Welcome to the MPC First Quarter 2025 Earnings Call. My name is Amanda, 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 Corporation's first quarter 2025 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me on the call today are Maryann Mannen, CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I'll turn the call over to Maryann.

Thanks, Christina, and good morning, everyone. Let me highlight a few elements of our performance that were most relevant to our results in the first quarter. Refining utilization of 89%, reflecting the safe and successful completion of the second highest amount of planned turnarounds in history focused heavily on our Gulf Coast region. We plan this turnaround activity to occur in the first quarter, a period of seasonally weaker demand. capture was 104% as we delivered strong commercial performance in a period of low refining margins and volatility from regulatory uncertainty. Our Midstream segment adjusted EBITDA grew 8% year-over-year, and MPLX announced over $1 billion of strategic acquisitions, advancing our midstream natural gas and NGL growth strategies. Our longer-term fundamental view supports an enhanced mid-cycle environment for refining. Despite reductions to the 2025 demand outlook forecasts still point to a global oil demand growth. mainly driven by demand for the refined products we produce. U.S. refined product inventories have drawn for the ninth straight week and are below the five-year average. This plus lower retail prices should be supportive as we move into the summer driving season, a period of strong seasonal demand. Within our own domestic and export businesses, we are seeing steady year-over-year demand for gasoline and growth for diesel and jet fuel. And while light-heavy differentials could remain narrow as Canadian producers increase maintenance in the second quarter, we believe that higher OPEC plus production could offset that near-term tightness. We believe underlying fundamentals support stronger margins, especially as announced refinery closures offset recent capacity additions. We anticipate around 800,000 barrels per day coming offline across several refineries in the U.S. and Europe this year. In the U.S., the Gulf Coast refinery completed its closure in the first quarter and in California, two announced closures are expected…

Thanks, Maryann. Moving to first quarter highlights. Slide 4 provides a summary of our financial results. This morning, we reported a first quarter net loss of $0.24 per share -- during the quarter, we returned over $1.3 billion to shareholders through dividends and repurchases. Slide 5 shows the sequential change in adjusted EBITDA from fourth quarter 2024 to first quarter 2025 and the reconciliation between adjusted EBITDA and our net results for the quarter. Adjusted EBITDA for the quarter was approximately $2 billion, lower sequentially by $145 million due to decreased results in our Refining and Marketing and renewable diesel segments. In addition to effects from the mix of pretax earnings between our R&M and Midstream businesses, our tax rate was further lowered by discrete tax benefits recognized in the quarter. Moving to our Refining and Marketing. First quarter segment results on Slide 6. Our refineries ran at 89% utilization, processing 2.6 million barrels of crude per day. We completed significant planned turnaround activity in the quarter, particularly in our Gulf Coast region, where utilization decreased from 97% in the fourth quarter of last year to 82% in the first quarter. As compared to fourth quarter of last year, the effects of lower Gulf Coast volumes were partially offset by higher margins in the Mid-Con and the West Coast. R&M segment adjusted EBITDA was $1.91 per barrel for the quarter. Turning to Slide 7. First quarter capture of 104% was driven by solid commercial execution as well as seasonally strong clean product tailwinds. We leverage the scale of our fully integrated system across all three regions to capture margin opportunities across our entire value chain from feedstocks to products. Slide 8 shows our Midstream segment performance for the quarter. Our Midstream segment continues to deliver cash flow growth with an…

Thanks, John. We are unwavering in our commitment to safe and reliable operations, operational excellence, commercial execution and our cost competitiveness yield sustainable structural benefits and position us to deliver peer-leading financial performance in each of the regions in which we operate. To deliver this, we will optimize our portfolio to deliver outperformance now and in the future. We'll leverage our value chain advantages and ensure the competitiveness of our assets while we continue to invest in our people. Our execution of these commitments positions us to deliver the strongest through-cycle cash generation, durable midstream growth is expected to deliver cash flow uplift and to deliver distribution increase going forward, a differentiator from our peers. Investing capital where we believe there are attractive returns will enhance our competitiveness now and for the future. We are committed to leading in capital allocation and will return excess capital through share repurchases. MPC is positioned to create exceptional value through peer-leading performance, execution of our strategic commitments and its compelling value proposition. Let me turn the call back to Kristina.

