Marathon Petroleum (MPC) Q2 2024 Earnings Name Transcript

Marathon Petroleum (MPC 6.11%)
Q2 2024 Earnings Name
Aug 06, 2024, 11:00 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Welcome to the MPC second-quarter 2024 earnings name. My identify is Sheila, and I can be your operator for at present’s name. [Operator instructions] Please be aware that this convention is being recorded. I’ll now flip the decision over to Kristina Kazarian.

Kristina, you might start.

Kristina A. Kazarian — Vice President, Finance and Investor Relations

Welcome to Marathon Petroleum Company’s second-quarter 2024 earnings convention name. The slides that accompany this name will be discovered on our web site at marathonpetroleum.com underneath the Investor tab. Becoming a member of me on the decision at present are Maryann Mannen, CEO; John Quaid, CFO; and different members of the chief staff. We invite you to learn the protected harbor statements on Slide 2.

We can be making forward-looking statements at present. Precise outcomes could differ. Elements that might trigger precise outcomes to vary are included there in addition to in our filings with the SEC. With that, I will flip the decision over to Maryann.

Maryann T. Mannen — President

Thanks, Kristina, and good morning, everybody. I wish to take a second to acknowledge Mike Hennigan’s management as CEO of MPC over the past 4 years. Mike’s document of accomplishment has been tremendously invaluable. Throughout his tenure, Mike delivered its transformative strategic priorities and returned a peer-leading $40 billion to shareholders.

We’re lucky to have Mike as govt chairman of MPC’s board going ahead. Shifting to the worldwide macro atmosphere. Within the second quarter, provide of refined merchandise reached all-time seasonal highs. The margin atmosphere supported property working at excessive utilization and new capability additions proceed to ramp.

On the similar time, demand for refined merchandise set new data globally. We anticipate 2024 can be one other 12 months of document refined product consumption. Inside MPC’s home and export companies, we’re seeing regular demand year-over-year for gasoline and diesel and rising demand for jet gas. As we glance ahead, demand development is anticipated to outpace near-term capability additions over time with restricted international refining capability additions anticipated by means of the tip of the last decade.

These fundamentals nonetheless assist an enhanced mid-cycle atmosphere for refining. The U.S. refining business is anticipated to stay structurally advantaged over the remainder of the world. We imagine our property will stay essentially the most aggressive in every area during which we function.

Our absolutely built-in refining system and geographic diversification throughout the Gulf Coast, Mid-Con and West Coast areas present us with a aggressive benefit. We’re steadfast in our dedication to soundly function our property and defend the well being and security of our workers. Operational excellence and industrial execution have pushed sustainable structural advantages, uniquely positioning us to seize market alternatives. Our execution stays core to our price supply.

Our disciplined capital investments are centered on high-return initiatives. In refining, we’re making investments predominantly in our massive competitively advantaged services to optimize our property and place MPC properly into the longer term. In midstream, MPLX continues to execute engaging development alternatives centered on bringing in incremental third-party money flows. We proceed to develop our pure gasoline and NGL worth chains.

Within the second quarter, MPLX closed the Whistler transaction. Final week, MPLX and its companions reached FID on the Blackcomb pure gasoline pipeline. It will likely be a 2.5 Bcf pipeline connecting provide within the Permian to home and export markets alongside the Gulf Coast. This venture affords a compelling worth proposition whereas offering shippers with versatile market entry.

Blackcomb is anticipated to be in service within the second half of 2026. Moreover, MPLX not too long ago elevated its possession in BANGL. This pipeline transports NGLs from the Permian to Sweeny, Texas, and it’s at present increasing its capability to 250,000 barrels a day. This transaction is instantly accretive and enhances MPLX’s Permian NGL worth chain as a part of its growing wellhead-to-water technique.

MPLX is strategic to MPC’s portfolio, offering a $2.2 billion annualized money distribution to MPC. This absolutely covers MPC’s dividend and almost all of our 2024 capital program. And our Midstream section, which is primarily comprised of MPLX, has grown its adjusted EBITDA at almost 7% compound annual development price over the past three years. Robust protection, low leverage, and rising money flows present MPLX monetary flexibility, inserting it in a superb place to proceed to considerably develop its distributions, additional enhancing the worth of this strategic relationship.

