Dear Shareholders,
Throughout a highly volatile year in global energy markets, Marathon Petroleum Corporation (MPC, Financial) demonstrated significant progress on our three strategic pillars, and we delivered on our commitments to performance, optimization and value creation. Executing on our operating, commercial and financial objectives, combined with a strong macro-economic environment, led to superior total shareholder returns in 2022 of 87%. At the same time, we continued to deepen our environmental, social and governance (ESG) efforts to drive long-term benefits for our business and stakeholders.
In 2022, we leveraged structural improvements we made in our commercial and operational execution to meet robust customer demand and capture strong margin opportunities. Our commitment to safe, reliable and environmentally sound operations enabled us to run our refining system at 96% utilization for the year, which included operating at full utilization in the second quarter, when demand for the transportation fuels we manufacture was highest.
MPC generated $16.4 billion of cash from operations in 2022. We returned nearly $12 billion to shareholders through share repurchases during the year, bringing total repurchases between May 2021 and the end of 2022 to almost $17 billion. Demonstrating our commitment to a secure, competitive and growing dividend, in November, we increased MPC’s quarterly dividend by 30%.
Challenging ourselves to lead in sustainable energy, we made significant progress on our Martinez Renewables facility and further optimized our Dickinson Renewables facility; we added two substantial 2030 goals to our emissions reduction targets; and we set a new industry record for the number of refineries certified for superior energy efficiency performance in one year through the U.S. Environmental Protection Agency’s (EPA) ENERGY STAR® program.
DEVELOPING ENDURING CAPABILITIES
In early 2020, we introduced our three strategic pillars: strengthening the competitive position of our assets, fostering a low-cost culture, and improving our commercial performance. Since then, they have become a foundational part of MPC’s DNA, aligning our efforts to increase profitability and drive long-term value creation.
We continue to be committed to these three strategic pillars today, because they address foundational aspects of our business that are within our control. While there is more to do, I am very proud of our progress in these areas, which was reflected in our 2022 performance. We’ve achieved and sustained cost reductions while never compromising the safety of our employees or assets, made purposeful moves to strengthen our portfolio, and implemented commercial and operational improvements that can deliver incremental value into the future.
Importantly, while we’ve positioned ourselves for the future over the last few years, we’ve remained grounded in our Core Values, which guide us to hold steadfast in our commitment to safe and environmentally responsible operations, to find and create shared value, and to set and hold ourselves accountable to high expectations.
STRENGTHENING THE COMPETITIVE POSITION OF OUR ASSETS
In September, we completed the formation of our Martinez Renewables joint venture with Neste, which enhances the value of the project to convert our idled Martinez, California, refinery into a renewable fuels facility. The facility is expected to ramp up to produce 730 million gallons per year of renewable fuels by the end of 2023, with pretreatment capabilities expected to come online midyear 2023. At our Dickinson, North Dakota, renewable diesel facility, we optimized operations to accommodate more advantaged feedstocks, which lower the carbon intensity of the fuels we produce and further improve its economic potential.
In midstream, segment adjusted EBITDA grew 7% year over year, and the strength and stability of our logistics capabilities helped us navigate market fluctuations. MPLX advanced several organic growth projects in the Permian Basin and remained a source of growing distributions for MPC and other unitholders. In November, MPLX raised its quarterly distribution by 10%. At this current level, MPC is expected to receive approximately $2 billion of annual distributions from MPLX.
CONTINUED CAPITAL AND COST DISCIPLINE
Our success embedding a low-cost culture across the company enabled us to sustain our previously achieved $1.5 billion of structural cost reduction. We remain focused on achieving operational excellence by reducing costs within our control, improving efficiency, driving operational improvements and being disciplined in capital allocation. We also worked hard to mitigate higher energy input costs throughout the year, and we believe our sustained, structural cost reductions help us to more readily adapt to market fluctuations.
We continue to build upon our Focus on Energy (FOE) program, which uses key performance indicators to guide energy management and promote energy efficiency across our refineries. In 2022, FOE-related initiatives led to more than $50 million in energy cost savings for the year, while avoiding 31,700 metric tons of carbon dioxide-equivalent emissions per month.
IMPROVING COMMERCIAL PERFORMANCE
Over the past 18 months, we have meaningfully changed our commercial approach across the company and strengthened our teams. To unlock value, we have empowered our people to optimize across our integrated system, more effectively leverage our scale and proximity to key supply sources and demand hubs, and improve product placement.