Thanks, Maryann. [Operator Instructions] Operator, please open the call for questions. Operator, we're ready for questions.

Thank you. [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Your line is open.

Yes, good morning Maryann and team. A lot to talk about here, but maybe we start on what you're seeing real-time, from a demand perspective as we get into - deeper here in the second quarter. Are you seeing any physical evidence of an economic slowdown, and just maybe give you some real-time color, of what you're seeing in your system here?

Yes, good morning Neil, and thanks for the question. Look, I think we've seen refined cracks improve. You look, we're about $4 better in the second quarter than, we were in the first it's showing the typical seasonal improvement into the second quarter. You've seen our guidance, when we look at overall utilization, 94%, particularly when you look at the Gulf Coast 96%, for us as we get out of our second largest turnaround. And if you will, ready to run in the second quarter. We think we are well positioned to meet this seasonal uptick in demand. And certainly, when you look at the fundamentals, the inventories that I referred to, the five-year average et cetera, and certainly sort of the overall outlook. But I'm going to ask Rick, to give you some specifics as he's looking at our system, and demand to address your question.

Yes, Neil, to bolt-on to Maryann's comments. So real-time, we're very optimistic on what we're seeing within the domestic business, we're seeing steady year-over-year demand for gas, and we're seeing growth in diesel and jet fuel. And then additionally, when we look at our exports, Neil, when you go year-on-year, quarter-on-quarter, we're seeing increases in export demand as well. So all the way across our system, we are seeing positive signs, and aren't really seeing a slowdown whatsoever. Closer to home to what Maryann mentioned, on the inventories, I want to double tap on that for a moment, because those signals are really important to us. And a great indication of how the market, is setting up as we head into our summer driving season. So as you know, we did a lot of turnaround work in Q1. We are ready to run in Q2 and with the lower street prices year-on-year, we see this as another strong demand signal that the consumers will have, to continue this demand strength that we're seeing. And lastly, Maryann mentioned the $4 a barrel increase versus Q1. Just a few specifics on that to breakdown for you by region. In the Mid-Con, we're seeing a $6 a barrel increase, of where we stand today versus the Q1 results in the Gulf Coast, a $3 a barrel increase and in the West Coast, a $5 a barrel increase. So strength across the system, Neil.

Yes. Okay. You see in the margins for now. And so, it's definitely notable in some of the hard data here. So okay, then the follow-up is just on the West Coast specifically. We've seen a lot of developments here, most notably Benicia, but how are you guys thinking about the multiyear outlook for the West Coast? How do you position yourself? And do you think that the political environment, is such that if you go into a period of strong margins, you'll be able to capitalize that?

Yes. Thanks, Neil. Maybe a few things around the West Coast and our view sort of longer term. First, as you know, we've been investing - I mentioned it on some of my prepared remarks there. We've been investing in our L.A. asset. We believe it's flexibility, the integrated nature of that asset its ability to process different types of crudes, et cetera, gives us a long-term competitive advantage. In the case of this capital that we're putting to work, gives us efficiency improves performance, EBITDA, while at the same time, we are complying with regulatory requirements around NOx emissions. So overall, we think that's been a good investment. Just when we think about demand in the West Coast, right, 28 million conventional fueled vehicles, as I like to say in the state, a lot of that demand is centered in the Los Angeles region, so it speaks well for our asset also. And then you speak about the regulatory environment. We've spent a lot of time, as you know, you can go back really to 2018, 2019, frankly, as we began our assessment of our profitability and the competitive nature of our assets in that region, when we made the decision, frankly, to close Martinez, as a fossil fuel refinery, albeit right continued as a renewable diesel. We're watching the regulatory environment very closely, right? We've got minimum inventory law went into place in the beginning of the year, but frankly, the rulemaking isn't done. I think right now, the state and the officials there are focused on resupply as maintenance and turnaround activity happens to ensure that we can provide, - they can provide requirements for consumers there. There's also been conversation, around whether or not the state would own, or operate refineries. We certainly don't think that, that's plausible, but we'll watch it closely. And last, what I would say is, we are spending time with the regulatory agencies through our Washington office, et cetera, to ensure that there is an understanding of sort of the longer-term view and the decisions that, they are trying to make there. So we're comfortable as we sit here today, recognizing that a challenging environment. We think, we've got one of the most competitive assets in the region. And hopefully, I've done a reasonably good job of telling you, why that's the case. I'm going to ask Rick, to give you a little bit of color, on what we're seeing maybe long-term with demand there.