MPLX — sorry, MPC’s complete capital return since Could 2021 has decreased MPC share rely by almost 50%. Money era will proceed to affect buyback capability as we return to a normalized stability sheet. Given our extremely advantaged refining enterprise and the $2.2 billion annualized distribution from MPLX, we imagine we are able to lead friends in capital returns by means of all elements of the cycle. MPC generated second-quarter adjusted earnings per share of $4.12.

Our operational excellence and industrial efficiency assist our quarterly outcomes. This quarter, we delivered refining utilization at 97%, seize of 94%, up 2%, whereas different refining friends reported sequential declines. Adjusted R&M EBITDA per barrel of $7.07 and money from operations, excluding the impacts of working capital of $2.7 billion, each of which led refining friends, and we returned $3.2 billion to our shareholders. The capabilities we’ve got constructed present a sustainable benefit, and we anticipate to proceed to see the influence on our quarterly outcomes.

Let me flip the decision over to John.

John J. Quaid — Government Vice President, Chief Monetary Officer

Thanks, Maryann. Slide 5 reveals the sequential change in adjusted EBITDA from first-quarter 2024 to second-quarter 2024 in addition to the reconciliation between internet earnings and adjusted EBITDA for the quarter. Adjusted EBITDA was increased sequentially by $133 million, pushed by elevated leads to each our Refining and Advertising and marketing and Midstream segments. The tax price for the quarter was 16%, leading to a tax provision of $373 million.

The second-quarter tax price largely displays the earnings combine between our R&M and midstream companies. Shifting to our section outcomes. Slide 6 offers an outline of our Refining and Advertising and marketing section for the second quarter. Following vital turnaround exercise within the first quarter, our refineries ran at 97% utilization, processing almost 2.9 million barrels of crude per day.

Refining working prices have been $4.97 per barrel within the second quarter, decrease, sequentially, primarily as a consequence of increased throughputs, decrease project-related bills related to decreased turnaround exercise, and decrease power prices. In our largest area, the U.S. Gulf Coast, our working prices have been $3.73 per barrel, demonstrating our price competitiveness. Sequentially, per barrel margins have been down primarily as a consequence of decrease crack spreads.

Slide 7 offers an outline of our Refining and Advertising and marketing margin seize of 94% for the quarter. Seize within the quarter mirrored tailwinds from gasoline margins, offset by elevated headwinds from secondary product pricing, which was pushed by excessive refining business utilization. Gasoline margins have been supported by a falling worth atmosphere through the quarter and, as well as, our built-in system and realized demand throughout our a number of gross sales channels was a aggressive differentiator to our seize efficiency. Slide 8 reveals the modifications in our Midstream section adjusted EBITDA versus the primary quarter of 2024.

Our Midstream section is producing sturdy money flows. This quarter, MPLX distributions contributed $550 million in money stream to MPC. The 2 midstream transactions Maryann mentioned earlier additional improve our Permian worth chains for each pure gasoline and NGLs. By means of natural development and disciplined investments, MPLX continues to supply rising money flows to MPC.

MPLX is a differentiator within the MPC portfolio and stays a supply of sturdy earnings development. Slide 9 presents the weather of change in our consolidated money place for the second quarter. Working money stream, excluding modifications in working capital, was $2.7 billion within the quarter, pushed by each our refining and midstream companies. Working capital was a $541 million supply of money for the quarter, primarily pushed by the lower in refined product costs.

This quarter, capital expenditures and investments have been $541 million. And through the second quarter, MPLX issued $1.65 billion in tenured senior notes, the proceeds of which MPLX expects to make use of to retire senior notes maturing in December of this 12 months and February of subsequent 12 months. MPC returned $2.9 billion by means of share repurchases and $290 million in dividends through the quarter. And in July, we repurchased simply over $900 million of MPC shares, leaving $5.8 billion remaining underneath our present share repurchase authorizations and highlighting our dedication to superior shareholder returns.

