we had this flexibility and this is as Don stated earlier, a large part of our synergy. So a true advantage for both the West Coast and the Pacific Coast.

Thank you. Our next question is from Paul Sankey from Mizuho.

Good morning, everyone. Gary, could I ask you the usual question about Washington please, particularly. My understanding is the Venezuelan sanctions were abrupt and surprise. I was wondering if you thought that they would be, I assume, we believe they'll be lifted if there is change of regime. And secondly, any thoughts that you have about Iran and how that might impact the market because I assume if there's enough oil out there as stated by the administration, the chances are very strict sanctions on Iran later this year and further to that, any other observations you have on the latest situation in Washington? Thank you.

Right. And I would say that Venezuela was not a surprise to us. I think the president was very clear in his messaging and administration was very clearly messaging upfront on what might come about. As Rick stated earlier, we were well prepared and had eliminated for the most part a cargo here or there, but eliminated anything from Venezuela in our steady diet. As to Iran, I think you'll continue to see the discussions and sanctions in and around Iran; you're going to continue to see, I would say the same discussions. Probably the thing to keep close eye on though, Paul, as we all read yesterday of how some of the Middle East producers and Russia are looking to kind of have a sub-pact inside of OPEC, that's probably something more important to really keep our eye on what that might mean, on how they're trying to really be able to balance the global crude market.

Yes, can I just follow up on that, what are your thoughts on the NOPEC, the chance of the NOPEC deal?

I think it's too early to tell, I think this, what I just discussed and what's being written in the media a lot about Middle East producers and Russia, they are the powerful producers. I think that will be a much more powerful combination than an OPEC type of an issue.

Got it, Gary. And then I've got one, left to field one, if you don't mind. We've seen exceptionally strong international earnings from, for example, like -- this quarter given that you've now presumably reached terminal scale in the US, would you consider international expansion for Marathon Petroleum? Thank you.

Not at this time, Paul, we have plenty to say grace over here. I've worked through my career, I've worked through those cycles many times and I don't see that that would be on our wish list at this time. End of Q&A

Perfect. Operator, thank you for everyone for your interest in Marathon Petroleum Corporation. Should you have additional questions or would like clarification on topics discussed this morning, we will be available to take your calls. And with that, thank you so much for joining us.

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