Yes. So Neil, we continue to see pretty positive signals also on the West Coast. But I want to maybe take a step back, and give some color to our positioning as well to add on to Maryann's comments. So we have the largest refinery in California. It is complex. It is fully integrated and we will beat the, what we call high cost alternative of imports into the region all day long. With that being said, the closures that, we have seen certainly are a tailwind to our - not only our LAR facility, but also to our Pacific Northwest facilities. So if you look, they will also be the beneficiary of product placement. And as the West Coast is structurally short gasoline and jet. So we will be leaning into these markets as others close. And lastly, I want to leave you with a nugget that not a lot of people talk about, It's on the feedstock side, if these closures happen that have been announced, Neil, we will be the beneficiary as well. We have a large TMX position, taking advantage barrels from Canada. But above and beyond that, we're a big AMS and a big SJV buyer and we will be the beneficiary of those closures that if they happen, that will put incremental pressure on those differentials, and we have a large appetite for those grades. So I'll leave it there, Neil.

Great color. Thanks, team.

Thank you.

Thank you, Neil.

Thank you. Our next question comes from Doug Leggate with Wolfe Research. Your line is open.

Good morning, everyone. Thanks for taking my questions. Maryann, I want to come back to a topic that I feel like we used to bring it up, relatively frequently and then it kind of fell into the background a little bit. And it's the issue of capture rates - you had one of the heaviest turnaround seasons in, I guess, in your history this quarter, yet your capture rate kind of knocked it out of the park. And I know this is related to the commercial organization that, you built up over the last several years. And I'm just wondering, as you get back into normal utilization rates into the, when you don't have a lot of downtime, should we be thinking that your capture rate has shifted up as a matter of course? Or I'm just curious how you would respond to that comment?

Good morning, Doug, and thanks for your question. So as you know, one of the things that we've been really leaning in for some time, is our ability to improve our commercial performance. We think it is one of the most important elements, when we think about our value proposition, and our peer-leading performance, and over the last few years, as you said, we've been building what we think are sustainable benefits across the system. Organization-wise, other capabilities we've talked about are London office, our Singapore office, our Houston office in addition to our Finley office as well. So some of these capabilities will transcend. We've also said that approaching 100%, is clearly an objective of ours. And we think some of the sustainable advantages that, we've really put in place are being demonstrated, through our financial performance. And as some of these things, regardless of whether it's a high crack environment, or a low crack environment may not be in our control, but the ones that are that what we are trying to focus on quarter after quarter. We think, right, looking at our fully integrated system, and trying to leverage those capabilities. You hear us talk about value chain integration, the strategic importance of the relationship between MPC and MPLX. We believe all of these, will continue to deliver capture rates approaching 100%. And I'll look at Rick, and see if there was anything else that Rick wanted to add, particularly as we think about what happened in the quarter?

Yes. Thank you, Maryann. Doug, I have to chuckle for a moment. I'm guessing Maryann thinks I paid you to ask that question, because we are quite proud of our results, not only has it been this quarter, but I think you've seen it the last several quarters. And I do want to reiterate that, it is structurally sustainable. We believe we built the system and have the value chain, to continue to garner more value than our competition. In three areas of particularly strong performance that, I want to highlight in our specific teams, specialty products, asphalt and product margins - and sometimes we mention product margins, and they're specific to a region. This past quarter, I would tell you, it's all three regions. It's Gulf Coast, Mid-Con and West Coast. So very proud of the team's performance, and bringing value out of the entire value chain, as Maryann referenced.

Okay. Well, I was thinking the 100% might now be a little conservative, but we'll see, we'll see where we go.