On the finish of the second quarter, MPC had roughly $6 billion in consolidated money and short-term investments, excluding money at MPLX. Turning to steerage. On Slide 10, we offer our third-quarter outlook. We’re projecting crude throughput volumes of simply over 2.6 million barrels per day, representing a utilization of 90%.

Deliberate turnaround expense is projected to be roughly $330 million within the third quarter, with exercise centered within the Mid-Con and Gulf Coast areas. Turnaround expense for the total 12 months is anticipated to be roughly $1.4 billion. Working prices are projected to be $5.35 per barrel within the third quarter. Distribution prices are anticipated to be roughly $1.55 billion and company prices are anticipated to be $200 million.

In abstract, our second-quarter outcomes replicate sturdy money era and disciplined capital allocation. The R&M section generated $2 billion of adjusted EBITDA and MPLX distributed $550 million to MPC. This supported investments of over $500 million and capital return of roughly $3.2 billion. With that, let me cross it again to Maryann.

Maryann T. Mannen — President

Thanks, John. My priorities are in line with people who made MPC a peer-leading power funding. We’re unwavering in our dedication to protected and dependable operations. Operational excellence, industrial execution and our price competitiveness yield sustainable structural advantages and place us to ship peer-leading monetary efficiency regardless of the market atmosphere.

To do that, we’ll optimize our portfolio to ship outperformance now and sooner or later. We’ll leverage our price chain benefits, make sure the competitiveness of our property, and proceed to spend money on our folks. Our execution of those commitments place us to ship the strongest through-cycle money era. Sturdy midstream development ought to ship money stream uplift.

We are going to make investments capital however be disciplined the place we imagine there are engaging returns, which is able to improve our competitiveness. We’re dedicated to main in capital allocation. We are going to return extra capital by means of share repurchases. MPC is positioned to create distinctive worth by means of peer-leading efficiency, execution of our strategic commitments, and a compelling worth proposition.

Let me flip the decision again over to Kristina.

Kristina A. Kazarian — Vice President, Finance and Investor Relations

Thanks, Maryann. [Operator instructions] We are going to now open the decision. Sheila?

Questions & Solutions:

Operator

Thanks. [Operator instructions] Our first query will come from Manav Gupta with UBS. Your line is open.

Manav Gupta — UBS — Analyst

Good morning and congratulations on a really sturdy begin. And taking a look at all these very engaging initiatives that you just’re doing in midstream, Maryann, like BANGL and Whistler and now Blackcomb. And looking out on the approach the distribution is rising at MPLX, like is the thought course of someplace right here to attempt to develop the distribution at MPLX for 10%. And even when you are able to do it for 2 extra years, that distribution to MPC jumps to love 2.7-plus, at that time, is overlaying your full capex and full dividend.

So technically, you’re a recession-proof refiner.

Maryann T. Mannen — President

Thanks, Manav. I feel you stated it properly. The technique that we try to execute in MPLX, we have talked about concentrating on mid-single-digit development. As you’ve got seen over the past three years, we have achieved that just about 8% in distributable money flows as properly.

And to your level, we’ve got elevated the dividend over the past three years and extra so within the final two years, 10% per 12 months. We imagine that our methods, wellhead-to-water, as we defined, and the important thing initiatives that you just simply articulated for me, our funding in BANGL, our JV within the Utica, Whistler. After which additionally only in the near past, the FID of Blackcomb, we expect, proceed to assist our capacity to ship in rising mid-single-digit development. Due to this fact, our purpose of accelerating that distribution and bringing it again to MPC creates, we imagine, incremental strategic worth between MPC and MPLX.

And as you said properly, that can absolutely cowl the MPC dividend and largely the capital that heretofore MPC has been placing to work. So once more, we expect that strategic relationship turns into extremely extra necessary as we’re capable of improve MPLX’s distribution going ahead.