A near-term focus has been securing advantaged renewable feedstocks as we continue to advance our renewable fuels production capabilities. This includes exploring joint venture opportunities and strategic alliances within the renewable fuels value chain, as well as looking to expand upon the partnerships we’ve built with Neste and ADM.
In June, our Green Bison Soy Processing joint venture with ADM began construction of North Dakota’s first dedicated soybean processing plant. By the seasonal harvest of 2023, it is expected to begin supplying approximately 600 million pounds a year of locally advantaged, refined soybean oil exclusively to MPC, helping us further optimize feedstock sourcing for renewable diesel production at our Dickinson facility.
We continued to progress our Galveston Bay STAR project, which we expect to complete in the first quarter of 2023. The remaining scope of this strategic project is targeted to increase crude oil processing capacity by 40,000 barrels per calendar day, improve residual upgrading capacity by 17,000 barrels per calendar day, enhance diesel recovery, and enable the facility to process more advantaged crude oil.
OUR PATH TO LEADING IN SUSTAINABLE ENERGY
Across our integrated system, we are meeting the energy needs of today while investing in an energy-diverse future. Our approach to sustainability, which we apply across the components of ESG, is key to our success in this effort. We continue to focus on positioning MPC to lead in an energy-diverse world by strengthening the resiliency of our business through reducing our carbon footprint and conserving natural resources; innovating for the future by investing in renewables and emerging technologies; and embedding sustainability in decision-making and in how we engage our stakeholders.
To help drive advancement, we have set meaningful targets to reduce greenhouse gas (GHG) emissions, methane emissions and freshwater intensity. We believe our continued progress demonstrates a tangible path to achieving these milestones. In 2022, we established a goal to reduce our absolute Scope 3, category 11 GHG emissions to 15% below 2019 levels by 2030, becoming the first large downstream company to set an absolute Scope 3 target. We also expanded our existing goal for reducing methane emissions intensity across our natural gas gathering and processing business, creating a new long-range target of lowering intensity 75% from 2016 levels by 2030.
Similarly, to ensure we have the diversity of thought necessary to shape our future, we continue to include a diversity, equity and inclusion (DE&I) component in the metrics that determine our annual bonus compensation. Established in 2021, we were the first U.S. independent refiner to link a DE&I metric to executive and employee compensation.
We also remain focused on being a good neighbor in our communities through meaningful relationships with key stakeholders to understand needs and concerns, define priorities and pursue shared goals. In 2022, the company invested more than $20 million in the communities where we live and work as well as in the broader causes that united many of us, and our employees contributed more than $4 million in additional support.
We continue to allocate significant growth capital to low carbon projects, particularly around increasing our production of renewable fuels and natural gas. In fact, MPC is projected to become one of the largest global producers of renewable diesel in early 2024, and MPLX assets currently process about 10% of the natural gas in the United States. MPC and MPLX are also actively involved in public-private alliances to explore and develop pathways for emerging opportunities around carbon capture, utilization and sequestration (CCUS), as well as hydrogen energy production and utilization.
LOOKING FORWARD
In 2023, I’m more optimistic than ever about MPC’s evolving role in meeting the world’s need for reliable, affordable and responsibly produced energy. We anticipate that demand recovery for our products will continue and global supply constraints will persist in 2023. Our strategic pillars and financial priorities remain foundational, supporting our resiliency through near-term economic and geopolitical uncertainties. We will continue to focus our attention on how we run the business, always striving to be well-positioned to create value for our stakeholders regardless of the market’s tailwinds or turbulence.
Our goal is to position MPC as the refiner of choice, generating the most cash through cycle, and delivering superior returns to our shareholders, with our steadfast commitment to returning capital.
Our achievements are a testament to the skills, dedication and adaptability of our people, who are enthusiastic about the opportunities ahead for our company. Our workforce demonstrated tremendous effort in 2022 – to meet demand for our products, to safely maintain and operate our assets and to support many value-creating programs and strategies that are critical for our long-term success.
I am proud to lead MPC, and I am thankful and grateful for the work our people do each day to deliver value for our business and our shareholders. Thank you for supporting our company.
Sincerely,
Michael J. Hennigan
President and Chief Executive Officer
Read the original letter here.