Please don't do that to me, but we're confident in our ability to outperform in this area, Doug.

Good stuff. Thanks for the answer. Maryann, a completely unrelated question. Again, it's something has come up periodically. You've talked about - you want to hold $1 billion of cash on the balance sheet, but you did admittedly have some working capital moves, and you lend it into the balance sheet this quarter, it seems for share buybacks. What is the net debt level at the MPC level again, the net debt MPC level that you're comfortable with, as opposed to the cash level at the MPC level?

Yes. Thanks for the question, Doug. Maybe just a couple of other comments as well before I get to your specific answer. But one of the things that we think is important, as we try to lean in with respect to our capital allocation priorities, and they haven't changed. You talked about the $1 billion. As you know, from quarter-to-quarter, some of those things just depending on commodity prices, et cetera, that will ebb and flow. But the $1 billion continues to be something that we have stress tested and remain comfortable in part, because we had a realized situation many years ago called COVID that helped us understand that. The second part of that, as you know, and I think you've been asking me this question for a couple of quarters now, right, if not longer than that. The distribution that MPC received from MPLX at $2.5 billion today. Covers the MPC dividend, to its shareholders as well as the 2025 capital plan that MPC has announced. And hopefully, you can see that we are supporting that mid-single-digit growth in MPLX and the distribution increase of 12.5%, which means the cash coming back to MPC, should continue to increase as that growth in MPLX happens. These are all factors that give us confidence when we talk about $1 billion on the balance sheet, that, that continues to be, if you will, a durable basis. I'm going to pass it to John, and he can talk a bit about the debt, to specifically answer that question, Doug.

Yes. Hi, morning Doug, thanks for the question. So maybe, again, to take it back, as you know, we'd like to kind of think about the two balance sheets a little bit separately. So if I think about MPC standalone, I'll come back to MPLX in the midstream business. Look, we've said absolute gross debt, we're comfortable in and around plus, or minus $7 billion, right? So $7 billion in absolute debt, $1 billion of minimum cash target. Again, I commented and Maryann did why we continue to be really, really comfortable with that, and comfortable with our investment grade profile. And MPLX is a little interesting, right? Their debt has stayed relatively flat, but we've really grown the EBITDA, four-year CAGRs of 7%, so leverage has really come down. And there, we look at kind of a gross debt to EBITDA. And we're sitting at the end of this quarter at about 3.3 times, and we've said, look, given that business, the durability and stable cash flow it generates, we're comfortable up to four. So we see a lot of capacity there, as MPLX looks at its growth opportunities to leverage that balance sheet. Again, on the MPC side, absolute debt, about $7 billion. As I think you know, there, we talk again about a gross debt-to-cap ratio. And I think, we've got some of that in our materials as well, what you would typically see more with an investment-grade approach. It's a little bit interesting there, because if we did something like we did this quarter, where we're leaning into buybacks and maybe a lower profitability market, you're going to impact that ratio. But over time, we're really comfortable with that $7 billion. So hopefully, that helps, Doug.

It does. Thanks very much indeed, guys.

You're welcome Doug. Thank you.

Thank you. Our next question comes from Manav Gupta with UBS. Your line is open.

Good morning. Congrats on a strong quarter. I wanted to ask you about the crude quality discounts, looks like OPEC would be raising volumes faster than most of us expected. So help us understand your near to medium-term outlook for crude quality discounts, and how MPC can benefit from it?

Yes, hi Manav, this is Rick. Good to hear from you. I will say this is very positive for us, given the amount of heavy crude we run in all three regions, West Coast, Gulf Coast and Mid-Con. So we are arguably the largest heavy refiner in the country, and so we will benefit significantly. And as we see the acceleration of OPEC volume, with the recent announcement this week, and certainly as a tailwind for the light heavy spreads. Additionally, though, I'd like to give you some color on Canadian, because Canadian has recently been depressed, but we see upside there Manav as well. When you look at not only the OPEC announcement of accelerating their barrels into the market, but as you look forward on their forward curve, and I don't even think the OPEC piece is baked in yet. In the fourth quarter, Manav, we're seeing $3 to $4 a barrel discount, greater than what we see today. So certainly, that's a benefit to us as we run a lot of heavy Canadian, as you know. I hope that helps, Manav.