Manav Gupta — UBS — Analyst

Excellent. And a really fast follow-up is, trying on the Gulf Coast opex, I feel, $3.72 is the bottom within the enterprise. It is like in all probability the bottom. Assist us perceive what’s been the drivers of this as a result of in all probability three or 4 years in the past, you weren’t the lowest-cost Gulf Coast operator.

Seems such as you’ve now gotten there. So assist us perceive a few of the initiatives? And may this be sustained right here?

Maryann T. Mannen — President

Manav, thanks. In order you recognize, one in all our key initiatives, one in all our priorities with respect to our peer-leading initiatives has been profitability per barrel. And we see that as a value aggressive dedication, if you’ll, in every of the areas the place we function. As we have been speaking about for the previous few years, the work that we’ve got been doing, we imagine, is sustainable.

In the end, once more, what we’re making an attempt to do is to ship the most effective EBITDA per barrel in every of these areas. We recognize your recognition of the Gulf Coast. I will cross it to Rick to see if he desires so as to add any feedback on the Gulf Coast.

Rick D. Hessling — Chief Industrial Officer

Sure. So on the Gulf Coast, I’ll share that with utilization the place it is at. We imagine it to be a extremely constructive market going ahead and proceed to rebound, Manav.

Manav Gupta — UBS — Analyst

Thanks, guys.

Rick D. Hessling — Chief Industrial Officer

Thanks.

Operator

Subsequent, we’ll hear from Neil Mehta with Goldman Sachs. You could proceed.

Neil Mehta — Analyst

Good morning, Maryann and staff. Maryann, I wished to kick off with you. As you tackle the reins of the enterprise within the CEO position. Are you able to speak concerning the first 6 months on the job.

What are your key targets? And what are you centered on right here?

Maryann T. Mannen — President

Neil, thanks. I will say, before everything, persevering with to create distinctive worth. As we have shared right here and tried to articulate right here this morning, we imagine we are able to ship the strongest EBITDA per barrel and money stream per share. And we will proceed to deal with however our protected and dependable operations daily, all day, delivering excellent operational excellence, industrial efficiency.

We talked a bit bit about that right here that can be a spotlight as we go ahead to make sure that our profitability per barrel is the strongest. In the end, on the finish of the day, we wish to have our peer-leading capital allocation, and we’ll proceed to drive all that we do to make sure that these allocation ideas return on and return of are peer-leading. I shared a bit bit. We’ll proceed to try this, leveraging our price chain.

We additionally wish to guarantee as we all the time have the aggressive nature of these property, it is one thing that we are going to regularly consider. After which final, as we discuss one of many issues that I simply shared right here is the sturdy midstream development in our — with the money flows, we expect that’s one other compelling worth proposition for MPC. And with all that, we must always have the ability to ship the strongest through-cycle money stream. I feel these are the issues that you will note me proceed to deal with not solely within the subsequent six months, however constantly as we drive worth for our shareholders.

Neil Mehta — Analyst

Thanks, Maryann. And if I can drill down on one particular merchandise. Over the past couple of years, the enterprise and the worth has actually been created largely organically. There are some questions on whether or not you pursue M&A within the renewable diesel area.

There was some commerce articles round Neste particularly. So simply love your feedback on how do you create worth in that enterprise and any ideas round that particularly?

Maryann T. Mannen — President

Sure. Positive, Neil. Let me tackle the Neste one, first. I heard you point out that.

That rumor isn’t factual, and we’re not having any conversations a couple of buyout with Neste. So simply wish to make sure that I tackle that. As we proceed to have a look at the alternatives, we do see worth inside our portfolio. I discussed the aggressive nature of every of our areas.

We proceed to see alternatives there to drive efficiency. We’re centered on our industrial efficiency and persevering with to ship the strongest EBIT per barrel, as I discussed. So proper now we see the alternatives inside our personal portfolio, and we’ll proceed to guage as we go ahead over the long run easy methods to ship that worth proposition. However we see our capacity to develop organically.

Neil Mehta — Analyst

Tremendous clear, Maryann. Thanks.

Operator

Our subsequent query will come from Paul Cheng with Scotiabank. Your line is open.

Paul Cheng — Analyst

Hello. Thanks. Good morning, Maryann and John, and the staff. Two questions, please.

I feel the primary one might be for Rick. Rick for TMX, it has been — I have been questioning for quite a lot of months. Do you suppose that each one the influence has already been felt within the market? Otherwise you imagine there’s extra to come back. We’re stunned that 2/3 of the incremental barrel looks as if being exported to Asia.

And the way that extra barrel within the West Coast could or could not have modified your operation within the West Coast, when it comes to your crude slate and product yield? That is the primary query. And second query, perhaps for John. In your Web page 18, there’s an Different margin, say, $108 million. Are you able to perhaps share a bit bit extra element? What’s inside there?

Maryann T. Mannen — President

Paul, thanks. So on TMX, before everything, I feel we have been speaking about this for the final a number of quarters. And what I’d share with you is the start-up of TMX has largely occurred as we anticipated and the outcomes of that similar to the way in which that we imagine that will play out within the market. So fairly constant as we have shared.

I’ll cross it to Rick and permit him to provide you some incremental coloration particularly on what’s occurring within the West Coast.

Rick D. Hessling — Chief Industrial Officer

Sure. Paul, it is Rick. Just some feedback right here. Actually, no surprises.

I’d inform you from a yield perspective, the modifications are insignificant from our perspective. What has modified, although, that’s vital and fairly useful to us, really, is as these incremental Canadian barrels have come into the market, it has put stress on the ANS barrel. And as you are properly conscious, we’re a giant purchaser and runner of ANS barrels on the West Coast. So we’re a recipient of that.

In order that’s been very constructive for us. After which clearly, with our dedication on TMX, we’ve got the flexibility to run these advantaged barrels not solely at Anacortes, however at LA. So it has been very constructive for us, see it being that approach going ahead, Paul. After which when it comes to the export remark to Asia, not shocking in any respect.

In actual fact, we anticipate that plus or minus will proceed. And Paul, that can largely be depending on differentials and your high quality differentials and your transportation, transport transportation to the West Coast. So once you think about these two variables, you can again into what is going to occur right here going ahead.

John J. Quaid — Government Vice President, Chief Monetary Officer

Paul, it is John. On the opposite margin change you see for R&M, not all of it, nevertheless it primarily pertains to us finalizing our insurance coverage declare for the Galveston Bay reformer. So we’d have finalized that, acknowledge that earnings within the first quarter after which obtain the money proceeds in Q2. So you’ve got that recognition in Q1, however once more, it is the ultimate one.

So there’s actually nothing to offset it in Q2. That is what’s driving the change you are seeing there.

Paul Cheng — Analyst

All proper. Thanks.

Operator

Our subsequent query comes from Roger Learn with Wells Fargo. Please go forward.

Roger Learn — Analyst

Yeah. Thanks. Good morning and congrats, Maryann on all the pieces. I might similar to to perhaps take a few pictures at a few of the macro stuff right here.

As we take into consideration the let’s — what we name higher than mid-cycle, however no matter new mid-cycle, the way you’re trying on the construction of the market? After which how that matches in with what’s usually been increased utilization all through the business, placing a bit stress on cracks right here not less than for just a few months this summer season. How perhaps you suppose that works out as we glance out over the subsequent, name it, 6 to 12 months?

Maryann T. Mannen — President

Positive, Roger, thanks. A few issues I might say. Initially, over the lengthy haul, we proceed to imagine in an enhanced mid-cycle, it should proceed within the U.S. Clearly, within the brief time period, we talked a bit bit about what we noticed occur in Q1, Q2.

Q2 coming off of fairly excessive turnaround throughout the area on — in Q1. And then you definately see, clearly, continued volatility right here, provide demand. However over the lengthy haul, as I discussed, we don’t see actually any problem there. There could possibly be provide that comes on-line.