Perfect. I actually also wanted to follow-up a little bit on the midstream side, 7% year-on-year growth on the MPLX side. But when we look at year-to-date, almost $1 billion of acquisitions some of, which have not even closed, right? And so if you think about it, how should we look at the distributions from MPLX growing over a period of time given you already had an attractive lineup of project growth at frac1, frac2. And now you're adding $1 billion of additional assets. So can we think about that 12.5% growth product distribution could be sustainable for the next, like, three to four years. And then you're already covering your CapEx and dividend through that distribution. So does buybacks can also be supported through that distribution? If you could talk about that? Thank you.

Manav, thank you and good morning, I appreciate your question. So first of all, when you look at the MPLX, the midstream business, we talk about a compound annual growth rate, both on EBITDA and DCF in and about 7% for four years. We think, as you have heard us talk about as well, that we have projects and opportunities to be able to continue that mid-single digit growth, albeit I say it might not be perfectly linear as we move out. The point of that 12.5% distribution increase last year, was to say when you look at the growth opportunities, when you look at these mid-teen returns projects, using that strict capital discipline lens, we felt very good about suggesting that, that 12.5% was clearly doable for the next few years, to your point, because of the durability of those earnings and the opportunities that we see. This quarter, we put about $1 billion to work you are absolutely correct. Some of that has not closed yet. BANGL gives us - will give us 100% ownership, very critical when we think about the ability, to support our producer customers important to the integration of our wellhead-to-water strategy. Second, we talked about Whiptail. It's a gathering - it's natural gas, crude oil and water gathering system. We talk a lot about the value chain importance and the strategic relationship, between MPC and MPLX. It's in the four corners, critically important on the opportunity for our El Paso refinery. So two examples, as you say, plus, as we talked about $1.7 billion of capital in MPLX that is growth-oriented, of which 85% was natural gas and NGL focused, secretariat at seventh large - sorry, seven processing plant in the Permian. Bringing our processing capability, when it comes online at the end of the year to about 1.4 Bcf. So really making the connections in the integrated value chains. So we believe that 12.5% is durable for multi-years, as we bring it back to MPC to your point, we are already covering the MPC dividend, and as you know, we are continuing to lean in delivering right excess cash via buyback on the MPC side. And then we are still covering the cost, or excuse me, the capital cost with that distribution. So certainly, as it grows, it will continue to give us even greater flexibility on the MPC side of the house. I hope that addressed your question, Manav.

Thank you so much.

You are welcome.

Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.

Hi guys, how are you doing?

Good morning Paul. We're well, how are you?

Very good. Good morning. Maryann, just want to ask that. It seems like you and a lot of your peers, everyone is looking at the NGL value chain, and have a lot of opportunity, and so that seems a very consensus for you, and everyone is pursuing a wellhead-to-water strategy. So can you try to help us understand that how your strategy may be different than your peers? And there's also in the commodity business, there's always some fear. If everyone is pursuing the same strategy and everyone sees that is such a great thing. It turned out that the result may not be as good as everyone hope. So maybe that you can help us that to better say, understand that what is the risk in terms of everyone is doing this?

Certainly, Paul. Thanks for the question. So we think - and we've talked about our wellhead-to-water strategy, our completion two fracs in the export terminal 2028 and 2029. We are very confident in our ability to fill these two fracs. As I mentioned just earlier, we've got the seventh processing plant in the Permian that's going to be complete. That will give us $1.4 million and frankly, our current customer commitments really support this project. Also keep in mind today, we, meaning as we're thinking about this fractionation, we are using third-party fracs, which we will not need to use in the future. We think it has a very solid cost position, as we shared with you the total cost of the project. We think when we look at both C3 and ethane, ethane will be a domestic sale, but we know the strength of C3 when we look at its requirements in Asia, Japan, et cetera. So we think that export market will be there. And we think we're very good at executing projects. And certainly, our commercial process will give us the ability to market that in the future. They would be a few other things, Paul, that I would tell you will differentiate this project from our peers. As I mentioned, we're not looking - we're not done. We are really trying to adapt as these markets are changing, and completing these value chains, particularly when we're looking at that wellhead-to-water strategy. I hope that addresses your question, Paul.