However once you take a look at demand that we predict over the long run, we expect that can be absorbed, clearly some brief time period. China, clearly, that in simply latest experiences there when it comes to the place their calls for stream is selections by OPEC, all of which we expect may have some short-term volatility. However over the long run, enhanced mid-cycle, we imagine, relying on how you consider that mid-cycle, one of many ways in which we wish to articulate, we’re working 1 billion barrels. For those who suppose it is a $1, it is an incremental $1 billion to the MPC portfolio, only a approach so that you can perhaps body that.

I will cross it to Rick and let him offer you a bit extra coloration there.

Rick D. Hessling — Chief Industrial Officer

Sure. Roger, only a few extra feedback. So once you look, S&D is actually in keeping with our expectations. It is actually what we — what and the place we thought it will be.

However once you drill down even additional and take a look at utilization nearer to dwelling domestically over the past couple of weeks, even home utilization is off some 4%, mockingly, bringing us to this 90% utilization degree, which is the place our steerage goes ahead. So we see that as persevering with to be very constructive. After which I will simply spend a second speaking about our demand. Our demand inside MPC, each domestically and from an export perspective could be very regular on the gasoline and diesel aspect, and we’re seeing actually sturdy indicators on the jet aspect.

So we imagine these tailwinds, mixed with the availability and demand image, that is really in stability additional backs up our mid-cycle plus ideas going ahead.

Roger Learn — Analyst

I recognize that. You form of clip me on my follow-up on the demand aspect, so I will depart it there and switch it again to you all. Thanks.

Rick D. Hessling — Chief Industrial Officer

Thanks, Roger.

Operator

Our subsequent query will come from John Royall with J.P. Morgan. Your line is open.

John Royall — JPMorgan Chase and Firm — Analyst

Hello. Good morning. Thanks for taking my query. So my first query is simply taking a look at your 90% utilization information for 3Q.

It is fairly low for MPC for 3Q. There’s a honest quantity of turnaround exercise it seems simply from the whole turnaround {dollars}. However my query is, is there any financial downtime or pulling ahead a turnaround exercise or any — in any approach, any form of response to the weaker crack atmosphere buried in that 90%?

John J. Quaid — Government Vice President, Chief Monetary Officer

John, it is John. I will take that to start out. You are spot on with the turnaround remark actually largely what you are seeing, proper, we have got exercise, as I discussed, within the Mid-Con and the Gulf Coast, that is going to have an effect on what we’re going to have the ability to run. After which I will make an preliminary remark, flip it over to Rick if he has any additional.

However actually, we will proceed to run our property optimally to fulfill the demand out there.

Rick D. Hessling — Chief Industrial Officer

Sure, John nailed it. We are going to run economically and 90% is the steerage that we expect is a good quantity going ahead as we’re one-third of the way in which by means of the quarter.

John Royall — JPMorgan Chase and Firm — Analyst

Nice. After which I used to be simply hoping for a bit coloration operationally on how Martinez is working and ramping towards the goal of attending to full by year-end. And relatedly, do you’ve got any issues concerning the worth of feedstocks getting pushed up by a mixture of Martinez ramping again to full and Rodeo approaching and ramping its runs of decrease feedstocks.

Timothy J. Aydt — Government Vice President, Refining

Sure, John, that is Tim. I will take that one. We proceed to imagine Martinez is a extremely aggressive facility. And within the second quarter, we did carry a second unit again on-line, which did present us with the flexibility to run at 75% of the nameplate capability.

And as we’ve got famous previously, we anticipate to carry the final manufacturing unit on-line by the tip of this 12 months, which might enable the plant to run at 100% of its nameplate capability. So we’re on monitor for that.

John Royall — JPMorgan Chase and Firm — Analyst

Thanks.

Operator

Subsequent, you’ll hear from Jason Gabelman with TD Cowen. You could proceed.

Jason Gabelman — Analyst

Good morning. Thanks for taking my questions. I wished to ask, firstly, on shareholder returns and the tempo of buybacks shifting ahead. 2Q was a really sturdy buyback quarter.

If I look adjusting for working capital the previous couple of quarters, internet debt has elevated about $1.5 billion on the dad or mum. I am simply questioning if that is indicative on the way you’re managing the stability sheet, shifting ahead as you proceed to deploy that extra capability towards buybacks? Or conversely, do you develop into a bit extra cautious right here within the close to time period with potential for some dislocations maybe within the inventory worth shifting ahead, ought to issues proceed to weaken, that perhaps presents a extra advantageous worth to purchase at.

Maryann T. Mannen — President

Jason, thanks. With respect to buyback, I recognize the touch upon the second quarter, you can see $2.9 billion within the quarter. We proceed to see share buyback as an applicable return of capital, significantly once you take a look at the present fairness worth of MPC and what we imagine to be over the long run, the expansion and alternative on this fairness. So you will proceed to see us use money to purchase again inventory.

Once more, no change to that view as we take a look at that. A part of the explanation you noticed that change in internet debt, clearly, is quarter-over-quarter. You noticed the drawdown in money. We have talked about what seems like an inexpensive place for us to be when it comes to the money place.

I can have John share a bit bit extra about that with you. However we’re not close to there. So we proceed to imagine in buybacks, and we’ll go ahead with that.

Jason Gabelman — Analyst

Nice. And my follow-up is simply particularly on leads to the Mid-Con. Gross margin got here in very sturdy. I used to be questioning what drove that? If there was any onetime gadgets or gadgets you’d name out for the quarter?

Rick D. Hessling — Chief Industrial Officer

Jason, it is Rick Hessling, so no onetime gadgets. What I’d inform you is we imagine a aggressive benefit of our property within the Mid-Con is our absolutely built-in system. We have been working for a few years to create optionality from what we name cradle to grave once you suppose refining right through our finish client. And we imagine that is and can proceed to tug by means of on our outcomes.

Jason Gabelman — Analyst

Thanks.

Operator

Our subsequent query will come from Carlos for Doug Leggate with Wolfe Analysis. Your line is open.

Unknown speaker — — Analyst

Hey. That is Carlos. Dough sends his apologies. To start with, congrats on the quarter finish.

I suppose we wish to know what the suitable dividend development coverage can be a resumable buyback slowdown, particularly contemplating how sturdy your MPLX distribution is insofar as offering protection for you guys in that finish.

Maryann T. Mannen — President

Thanks for the query, Carlos. With respect to our dividend coverage, no change in how we take into consideration that. Some standards. One, we would like that dividend to have the flexibility to develop.

And over the previous few years, we take a look at that within the third quarter, and we’ll achieve this once more. However over the previous few years, we have grown that dividend over a time period, about 12.5% compound annual development within the change of that dividend. We wish that dividend to be sustainable and we would like that dividend clearly to be aggressive. So we’ll take one other take a look at that and share with you as we head into the third quarter as we’ve got in prior years.

We proceed to imagine that once we discuss return on capital, we’re taking a look at each dividend and share repurchase, however that our share repurchase is the first automobile for us within the return of capital technique.

Unknown speaker — — Analyst

And also you really — that is an excellent segue for my follow-up query, which is, within the software program market, the place would your precedence be on that very same stability of buybacks over stability sheet? And would you think about relevering the stability sheet and to what extent if that is what you select to do?

Maryann T. Mannen — President

No, I do not suppose we’d relever the stability sheet. We have talked about our technique and construction because it pertains to debt to cap. We’ll proceed to have a look at that, however do not see a purpose at this level that we’d relever the MPC stability sheet.

Unknown speaker — — Analyst

Thanks.

Maryann T. Mannen — President

You are welcome, Carlos.

Operator

Subsequent query will come from Matthew Blair with TPH. Your line is open.

Matthew Blair — Analyst

Hello. Thanks and congrats on the outstanding quarter. On the refining aspect, the slides talked about tailwinds on seize in Q2 from an increase in gasoline margins. However we seen that you just’re gasoline yields was really a bit decrease than regular at 49%.

So may you discuss what saved it low? And do you suppose that can rebound as we transfer into the third quarter?