Okay. Great. The second question is on the renewable diesel business. I mean it does look like that the RIN price is going higher, and hopefully, the LCFS price will get will - the amendment will go through and then we will see them higher later this year, or next year. But in addition to the market condition, I mean, what else are you doing internally trying to improve the profitability of that business? I was little bit surprised that we have said trend downtime in the first quarter after, or I mean that we have the fire and subsequently that you guys said we build the unit, or that repair the unit. So can you help us understand that? I mean what is the root cause of the outages in the first quarter? And more importantly than what are the initiatives that you are doing, to help to improve the operation and reliability of that business?

Hi, morning, Paul, it's John. I'll start here. And if we have any other questions, I'll look to some of my peers as well. So - and some of this I tried to have in our prepared remarks as well. As you noted, there's a portion of this business that's supported by regulations, whether it's RINs, LCF, et cetera. But we're really focused on the things that we can control. And as I mentioned in my remarks, we did have some opportunities here in the first quarter to address utilization. I will tell you - again, we're taking a turnaround, some doing some work at Dickinson, it's ready to run. And quarter-to-date, Martinez is running as we expect it to be. So without getting into details of what those things are, I think it's maybe more important to tell you the plant, the plant is running as we expect. And that's then what we're focused on. If we take our Martinez position really looking with our partner to optimize the feedstock into the facility, really leverage that pretreat, which is a competitive advantage for the facility and obviously where it's located in California, the key markets. So those are the things we're really focused on. As you note, as now we get to kind of hit the ground running, and really run that plant and see what we can do. So those are the big things that we can control. Again, we'll continue to work with government affairs, et cetera, for the respective agencies to understand the impact of their decisions. And I guess I wanted to maybe add to, Paul, you didn't ask it, but you might. Obviously, there's a lot of change in the industry going from the blenders tax credit to the production tax credit. We, like others, we're reacting to guidance that came out during the quarter. As I mentioned, we had very limited recognition in the first quarter, but we've already taken action that's going to drive that. And let me be clear, too, we're also going to continue to push on the regulations, et cetera, to get back to value we weren't able to recognize in Q1 as well. So that's another action we're taking. So hopefully that gives you a little bit of the play of the land.

John, can you tell us that what is the average duration before you have to change your catalyst at Martinez?

Yes. That might be a detailed question, Paul that we'll work with the team with you off-line.

Okay, we do. Thank you.

Thank you.

Thank you, Paul.

Thank you. Our next question comes from Theresa Chen with Barclays. Your line is open.

Morning. Thank you for taking my questions. I'd like to double-click on the West Coast outlook one more time. Just on the profitability and the idea that the supply of California spec products coming from Asia, by means of a regular weight production of CARBOB in Asia versus opportunistic and the regularity of and cadence of imports on an ongoing basis, even if in-state facilities can produce cheaper, do you think the regularity of imports will cap benchmark cracks over time?

Hi Theresa, this is Rick. So generally, I would say we're tracking imports as everyone else is very closely. What imports are doing is creating a lot of volatility. And what I mean by that is, when imports come in, they do have an impact on the marketplace. But when that inventory is run through, we then see a spike within the marketplace. So it's somewhat of a feast or famine, because to bring imports in is challenging, because you have a 40-plus day transit time. So it's a big bet on where the market will be by the time they get into the West Coast system. So we continue to see imports, just wreaking a lot of havoc on volatility within the industry, and continue to see our advantage really overplaying any imports that would be sustainable, because we don't believe they're going to be consistently sustainable long-term month in, month out. And that's what you've seen here as of recent.

Understood. And on the midstream side, with what seems to be an increasingly visible near to medium-term slowdown in associated gas growth from liquids plays? And relatively unchanged long-term natural gas demand outlook. What is your view on pursuing infrastructure growth opportunities in dry gas production areas, and further diversify the growth opportunity set within your footprint?