Rick D. Hessling — Chief Industrial Officer

Matt, it is Rick. So the yields have been actually an influence of the feedstock enter. And I’d inform you that the final word seize although was enabled by our capacity to seize increased margin with our particular commodities. So it is once more an a testomony to the staff working from cradle to grave to maximise the margin regardless of the yield proportion.

Matthew Blair — Analyst

Sounds good. After which sticking with refining. After we take a look at octane spreads by area, the Midwest actually stands out. We’re seeing about $40 premiums versus common gasoline in comparison with, say, the Gulf Coast round $9.

Do you’ve got a way of what is driving these huge Midwest octane spreads? And is that one thing that you must have the ability to seize in your system?

Rick D. Hessling — Chief Industrial Officer

Nicely, it is a fantastic name out. That is Rick once more. Sure, so the market is tight proper now. There have been some notable disruptions within the Midwest which are straining provide and demand, Matt.

And that is undoubtedly been a profit to us. Whereas it has widen considerably as you’ve got outlined. I’d say we do anticipate a slight pullback to remain the place it is at, in all probability is overly optimistic. However with that being stated, constructively proper now, the Midwest is tight.

Matthew Blair — Analyst

Nice. Thanks very a lot.

Rick D. Hessling — Chief Industrial Officer

Thanks.

Operator

Our subsequent query will come from Theresa Chen with Barclays. Your line is open.

Theresa Chen — Barclays — Analyst

Hello. Only a fast follow-up in your midstream technique because it enhances R&M. In order you develop that wellhead-to-water footprint in Permian to the Texas Gulf Coast. Is your desire nonetheless to maintain the commodity publicity at MPC such that when you get that closing piece in market LPGs throughout the water, as your Midstream opponents do and R&M retains that piece of the earnings.

Might that structurally increase R&M seize?

Maryann T. Mannen — President

Sure, Theresa, you are appropriate. We might preserve that commodity threat as you properly said, at MPC. No want to maneuver that commodity threat. I will cross it to Dave and permit him to provide you a bit extra coloration there.

David R. Heppner — Chief Technique Officer and Senior Vice President, Enterprise Growth

Sure, Theresa, I feel as we take a look at constructing out our wellhead-to-water methods, one thought by means of it’s from an MPLX lens and constructing that business answer, each for MPC and different shippers on the system. And the second piece of the equation as we take a look at it from an enterprise perspective, the place can we complement the MPC, MPLX relationship to create that incremental worth. But in addition, as Maryann touched on, sustaining the commodity threat of that advertising and buying and selling exercise extra on the MPC books. I hope that helps.

Maryann T. Mannen — President

I feel it is also the advantage of our built-in asset portfolio, I feel you actually see that come by means of.

Theresa Chen — Barclays — Analyst

Acquired it. Thanks.

Maryann T. Mannen — President

You are welcome, Theresa.

Kristina A. Kazarian — Vice President, Finance and Investor Relations

All proper, Sheila, if there aren’t any different questions. Thanks on your curiosity in MPC. For those who guys have extra questions or would really like a clarification on the subjects mentioned this morning, please attain out and the Investor Relations staff can be obtainable to take your calls. Thanks for becoming a member of us at present.

Operator

[Operator signoff]

Period: 0 minutes

Name members:

Kristina A. Kazarian — Vice President, Finance and Investor Relations

Maryann T. Mannen — President

John J. Quaid — Government Vice President, Chief Monetary Officer

Maryann Mannen — President

Kristina Kazarian — Vice President, Finance and Investor Relations

Manav Gupta — UBS — Analyst

Rick D. Hessling — Chief Industrial Officer

Rick Hessling — Chief Industrial Officer

Neil Mehta — Analyst

Paul Cheng — Analyst

John Quaid — Government Vice President, Chief Monetary Officer

Roger Learn — Analyst

John Royall — JPMorgan Chase and Firm — Analyst

Timothy J. Aydt — Government Vice President, Refining

Jason Gabelman — Analyst

Unknown speaker — — Analyst

Matthew Blair — Analyst

Theresa Chen — Barclays — Analyst

David R. Heppner — Chief Technique Officer and Senior Vice President, Enterprise Growth

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