Yes, Theresa, it's Maryann. I appreciate the question. If you go back and you look at the things that we have been focused on last year, we did the Utica transaction Summit, we think that made sense for a lot of reasons and continues to - one of the opportunities that we were looking for, was increasing utilization, frankly. We put a lot of capital to work in the Utica a few years ago. And as we watch that dry to liquids move change. So we'll continue to evaluate that. But as you've seen from the things that we are looking at right now, you see where the majority of our priorities are focused. But again, we'll look for those through our lens, of how do we deliver mid-single-digit growth consistently, ensure that we got mid-teens returns through that, that support the 12.5% distribution. So we'll continue to evaluate.

Thank you.

You are welcome.

Thank you. Our next question comes from John Royall with JPMorgan. Your line is open.

Hi, good morning. Thanks for taking my question. So my first question is a follow-up on the L.A. refinery project. I know you had it as a year-end start-up, and it sounded like from Maryann's comments in the opener that that project is getting, maybe close to completion. So any more granular target on the start-up timing would be helpful. And then it seems like the project is more geared towards reliability, and costs as well as compliance. So should we think of the 20% IRR target, is not being highly exposed to the commodity and margin environment, therefore, maybe somewhat lower risk than your other two big projects?

Yes. Thanks for the question, John. Yes, we're looking at - you're right. We remain committed to that project, and expect it to be complete, I'd say closer to the end of the third, early fourth quarter. The 20% return is not subject to commodity price. One of the things that we tried to do with this project, you may remember a while ago, there was a NOx reduction emission requirement. I think it's Rule 1109 to be specific, which did - which no longer allowed paper credits, it had to be absolute. So given what we believe to be one of the most competitive assets in the region, we said we would work to ensure that we had compliance. Then once we made that decision, we looked at how else we could optimize. So there were other changes that add efficiency and reduce overall cost. That's what's driving the 20%, certainly not commodity price driven.

Great. Thank you. And then we're at the end of the call, so maybe I can sneak in a little bit more of a housekeeping question, and happy to take it off-line if it's too detailed. But we noticed a big step-up in interest expense in 1Q and obviously, there was some net issuance of debt at both the parent and the MPLX level. Is there anything one-time in that line this quarter? Or should we think about that as kind of a similar level going forward?

Yes, probably similar. Hi, morning, John, it's John Quaid. Sorry, I jumped right in. Probably the biggest thing, if you're looking at that over time would be, whereas our cash balance has moved lower, you're seeing a little bit less of an offset from an interest income standpoint. You can see those details when we file our 10-Q later today. But outside of that, no one-time items here in the quarter.

Thank you.

You're welcome, John. Thank you.

Thank you. Our next question comes from Matthew Blair with TPH. Your line is open.

Thank you and good morning. I have two questions on the R&D side. One, are you still finding an economic to run vegetable oil-based feeds? Or have you shifted entirely to low CI feeds? And then two, do you think that your R&D segment is on track for an EBITDA positive quarter in Q2, as you were of some of the challenges from Q1. It sounded like the feedstocks weren't quite optimized, and you didn't capture all the 45Z. So putting that behind you is already on track to be EBITDA positive in Q2?

Matt, it's John. Let me try and take that maybe at a higher level. As I said, we're focused on the things we can control. What gets interesting with the feedstocks. Again, a lot of effects from 45Z kind of saying that [imported code] doesn't qualify. So that's affected some of the domestic feedstocks, and we've got teams that, as you would expect, are every day optimizing the best feedstocks we can push through that facility in Martinez and leverage its pretreatment unit. Look, it's a regulatory supported business. So I'm not going to go out on a limb, and talk about profitability for Q2. We're going to focus on the things we can control. And that's going to be driving the operational performance of the unit, getting the right slate through the pretreat, and through the facility and meeting the demands of our customers. Maryann, I don't know if you want to….

Yes, Matt, thanks. And I think John has done a nice job of giving you some color there. A few things that I would also comment on, remember that our decision to have a JV with Neste gives us the level of competitiveness, we think now that the PTU unit is up and running, as of the end of 2024. Remember, the requirements with Neste was their ability to bring advantaged feedstock. We certainly have that advantage as well. So different sources, optimizing now around the PT unit. And as you've heard us say, we continue to believe we are the most competitive relative, right, notwithstanding what the regulatory environment is going to do and will ensure that we have cost efficiency in that asset, as we do in all of our assets. It is certainly one of our core principles when we think about operational performance and commercial excellence there will continue to optimize, as John said. But it is something that we think is an opportunity for us now that the PTU is operating.

Sounds good. Thanks for your comments. And I guess speaking of the regulatory picture, do you have any views on the upcoming RVO? It sounds like there might be a good chance that the category gets moved up quite a bit. Would you expect the sixes to decouple from DFS? And then finally, regarding the new California LCFS target, do you think they'll be implemented in 2025? Or are we looking more like a 2026 start-up date for that? Thank you.

Hi Matt, thank you. Thanks for your question. I'm going to ask Jim to provide as much color as we possibly can to many of your questions. As you know, the regulatory environment, ebbing and flowing there. And some of those things, we just don't have control over. We can certainly give you our views. But let me pass it to Jim, and he'll provide some of the color that he can on where the specifics are.

Hi Matt, still a lot of uncertainties on the LCFS time line, but we anticipate CARB will issue that revised package to the Office of Administrative law by the end of May. That will allow the office administrator law to make their final decision, by the end of June. So there will be a lot more clarity by the end of June. CARB has been pretty quiet in the public regarding the effective date if the administrative law approves the package. It could be anywhere from the beginning of the second quarter, or push all the way into 2026, as you suggest, they just have not been open about that.

Hope that's somewhat helpful and responsive there, Matt.

Great. Thank you.

You're welcome.

Thank you. Our last question will come from Jason Gabelman with TD Cowen. Your line is open.

Yes. Hi, morning. Thanks for squeezing me into the call. I wanted to go back to the $7 billion debt target that you mentioned. And I guess it's kind of two parts. Given decline in prices, I think you could see another working capital having in the quarter. I know you suggested some of the 1Q working capital will unwind. But given that and potential for some volatility in the stock, given the macro environment, how willing are you, if at all, to go above the $7 billion debt target either to absorb working capital volatility and/or support buybacks if the stock gets further dislocated?

Hi Jason, it's John. Thanks for the question. I'll start and see if there's some other comments as well. Let me take the tail end of that. And I think I'll circle back to some of Maryann's comments. We we're focused on driving our performance and driving our cash flow, and having that then drive our capital return, right? So we're in a nice position with midstream business, MPLX, growing that business. That cash flow covering our capital, covering our dividend up at the MPC side. So if we're performing, we're running our assets safely and reliably. We're getting all the value and then some that the market is providing. That's the cash we're going to look to use, to return capital and do purchase not really looking to increase debt to do repurchases. That's not on my radar right now. Again, we'll manage the business with our revolvers, et cetera, as working capital moves. That's what those are for, but really, really comfortable with that $7 billion of debt long-term.

Great. My follow-up is just on midstream growth again. I know we've touched it quite a bit on the call. But I'm wondering if you could characterize the appetite to do larger deals as the market weakens here, you seem pretty bullish on the midstream growth outlook you've done small deals that are enhancing the earnings growth of that business. So do you feel like it's more favorable to continue to do those smaller deals? Or would you be open to a larger deal if the right one came across? Thanks.

Yes. Thanks, Jason. And I appreciate your comments on midstream growth. I would say, as we continue to look at those opportunities, we're going to do it through the lens of strict capital discipline. We want to ensure that they have the ability to deliver mid-teens returns that they are supportive of our mid-single-digit growth objective, and we certainly have the ability to execute. We hopefully have demonstrated to you over the last several quarters, our ability to lean in both organically and inorganically. To drive the wellhead-to-water strategy. I mentioned earlier the strength in the Utica, and what we tried to do there. We just announced a smaller one gathering crude oil, water and net gas. So hopefully, we've demonstrated to you the opportunities that we see and the ability to support it. But they will be through that strict capital discipline lens regardless of their size, Jason.

Okay. Great. Thanks for the answers.

You're welcome. Thank you

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